Most people have heard of or shopped in a grocery coop at some point in their lives. But few realize how many positive contributions collectively owned businesses make to their communities, when they’re run correctly and supported by local consumers. When they’re fully owned and operated by the people who work there, the benefits are magnified even further.
As an alternative to traditional business structures, employee ownership is a compelling model. Expanded employee ownership could help preserve America’s small business economy, which is even more beleaguered than usual in the COVID-19 age. At a time of great trepidation and uncertainty, the spread of worker-owned coops could spur new economic growth in communities or neighborhoods that truly need it.
The Black community has a long history of involvement in cooperative business ventures. That history is chronicled in detail by Dr. Jessica Gordon Nembhard in her seminal 2014 book, Collective Courage: A History of African-American Cooperative Thought and Practice.
Dr. Nembhard, a professor of Community Justice and Social Economic Development at John Jay College in New York City, reports that Black Americans in the 19th and 20th centuries embraced the cooperative approach out of necessity.
“At the beginning, the coops were a response to marginality and crisis,” she explained in a July 2020 interview with the publication Coop News. “They couldn’t get access to quality food, healthcare, or banking. So they created their own businesses.”
Even in these early stages, however, supporters of the Black cooperative movement saw greater potential. Civil rights legend W.E.B. DuBois was a particularly enthusiastic advocate for cooperative ventures, which he saw as essential to Black empowerment. His 1907 study called “Economic Cooperation among Negro Americans” was the first-ever survey of Black collectivism in the economic sphere. As editor of the NAACP’s official magazine, Crisis, DuBois published a dozen articles on the topic between 1914 and 1944.
“Even though the survival strategy is the one that most coops followed,” Nembhard said, “you can also find a vibrant strain of African-American economic thought about using cooperatives to develop a group solidarity economy.”
For Black Americans, the twin goals of survival and group solidarity are still relevant today. Beyond the impact of structural racism, deindustrialization, food deserts and other sources of impoverishment, the staggering economic costs of the COVID-19 outbreak and associated quarantines are undeniable. Small businesses everywhere are struggling to survive, and the tepid response of the U.S. federal government in the face of the crisis is inviting comparisons to the Hoover Administration’s stupefying inaction during the initial stages of the Great Depression.
Small business owners and their employees are all at risk and could be for quite some time, which may leave them no choice but to seek innovative and effective solutions on their own. Which is exactly what happened in the Black business community in the 1930s, according to Dr. Nembhard.
“Through history, recessions and depressions have actually been the time when more people have created coops,” she said. “My research confirmed that to be the case with African-American coops. The 1930s is one of the periods where I was able to find the most number of Black coops … probably because of the ability of coops to address market failure and take very meager resources and use pooled resources to leverage more. ”
Less than 10 percent of the money spent by Black consumers in the United States each year passes through Black-owned businesses. But expanded employee ownership could change the equation dramatically. An influx of worker-owned enterprises might motivate Black consumers to do more of their shopping locally, since these businesses would be owned by family members, friends and neighbors. Working together, socially conscious consumers and empowered employee owners could build wealth and reduce income inequality in their communities.
How Employee Ownership Works
Under employee ownership structures, profits and voting shares are equally divided among employee entrepreneurs, who can serve in management or director’s positions themselves or hire experts to handle management and/or supervisory duties. While employee-owned businesses may take on traditional salaried employees, those who join worker-cooperatives in that manner will often be given the opportunity to buy equal shares of the business later on.
True worker-owned coops are distinct from employee stock ownership plan (ESOPs), which grant employees stock ownership in a company along with guaranteed retirement benefits. ESOPs offer only partial ownership and limited democratic input into how a business is run, in contrast to pure employee-owned enterprises that offer full control to laborers who double as investors.
As of 2017, there were fewer than 400 worker-owned coops doing in business in the United States. This includes worker-owned enterprises that were launched as startups, and businesses that were sold to employees by previous owners.
The low number is not related to poor performance. In fact, employee-owned businesses generally outperform enterprises that feature the typical owner–management–worker arrangement.
More than 100 controlled and/or peer reviewed studies have confirmed the efficiency of employee ownership models. Worker-owned firms increase democratic control in the workplace, which results in higher wages, better benefit packages, fewer layoffs in troubled times and fewer closures. Employee ownership is locally based, which means profits from the business stay in the community and circulate more freely to increase prosperity for all.
And employee-owned enterprises are profitable. Separate studies by the Democracy at Work Institute and the CASS Business School in London found that businesses with cooperative ownership structures are more productive than their counterparts with traditional ownership structures, by a range of between four and 19 percent depending on the industry. Needless to say, this increased productivity translates directly into increased profits, none of which are skimmed off by absentee bosses or faraway investors.
Case Study: The Mandela Grocery Cooperative
One of the more well-known and successful Black-owned worker coops is the Mandela Grocery Cooperative in West Oakland, California. Mandela opened in 2009, in an area where access to fresh produce and other healthy foods was seriously lacking.
