The Potential for Economic Democracy in the United States

Orion Kriegman

Table of Contents


This thesis discusses one model of Economic Democracy, that of the Mondragon cooperatives in northern Spain, and the feasibility of its implementation in the United States. It concludes that despite the many efforts made to start similar cooperative structures in the US, we are lacking a cultural commitment to the necessary ideals.

The thesis starts with an overview of Democratic Theory, specifically looking at Robert Dahl's criteria of Procedural Democracy. This background knowledge helps establish the reasons for the pursuit of Economic Democracy. Briefly, it is believed that for Democracy to be achieved Political Equality must be maintained. Political Equality is not possible amidst the obscene wealth disparities of the United States. The major cause of economic inequality in the US today is the system of Corporate Capitalism and ownership.

This thesis critiques the dogmatic assumption that capitalism is the only model for a viable economy. It argues that not only does another model exist, but this alternative model is more just and more efficient. However, to implement this model--a network of worker-owned and self-governing enterprises--requires a drive and passion that is usually only found among people connected to a broader Movement. This Movement is seen by such people to contain their only hope for survival as a people (such as the Basque nationalist movement).

In order to change the basic assumptions of American culture, which dogmatically accept corporate ownership, such a Movement needs to be created. As people's economic conditions worsen, the potential for such a Movement increases. Ultimately, Economic Democracy--and thereby Justice--might be achieved without such a Movement, but this author is doubtful.


With the end of the cold war it is common to hear that communism has failed, and the implication is that capitalism has "won." Many of my friends at Haverford and throughout America are critical of some of the inequities to which capitalism gives rise, but they shrug and say, "well, it's the only system that works." It is the purpose of this thesis to challenge that dogmatic assumption and to examine a possible "third way" between a society based on the distortions of capitalism and "the alternative," a society based on state socialism. When reading this thesis it is important to remember that not all critiques of capitalist socio-economic structures are attacking market-based systems of economics. I accept markets as useful and unavoidable. Instead I focus my critique on the anti-democratic and authoritarian structures to be found within the workplace. I am critical of all authoritarian structures that limit the liberties of some people simply for the gain and benefit of the hegemony. It is obvious to me that the system of bureaucratic socialism found in the former Soviet Union was an oppressive and ultimately violent endeavor. It is equally obvious to me that the system of corporate capitalism supported in the United States continues to be oppressive and violent. In order to remove the oppression I believe democracy must be improved and extended such that everybody can have a say in how they are governed.

It is a major anachronism in American society that democracy remains alien to "what people do all day." When our society was first founded the original franchise was given mostly to small agrarian farmers--in other words the nation was "self-employed," we were our own bosses.(1) In this situation it would not have made any sense to talk about workplace or economic democracy--there was no need to consider extending the polity's democratic rights to also apply to the farms which they already ruled. In this system economic ownership was easily equated with the right of control. Thus a useful distinction developed between "public" and "private" concerns. In the public sphere, where ownership could not be easily determined and many competing claims needed to be accounted for, democracy became the accepted norm.

Early in the history of the United States, the restriction of the franchise to property owners was challenged and it was no longer considered just. More recently battles have been fought to extended the franchise to women and racial minorities. With rapid technological change our society has been transformed from a population of "self-employed" farmers to one in which the vast majority of the polity are "employees." Despite these changes, the outmoded notion of public/private spheres has been maintained and used to justify a system of ownership that has produced incredible economic inequities. This thesis examines the logic that justifies democracy within the institutions of government (the "public" sphere) and asks why this same logic has not been applied to our economic institutions (the "private" sphere).

In brief, my conclusion is that those who have power are loathe to share it. When democracy is brought to the workplace conflicts of interest can no longer be resolved through violent coercion:

Open conflict is a central feature of cooperative work, because of the freedom that collectives grant to workers, in contrast to bureaucratic work where conflict, though savage, is usually suppressed. (Jackall and Levin, 1984, p.87)

Perhaps because of my conflict management background, I view democracy, with all the typical constitutional safeguards, as a process that allows a pluralistic society to resolve its conflicts openly with out resorting to violence and coercion. True consensus takes a long time and is hard to come by and all democracies must consider the need to be efficient when establishing the processes under which they will operate. A hierarchical system of representatives is not necessarily antithetical to democratic practice and might be necessary for the governance of large institutions. However, such representatives must ultimately be held accountable to the general polity. This means the decisions of the people at the top of the hierarchy must take into account more than just their own selfish interests. Democracy requires that power is shared.

The first half of my thesis explores the basics of democratic theory and procedural democracy. In this context I discuss how political equality is necessary for effective democratic participation and I point out that in the United States political equality has yet to be achieved. I believe that as long as there are massive wealth disparities in our society political equality will remain out of reach. I do not believe that there should be complete economic equality (with no set of people more wealthy than any other)--different skills and traits, like loyalty and competency, deserve special rewards. Instead, it is the degree of inequality that I am criticizing. It is apparent that society has accepted some amount of wealth redistribution as necessary for its continued functioning--thus the Welfare State has been created. However, it is equally apparent that the government is not always the best vehicle for administering the social programs that redistribute wealth--thus the Welfare State is severely criticized. With this in mind I examine an alternative solution, the theory of worker-owned business. I explore, in theory, what it would mean to apply democracy to the workplace. I conclude that, in theory at least, it is not only feasible, but morally unjustified to restrict democracy from the workplace. I then discuss certain realities of American culture and the political arena that must be dealt with by any group attempting to promote Economic Democracy.

However, it is possible that the theory does not match with the actual experience of self-governing and worker-owned firms. Thus, I turn my attention to empirical studies of cooperative enterprises. I first examine the case study of the Mondragon cooperatives in the Basque section of northern Spain. Because of their incredible success these cooperatives have attracted a lot of attention and information on them is readily available. They also seem to serve as a good model for a network of self-governing enterprises. I then ask if it is possible to transplant such a system and tailor fit it to the socio-political and economic realities of the United States.

I look at the efforts that have been made in the US to promote self-governing and worker-owned enterprises. After a general overview I look at two case studies: The O&O supermarkets of Philadelphia and the plywood coops of the Pacific northwest. I then turn my attention to the unique American innovation of employee stock option plans (ESOPs). I explore how they are different from the ideals of Economic Democracy and yet how they could be used as a tool to promote the cultural changes necessary to achieve Economic Democracy. Because of recent media attention, I examine the case of United Airlines and conclude that it looks promising but that it is still young.

In my conclusion I discuss the reasons why cooperatives have failed to be created in large numbers in the United States. I conclude that this is mostly due to lack of entrepreneurial initiative. Although I feel it is possible for ESOPs to act as a transition phase between capitalist ownership and true worker participation, I suggest that for Economic Democracy to be created in the United States a movement is needed. Movements appeal to deeply rooted human emotions. For example, the Basque separatist movement stoked the fires of nationalism for the Basques in Spain who started the Mondragon cooperatives. I end by examining what Haverford can do for the promotion of the Cooperative Movement and the achievement of justice in our society.

This thesis is the product of my four year inquiry into what a just society would look like. Many of my implicit assumptions, and all of my explicit assertions, are based on my analysis of what I learned from classes in economics, comparative government, conflict management, political theory, metaphysical philosophy, and evolutionary biology. I do not believe that this thesis provides "the answer." I do believe that this thesis shows the "general direction" which would be most likely to lead to a society that delivers justice to all the peoples of the world. Yet despite my philosophical bent, I expect to move beyond words and take action in this world; thus my thesis attempts to explore the empirical feasibility of the "direction" suggested by my theoretical analysis. Theory and practice are inherently linked in an ongoing dialogue where both simultaneously revise each other. Ultimately I believe violent means lead to violent outcomes and that real permanent change must evolve slowly out of the context in which we presently exist.



When discussing democracy we must bear in mind that we are discussing the moral premises upon which society is to be organized. To have this discussion we must accept two basic assumptions for our starting point: 1) the necessary existence of the individual and 2) the necessary existence of the community. When we unpack these assumptions further we find that "community" is the term that refers to the network of relationships without which the "individual" cannot survive--accepting first that humans are social animals and not capable of truly independent living.(2) In this sense the existence of the individual is dependent on the existence of community, and obviously a community must be constituted by its individual members--community and individual co-arise.(3) Self-interest must properly incorporate an individual's necessary reliance on community; and is therefore extended to interests in the well-being of family and friends without which one's own survival is not possible.(4) I will now examine several other essential assumptions.

Scarcity of Resources: Assuming that resources are often scarce and limited and that individuals have competing claims to them, then any system for societal organization must posit a basis for resolving the arising conflicts. We could conceive of many possible solutions (might makes right, everyone listens to me, every object is divided equally by the number of people, finders keepers, etc..) so our question is not how do we resolve conflicts, but what is the most fair(5) way of doing so? Thus any question of societal organization is an inquiry into justice and is basically a search for a conflict management system that produces just outcomes.

Equality and Liberty: Given this need to manage the conflict over scarce resources, there are many possible ways to organize the community: anarchy(6), monarchy, oligarchy, meritocracy, democracy, etc... However, all systems, other than democracy, reject one or both of the following two premises: 1) "the good of each citizen is entitled to equal consideration"(a principle of equality) and 2) "each adult(7) person in the association is entitled to be the final judge of his or her own interests" (a principle of liberty).(8) It is beyond the scope of this thesis to explore the philosophical justification behind these premises, however it is these two assumptions taken together that distinguish democracy from all other forms of organization. If these premises are shared it is now possible to discuss what a fair/just outcome might look like.

Fair Outcomes: Although each party's needs and values should be taken equally into account, it might be decided that the needs are unequal--in such a case the parties receive unequal shares or lots.(9) If both parties' claims are equally valid and the thing in question is appropriately divisible it should be divided such that both parties get equal shares.(10) If the thing to be divided is not appropriately divisible than other arrangements could be worked out--parties could receive equal lots, or chances, to obtain the thing; one party could use it for period of time and then pass it to the next party; etc... Who is the final judge of whether an outcome and the process leading to it are fair? Democracy would suggest that all parties effected by the said process are the judges (see our principle of liberty). We have now moved to discussing the nature of the process, how is consent to be determined, how is accountability to be maintained, how is discourse to take place, etc..? Thus the question is one of procedure.(11)

Procedural Democracy

Procedural democracy is an ideal process and in practice the institutions that make the process possible can always be improved. In this sense procedural democracy is a set of shared principles and some basic criteria that arise from these principles--how it is actualized depends a lot on cultural/historical/technological context. I base my following discussion of democratic theory on the writings of Robert A. Dahl. I find him to be a careful and critical thinker who has done a good job of providing an overview of the major theories.

In his essay, "Procedural Democracy,"(12) Dahl describes the five basic assumptions that one must share in order to achieve procedural democracy. He also explores five basic criteria which logically follow from the assumptions and can be used to help judge the political systems we find in reality. Dahl addresses, to the best of his ability, who should be included in the association and who should be excluded and on what basis. He spends a great deal of time on this issue because he believes the strongest and most consistent argument against the ideal of Procedural Democracy are that "the people are incompetent to govern themselves" (Aristocracy, Meritocracy, etc.. reject the basic principle of liberty stated above). I find Dahl's assumptions and criteria self-explanatory; and I will now list Dahl's position in more detail.

The Assumptions(13):

Assumption 1: There is a need for binding decisions, and thus a process that will reach binding decisions. At least on some issues.

Assumption 2: Such a process must have two stages--Setting the Agenda and Deciding an Outcome.

Assumption 3: Only Members should be allowed to participate in the making of binding decisions.

Assumption 4: In this process Equally Valid claims justify Equally Valid outcomes (or "shares" as Dahl puts it, as if we are dividing a pie).

Assumption 5: The claims of a significant number of members as to the rules/policies to be adopted by binding decisions are equally valid, taken all around, and no single member's claims are superior and overriding in relation to this set of members.

5.1: With respect to ALL issues, citizens are equally well qualified, taken all around, to decide which issues require binding decisions; which issues the citizens are qualified to decide for itself; and on what terms the citizens are to delegate their authority.

The Criteria:

Criteria 1: Voting Equality. To deny this would be to reject Assumptions 4 and/or 5. This does not specify which procedure for voting is best, only that: "The decision rule for determining outcomes at the decisive stage must take equally into account the expressed preferences of each member as to the outcome."(14)

Criteria 2: Effective Participation. Throughout the decision making process one must have an adequate and equal opportunity for expressing one's preferences.

Criteria 3: Enlightened Understanding:

In order to express his or her preferences accurately, each citizen ought to have adequate and equal opportunities for discovering and validating, in the time permitted by the need for a decision, what his or her preferences are on the matter to be decided. (Dahl, 1986, p.199)

Criteria 4: Control of the Agenda. Citizens must be able to make the final decision.

Criteria 5: The citizens must include all adult members affected by the decisions being made, except transients.(15) Obviously "adult" is a hard term to define, but this definition seems adequate to me: anyone who does not suffer from a severe mental disability or whose punishment for disobeying the rules is not reduced because s/he is younger than a certain age.(16)

As mentioned above, the argument against Procedural Democracy rests on the idea that adults in general are not qualified to govern themselves, and therefore government must be left to a meritorious minority, elite in knowledge and virtue.(17) In some specific cases Dahl concedes this might be true, but the burden of proof rests on the accuser. Dahl feels that three things must be proven: 1) That every member is more qualified than the excluded ones, 2) that every member is a better judge of the interests of the excluded than the excluded are themselves, and 3) that the members will act to care equally for the good of the excluded as for their own interests.(18) Dahl ends by asserting:

As with the state, the question of what government is best for other associations will turn most frequently on a contestable and contingent judgement as to the relative competence of the members to govern. (Dahl, 1986, p.225)

This means that the many associations in our society, other than the state, should be examined according to the same criteria of procedural democracy:

Like a state, then, a firm can also be viewed as a political system in which relations of power exist between governments and the governed. (Dahl, 1986, p.115)

This logic is one possible explanation for extending democracy to the workplace (see below, section II).

Political Equality

The five criteria that arise from the founding assumptions of procedural democracy (voting equality; equally effective participation; enlightened understanding; equal control of the agenda; no adult exclusion from the process), when taken together define the minimum standard of involvement necessary for procedural democracy or, in other words, political equality. In order to achieve democracy the citizens of the state must be politically equal. Because economic resources can be converted into political resources, in extreme cases a minority of rich will "control the state, dominate the majority of citizens and empty the democratic process of all its content."(19) Furthermore the absence of a certain basic human infrastructure (nutrition, education, housing, dignity, etc...) will deny many people the ability to participate, at any level, in the decision making process. According to Dahl, in order to avoid these possible outcomes, economic resources must be distributed evenly enough to avoid significant disparities between the rich and poor (this is the classical republican solution originating with Aristotle).(20) This solution is often criticized because it creates conflict between two apparent values: The freedom to rule oneself and the right to property.

Democracy and Property: Dahl analyzes the conflict by looking at the historical and philosophical debate in the US. Jefferson argued that the right to property was subordinate to the right to self-government:

"It is a moot question," he wrote several years before his death, "whether the origin of any kind of property is derived from nature at all...Stable ownership is the gift of social law, and is given late in the progress of society." (Schlatter 1951, p.198)(21)

Others have asserted that, contrary to Jefferson, property is a natural right that supersedes the right to self-government. They argue that private property is necessary for liberty. However, if what is meant by liberty is the freedom to acquire property, then the conclusion is assumed in the premise.(22) If what is meant by liberty is that everyone has a right to do what they want as long as it doesn't harm others, then this simply begs the question at hand.(23)

At the other end of the political spectrum, it is argued that the exercise of liberty requires access and use of resources, and consequently such access should be protected equally for each citizen as a necessary condition for liberty.(24) So, Dahl shows that this so called "right to property" is not clear cut, nor does it supersede other rights. Dahl pushes even further to say that our present socioeconomic order, with all its wealth disparities, is not justified. Even if there is a natural right to property (which is certainly not self-evident), it does not then, standing alone, justify private ownership of economic enterprises.(25) Yet during the industrial revolution in the US, as society changed from agrarian farmers to corporate capitalism, the "partisans of property over democracy" transformed many of the key ideas of democratic ideology into a justification of the new economic order:

"Man became economic man, democracy was identified with capitalism, liberty with property and the use of it, equality with opportunity for gain, and progress with economic growth and accumulation of capital." (Blum et al., 432)(26)

The battle over the form of the political-economy became a contest between the extremes of corporate-capitalism and bureaucratic-socialism.

The Two Extremes: With the collapse of the Soviet economy the flaws and costs of bureaucratic-socialism have been made obvious (bottle necks, shortages, shoddy goods, black markets, oppression of human nature/political liberty, no real self-government, major environmental externalities, etc..). Unfortunately many people see the polar extreme, Corporate Capitalism, as the victor and overlook its flaws (huge/growing wealth disparity, lack of political equality, lack of economic fairness, alienation of workers, limited/decreasing self-government, major environmental externalities, divided communities, etc..). Dahl suggests that the major wealth disparities in the US today are caused primarily by two factors: "highly concentrated ownership of property and very large payments to top corporate executives whose decisions are independent of all effective external controls."(27)

The political consensus in the United States, as with most other countries in the world, acknowledges the flaws of corporate capitalism and as a result we have created mechanisms for some redistribution of wealth. These institutional mechanisms, or social programs, come under a lot of valid criticism as The Welfare State. The Welfare State relies on government regulation and therefore bureaucratic enforcement and thus encounters many of the same incompetencies and inefficiencies of socialist government. Extremists (or what I hope is still an extreme position) want to eliminate all social programs and return to the "hands-off" approach that existed before the Great Depression. Yet, even people who have compassion(28) do not accept the status quo of the Welfare State and are pushing for intelligent reform of the current system. Although some government regulation (like the FDA) will always be necessary to curb the greedy instincts of human nature, it is unlikely that the right balance of regulation alone will solve all the problems created by corporate capitalism. If we are not content to simply regulate the system, then we must challenge its essential premises and the dogmatic assumptions that prop it up.

Public and Private Spheres: Traditional liberalism's inability to significantly challenge the whole premise of corporate capitalism is due to the self-justifying economic dogma that props up the commitment to our present system. The analytical dichotomy of "public" and "private" spheres, where democracy is supposed to govern in the public sphere and property ownership rules the private sphere, is essentially a false dualism. The line between public and private has always been vague at best--ownership of slaves was once considered a private matter, excluding women from colleges was a private matter, choosing not to allow blacks to eat in your restaurant was a private matter. We are still arguing over what falls into each sphere: should health care be nationalized? Should we privatize prisons? The fact that we now accept government (public) regulation of business (private) begins to point to the artificiality of these distinctions.

Our Present Conception of Economics is a Political Construction: The environmentalist critique of our present accounting systems and public/private distinctions is that they completely ignore the costs of pollution and the value of the natural environment:

The cleanup costs of polluting a river, injecting pesticides into the ground water, or putting noxious gases into the air have not been figured into the costs of the manufacturing or agribusiness that put them their in the first place. Historically, the economic incentive has been to pollute. (Steinem, 1994, p.234)

Again this calls into question our distinction between public and private spheres, much of the time business defends its polluting tendency with the argument that regulation encroaches on their "liberty" to use their "property" as they please.

Feminists have shown that the present economic structure undervalues the work done by homemakers (in the "privacy" of the home) and women throughout the world--census categories often do not count their labor (or create misleading categories such as "secondary producers").(29) In this sense women's labor is invisible and often not considered in "public" policy making. Although the value of a homemaker's work is not counted towards the GNP/GDP, if two homemakers were to cross the street and work for each others husbands:

They would be entitled to an eight-hour day and a forty hour week, Social Security, disability pay, and unemployment compensation--and perhaps paid vacations, transferable health benefits, and a retirement plan (not to mention better legal safeguards against violence, which also has economic value). (Steinem, 1994, p.221)

The situation is worse in developing countries where the work of "the secondary producer," or wife is not counted in the GDP, even though she may "grow, cook, process, and preserve food, carry water, gather fuel, make pots and weave baskets, repair the home, raise domestic animals, weave cloth, make clothing, nurse the sick and bury the dead"(30) (not to mention produce 50 percent of the worlds food--according to the World Bank as of 1993).(31)

This is not a simple matter of just "bringing women into the system." It would be ridiculous to turn the husband into "employer" and to have him pay his wife for the services she provides. Yet it is not hard to see how the present legal structure already supports this metaphor--divorce for a homemaker is similar to being fired, and welfare checks for women with children could be seen as unemployment pay--only this metaphor gets real messy because an able-bodied man, unproductively sitting around, who collects unemployment is not villanized by society the way a mother, productively engaged in raising children, who collects welfare is. For example, according to classical micro-economics it makes no sense to pay a mother for taking care of her own children (you pay people to provide a service, not to serve themselves), however this is productive labor and if she were a day care provider she would be contributing to the GDP. Again the line between public and private interest is called into question (especially in regards to the children--they are society's problem if the mother deserts them or dies, perhaps she is providing a service after all).

Our present understanding of economics is to a large degree a political construction and does not truly describe the forces that effect human productivity. Wages and salaries are often assumed to be dictated by the free market and thus to correspond to society's "true need" for that type of work. But it is unclear if this is actually how the system works. For instance, child care attendants were paid less than parking lot attendants--it is doubtful that this is because cars are valued more than children.(32) Far from being a radical critique, it is a legitimate academic question whether wages in certain industries are more determined by the race and sex of the workers than the skill level and expertise required for the job.(33) Whether in the United States or the international community, Gloria Steinem asserts that:

Work is valued by the social value of the worker. A category of work is paid least when women do it, some what more when almost any variety of men do it, and much more when men of the "right" race do it. (Steinem, 1994, p.210)(34)

Most economists, who are not paid pundits, will admit that we still do not understand the "natural laws" of economics and much research remains to be done.

Misconceptions of Capitalism: One common misconception is that capitalism is inherently linked to the free-market and that "the free-market" is inherently competitive--this logic has been shown to be a series of non-sequiturs. Economists have concluded it is possible to have a market based economy without capitalist ownership:

The conflict, at least in terms of the previous arguments, has probably reached a conclusion with the publication, in 1939, of Mr. H. D. Dickinson's volume in which the details of market socialism are carefully worked out. The market, it has been proved, is not an exclusively capitalist mechanism but a neutral compass with which to guide a democratic socialism between the evils of private anarchy on the one side and collective authoritarianism on the other. (Dahl, 1986, p.35)

Thus, the necessary link between capitalism and markets is flawed. Furthermore, I show below that the link between free-markets and competition has been proved to be, at the very least, overly simplistic.

Corporate welfare costs tax payers billions of dollars, and it is clearly only the naive who believe that the market place is primarily competitive. Before government regulation in the United States, the "competing" capitalists formed oligopolies and monopolies to keep others out of their markets and to take more than reasonable profits whenever it was possible to do so. Even with present day regulations many firms are inclined to cooperate. In the airline industry for instance it is not uncommon to find out that one airline was going to raise fares, but did not do so because it could not get the other major airlines to go along.(35) Many so called "competing firms" are finding ways to get around government regulation and to cooperate. In fact, it is really only small firms that tend to suffer the misfortune of the outrageous competition that classical micro-economics postulates. Large companies, such as Chrysler, are often bailed out by the government and not allowed to go bankrupt. The government tends to save large banks from failure, not so true for smaller ones.(36) It would seem then, that the survival of certain "private" enterprises falls squarely within the "public" interest.

The debate over democratic and non-democratic government in the public sphere has been typically represented as a debate between government by consent verse government by coercion.(37) By analogy, this logic justifies capitalist production in the private sector because such a production method is essentially "voluntary." Marxists make a good point by taking odds with the "voluntary" nature of employment. Ellerman suggests, however, that:

The real point is that there is a whole liberal tradition of apologizing for non-democratic government based on consent--on a voluntary social contract alienating governance rights to a sovereign, e.g. the Hobbesian pactum subjectionis.(38) The employment contract is the modern version of that Hobbesian contract...The critique of capitalist production is a critique of the voluntary employment contract...The critique is not new; it was developed in the Enlightenment doctrine of inalienable rights. (Ellerman, 1990, p.210)

These arguments helped to replace monarchy with democracy in the "public sector." Ellerman concludes that:

today's economic democrats are the new abolitionists trying to abolish the whole institution of renting people in favor of democratic self-management in the workplace [private sector]. (Ellerman, 1990, p.210)

If possible a culture within the "private sector" should be encouraged such that the profit-motive is balanced by concern for basic human needs.

One way to address and ameliorate the flaws of corporate capitalism, while recognizing the value of a market system, is through the creation of self-governing enterprises (worker-owner cooperatives) or Economic Democracy. Dahl shows that in theory, this alternative in no way eliminates private property, harms political liberty, or decreases efficiency. In fact, it increases democracy, increases the potential to maximize human virtue and intelligence, promotes political equality (and therefore liberty, both economic and political), increases economic fairness, and in some cases improves efficiency and decreases the need for government regulation of the market. Dahl also points out that if democracy is justified in our government than it must also be justified in the governing of our workplace(39)--and I add that until the wealth disparity created by corporate capitalism is reduced such that each person is provided with the minimum economic conditions necessary for effective participation, until political equality is achieved, then full democracy in our government is a myth.

The Theory of Self-Governing Enterprises

Democracy in the workplace can be justified in two equally important ways, the first being a philosophical assertion that it is a matter of right and the second is more practical and empirical assertion that democratic firms are more efficient and provide better working conditions for all. I will first examine the a priori moral assertion.

Democracy As A Matter of Right

The above discussion of procedural democracy set forth a series of assumptions and it was asserted that the democratic process, and only the democratic process, is a valid form of association for any organization in which the assumptions hold.

The justification for democracy is therefore contingent on judgements about a specific association and the qualities of the people who constitute it...The argument thus would not support a claim to democracy as absolute or universal, valid for all people, in all times and circumstances...[However] in any association for which the assumptions are valid, the adult members possess an inalienable right to govern themselves by means of the democratic process. (Dahl, 1985, p.61)

The question is whether the assumptions hold for the kind of association necessary for economic enterprise.

The first objection to democracy in the work place might be on the grounds that decisions in the firm are not binding in the same way as those of the state (see assumption one of the Procedural Democracy section above).(40) It might be said that, in a state a minority that is opposed to a law is compelled to obey, however an economic enterprise is simply a series of voluntary exchanges. It is obvious, however, that management and owners make decisions that apply uniformly to all workers--just as a state has laws that categorically apply to all citizens--and that these decisions are enforced by sanctions. The reply might be that unlike the citizen in the state the worker is not compelled to obey management--s/he could always chose to leave the firm and can not be punished for doing so.(41)

But, a citizen who doesn't like a local ordinance is "free" to move to another community, in fact if s/he doesn't like the laws of one country s/he is "free" to seek citizenship elsewhere. This "exit freedom" does not allow one to conclude that all arrangements are voluntary--"exit" or exile is "often so costly, in every sense, that membership is for all practical purposes compulsory."(42) Citizenship in a state has more freedom (in regard to binding decisions) than employment in a firm:

Within a democratic country citizens may ordinarily leave one municipality and automatically retain or quickly acquire full rights of citizenship in another. Yet even though the decisions of firms, like the decisions of a state, can be enforced by sever sanctions (firing), unlike a citizen in a democratic state one who leaves a firm has no right to [employment] in another. (Dahl, 1985, p.115)

At this point the "binding decisions" of a state and firm look pretty similar and we see that:

Like a state, then, a firm can also be viewed as a political system in which relations of power exist between governments and the governed. (Dahl, 1985, p.115)

Considering how much one's community and livelihood is tied into one's place of employment, the entire State might best be understood as a federation of work-place communities (some people see the growing multi-national corporations as the next "States" of the world).

A second objection to democracy in the workplace is that workers are not as equally qualified to make decisions as management, and therefore assumption five of procedural democracy does not apply. It is important to remember that assumption five does not say everyone will be equally qualified to make every decision. It does assert that the general populace will be able to determine for itself which decisions it is to make directly and the basis upon which it will delegate its decision making power to experts. Rejecting assumption five suggests that the government of American corporations is a form of Platonic "guardianship" by the more qualified (most socialist systems with nationalized industries also thought of themselves this way).(43) This argument suggests that worker-owners in self-governing firms would do a worse job generally managing their affairs. Yet beyond the mere assertion of the argument, there is little evidence in support of this position. For example, in the case of selecting qualified executives there is little reason to assume that stockholders would do a better job than worker-owners whose long-term interests are allied with the firm, as their entire livelihood is at stake. To better engage the argument of worker competency we need to begin looking at the practical arguments in favor of and against worker-ownership, but at this point we can conclude that:

If [democratic firms] were about as efficient as present firms...and at the same time they were superior in their consequences for democracy and justice, then they would definitely be better. (Dahl, 1985, p.93)

Theoretical Efficiency of Cooperatives: Are Self-Governing Worker-Owned Firms Less Efficient?