Currently run by eight worker-owners, who all hail from the local area, the store sells organic fruits and vegetables, hormone-free eggs, meats and dairy products, fresh baked goods, and beauty and wellness products. The majority of their stock is purchased from Black and Latin organic farmers, urban gardeners and entrepreneurs operating in the Bay Area.
As they explain on their website, Mandela prioritizes local vendors and farmers because “it keeps money circulating in our local economy longer, providing more jobs to people who live in our area … We intentionally support businesses run by people of color because we are deeply committed to creating opportunity for interdependence in the food space, where POC entrepreneurs generate livable incomes that support their families.”
Mandela customers appreciate having access to quality food. But this only partially explains the coop’s success. According to worker-owner Adrionna Fike, people in the neighborhood frequently express their support for the store’s egalitarian and community-minded business model.
“I believe we’re succeeding because we are committed and sticking to the cooperative ethic,” she told the San Francisco Chronicle in 2019. “We’re also running our business in a way that people respect.”
Mandela has always been a thriving enterprise. But business is currently booming, as a consequence of the extraordinary circumstances transforming American life. The store’s business has increased by 35 percent over the past few months, originally in response to the Covid-19 outbreak and later as a consequence of the nationwide protests inspired by the police murder of George Floyd.
“When the protest against police violence in the Black community began, demand on the store increased again due to smart consumers wanting to support Black-owned businesses,” said Mandela General Manager Andrea Talley in the San Francisco Chronicle profile. She explains that everyone associated with Mandela is motivated by a sense of duty to serve the needs of their customers and their neighborhood.
“We each are taking good care of ourselves because we know the store and our community needs us to be fully present at work, “ Talley explains. “But ultimately we’re thankful to be of service to our community during these challenging times.”
Mandela is currently Oakland’s only worker-owned, democratically controlled grocery store. However, a community organization called Acta Non Verba is planning to open an employee-owned grocery cooperative on Oakland’s East Side, where food desert conditions also limit people’s access to high-quality food. Mandela is offering support and training to the organizers of this new project, which will serve members of (and recruit worker-owners from) the African-American, Latin and Middle Eastern communities.
“Mandela is the model,” says Acta Non Verba representative Ayano Jeffers-Fabro. “They’re the bright star in the sky that we hope to be one day.”
What Mandela has proved is that a progressive social vision is not only compatible with economic success, but actually increases the chances of it being achieved.
SEEDing a More Participatory Economic Future
In 2018–19, the National League of Cities and the Democracy at Work Institute launched a joint project called Shared Equity in Economic Development, or SEED, which is educating American city leaders, activists and citizens about the advantages of the employee-ownership model. Through its various initiatives, SEED’s ultimate goal is to spur sustainable, grassroots economic development in underserved communities by recruiting low-wage workers, immigrants, women, African-Americans and other people of color to join the cooperative movement, initially as trainees and eventually as full-fledged worker-owners.
Experts associated with SEED offer no-cost consulting services to municipal government officials and other interested parties in specially selected cities, under the terms of fellowships that are awarded to different cities each year. SEED Fellowships were awarded for the first time in 2018, to the cities of Miami, Philadelphia, Durham and Atlanta.
Each of these four cities has a thriving Black business district, with a rich and diverse mixture of stores, restaurants and other production- or service-oriented establishments. But most of these businesses are owned by older people and few have any succession plans in place despite nearing retirement.
While employee ownership is a viable option for startups, officials in the first four SEED Fellowship cities were primarily concerned with preserving Black legacy businesses that had been serving the community for decades.
“Restaurants, funeral homes, auto repair shops, [it runs] the gamut,” explained Andre Pettigrew, the director of Durham’s Office of Economic and Workforce Development, in an interview with the nonprofit news journal Next City. “Owners are ready to transfer. But in their families, many of the kids have gone on to college and middle-class professional lives. They’re not interested in running the businesses. So succession planning is a big part of what we’re talking about.”
All the available data affirms the utility of employee ownership. But it will take time to get the message out to existing owners of Black legacy enterprises, who worry about the long-term survival of the businesses they’ve worked so hard to build and maintain.
“We’ll have to do a lot of education and community engagement as to what worker-owned businesses are and what the process looks like.” Those were the words of Christina Cummings, a former Housing and Community Development director in Atlanta who spoke with Next City in 2019. “Not only do they need the knowledge and education, they need technical support and they need money. Conversions [of existing businesses] could last two years, sometimes three years from start to finish, to get somebody ready for that model.”
For 2019–2020, new SEED fellowships were awarded to the cities of Washington, D.C., Louisville, San Francisco, and Richmond, Virginia, and consultations continue between SEED personnel and government administrators in those locations. In Durham, Atlanta, Miami and Philadelphia, funding and educational programs have been launched that will offer vitally needed support to business owners interested in transitioning to employee ownership. As of yet, no transitions have been completed, but that should change in the very near future.
The Silver Tsunami
It is hardly surprising to hear that city leaders are most concerned about losing existing Black businesses. As is the case in all sectors of the small business economy, Black legacy enterprises are most commonly owned by Baby Boomers, who are either past retirement age already or destined to reach it within the nine years.