The argument in favor of worker-ownership states that by reducing the number of hierarchical and anti-democratic institutions in society the values of democracy are promoted. This argument also points out that giving all workers more of a personal stake in the firm and more voice in the operation of the firm would "in principle eliminate, and surely would in practice vastly reduce, the adversarial and antagonistic relations between employers and employees that foster moral irresponsibility on both sides."(44) "Being constantly at odds in the workplace is an ugly daily experience for both employees and management."(45) A more cooperative relationship would produce savings and increase efficiency in the following ways:

1) Worker's have a strong incentive to monitor their fellow workers and make sure they are not shirking, while in a capitalist firm the incentive to shirk is implicit in the wage contract which pays only for the time of the worker and not for the product produced.(46) Savings are made because of the reduced need for supervisors and quality-control personnel:

One recent study found that while cooperative plywood manufacturers in the United States used only one or two supervisors per shift, the comparable capitalist firms used six or seven. (Jones and Svejnar, 1982, p.46)

2) A work force that feels listened to and involved will come to work with positive energy and be willing to worker harder--this directly increases productivity as everyone will have a direct stake in the profits of the firm. In fact workers will be more willing to make significant short term sacrifices during times of economic hardship, especially if management (now just another type of worker) are sharing in the sacrifice.(47) The reduction in conflict over pay-cuts reduces the opportunity costs that capitalist firms suffer when workers go on strike. In addition there are lower rates of worker turnover and absenteeism relative to capitalist firms.(48)

The arguments that workers would be less efficient often times fail to think through the full implications of worker-ownership and self-government:

1) There is a critique that producer cooperatives would be less innovative because there are less rewards for entrepreneurship. The reply is that special rewards could be given to entrepreneurs (like a limited period of authoritarian ownership). Dahl suggests that small firms are the seed-bed of innovation, and self-government promotes small firms.(49) Also certain cooperatives have united to found banks to finance their growth and development--these have been relatively more successful than most other banks in choosing which enterprises to support (Mondragon). However, I think this is the biggest flaw in the idea of worker-owned cooperatives, what entrepreneur would pour away his life blood to create a business only to hand it over to his employees and avoid the riches of his success?

2) The problem of capital is often used as an argument against worker-owner coops. Will investors risk their capital if they are not guaranteed some say over the policy of the firm? Although this was the original practical justification for giving capital partial ownership of the firm, it makes little sense today--for most stock-owners their voting rights are essentially cosmetic. Furthermore, empirical studies of Mondragon cooperatives in Spain, or the plywood coops in the US show that capital is not as hard to raise as expected. It is possible to attract investment only by promising an adequate return for the sacrifice. Investors still make sacrifices (opportunity costs), but this does not justify their ownership of the corporation--"I would suppose that workers sacrifice more of their lives by working than investors sacrifice by investing."(50)

3) There is an argument that the process of worker investment in the firm locks labor into the firm and limits labor mobility. This impairs the firms ability to cut excess labor as new production technology makes the workers redundant. Obviously, for an economy based on producer cooperatives to be successful, it must be able to move labor, as the market demands, between industries. The Mondragon Cooperatives in Spain have come up with an innovative solution to this problem. It is also evident that capitalist systems have a problem with labor markets and that these are not as fluid and responsive to supply and demand as classical micro-economics would suggest (see the example of nurses, above, in the section on Political Equality). As Peter Jay remarks:

So far we have been comparing the rational investment behavior of worker's cooperatives with the rational behavior of idealized capital enterprises working according to text book optimization. If we actually lived in the latter world we would hardly be considering the problems discussed in this paper at all. (quote taken from Dahl, 1985, p.122)

Theoretical Social and Societal Benefits of Cooperatives

The arguments that favor self-governing firms claim that they:

will foster human development, enhance the sense of political efficacy, reduce alienation, create a solidary community based on work, strengthen attachments to the general good of the community, weaken the pull of self-interest, produce a body of active and concerned public-spirited citizens within the enterprises, and stimulate greater participation and better citizenship in the government of the state itself. (Dahl, 1985, p.95)

I am skeptical of any claim that human nature will be drastically changed by the advent of new structures and institutions in the political and economic spheres of life. As Dahl points out:

Forecasts of a new human being produced by structural changes...have been made by...liberals like Mill, as well as communists, socialists, fascists, and Nazis. Yet these forecasts seem to be readily discredited by experience. (Dahl, 1985, p.95)

Part of the attraction of worker-owned business is that it creates cooperation by appealing to the self-interested individual. I believe that institutions promote different aspects of human nature; thus, you can have a culture that is more or less cooperative than another culture.

One of the reasons society might be better off if it was dominated by worker-owned firms is that the interests of more people would have to be taken into account. The following changes might result:

1) The top managers/the rich are a minority and can afford to live isolated and distant from the harmful effects of their industries. The employees are much more representative of the public (as consumers, residents, and citizens)--they are therefore more likely than managers to bear some of the adverse costs of their decisions. This would not, however, eliminate entirely the need for regulation by the state.(51)

2) It is common acceptance that in order to persuade investors and managers to perform adequately they must receive large financial rewards.(52) Self governing enterprises would decide the degree to which they would adjust wages and salaries to the supply of and demand for various skills.(53) They would probably maintain lower wage differentials than the 200 to 1 (or in some cases 1000 to 1, when bonuses and stock options and retirement plans are considered) ratios presently found. Managers' performance, as judged by the worker-owners, would determine their salaries and benefits. One of the greatest injustices in society today is how managerial performance is often not linked to managerial compensation:

A Fortune study of the 140 large companies shows little or no correlation between the compensation of the chief executive and performance as measured by return on stock-holders' equity...A 1982 survey by The Economist of the 100 biggest companies in Britain led to similar conclusions: "There is still no obvious connection between bosses' salaries and the performance of the companies they run in most of British industry. The size of the company is often a better guide to the salaries at the top." (Dahl, 1985, p.105)

We find that managers in the United States are often inclined to slash worker's salaries while giving themselves pay raises. As mentioned earlier, Dahl claims that the main reason for the wealth disparity found in the United States, and therefore political inequality, is the earning differentials between management and workers.

3) In the corporate model managers act to maximize net returns to stock-holders (owners). They "are legally bound to act and typically do act on the view that the interest of employees is secondary to the interest of owners."(54) This is a primary cause of much of the alienation workers feel as witnessed by the fact that workers have to use unions to do battle with the capitalists before some of the most basic workplace issues are taken into account (safety, child care, parental leave, etc..) There have been some empirical studies showing increased alienation among workers who participate in the decision making of firms (mostly because of increased frustration with apparent apathy of fellow workers).(55) Other studies conclude the opposite. It is likely that these mixed results are because the system is not set up to facilitate meaningful worker-participation; the transition to self-government from hierarchical government is bound to cause people discomfort as they readjust.


Dahl concludes that a society filled with self-governing enterprises should appeal to a people who are interested in a socio-economic order based on equality with liberty. However he recognizes that a lot more empirical data is needed before such a solution could be adopted whole-heartedly. He suggests that the best way to get this data would be to have the government nationalize several key firms in key industries and then hand over ownership to the workers. At the same time, a fully-funded bank for self-governing enterprises should be created. Through such experimentation it would become clear what changes need to be made to our theories.

If these experiments are successful, he suggests that a country could then act more boldly (following the Swedish and Danish socialist plans)--enacting laws setting aside a portion of revenues for a transition to self-government, using income and inheritance tax to drastically reduce wealth disparity, etc... However, Dahl is doubtful that the people of the US are committed to the ideal of equality with liberty enough to have the firmness of purpose and shared clarity of vision to enact these proposals.

I wonder if it is necessary to rely on the government to start up such change. Could a small community of ideologues, committed to self-government and social change, start up several self-governing firms and set aside some revenue to form a communal bank? It seems that this is exactly what the Basques did in the creation of the Mondragon Cooperatives. However the Basques were not simply motivated by economic ideology, but also a great deal of nationalistic spirit of cooperation.

If this was possible it would give us the empirical data necessary to determine the true pragmatic value of self-governing enterprises. According to the theory explored above, self-governing enterprises have a potential competitive advantage over other firms. Because the workers are more invested (due to greater involvement) in the firm's welfare and because profits are returned to workers, there is more incentive to work hard and make sacrifices for the sake of the firm. Is it possible for a community of self-governing enterprises to thrive and grow in a socio-economic system that is not geared towards their survival? Under what conditions would this be possible? Before I attempt to answer these questions, I will discuss the evidence for the assertion that Americans lack a shared commitment to the key values necessary for a market-socialist agenda to be adopted (this is the purpose of the section entitled American Realities). After this last bit of theoretical analysis, the next chapter will go on to look at the efforts that have been made, without the support of the majority of the American community, to found cooperatives.

American Realities

America, often criticized for not being the melting pot it claims to be, is obviously a heterogeneous society. Americans are highly mobile, often picking up and moving to a new job opportunity, thus a sense of permanent community is hard to find. A lot of small town America, formerly based on family farms, is losing its economic viability and the populations have moved towards the city and suburbs for employment. The common American identity is hard to pin down--especially as many people of color feel alienated and excluded by the dominant culture and its symbols. Yet certain beliefs and attitudes seem to pervade our culture and most surveys turn up a common American ideology.(56) Our cultural ideology shapes our institutions. For example, high schools tend not to teach cooperative problem solving, but instead emphasize individual achievement within a hierarchal structure--training students to sit at a desk for eight hours a day and complete the assignment given to them by their boss.(57) Whether this is done consciously or not, our schools train students to fit into the hierarchical association in which they will later be employed.

American Political Culture

In his essay, "On Removing Certain Impediments to Democracy in The United States,"(58) Dahl discusses the specific historical interplay between institutions and political culture that has taken place in the United States to the present. His basic thesis, which I find convincing, is that through history, five major battles have been fought and resolved so firmly in the hearts of Americans that they now operate as historical commitments. The first two are to the Constitution and Democracy--these took place early in American history well before the 20th century and its waves of immigration and inclusion of African-Americans as full citizens, thus they act as the givens upon which America is based. The next is the commitment to Corporate Capitalism (private ownership of corporations)--this battle was fought around the turn of the 20th century with the growth of cities and industrialization and the decline of America's traditional agrarian base. At the time of this battle many alternatives to Corporate Capitalism were put forward,(59) but the strongest opposition soon became State Socialism. Although Corporate Capitalism won, this system of economics has many flaws and thus the battle was not resolved until the 1930's and the advent of the Welfare State--which became our fourth historical commitment and the compromise solution.(60) Our last commitment came later in this century, after World War II, and that is to America's role as an International World Power. Dahl suggests that these five historical commitments are deeply embedded in the psyche of the American citizen and at this point in history are accepted as dogma, the way things always have been and will continue to be.(61)

Dahl suggests that if we take the first two commitments, to the constitution and to democracy, together then:

These may be interpreted as an aspiration toward a society with a political system in which liberty, equality, and justice would jointly prosper, a society therefore requiring also a socioeconomic system that would foster these ends by supporting the kind of policy necessary to them. (Dahl, 1986, p.139).

Seen in this way it would imply that we should give:

priority to political ends over economic ends; to liberty, equality, and justice over efficiency, prosperity, and growth. (Dahl, 1986, p.140).

This commitment to politics over economics is a statement of priorities, economic interests are still to be looked after. However, with our commitment to corporate capitalism, this priority was "reversed both in ideology and in practice, and has remained reversed down to our own day."(62)

We find that the justification of corporate capitalism rests on a twisting of the Lockean argument of a right to private property:

The Lockean justification of property makes no sense when applied to the large modern business. It is absurd to regard as inalienable one's right to buy and thereafter own shares of ITT, and it approaches the ridiculous to argue that because one owns shares in ITT one possess an inalienable and exclusive, if in practice quite useless, right to choose the directors of the firm, and that the primary legal obligation of the directors and management is, by legal extension of the original doctrine, to protect the interests of owners above those of any other claimants. (Dahl, 1986, p.145)

To claim this would be to deny the rights of the workers to govern themselves, on the basis that one's right to property supersedes their rights. To uphold procedural democracy we must recognize the right to self-government is a primary right and ownership and control of corporate enterprise are matters of secondary rights: "the mere assertion of a right to private property does not provide a rational justification for private ownership of a large economic enterprise."(63) As explained earlier, in both Dahl's estimation and my own, the criteria against which to measure our political performance is the criteria of procedural democracy. That corporate capitalism is antithetical to procedural democracy is obvious when we consider that:

to claim a right inconsistent with the primary rights necessary to procedural democracy is to deny the validity of procedural democracy and thus the capacity and right of a people to govern itself. (Dahl, 1986, p.145).

Viewed this way we see that our historical commitments are in conflict, and thus our cultural norms are pitted against each other.

The only way to determine if private ownership of corporate enterprise is justified is if, given all the other alternatives, it provides the best mix between social advantage and disadvantage. By careful examination of society, it should become obvious that the appropriate way of organizing large enterprises can not be determined a priori on an ideological basis. Instead, technical and empirical considerations must be weighed against ideological goals on a case by case basis. In this sense it should become apparent that:

a complex society cannot protect the rights, needs, and interests of its people with one single, prevailing form of economic organization but requires instead a network of enterprises organized in many different combinations of internal government, external controls, and ownership. (Dahl, 1986, p.147)

Our culture already acknowledges the truth of this conclusion in a general sense, as both sides of the political spectrum can point to valuable government programs--thus the debate over the Welfare State has been one of degree. Dahl points out that:

Perhaps it may prove possible by regulation to reduce the direct and indirect impact on political equality, effective participation, and political understanding, of vast differences in income and wealth, but the record so far is dispiriting...Moreover considerations of substantive distributive justice would seem to require a considerable reduction in inequalities in wealth and income. (Dahl, 1986, p.148)

So Dahl is suggesting that the present solution, the Welfare State, is not adequate to right the wrongs of Corporate Capitalism. If we want to improve democracy in the United States these battles need to be fought anew. Although the battle against corporate capitalism must be renewed to improve democracy in America, our present democratic structures make any such battle unlikely to occur (until the situation gets exceedingly worse and people's attitudes undergo tremendous change).

The Problems Of Genuine Political Opposition

Much of how the United States is organized, institutionally and culturally, contributes to the maintenance of the status quo and the undermining of true opposition:

The patterns of support, disagreement and apathy help sustain the prevailing views and weaken the effectiveness of opposition to them. Since support tends to increase with education, income, occupational status, and political activity, and since political influence is also to a considerable extent a function of these same factors, the influence of supportive attitudes tends to be disproportionately increased while opposition tends to be politically ineffectual. (Dahl, 1986, p.162).

Essentially, despite ethnic-cultural heterogeneity, Americans have achieved a large degree of consensus on the broad principles under which they want to organize their society.(64)

Political consensus in the United States tends to converge on the center, thus "moderates" dominate political discourse.(65) The two major political parties compete for the majority of votes and thus converge on the center as well. It is also clear that routes of influence (lobbying, campaign financing, indirect bribery--promise of future employment) to politicians of either party are dominated by corporate interests. Since it can never hope to get elected, for a coalition of true opposition to be effective it must enter through one of the two main political parties, and thus compromise away most of its agenda (see Jesse Jackson or Pat Buchanan for a recent example of this). Such opposition can at most hope to tug the center in its direction, thus change is slow and is often overwhelmed by the pendulum tendency of the center.

Furthermore, the founding fathers were afraid of a "tyranny of the majority" and the dissolution of minority rights and thus created institutions to purposefully undermine the power of majority coalitions.(66) Dahl is critical of our constitution and the institutions it locks in place. Dahl agrees with the liberal argument that in order to uphold democracy certain individual rights must be put out of the sphere of politics, and thus become inalienable (the rules of the game so to speak). He disagrees with the American constitutional argument that the "highly specific, indeed unique, set of political arrangements embodied in our constitutional and political practices is necessary to preserve these rights":

The point is, however, that the elaborate system of checks and balances, separation of powers, constitutional federalism, and other institutional arrangements influenced buy these structures and the constitutional views they reflect, are both adverse to the majority principle, and in that sense to democracy, and yet arbitrary and unfair in the protection they give to rights. However laudable their ends, in their means the framers were guilty of overkill. (Dahl, 1986, p.133).

In the course of history, Americans have come to recognize the functional limits placed on them by this constitution and have attempted to reform it so as to support the majority principle. Such reform has focused on the presidency, which due to its:

Legitimacy deriving both from constitutional interpretation and democratic ideology...became the institutional center from which a majority coalition, if there was to be one at all, would be mobilized, organized, and given voice. (Dahl, 1986, p.134)

Which has led to our system being called an elective monarchy, an imperial presidency, and other epithets because:

The irony is, then, that the first and second historic commitments taken in their entirety endow us with a political system in which any majority coalition supporting changes adverse to existing privileges is likely to succeed only if the presidency has access to a concentration of political resources great enough to make the office a standing danger to majority rule and procedural democracy itself. (Dahl, 1986, p.135)

Thus, even if it were possible to create a coalition out of the recent dissatisfaction with Wall Street, corporate CEO's, layoffs, and lost jobs--in order for this coalition to have the power to renew the debate over our economic system and alternatives to corporate capitalism, democracy itself would be threatened (especially if a self-aggrandizing ideologue is able to gain control of this movement as economic conditions in the US become more perilous and workers more resentful--see Hitler in Germany in the 1930's).

Culture of Corporate America

Corporate America has a tendency to think of itself as an expanding empire. Growing vertically, corporations try to gobble up and place under their hierarchical control as much as possible the human and material resources necessary to produce their goods and services. Recently large companies have realized that it is frequently more efficient to buy goods and services from other organizations than it is to finance, manage, and control provision of these goods and services.(67) It is interesting to note that LDC's went through a similar evolution of thought in relation to their own economic development. Instead of trying to produce all the consumer inputs required by their economy (through import substitution) they are now exploring economies of scale and regional trade agreements. These types of horizontal relationships are what the Mondragon cooperatives are based upon (see ch. 2).

Horizontal trade agreements tend to promote the creation of many smaller businesses, as opposed to corporate giants. It is well established that job growth in the US depends on the creation of new firms, and that large corporations eliminate about as many jobs as they create.(68) Culturally:

Americans pride themselves on their entrepreneurial spirit and rugged individualism which leads people to take risks and create new firms with greater frequency than in many other cultures. (Whyte, 1991, p.298)

However corporate America tends to cooperate so as to prevent new firms from entering their industries. It is the small businessman who suffers most from the competition of the "free market"--large corporations and banks are often bailed out by the government.

The New Deal managed to democratize some aspects of corporate America by protecting the rights of workers to organize and bargain collectively.(69) When capitalist owners resisted this encroachment on their power, they often used illegal and violent means--which shows the fierceness with which feudal lords try to maintain their wealth. But, because of the many serf uprisings, in order to maintain production and security, the capitalist owners eventually had to give in. Still, in the United States, managers still tend to think there are two separate and unrelated labor markets--one for blue collar work and one for professionals and managers.(70) In order to "preserve jobs" during recessions, management often can convince unions and workers to suffer wage cuts. But rarely, do managers impose such cuts on themselves. It is also uncommon for managers, when seeking pay cuts, to invite union leaders to join with them in analyzing cost, and restructuring the firm. It is likely that:

American workers would more readily accept the idea of linking their pay to the performance of their firm if they expected necessary pay sacrifices to be equitably shared among all company personnel and if they or their representatives were invited to participate in plans to reorganize and revitalize the company. (Whyte, 1991, p.298)

As explained before, not only would this be more efficient, but it is also the workers inalienable right to be involved in the decision making process and therefore it would be more just in keeping with the criteria of procedural democracy.

The present structure of the American economy (existing legal structures, access to capital, management training, education, etc..) is highly biased against the establishment of worker-owned alternatives. It is obvious that in a capitalist society supportive institutions would have evolved to respond to the needs of capitalist enterprises, rather than worker owned and worker managed firms.(71) Tax treatment, liability under the law, eligibility for governmental assistance, social insurance provision structures, and the legal status of collective property were all established without worker-owned business in mind, such that the existing laws are often incompatible with the basic operation principles of cooperative firms.(72)

The financial community prefers some measure of control over the firms that it lends to and such control is easier to assure in hierarchical capitalist firms. Members of the financial community are often elected by capitalist firms to the corporate board in order to cement relations with the lending institution.(73) Also, depending how the worker-owned firm is organized, it is hard to provide the collateral necessary for even short term loans to cover cash flow difficulties and temporary rises in inventory.(74)

A cooperative workplace requires a lot of learned human relation skills, such as experience with achieving consensus and participative problem solving. Such processes make the daily work experience more creative and fulfilling for those who can participate, but for those not used to the experience it can be frustrating and discouraging. Our school system and existing workplaces emphasize individual competition over group problem solving. The skills necessary for worker-owners will not be taught by schools that "function in a strictly hierarchical fashion where rules, regulations, and bureaucratic control characterize the learning and social process."(75) Instead these institutions teach the skills and attitudes that correspond closely with preparing labor for capitalist firms. As the saying goes, "if you liked school, your going to love work."

Still in the 1980's with the waves of factory closings and corporate buyouts, some activists thought that the time was ripe for worker buyouts (funded by private foundations to some degree) and the creation of cooperatives. In the next chapter I will explore the model of worker-ownership provided by Mondragon. I then examine the attempts to transplant this model to the United States.



The Mondragon Cooperatives in the Basque region of Northern Spain are commonly considered to "provide one of the best examples of worker cooperatives in the world today."(76) Mondragon is a complex of producer coops, consumer coops, and their support structures (bank, educational institutions, and research firms). The first industrial cooperative started in 1956, founded by five students of Father Arizmendi--who was instrumental in proselytizing the idea of worker cooperatives and is recognized as the "behind the scenes" leader of the movement.(77) They raised funds from local townspeople to start a stove factory and within one year they had expanded to 117 worker-owners and had bought two nearby foundries. By 1965, Mondragon had 30 industrial cooperatives.(78) As of 1991, Mondragon has become an association of over 160 cooperative enterprises, more than a hundred of which are industrial. They employ over 22,000 people and "collectively they are Spain's top producers of industrial machinery and home appliances--refrigerators, stoves, washers, dryers, machine tools, etc.."(79) They are also involved in furniture production, heavy construction, farming, and high technology (Spain's only computer chip producer is a Mondragon firm). Highly capital intensive products, such as petrochemical complexes, as well as highly labor intensive products are provided by Mondragon.(80)

As of 1982, there were two service cooperatives, one of which employed over 400 women part time.(81) The other is a consulting firm in areas such as public relations, marketing, and accounting. Along with the producer cooperatives there is a consumer coop with over 70,000 members (as of 1982) and several coops to help finance the purchase of a house or apartment.(82) Cooperatives are encouraged to buy from each other, unless doing so would be too large a sacrifice for one of the parties. Mondragon now has a chain of 300 cooperative food stores--some of which have consumer retail outlets similar to K-mart or Wal-mart. Furthermore:

Coop members have a broad health insurance plan for their families, a private unemployment program which pays 80 percent of take-home pay if you are ever laid off, and a pension program, separate from their accumulation of profits, paying 60 percent of their salary on the last day of work until death. Upon retirement, most members are also offered a plot for a vegetable garden if they don't happen to have one where they live. (Mollner, 1991, p.238)

Mondragon makes an effort to ensure that inter-industry earning differentials do not occur. They even link the earning levels of teachers in primary and secondary schools to that of the banks and factories, so that the average level of earnings is identical.(83)

Productivity and profitability are higher in the cooperative firms of Mondragon than for capitalist firms--"it makes little difference if Mondragon is compared to the 500 largest companies or with small and medium scale industries."(84) Profitability of Mondragon firms is twice that of the average Spanish corporation(85) (see chart). The high level of productivity is due in part to creative management techniques, but it is also true that Mondragon aggressively pursues high-technology production methods, such as robotics.(86) The Basques were granted local autonomy in 1982, and by 1989 the Mondragon "third way" was adopted as the official economic policy of the Basques.(87) Such success has attracted a good deal of attention from academics and practitioners around the world making information on Mondragon readily available.

Basic Structure

The Extended Complex: Mondragon is an extended network of member cooperatives, bound together by a common reliance on supporting institutions (see diagram). Each cooperative elects a representative to the Association of Cooperatives, the Association is responsible for electing the Board of the bank, the research institute, the social security and insurance groups, etc.. (these institutions are called secondary cooperatives). This form of representative democracy fits Dahl's criteria for procedural democracy,(88) assuming that the people have chosen to delegate their responsibility accordingly. Cooperatives in the same geographical area often pool profits and share a general management; collaborative efforts at marketing are made between cooperatives that are in the same industrial sector but are in different geographical locations.(89) Whenever possible associated cooperatives try to buy and sell from one another. If the transaction is clearly disadvantageous to one of the parties they will chose to purchase or sell their required materials elsewhere. However, they will explain the factors that went into their decision (price, quality, efficient delivery, etc..) and offer advice on how to meet their conditions so that they might buy from the cooperative in the future.(90)

This relationship allows Mondragon to expand rapidly; for example, when the first stove factory was created other worker-owners were able to set up firms to produce components for it. These new firms had an initially assured market with the first factory but were also free to sell their products elsewhere. Because it is difficult for an organization to remain flexible, democratic, and efficient when it grows too large, Mondragon established a general policy that "whenever any line of production reached the point where its manufacturing and marketing were so efficient that it could become an independent organization, it was to be separated from its original firm."(91) In more traditional capitalist firms, when they are able to grow and expand they create subdivisions and subsidiary companies firmly linked to the corporate hierarchy. This creates the disadvantage of a large bureaucracy, which is "likely to discourage flexibility, initiative and creativity at lower levels and to alienate workers from managers."(92) Mondragon's system of linking autonomous organizations into a democratically governed union allows it to avoid the disadvantages of an alienating bureaucracy and retain the advantage of pooling financial resources, supporting research and development, and achieving economies of scale in production and marketing.

The Caja Laboral Popular, the bank, is a key factor in keeping Mondragon bound as a community. The bank will cut off its support to those cooperatives that violate the basic tenants of Mondragon. This balance between centralized and local power is similar to debates on the degree of federalism that is valid in a democratic society--as Dahl points out, in his essay "Federalism and The Democratic Process,"(93) the exact balance is best resolved on a case by case empirical basis.

Structure of an Individual Cooperative: Each worker-owner has one vote in the General Assembly of his/her cooperative. From the General Assembly a Supervisory Board is elected and they appoint management for a four year term. Management must report frequently to the Supervisory Board and once a year to the General Assembly. There is also the Management Council which acts as an advisory board to management and to the Supervisory Board. Then there is the "Watchdog Council," which is directly elected by the General Assembly, and acts to make sure the Mondragon principles of cooperative law are upheld and that the general interest of the entire cooperative is not violated.(94)

Every group of 20 to 50 worker-owners meets at least monthly to talk about any issues that have come up in their division. Each division chooses a member for the Social Council which deals with the issues unions commonly address in capitalist firms (job description, salary scales, fringe benefits, safety, etc..). Most cooperatives donate ten percent of their annual profits to charity (usually community schools) and it is the Social Council's duty to chose where to allocate these funds.(95)

Every worker-owner has the chance to voice concerns and participate in the management of the firm--because they all have one vote each, all are equal participants. Although some worker-owners will be more focused on traditional union concerns, they will also be concerned with appropriate management for the survival of the company that they own. So we find that Dahl's criteria(96) of voting equality, control of agenda and inclusive citizenship are realized through the institutional structures that govern an individual cooperative. The criteria of effective participation can only be established empirically. Although the institutional structures seem to allow adequate opportunity for participation, they alone can not guarantee that such participation occurs (or is allowed to occur). The quality of participation must be constantly reflected upon by the members of the cooperative.