On a nationwide basis, Baby Boomers own between 43 and 57 percent of all businesses in 49 out of 50 states (they own about 40 percent in Utah). This is a huge concern because the vast majority of these (primarily small) business owners do not have succession plans in place.
Only about 20 percent of businesses that are put up for sale will actually be purchased, with the rest facing permanent closure. And even among the group that are sold, many will end up in the hands of national retailers who have no social, cultural or financial ties to the local community.
The upcoming wave of business owner retirements has been labeled the “Silver Tsunami,” and this is one natural/national disaster that could have a profound impact on the existing Black business community. The economic plight caused by the COVID-19 pandemic could push many Baby Boomer business owners into an even earlier-than-planned retirement, thereby accelerating the arrival of the Silver Tsunami and putting communities in a difficult spot much sooner than expected.
Catastrophe can be avoided only if good solutions are found, and that is why more and more cities are becoming interested in the employee ownership model. Today’s Gen X and Millennial workers could become tomorrow’s cooperating entrepreneurs, working in teams to save the businesses that provide them with their livelihoods.
Grassroots Organizing for the Employee Ownership Cause
Multiple nonprofit organizations are now promoting the employee ownership model, which has obvious and universal appeal for anyone interested in economic self-determination.
Project Equity in Oakland is one of the best-known of these organizations. Project Equity offers business, legal and financial advice and services to prospective worker-owners and existing business owners, in the Bay Area and in an expanding number of cities around the country.
While Project Equity does work with startups (including the Mandela Grocery Cooperative), they mainly advise and assist existing business owners and employees who would like to convert from a traditional structure to a broad-based, worker-owned and managed cooperative. Their focus in this area is a reaction to the oncoming Silver Tsunami, which could severely disrupt local economies if nothing is done to ameliorate its most devastating effects.
In their tireless efforts to boost the visibility and viability of the employee ownership ecosystem, Project Equity works closely with municipal governments, nonprofit agencies, foundations and financial institutions to raise awareness and secure vital support for worker-ownership conversions. Political leaders are aware of the threat to local economies the Silver Tsunami represents, and Project Equity is finding coast-to-coast receptiveness to its timely message.
On the startup side, Green Worker Cooperatives in the Bronx, New York, sponsors intensive training programs to prepare African-Americans, Latinos and low-income individuals for life as worker-owners of their own businesses.
GWC’s Coop Academy offers two 20-week semesters each year, where prospective teams of worker-owners can acquire the skills and knowledge necessary to launch successful enterprises. Applicants must apply as teams, and they must demonstrate a well-crafted business plan to gain entrance to the Academy, where they will be mentored by business experts connected to the employee ownership milieu. Consultants will also be available to help Academy graduates find access to funding options, to make sure they have the resources they need to enter the employee ownership economy as soon as their training programs are finished.
Since the Coop Academy opened, graduates have started businesses in a wide variety of fields including construction, cleaning services, fashion, farming, language interpretation, technology services, photography, catering, and yoga instruction. What makes Green Workers Cooperatives especially unique is their focus on environmental sustainability. Trainees must be fully committed to green values, and their businesses must in some way promote or embrace ecologically sound practices.
Through their involvement with organizations like Project Equity and Green Workers Cooperatives, prospective worker-owners can learn easily transferrable entrepreneurial skills. As they gain frontline experience managing actual businesses, their knowledge base will grow even further. Many worker-owners who start in coops will go on to launch their own new business ventures in the future, which is yet another reason why employee-owned firms are known as the gift that keeps on giving.
Preserving a Legacy, and Starting Another
At present, there are approximately 2.6 million Black-owned businesses in the United States. But only 110,000 or so have employees on their payroll (the rest are partnerships or owned-and-operated exclusively by individuals).
This represents slightly less than two percent of the total of such businesses currently active in the United States. Since African-American consumers collectively spend more than $1.2 trillion annually to purchase goods and services, this percentage seems artificially low—which is another way of saying that room for expansion exists, as long as willing entrepreneurs can be found.
The employee ownership model is unique in its capacity to positively impact the community and because there are so few Black worker-owned coops in existence now, the room for growth in this sector is almost unlimited. Funding options to support startups and conversions are now more readily available than ever, through socially responsible investment funds, community block grant initiatives, municipal loan programs, banks and credit unions, GoFund Me pages and other emerging outlets that support economic development in financially underserved neighborhoods.
Employee ownership is not a pie-in-the-sky socialist fantasy. It is a practical solution to economic stagnation and wealth inequality, with an impressive track record of success. It offers unique potential as a tool to promote social, cultural and economic empowerment in BIPOC communities across the nation. It can protect legacy businesses in the short-run, and help create a new generation of legacy businesses in the years to come.
Black workers and farmers made the coop model work in the past, when social, financial and technical support were virtually nonexistent. With employee ownership trending upward, now would be a perfect time for aspiring entrepreneurs of all ages, backgrounds and experience levels to reconnect with an important chapter in the Black community’s economic history.