Entry of New Worker-Owners: To enter as a worker-owner into a cooperative you must provide a contribution that roughly equals one year's pay at the lowest grade (invest the equivalent of 10,000 US dollars). A portion must be paid in cash, but the rest can be detracted from your salary with no interest attached.(97) Yet, if the cooperative goes under, then the worker-owner is liable for the entire amount in bankruptcy court. In this sense worker-owners are invested as an owner from day one and each worker-owner is equally invested.

The entrance fee, aside from providing capital for the cooperative, also acts as a screening mechanism of future employees. To invest such a large sum of money shows commitment and is usually evidence of past employment and savings. Mondragon also screens applicants directly via a host of variables that they determine are necessary for cooperative work (not just obedience and punctuality).(98) Following acceptance, a worker undergoes a trial period of about six months and the foreman is told to report on the worker's social integration. Because of the considerable screening and the need for prior savings, cooperative employment is obviously not for everyone, especially those most in need of a job.(99) Although part of the entry fee goes towards the collective funds, the greater part is allocated to the individual's Capital Account, which brings us to a discussion of profit-sharing.

Profit Sharing and Distribution of Earnings: The average wage within Mondragon firms is based on the average wage paid in capitalist businesses throughout the province. As was mentioned above, earning differentials between cooperatives are minimized--the largest companies conduct extensive studies on earnings and share the results with other cooperatives. Within each cooperative the maximum earning differential is six to one(100)--the implication is that the lowest paid workers earn slightly more than their counterparts in capitalist business, but that managers and higher ranks earn considerably less(101):

Decisions governing pay in Mondragon were based on three principles: (1) solidarity with their fellow Basques, which meant that the starting rate for unskilled workers was fixed at approximately the prevailing rate for similar jobs in the private sector; (2) internal solidarity, which meant that the need to reward superior performance and service had to be balanced against the need to minimize status differentials based on pay; and (3) openness with regard to pay, which meant that information on all salaries was available to all members. (Whyte, 1988, p.44)

Recently Mondragon has become the dominant force in some industries and thus private companies often refer to it for base pay rates.

Profits are divided so that 10 percent goes to charity, at least 20 percent is reinvested, and at most 70 percent is allocated to individual capital accounts. The more profitable the firm is, the lower the percentage that goes to individual accounts (although in absolute terms this payment still increases).(102) In practice it often works that fifty percent of the profits are distributed among the worker-owners based on a salary scale and seniority.(103) The individual's capital account is treated as a loan to the company, with six percent interest paid out in cash every year as a bonus. This way the business "receives capital without collateral at a low interest rate, normally the most difficult and expensive capital to borrow."(104) Furthermore, the worker-owner can use his/her individual capital account as collateral, if they want to get a loan from the bank. When the worker-owner leaves the cooperative the cooperative pays out the amount in the capital account, this usually happens at retirement. According to Carol DiMarcello at the Industrial Cooperative Association, because workers wanted access to their capital accounts before retirement, many cooperatives have adopted a rotational system where the profits earned in the first year are paid out five years latter, etc...(105) Obviously this system of "internal capital accounts" works best in a stable community with low mobility.

Guaranteed Employment and Labor Mobility: The main focus of the Association of Cooperatives (mentioned above in section A) is the continued creation of jobs. As older firms become more efficient and adopt new production technologies they often chose to cut jobs. In order to allow the aggressive pursuit of new technology (such as automation, which improves working conditions by "eliminating repetitive and dirty jobs" and increases productivity), and still provide security of employment, new jobs must be found for worker-owners who have lost their positions.(106) The diversity of Mondragon's regional and industrial networks are essential for shifting worker-owners around depending on the demands of the market.

Because of the reliance on individual capital accounts as the main source of equity accumulation, labor turnover has a large impact on the cooperative's ability to grow. It is difficult to grow without locking in the work-force for a substantial period of time. Workers in capitalist firms near Mondragon rank this fear of being "locked in" as the number one obstacle to joining. Perhaps for ethnic reasons linkages to local communities are strong enough to limit labor's demand for mobility (see section on Culture below).

Strong community ties and low mobility also contribute to the maintenance of consensus on key aspects of Mondragon (such as the compressed payment scale). Also worker-owners are directly investing in their communities; they do not feel a need to send savings to distant areas while working (as immigrant families might). In this sense the Mondragon style cooperative might not be viable in a market with general labor mobility and high rates of technology change.(107)

Caja Laboral Popular (The Bank): The bank is essential for the continued functioning of Mondragon, especially in regard to the continued creation of new jobs. The CLP has set the goal on an annual enlistment of at least ten cooperatives (six by own promotion and four by transformation of existing factories).(108) The bank relates to new businesses the same way a large company relates to the formation of a new product line.(109) The bank only sponsors groups of friends, never an individual, and it agrees to stay with the founding group until the cooperative is successful. Although feasibility studies are carried out, the bank is investing more in the people than the idea. There are offices within the bank that conduct "prefeasability" studies in different industries so that when approached by a group of entrepreneurs they can narrow down the product they will chose to manufacture very quickly.(110) The bank also actively recruits potential entrepreneurs.(111)

The founding members of a new cooperative use their personal assets as collateral and put up twice the membership fee others will be required to invest; the bank loans the rest at 13 percent. If the business has difficulty, the bank loans additional capital at 8 percent, and with still further difficulty, the bank loans at 0 percent. If there is still more difficulty, the bank might chose to donate capital. The riskier the loan, the lower the interest rate.(112) The bank also uses a portion of its profits to reduce the size of all the loans owed to it. The founding members elect one of their number to act as the general manager and the bank covers his/her salary for eighteen months to two years (this is considered a loan).

The bank has a highly skilled consulting staff in the Entrepreneurial Division, and, on top of that, all founding cooperatives can receive support from pre-existing ones. The Entrepreneurial Division monitors the performance of every cooperative and is quick to recommend action if necessary:

In one case a potential failure was avoided when the Entrepreneurial Division completely changed the product line. Workers were sent home on furlough while the old machines were torn out and new machines installed. This intervention created a viable firm. (Whyte, 1988, p.75)

So far the bank has a success rate of close to 100 percent--this is in contrast to the 20 percent success rate of new business in the United States.(113) The bank has also sponsored the conversion of capitalist enterprises into cooperatives:

But even with experienced personnel, an existing plant and equipment, and a position--however precarious--in the market, such a conversion, people at Caja tell us, is generally much more difficult to effect than the creation of a new cooperative. The problem, as they see it, is not so much the material resources as the difficulties of resocializing managers and workers to the culture of the Mondragon complex. (Whyte, 1988, p.75)

The bank also operates as a savings bank and is one of the fastest growing banks in Spain, with over 600,000 depositors and 3 billion dollars in assets (as of 1991).(114) The venture capital comes from the savings of depositors and yet this does not scare these depositors away.

Education: The Mondragon educational system has over forty schools and a college(115) (see chart). The Politecnica offers classes at all levels of vocational training, including the engineering-degree level, with classes focused on the needs of the factories.(116) There is also a student run coop, Alecop, where students spend 50 percent of their time.(117) Students work four hours a day in the factory and spend another four hours at classes. Alecop produces component materials for other cooperatives as well as equipment for science and engineering classes in the schools. The governing structure of Alecop has been designed to take into account the interests of the cooperatives it has contracts with, the permanent members of Alecop, and the students:

One-third of the members of the governing council is elected by the permanent staff, one-third by the student members, and another one-third by the contracting cooperatives. In 1984 Alecop provided employment, earnings for tuition and living expenses, and experience in work and in the cooperative processes of governance to more than 450 student members. (Whyte, 1988, p.54)

Study and work are integral to the education process so that by the time students are employed they are familiar with the culture of the workplace and yet will retain a strong interest in future study. To this end, Mondragon established a center for recurrent or permanent education.(118) For all students who cannot commute, a worker-owned hostel offers accommodations. There is also a research and development center which arose out of the polytechnic institute. As was noted before a good deal of Mondragon's charity goes to primary and secondary education in the surrounding Basque region.

Cooperative Culture

So far I have only discussed the institutional structures and mechanisms of Mondragon, but as any student of democracy knows, political institutions are only one part of the equation. Japan can create a constitution with many of the same institutions as western democracy and yet a close examination shows Japanese democracy is its own beast and the constitution is only partly attended to. Thus political culture is shown to play a large role in any political system. It is often argued that democracy does not succeed in certain countries because these countries lack the appropriate democratic culture. The same argument is used with regard to worker-owner cooperatives. Certain cultural practices become accepted norms and do not need codification in official documents (Judicial Review in the US, for example). Mondragon has a distinctive organizational culture that is closely tied to the greater Basque ethnic culture.

Organizational Culture: Mondragon is highly proactive in its approach toward survival (in contrast to many American firms in which "putting out fires" seems to be a management norm). Mondragon also recognizes that the "cooperative spirit" is something everyone can acquire, but it must be cultivated and taught. Mondragon's success is partly do to the widespread acceptance of four basic values: Equality, Solidarity, Dignity of Labor, and Participation.(119)

Equality: Every human is considered as being fundamentally equal, with equal rights and responsibilities. That some people are more skilled, productive, loyal than others is also recognized. One might resolve this apparent conflict by asserting that everyone is entitled to a certain level of minimum dignity and respect--beyond that it must be earned.

Solidarity: All members should rise and fall together. Each individual is equally dependent on the community for survival. The principle of solidarity operates within individual cooperatives, within Mondragon as a whole, and in regard to Mondragon's relationship to the wider Basque community. Obviously Equality and Solidarity are very closely linked values. These dual values manifest themselves in the 4.5 to 1 pay ratios and the profit sharing schemes (which are based on years of service).

Dignity of Labor: All work deserves respect, there should be dignity to blue collar work as well as white collar and managerial labor.

Participation: "Members have a right to participate as much as possible in shaping the decisions affecting them. They also have an obligation to participate."(120)

These broad values are intimately connected with basic guiding principles that shape the general operation of Mondragon: Balance, Future Orientation and Critical Self-Evaluation, Openness and Pluralism, and Community Orientation.

Balance: must be achieved between social objectives and technological imperatives, between financial needs of firms and economic needs of members. "Life in a cooperative should not be carried out as if it were a zero-sum game, in which some win and some lose."(121) This emphasis on balance helps maintain a consensus oriented democratic culture.

Future Orientation and Critical Self-Evaluation: Planning must be oriented towards the future to anticipate problems before they arrive. In order to accomplish this frequent self-critical evaluations must be carried out to examine the functioning of the organization and to avoid complacency.

Openness and Pluralism: Mondragon is open to any who have the requisite skills and training. Spanish law, as well as Mondragon policy, limits to 10 percent the amount of non-members a cooperative can hire. Mondragon does not discriminate against non-Basques (about 25 percent of members are non-Basque), and members are not required to have any particular political or religious affiliation.

Community Orientation: Mondragon sees its future tightly linked to that of the larger community and therefore puts a good deal of emphasis on charity and community involvement.

These values are emphasized in training and education and are reinforced by the greater Basque culture:

The culture of the Mondragon cooperatives is not unrelated to the underlying ethnic culture of the Basque people. Any attempt, however to explain Mondragon as simply a product of this ethnic culture is bound to produce serious distortions and oversimplifications. The leaders of Mondragon have selected from among the elements of the Basque culture, while devising a support system to reinforce those aspects they valued and to create other elements that are not present. In this way they have created a distinctive organizational culture. (Whyte, 1991, p.281)

Although I agree with Whyte that Mondragon has its own "distinctive organizational culture," I feel that the common Basque ethnicity plays a tremendously important role. Values such as Solidarity and Equality are easier to uphold when one views one's community as filled with brothers and sisters.

There are certain elements of Basque culture that have helped shape Mondragon.

Ethnic Culture: The Basque people have been living in the Pyrenees for centuries, they have developed a unique language and they share a common religion (Catholic). For as long as they can remember farming and village life have been oriented around consensual democratic structures. Egalitarian values and relations of trust are reinforced by community drinking clubs and general interaction. This could explain why labor and management in Mondragon firms are not plagued by mistrust. Also Basque culture is said to place a high value on labor and hard work, and Basques are said to have a high propensity to save. This reinforces the cooperatives' use of capital accounts to acquire equity--unlike spendthrift Americans, Basques are interested in saving their income.

They also have a history of being dominated by an outside peoples (French or Spanish). When Franco came to power after the Spanish civil war, he tried to crush Basque nationalism and outlawed the Basque language. Had the Democratic Socialists won, the Basque people might have achieved their promised independence. In the 1940's and 1950's when Mondragon's leaders were getting organized the Basque economy was depressed and political activists were in exile or in jail. Under many circumstances, oppression is known to increase nationalist sentiment and encourage solidarity and a willingness to sacrifice for "the good of our peoples." The historical circumstances and the ethnic unity were fertile grounds for the creation of cooperatives.

Most authors agree that ethnicity is not the determining factor to Mondragon's success. Rather they emphasize things like Mondragon's ability to overcome the obstacle of labor mobility. They show that a high proportion of cooperatives are started in areas where mobility is already low for "geographical and occupational reasons." They show how Mondragon reinforces the "morality" or "community spirit" of workers by its hiring decisions (preferentially hires children of cooperators) and social welfare programs. Strong community ties are obviously important in lowering labor mobility, and therefore capital mobility (and loss of equity). Sufficient equity is necessary for technical change and sustained growth. Since the capital accounts must remain tied to individual workers for the incentive of ownership to work, it becomes important that the ratio of retiring workers is balanced by new members inputs. Thus community ties encourage workers to stick it out and to invest in the cooperative.

Every author is willing to recognize how a common Basque culture is a "fertile" ground for cooperatives because of the specific features of Basque culture. Terry Mollner mentions that early in the formation of Mondragon, nationalism was an important motivator. But Mollner eventually goes on to emphasize the "relationship age" and the specific ideology developed and promoted by Mondragon as the key to its success. Although I agree the specific cultural ideology was important to adopt, I think it is clearly the ethnic bonds that allow it to be adopted. Mondragon clearly reinforces community, but the community was already there--the community was looking for a way of strengthening itself in its struggle for survival--that it was clever enough to hit upon Mondragon is a testament to their egalitarian ideals. Solidarity is a good example, what comes first: the ideology about solidarity that creates community, or the community that creates an ideology of solidarity? True examples of solidarity are usually found in homogeneous ethnic and religious societies--efforts to extend solidarity to multi-ethnic societies (such as the Soviet Union or Yugoslavia) have failed.

I believe that the creation of community sentiment is the true obstacle to the formation of Mondragon in other settings. It is significant that Mondragon arose in a homogeneous culture that saw its continued existence endangered by larger oppressing cultures. It is also significant that the leadership for the formation of Mondragon arose from within Basque society (Contrast this to countries in which people from the oppressor class start struggles on behalf of the oppressed--like the guerrillas in Guatemala). Mondragon could truly take the community's needs into account and gain the community's trust more easily. To start a similar movement elsewhere, in more heterogeneous societies that do not feel threatened, would require the creation of something similar to a religious fervor, filled with the righteousness of its mission--such movements have a tendency to be undemocratic, however.

I will now discuss some key features of American political and economic culture and examine the failure of activists to form Mondragon type systems in our own country. I will then speak about what many activists have turned to as an intermediary step, ESOPs. I will conclude with my analysis of what needs to happen, if true worker-owner cooperatives, in the spirit of Mondragon, are to catch on in the USA.

The American Cooperative Movement

The lessons of Mondragon have not been lost on the intellectuals and social activists of the United States. Despite the immense cultural bias in favor of corporate capitalist structures there are efforts to start worker-owned self-governing producer cooperatives. Cooperative efforts have periodically arisen in the United States, causing some authors to see them as "recurring, transitional responses to deeply rooted, persistent problems in our social structure."(122) In the early 1900's cooperatives were formed mainly as a response by artisans--coopers, bakers, shoemakers, etc..--to the increasing automation of their labor.(123) These cooperatives were often short lived because of their inability to produce goods as cheaply as the factories. During the massive unemployment of the 1930's, the government helped workers form their own cooperatives, mainly as self-help initiatives to provide themselves with food and clothing. The most recent massive wave of cooperative effort occurred in the late 1970's and 1980's, in part due to the counter-culture movement and the general rejection of society's impersonal bureaucratic norms. But many of these efforts were more often motivated by workers looking for security in the face of massive corporate "restructuring" and the many leveraged buy-outs that were occurring throughout the 1980's. I will first discuss some of the general developments in relation to the formation of worker-owned cooperatives that took place in the 1980's. I then take a closer look at the employee Owned&Operated supermarkets that were started in Philadelphia, and at the more successful and longstanding plywood cooperatives of the Pacific northwest. In the next section I focus on the growing ESOP movement--how it differs from the ideals of Economic Democracy, but how it might be used to promote Economic Democracy.

The 1980's, An Overview

Much of what has been recently published about worker-owned cooperatives is commentary on the surge of activity that took place in the 1980's. Since most of the academics who take seriously and study worker-owned cooperatives are also ideologically committed to them, it is hard to find unbiased information. Many of their grand predictions of a growing movement have not come to pass. Yet, slow change is taking place and some of what started in the 1980's continues today.

As a result of the general societal upheaval of the late 60's and early 70's many small worker "collectives" were formed in urban areas across the country--mainly San Francisco Bay Area, Boston/Cambridge, Washington D.C., Minneapolis, Austin, Ann Arbor, Seattle, and Eugene.(124) By 1980 there was estimated to be at least 750 to 1000 small worker-owned collectives--staffed with self-termed "refugees" from corporate America.(125)

These refugees were predominantly in their late twenties (average age of 27.7), college educated (53 percent had college degrees and another 34 percent had some college background) and white (93 percent).(126) In short this was a white middle-class phenomenon. This can be explained because the low salaries and erratic career path associated with working in these cooperatives exclude, on a self-selected basis, minorities and the working class.(127) A slight majority of the workers in these small cooperatives are women (61 percent):

Traditional female socialization, of course, propels many women toward occupations in food-related and social service work, and these abound in the collective movement. Moreover, feminism has placed a premium on group cooperation and camaraderie among women, and on doing work with political implications. (Jackall and Levin, 1984, p.95)

These small collectives tend to be involved with bookstores and publishing (25 percent), often catering to feminists, Gay rights, and other alternative audiences; social services (10 percent), mainly health related; food (45 percent), such as bakeries and restaurants; and sales and production of such products as alternative energy systems, bicycles, films and records (20 percent).(128) As with most small businesses, some are still around today and most have long since passed away.

For a long while, organizers of worker-owned cooperatives had to find ways to use the laws of standard incorporation to allow the creation of worker-owned enterprises. By 1982 however, Massachusetts became the first state to pass legislation for the formation of producer cooperatives. The act was called The Employee Cooperative Corporations Act and due to the efforts of the Industrial Cooperative Association(129) (which co-wrote the legislation) the act is geared towards helping the legal establishment of Mondragon-style cooperatives and authorizes a system of internal capital accounts.(130) Many other states have since followed suit in passing similar legislation (Connecticut, Maine, New York, Oregon, Vermont, Washington, as of 1989).(131) On the federal level, in 1984 Senator Russell Long (nephew of populist Huey Long), who was instrumental in establishing the ESOP legislation, extended to "eligible worker-owned cooperatives" (EWOCs) some, but not all, of the tax advantages offered to ESOPs.(132) One key exception is that banks are allowed to exclude fifty percent of the interest income on loans to ESOPs, but not EWOCs.(133)

During the 1980's several supporting institutions arose to distribute information and technical advice for the establishment of worker-owned firms (ESOPs and producer cooperatives). The most active and important being the National Center for Employee Ownership (NCEO) operating out of California, the Industrial Cooperative Association (ICA) operating out of Boston, and the Philadelphia Area Cooperative Enterprises (PACE), which saw itself as more regionally focused than the other two.(134)

In North Carolina there were sixteen worker-owned cooperatives and six supporting institutions.(135) These support institutions were not all exclusively interested in worker owned cooperatives, but are more broadly focused on community development and empowerment. The Center for Community Self-Help in Durham and the Twin Streams Educational Center in Chapel Hill provide technical and educational services.(136) The Self-Help Credit Union, which in 1988 had more than 1.5 million in assets, was able to give loans to twelve self-governing and worker-owned firms.(137) The Legal Services Corporation and the Center for Women's Economic Alternatives have helped to establish worker-owned and democratically managed firms.(138) And Guilford College has an undergraduate program in democratic management, holds an annual conference on the subject, and faculty members have acted as consultants to area firms.(139) In an interview I had with Carol DiMarcello from ICA she was unsure how many of the cooperatives started in North Carolina in the 80's were still in operation. She knew that ICA was still consulting with one of the two sewing cooperatives--she also pointed out that Self-Help had grown to six locations (although they mostly work with minority-owned and women-owned small business expansion).(140)

The National Cooperative Bank was created during the Carter administration. It was designed to spin off and become independent of government support. Because of Reagan administration budget cuts it had to become independent sooner than expected and as a result lost its research and development section.(141) This bank has focused primarily on loans for consumer and housing cooperatives, although its Development Corporation does work with ICA in helping start-up producer cooperatives.(142) American Capitalist Strategies works with unions and other groups to help employee buy-outs and the creation of ESOP plans.

Unions have historically been skeptical and antagonistic to the cooperative movement,(143) although the specific reaction has varied between unions and local chapters. The AFL-CIO issued a statement in the 1980's in support of ESOP plans.(144) Some Unions have tried to use pension funds to invest in starting up employee owned firms--however legislation in most states requires that pension funds are invested in conservative and conventional ways so as to protect the retirement interests of individual employees. In the 1980's, Jack Joyce, president of the Bricklayers Union, visited Mondragon and attempted to start a cooperative in Birmingham, Alabama. The union was enthusiastic about other initiatives, but backed off when the Birmingham cooperative failed.(145) Local 1357 of the United Food and Commercial Workers, in Philadelphia, skillfully countered the threatened shutdown of several A&P supermarkets and negotiated employee buy-outs of two. With the help of PACE, the UFCW extended the number of employee Owned and Operated (O&Os) supermarkets. However by 1996, only one of the two original O&Os, Parkwood Manor, remains. Because this story is well known in the field of cooperative development and illustrates two of the key problems facing the start up of worker-owned firms, I will use it for my case study of the 1980's.

The Rise And Fall Of PACE And The O&Os

The UFCW started negotiations with A&P well before the official announcement of the closings was to take place and two thousand employees were to be laid off.(146) The eventual agreement had A&P reopening its stores as the SuperFresh chain in return for wage concessions. The union also secured the option for its workers to buy two former A&P stores and these became the Parkwood Manor and Roslyn O&Os. Part of the deal included a one percent bonus to all SuperFresh employees that was to go to an O&O investment fund to finance future employee buy-outs.(147)

The union hired PACE, and it immediately started training the 700 future employee-owners. They met as often as four nights a week to discuss aspects of democratic participation, workplace cooperation, enterprise management, and to teach each other about various technical aspects of supermarket operations (the training started with the BBC documentary on Mondragon).(148) PACE, which started in 1976 as part of a short lived Federation for Economic Democracy, did not attract a lot of foundation grant money or attention until 1982 when the O&Os opened with national network news coverage.(149) The O&Os' consulting fees became PACE's main source of income outside of grants from foundations and religious agencies. At its peak, PACE had an operating budget of $500,000, offices in Pittsburgh and Philadelphia and twelve staff.(150) With the O&Os, PACE attempted to turn itself into a developer of a network of employee-owned food related enterprises.

The O&Os managed to attain higher sales levels than the former A&Ps and they cut operation costs considerably.(151) The workers agreed to pay cuts in anticipation of sharing future profits. Worker-owners agreed to flexible job descriptions and thus helped out where needed. Parkwood Manor did so well that it bought another former A&P in Lambertville, New Jersey, which it then sold to Roslyn. By 1986 there were five O&Os with a sixth on the way. But due to what analysts believe were largely idiosyncratic management and personnel problems and an inability to raise necessary capital, from 1987 to 1989,, five of the six O&O's failed.(152)

The O&O network had trouble raising capital from the beginning--the meat cutters, organized in their own union local, refused to pay their bonuses into the O&O investment fund.(153) This prompted the retail clerks to make the payment voluntary and thus the fund had a meager income. The Roslyn O&O operated two stores and the original 24 employee owners hired 24 non-owner employees--thus losing the initial capital investment that new owners make. As is fair in an open market, Pathmark and SuperFresh, with more access to investment capital, opened nearby stores that drew customers away. The lack of capital is seen to be key in the failure of the O&Os. The giant supermarket corporations had more capital to allow them to switch to computerized checkouts and deal with tightened wholesale credit. Parkwood Manor's continued existence, which faced tougher competition from the beginning, is generally attributed to highly competent management. In many of the other O&Os over confident sales predictions lead to hiring more employees than could be supported, and managers were reluctant to cut labor to bring costs under control.(154)

Meanwhile PACE tried to help out with a variety of interventions to encourage democratic governance, stimulate growth, and control costs. Sometimes this "shadow management" helped resolve various difficulties and prolonged the stores existence. But, "the O&O agenda gradually became less and less a wellspring of inspiration and more and more a pit of emotional distress."(155) With the collapse of the O&Os, PACE not only lost its fee for service income but also the interest of granting agencies which saw the cooperative project as flawed. Pew and Ford Foundation support flowed out of economic development and into homeless and AIDS projects.(156) As PACE died many of the people involved left to create Praxis Associates, a for-profit consulting firm specializing in ESOP development and focused on eastern Europe.(157) As in other parts of the country the urge for worker cooperatives gave way to the growing potential in ESOPs. Before entering into a discussion of ESOPs, I examine what happens to cooperative firms, where stock provides the basis of ownership, that are too successful.

Traditional Worker Stock Cooperatives

The plywood cooperatives, formed after World War II, largely as an effort by workers to provide themselves with job security in a cyclical market that was tied to the ups and downs of the construction industry, are the best known examples of worker stock cooperatives in the United States. These cooperatives are all democratically structured and fairly egalitarian (equal hourly wages regardless of skill level). Official final authority is vested in the general membership. At annual meetings a board of directors is elected from the members and general policy making authority is delegated to them. The Board hires a management team which is responsible for the day to day activities of the firm, and receives directions from the Board that meets bi-weekly, and is accountable to the general membership.(158) All information about the firm is freely distributed and often discussed on the shop floor.(159)

The plywood coops use the legal mechanism of stock to carry membership (voting rights and income rights) as well as capital rights Mondragon has internal capital accounts for this purpose).(160) To be a member a worker must buy a share, but the worker has only one vote no matter how many shares s/he may own.(161) Although dividends go only to members, non-working shareholders receive nothing.

Part of the reason these cooperatives have dwindled is their incredible success. When ownership is based on stocks it is often impossible for new members to buy in (in 1990 membership shares in some coops were offered at $95,000 with a $20,000 down payment).(162) Also worker-owners realize they can increase the value of their investment by hiring labor. Thus by 1988, 30 to 40 percent of the personnel in the plywood coops were hired labor.(163) As the old owners retire, they might be glad to sell to their co-workers, but the value of the stock makes this impractical and the firms eventually get bought by outside interests. Although some of the plywood coops still exist, it is a much smaller number than the original sixty (this is also partly a result of the recession in the early 1990's).(164)

Mondragon solved such a problem by not issuing stock. Capital ownership is recorded in the internal capital accounts--allowing workers to accrue capital over their lifetime which is paid-out in several years upon retirement. Furthermore the by-laws of the Mondragon firms, as well as Spanish national law, impose a 10 percent limit on the hiring of non-members. It is possible for a Mondragon-style cooperative to vote to change its by-laws, although this has never happened in any Mondragon firm.(165)

These issues highlight a tension in worker-owned firms, that of the dual role of worker and owner. In general, as workers, people will want to push for immediate financial rewards and high quality working conditions; as owners people need to be interested in the long-run financial stability of their firm. This has often been one of the issues that prompts union skepticism--"how can you bargain with yourself?"(166) Mondragon has created separate structures to process the competing concerns and to ensure that the balancing problem is always a focus of debate. The social council in Mondragon firms resembles the role unions play in ensuring workers concerns are present in the minds of management--in the US it might be advisable to maintain union structures even in worker-owned firms. We will see that democratic ESOPs, unique to the US, get around both the issue of voting vs. capital accrual and the worker-owner tension, but not without some flaws of their own.

ESOPs and Economic Democracy

According to the National Center for Employee Ownership (NCEO), at the end of 1995 new employee stock option plan (ESOP) formation was at its highest, with approximately 10,000 ESOPs, since the late 1980's.(167) The goal of ESOPs is to increase employee ownership and the strategy was devised by a corporate investment banking lawyer, Louis Kelso, and pushed through congress into law by Senator Russell Long. In 1990, after only a decade and a half, about 10 percent of the labor force was covered by ESOP plans, and that percentage continues to grow. This contrasts strongly with the union movement, which by 1990, after a century of unionism, covered only 15 percent of the workforce.(168)

The Politics of ESOPs: Who favors them and why?

Part of the reason for ESOP success is that, unlike unions, employee ownership has not become a partisan issue. In fact, support for ESOPs comes from the entire range of political ideologies, including the unions. It is important to remember that ownership does not necessarily indicate control, and support from the right-wing of America for employee ownership is not also an endorsement by American conservatives of employee control. According to "Joseph Schuchert, managing partner of Kelso & Co., the top ESOP investment banking firm":

Our programs are the antithesis of workplace democracy...We've been criticized for not giving workers more participation, but we believe workers are natural shareholders, not natural managers. (Ellerman, 1990, p.105)

This points out that ESOPs are not necessarily a form of worker empowerment.

However some of the same people who see ESOPs as "the antithesis of workplace democracy" also call ESOPs "democratic capitalism.":(169)

Apparently there is such pressure to use the word "democratic" in the America that it has to be suitably redefined so that it can be applied to its "antithesis." The adjective "democratic" is sometimes used to mean anything that can be spread amongst the common people without discrimination--like the common cold. (Ellerman, 1990, p.106)

In this sense ESOPs are seen to be democratic because of their "spread the wealth" capabilities, not because they support democratic procedures. Such "conservative populists" understand that the creation of new wealth in a capitalist system accrues primarily to equity ownership, such that the rich get richer and the poor get poorer. Thus, until workers get in on equity ownership they are permanently outside the circle of wealth accumulation and capitalism. This can be seen as a "closed-loop financing system."(170) ESOPs offer a potential to break the loop. They also offer the potential for breaking workers away from unions (or at least drastically reducing union bargaining power) by offering them partial ownership of the firm.

Many ESOPs have been set up in medium sized family owned firms.(171) The typical pattern in these firms is for the entrepreneur and his/her family to create a successful business and then "cash out" by selling off the firm. The old method was to sell to a larger corporation, but this meant possibly losing control of the managing of the firm and giving your loyal employees an uncertain fate.(172) The ESOP alternative is tax deductible and allows one to sell the company and still keep control of it.(173)

Larger firms tend to look toward the ESOP option as a way of avoiding hostile takeovers by putting lots of stock into "friendly hands."(174) Unions are often supportive of ESOP plans as an anti-takeover device as well. If a company is going to be heavily leveraged to prevent a takeover that means the company is going to have to buy back large numbers of shares (such activities often increase the price of the stock). To offset this, the company has to reduce costs elsewhere and that often means wage cuts for employees. Unions figure that since employees will suffer wage cuts anyway, such suffering might as well be in return for partial ownership. Most ESOP plans in large corporations go hand in hand with large employee pay cuts. At United Airlines (example below) it looks like encouraging employees to accept pay cuts was the main motive behind the ESOP takeover.

Liberals are often supportive of ESOPs because it offers one of the few chances to be pro-labor and pro-business. Furthermore, as Dahl pointed out, reduction in the wealth disparity generally helps promote political equality, so even if ESOPs fall short of full democratic participation, at least they are a step in the right direction. Academics, like David Ellerman, see ESOPs as potential for changing societal norms about how the workplace is to be organized:

A cooperative is not easily hybridized; it is usually an all or nothing affair. The immediate implementation of a full cooperative assumes the eventual goal--a workforce ready and able to take democratic control of their workplace--at the very outset. A partial transitional legal structure is needed to gradually build up to full democratic worker ownership. An ESOP can play that role. (Ellerman, 1990, p.117)

Although ESOPs could play that role in the very foreseeable future, their present legal structure is not quite applicable (see below). Ellerman recognizes this and suggests that a slight change to the law will make ESOPs better suited to the role. But the point is not that the law needs only a minor tweak, the point is that the original goals of most supporters of ESOPs are not those of Economic Democracy--the vast majority of the ESOP coalition (and therefore the lawmakers) has no desire to change the law to increase the potential for worker control.

The Structure of ESOPs

ESOPs are a result of a special type of benefit plan authorized by the Employee Retirement Income Security Act (ERISA). Like any benefit plan the contributions of the corporation to the ESOP trust are deductible from taxable income. However the ESOP invests its assets into the employer's stock, making it a great vehicle for employee ownership and a poor pension plan (since it is not diversified).(175) Unlike the worker stock cooperatives (plywood coops), the control rights (voting rights) of shareholders is vested in a trustee of the ESOP, not in the ESOP participants themselves--it is this simple part of the law that Ellerman would like to see changed.(176) ERISA places operational expectations on trustees so that they act prudently in using plan assets "for the exclusive purpose of providing benefits to participants in the plan and their beneficiaries."(177) The Department of Labor and the Internal Revenue Service have interpreted this to mean that the ESOP trustee must seek to maximize return on trust assets:

An ESOP provision permitting a trustee to consider nonfinancial employment related concerns in tendering, voting, and handling employer securities would violate ERISA and would cause the plan not to qualify under I.R.C. Section 401(a)(2). (Steiker, 1992, pp.30-31)

It is likely that trusteeship was maintained in the case of ESOP legislation specifically so that management does not have to fear that by adopting an ESOP plan they are necessarily inviting worker participation in management decisions.

It is, however, possible for ESOPs to give workers some control by changing the by-laws of the corporation such that the workers each have one vote in a general election and the ESOP trustee then votes the shares according to the outcome of that election. This is called the "instructed trustee model" and is endorsed in the 1986 Tax Reform Act.(178) Only about twenty percent of all ESOP owned firms pass-through full voting control to workers--making about 200 majority ESOP owned firms with full voting pass-through.(179) A disproportionately large percentage of these firms were created by union buyouts of distressed firms (about one half); most of the rest occur because of union buyout of healthy firms, although a few occur simply because the owners or top management feel that ownership and voting rights should go together.(180) There are two models for democratic participation within ESOPs, roughly analogous to "corporate"(181) democratic structures (as found in Germany for example) and pluralistic democratic structures (as in the United States). The former is more popular as it institutionalizes control in the hands of those who negotiated the ESOP plan--management, unions, and outside stock holders are all guaranteed seats on the board of directors.

Traditionally in the United States, legal ownership of a corporation is associated with legal control--this linkage of property ownership with control rights is what I argued against in the first part of this thesis. However in the case of ESOPs:

The redistributive theme of cutting workers in on a piece of the ownership is rather silent about cutting workers in on a proportional part of control. (Ellerman, 1990, p.121)

The explanation for this is simple--rarely do those who have power wish to be accountable to their constituency; accountability makes the decision making process too messy (especially as it might mean one would have to accommodate other people's concerns other than one's own). Ellerman eloquently comments on this hypocrisy:

The whole question of workplace democracy is passed off with simplistic "Not all Indians can be chiefs" remarks as if all workers would be managers or "chiefs" in a democratic firm. That is hardly the real reason for managers' antipathy since after over two centuries of political democracy, they are well aware that democracy does not mean that "all Indians are chiefs." (Ellerman, 1990, p.121)

The fact is that most people in the United States do not have a sophisticated grasp of democratic theory, its different models, and its essential premises. ESOPs do not challenge the fundamental elitist assumptions that most college educated managers and corporate owners share.

United Airlines: A Case Study.

In 1994 the machinists and pilots of United Airlines voted in their unions to accept the negotiated ESOP, "trading 15% in pay cuts for 55% of the company and 3 of its twelve board seats."(182) Under the ESOP full voting rights were passed through to the employees.(183) This was not an easy decision on the part of the employees and the unions played a large role in convincing them to trust that this plan was not just a scam by management (see Appendices C and D for examples of union communications). Part of the negotiations for the ESOP forced the pilots union (ALPA) to accept the creation of a low cost shuttle (a.k.a. U-2). The shuttle was something management felt was necessary to compete with small companies encroaching on market share. The union saw the creation U-2 as a "b-plan" for pilots that forced a two-tier system that could possibly be divisive (U-2 pilots must accept lower wages than "main-line" pilots).(184) The flight attendants refused to take part in the negotiations and did not buy into the ESOP because they were resentful of the large pay cuts. Because United's stock prices have increased so much, to buy in now would mean even larger paycuts than the original deal called for.

The new Board of Directors created under the ESOP follows the "corporate democracy" model mentioned above. There are twelve board members and the seats are allocated to the different constituencies so as to achieve a power balance--1 seat for ALPA, 1 seat for IAM (the machinist's union), 1 seat for non-contract employees, and 5 seats for "public directors (2 of which are for management--including the CEO). In addition, 4 seats are reserved for independent directors, who can play a key role if the board becomes divided. As part of the negotiated agreement, IAM and ALPA were able to select a new CEO (Gerald Greenwald) and nominate the initial independent directors.(185) All new independent directors must be approved by a majority of the present independent directors and at least one Union director. The hiring of a new CEO requires recommendation of at least four board members, excluding the departing CEO, and including at least one Union member. The new CEO would have to be approved by a majority of the Board.

All Board committees must have at least one union director, one independent director and one other Board member--except for several key committees.(186) The committee for negotiation with labor must contain one public director and can not include any employee selected directors. In the committee responsible for UAL's Competitive Action Plan (CAP) the two union directors can not vote on collective bargaining aspects of CAP (in other words, union directors must abstain from votes on new contracts). ALPA also agreed to a time limited no-strike clause--mostly to reinsure investors for the period immediately after the ESOP went through.

As a result of the new ESOP plan, the airline has created a framework of "task teams" (from safety to absenteeism to customer satisfaction) in an effort to involve employees in the overall strategic planning process.(187) Already the suggestions from these task teams are being implemented to save UAL millions. One common example is the employee suggestion that looks as if it will save $20 million in fuel costs this year: longer ladders. By providing employees with longer ladders they are finally able to plug the planes into electric outlets while they are idling at the gates--before the ESOP an edict simply would have been issued and nothing would have changed.(188) With the expected savings in fuel costs United's management felt comfortable giving the pilots the freedom to speed up--in sixth months United moved from No. 7 to No. 1 in on time performance.(189) Employee task teams have even made recommendations for cutting costs that at first seem to be against their own interests. For example:

One employee team studying United's Salt Lake base recommended hiring extra workers to help unload skis in winter. But union ramp workers get $38 an hour for overtime. The solution--hiring $7-an-hour temps--came from the ramp workers themselves, whose jobs are guaranteed under the buyout...And when a pilot shortage developed last summer, the pilots union agreed to fly longer hours instead of forcing United to cancel flights, as was its contractual right. (Business Week, March 18, 1996)

Employees are expected to become part of the team and this means they are to help out where needed and not only do the tasks assigned to them.

To encourage such a mentality is a major change in the organizational culture of UAL. The old CEO, Stephen Wolf, was much more "traditional" in his management approach. "Traditional" essentially means a rigid hierarchical top-down approach to management:

Its not that management didn't really care what employees thought, it was just that management didn't really believe that employees had much to contribute...Sharing information with employees was not even considered. The only time employee reaction was important was if people were so outraged by a decision they would not carry it out. (Corporate Advertising, Nov/Dec, 1995)

Stiff competition was causing huge losses and the resulting cost cutting (read: layoffs) were reducing morale; meanwhile conventional wisdom called for further cuts. Flight attendants were severely disciplined for calling in sick and supervisors were known to lecture and scold staffers into grumpiness minutes before they were to greet customers.(190)

To help create a team mentality, a massive "public relations" campaign is taking place within the company as the new management attempts to disseminate information about the corporate strategy that will help employees make key decisions. This has involved the new CEO, Gerald Greenwald, and the new president, John Edwardson, flying around, in coach class, to meet with employees face to face.(191) Greenwald was quick to make some key symbolic changes to convince workers that the revolution in management was real. For instance he tore down the glass walls that separate management's offices and he renamed the "human resources department" the "people department."(192) Furthermore, in an attempt to reach out to the embittered flight attendants, he removed the weight restrictions and the restriction against wearing shoes the showed "toe-cleavage."(193) It seems that flight attendants felt extremely alienated and were in protracted struggle with UAL's past management. Yet slowly they are being convinced that United is truly changing. The new "team spirit" and corporate culture is also affecting flight attendants--an unusually high percentage are actually owners (although not through the ESOP).(194)

Aside from being a competent and charismatic leader, Greenwald is committed to taking employee input seriously and working with the union members on the Board. One very important example is when United was considering acquiring USAIR.(195) The ALPA board member explained how hard it was to combine airlines, sighting past disastrous examples in the industry, mostly because of the difficulty in combining pilot seniority lists. The bid for USAIR was dropped. In the process of considering the bid the other board members became convinced that the union directors were putting aside partisan issues and considering the success of the corporation as their primary concern.(196)

United has been able to boost revenues 7 percent and steal market share away from its two biggest competitors, Delta and American. This has allowed United to hirer 7,000 new employees. Some analysts are skeptical of this "expansion binge" and they doubt the "new cooperative" spirit will be maintained when the "inevitable next round of fare wars" occurs.(197) Recently:

the company has dented goodwill by announcing bonuses for 600 managers under a longstanding incentive-compensation plan, news that didn't sit well with employees still adjusting to pay cuts. (Business Week, 1996)

According to the Transportation Department, in 1995 UAL still ranked sixth in mishandled baggage and seventh in customer complaints(198). So, much remains to be seen.

Overview Of How Other ESOPs Have Fared

According to Business Week:

Many early icons of employee ownership have run into problems ranging from smoldering employee resentment to outright labor management warfare. (Business Week, March 18, 199)

Weirton Steel is one of the more well known ESOPs, once especially noteworthy because employees have 100 percent stock ownership. However, recently, employees have been forced to swallow huge paycuts and sell off 30 percent of the stock to finance plant upgrades and reduce debt.(199) Over the last year, union and management have gone to war. The union is upset with management for a "lavish" modernization plan that forced the ESOP to sell more of its voting share, reducing it to 49 percent. Management is furious about a four hour shutdown of a tin mill that union claims was necessary for "safety concerns." The situation has degenerated so far that Weirton recently issued a statement saying "we don't consider ourselves an ESOP company anymore."(200)

A similar story can be told about Northwestern Steel & Wire Co. With North Western Steel relations have been recently more embittered because a new lower-wage plant was built and the company failed to give recognition to the union when hiring. The nation's largest ESOP (as measured by number of employees), Publix Supermarkets, has been charged with a class action suit for discrimination against female employees when considering promotions. At Avis, workers complain that they have no board seats or voting rights and management seems to be oblivious, stating worker control "is not necessary, because employees have confidence in us to deal with [major corporate decisions]."(201)

It seems that most executives of ESOP companies agree with Avis.(202) Business Week sums up the issues exceptionally well:

Evidence shows that, to be effective, ownership has to be combined with ground-floor efforts to involve employees in decisions through schemes such as work teams and quality-improvement groups. Many companies have been doing this, of course, including plenty without ESOPs. But employee-owners often begin to expect rights that other groups of shareholders have: a voice in broad corporate decisions, board seats, and voting rights. And that's where the trouble can start, since few executives seem comfortable with this level of power-sharing. (Business Week, March 19, 1996)

This seems to be evidence that the main block to Economic Democracy is that the "powers that be" must be convinced to share.


It has been shown that democracy in the work place is more than just a good idea--it is a fundamental right. Furthermore, the examples of Mondragon, the plywood coops, and UAL show that incorporating democratic decision making into the traditional workplace hierarchy can not only create organizations as efficient as capitalist firms, but also ones that are actually more competitive by marketplace criteria. Evidence of their success had prompted mainstream media outlets, like Business Week, to suggest that a new model for corporate governance might be emerging. Yet, not every example we looked at was one of glowing success.

The rest of this final section is devoted to analyzing why worker-cooperatives often fail and why the movement in America has, so far, not managed to catch fire. I start by examining the common explanations, offered by the academics and activists in the field, of the problems facing cooperatives. I then pick up on the two themes of entrepreneurship and cultural change and discuss how these impact the cooperative effort. ESOPs are suggested as possible transition phase helping society adjust to a new workplace culture. I look at Mondragon's success for inspiration and discuss the need for a movement, in America, that appeals to our historical commitment to democracy as well as to some of the most powerful of human motivations: providing meaning to life and a supportive community. I end by making some suggestions about what Haverford College can do to help promote justice in this world.

Reasons Why Cooperatives Fail

Structural Explanations

Cooperatives often form under conditions of economic marginality (as workers try to save their jobs) or cooperatives form in industries that are easy to enter (which usually means high competition and low profit margins) Such businesses typically experience high rates of failure. It is usual for a cooperative to be formed by workers who purchase a company that is already on the brink of bankruptcy. As Dahl says:

It is hardly surprising that workers may fail to save a firm after management has already failed. What is surprising is that workers' cooperatives have sometimes succeeded where private management has failed. (Dahl, 1985, p.132)

Because of the haphazard and last minute nature of the formation of cooperatives in America it is often only a matter of coincidence that "such enterprises find themselves with exactly the right combination of persons trained and experienced in the varieties of activities that they must conduct."(203) It is also true that cooperatives, especially when starting up, offer less rewards to highly educated workers than these workers might receive elsewhere.(204) We found that in Mondragon a solid commitment to the democratic ideal and the solidarity of the group inspired the highly skilled workers to stay with the cooperatives. Also Mondragon had an elaborate educational structure to retrain workers and a support network of consultants to help new firms.

The network of firms in Mondragon allowed individual cooperatives to exchange services and share expenses. The entrepreneurial division of the bank provided new and existing cooperatives with research on the available markets and the technological requirements for particular industries. These structures often help prevent new firms, and existing firms looking to expand, from heading down a dead end path. One of the major problems for entrepreneurs in the United States, acquiring the needed technical assistance at affordable prices, is solved at Mondragon. In starting a new firm an entrepreneur will need to call on the advice of several consultants (lawyer, accountant, marketing, etc..) and because of the nature of competition between consulting firms in the US:

the specialists do not generally limit their recommendations to the field covered by their specialization. Thus the lawyer, the accountant, the marketing specialist, and the technological consultant are all likely to give general advice on how to establish and manage an organization, and more often than not present conflicting and mutually incompatible views. (Whyte, 1988, p.299)

At Mondragon the whole process is integrated in a network that acts as a supportive team.

Contrast this with the O&O supermarkets who lacked appropriately trained managers, quality advice about how fast they should expand, and access to low-interest capital. Remember that the Caja Laboral Popular of Mondragon will continue to loan money to a newly forming business, helping the business ride over some of the bumps caused by mistakes made early on. Without the necessary support network it is clear that it is hard, but not impossible, for an individual cooperative firm to survive in an economy geared toward capitalist production methods.

The Problem of Entrepreneurship

Although lack of funding and appropriate managerial skill are significant, I believe the clear cause for the failure of the cooperative movement to catch on is that cooperatives fail to be created in the numbers necessary. Although cooperatives might be more successful than capitalist firms once the appropriate structures are put in place, there needs to be someone to put those structures in place. A regional network of highly successful cooperatives, as in Mondragon, requires enough cooperatives in one region to be networked. In the United States, 80 percent of new businesses created fail within the first five years. It remains to be empirically determined if cooperative firms in the US survive at a significantly higher or lower percentage. But if we assume that a small fraction of the new businesses started are cooperatives and they fail at the same rate as most businesses, then it will take many many decades before a network could be established.

Capitalism is exceptional as a system that promotes entrepreneurship. Driven by dreams of success, risking everything, working past the point of reason, some entrepreneurs will succeed while many others who have tried will fail. Yet, for each failure, a thousand will rise to try in their place. This is the fire in the belly of a vibrant, vigorous, capitalist economy. It is true that it is hard for the cooperative firm to raise the necessary capital--but that is often due to its failure to put up the appropriate collateral. A bank is convinced to take on a risky loan if there is evidence that the entrepreneur is taking on significant risk as well. In starting a new business an entrepreneur often risks significant personal assets (life savings, house, etc..), because their dreams of success make it worthwhile. If a capitalist entrepreneur succeeds, he or she maintains control over the company and its profits. On the other hand, if the cooperative entrepreneur succeeds, control and profits must be shared with all.

However, the above formulation is an oversimplification. Entrepreneurs must appeal to those with capital in order to get their idea off the ground. Often, the capital lenders demand a piece of control as well:

It is an old tale how entrepreneurs may team up with venture capitalists and end up as hired managers or as being unemployed since the control rights to the conventional corporation are attached to the ownership of the capital shares. (Ellerman, 1990, p.32)

It is also true that the cooperative could be designed so as to reward the additional efforts and brilliant idea of the entrepreneur. The democratic firm could recognize that its existence is based on the previous efforts of the entrepreneur and thus give the entrepreneur a disproportionate share of the profits for a period of years (say, 25 percent diminishing by one percent over ten years or whatever the firm decides is appropriate). If the entrepreneur creates a new product, perhaps they would be entitled to royalties from every unit that is sold. Other incentive mechanisms could easily be thought up and written into the by-laws of any cooperative enterprise. Of course, such a system would not give the entrepreneur as much reward as s/he would receive through the present system, so one would assume only socially conscious and ideologically committed entrepreneurs would be motivated to participate (unless society were to agree to enforce democratic power-sharing in all corporations by enacting the appropriate laws, but outlawing traditional capitalist enterprise is a more radical position than I am willing to defend).

Mondragon has solved the problem of entrepreneurship by socializing the whole process. The Mondragon complex supports a bank, whose express purpose is to finance the creation of new cooperatives, that actively recruits entrepreneurs to start up new firms. There is a research and development institute to encourage technological innovation, a technical engineering college, and a postgraduate and professional management training institute. The entrepreneurial division of the bank has several hundred trained professionals to offer the assistance needed to set up new businesses. All the Mondragon cooperatives recognize that their future success depends on steady expansion in order to provide the flexibility to guarantee employment--and cooperatives are organized into regional and industrial teams to facilitate this process. The organizational culture of Mondragon is committed to innovation and growth and entrepreneurship is seen as a social duty. For the United States to develop a similar superstructure and outlook would require significant cultural change.

Cultural Explanations For The Failure Of Cooperatives

Another problem facing cooperatives is that those who form them are often more committed to the ideology than to good business practices.(205) In some coops, for example, the members are so committed to direct democracy, they fail to form official structures for decision making, preferring instead to rely on general meetings and consensus. Often times these same people are so committed to egalitarianism that they refuse to follow the laws of supply and demand and pay people according to the skills they have. Such policies might be thought to work in small groups of closely knit friends--however many small coops failed because they refused to codify their hiring practices and establish clear, and potentially hierarchical, structures.(206) Many of the cooperative efforts arising out of the counterculture movement in the late 1960's and early 1970's suffered these problems. The small cooperatives formed in that time where centered around:

a set of romantic notions based on rejection of conventional norms rather than a shared vision of appropriate behavior...Individuals who rejected personal or collective responsibilities were thus joined with those with a strong sense of social and personal responsibility and integrity. The former would often reject conventional demands on their energies or behavior, including getting to work on time, doing work of high quality, economizing on the use of organizational resources, and so on. (Jackall and Levin, 1984, p.219)

The parasitic members of these groups were very rarely asked to leave or disciplined because no one wanted to be accused of being

on a "power trip." Thus many of these communities were often destroyed by the accumulation of resentment and interpersonal strife.(207) For many people the failure was too emotionally draining to inspire them to pick up the pieces and learn from their mistakes, thus they moved back into the mainstream economy.(208)

As mentioned earlier those involved in the small cooperative movement in the late 1970's were often young and from the middle class. In this sense they were still childish and idealistic about what it meant to make a living. Mondragon, on the other hand, was started by a community involving inter-generational efforts. Mondragon recognized from the beginning that some people will have skills that others do not (and that they will need to be rewarded fairly) and that efficiency concerns often requires delegating authority. Mondragon firms have hierarchical structures, but they also maintain multiple avenues for the flow of information and there are a lot of opportunities for the bottom of the hierarchy to influence the top. When examining Mondragon it was also pointed out that the mere existence of the correct institutions does not mean that they will be used appropriately--organizational culture was seen to be essential to the continuation of a healthy cooperative.

Culture is something that is learned, and in the United States our culture does not promote the skills necessary for the cooperative workplace. In the United States, the common culture of the workplace assumes that the interpersonal relations between workers are formal and:

designed to facilitate control and productivity rather than being based on more traditional social structures of friendship and kinship. The main rewards for work are assumed to be extrinsic ones such as wages, salaries, vacations, pensions, rather than a high degree of control over one's work activities and the ability to express one's human and creative potential on the job. (Jackall and Levin, 1984, p.223)

This work place culture is further reinforced by the educational institutions:

In their study of six societies, Inkeles and Smith (1974), found that schooling seems to be the main contributor to the development of those personality traits that are fundamental requisites for factory work. (Jackall and Levin, 1984, p.224)

That schools are often impersonal hierarchical and bureaucratic makes them very similar to the typical workplace:

In both the workplace and the school, the activity of the student (workers) is determined by factors external to them, such as the curriculum (production activity), the organization of instruction (production), and the instructional materials (tools) that will be used. Supervision and evaluation are carried out by teachers (work supervisors) whose authority derives solely from their superior positions in the organizational hierarchy. The supervisors control the content of the work activity as well as the rewards and sanctions, and successful students learn quickly to accept the norms of the at least ten to twelve years of this regimen [students] have learned to accept its legitimacy and internalize its norms or, at the very least, conform to its requirements. (Jackall and Levin, 1984, p.224).

Because of the pervasiveness of these values through out the workplace the media and the family portray these norms as inevitable. Of course, any one that offers a progressive critique of society is easily branded a radical or idealist who is easily dismissed as "unrealistic." To change cultural norms requires changing experience, to change experience requires changing institutions, to change institutions requires convincing people there is reason to do so and thus to challenge cultural norms--a catch 22.

Can ESOPs Be Used As A Bridge Between Today and Tomorrow?

ESOPs seem to enjoy a broad base of support, they are an acknowledged competitive organizational structure, and there are laws and institutions set up for their promotion. Although it is clear that ESOPs do not necessarily provide the workers with control over their workplace, some ESOPs do. Also as discussed earlier, because society links ownership with control, many workers in ESOP firms that have not offered the workers control rights are beginning to wonder: why not? At United Airlines the creation of the ESOP brought about tremendous change in the organizational culture and seems to be training workers and management to cooperate so as to solve common problems. Thus in certain industries ESOPs are beginning to challenge the common cultural norms about the workplace and the media is carrying the message. It would then look like ESOPs are a potential vehicle for promoting the cultural change necessary to achieve Economic Democracy.

A good analogy would be to the time when society was making a shift from feudal law and monarchical rule to democracy.(209) The transition phase was to link the democratic franchise to land ownership, thus power was not shared all at once but piecemeal. Eventually populist leaders were able to broaden the polity so as to include everyone. By substituting capital for land we see that ESOPs might be similar to the republican governments that preceded full democratic participation. Ultimately though, "the right to democratic self-determination should be a human right, not a property right which must be 'purchased' from its prior 'owners.'"(210)

The Need for A Movement

Cultural Change Through The Creation Of A Movement

One of the main obstacles to the creation of a cooperative movement is that knowledge of this alternative is minuscule. Mondragon is not the only example of large numbers of successful cooperatives. It is the most popular example and therefore the easiest to get information about. In Italy there are 20,000 worker cooperatives--many more than Mondragon. The Italian government is active in supporting cooperatives, particularly because they offer the chance for economic growth in depressed regions.(211) France also has significant numbers of cooperatives and Great Britain has a situation resembling that of the United States. Cooperatives are promoted in some less developed countries and some people believe cooperatives will be highly successful in Eastern Europe and the former Soviet Union. Comparative studies need to be done examining the specific cultural and structural adaptations cooperatives have made in order to survive in these diverse socio-political environments. In order for the cooperative movement to catch on people must first be aware that the alternative exists.

I assert that all major cultural change, that has not been brought about by a technological innovation,(212) has been the direct product of a mass human effort incorporating some nationalistic or religious sentiment that connects to a larger movement. In the cases where Economic Democracy has flourished, for however short a period of time, it has always been connected to a broader movement:

For example, from the Scandinavian immigrants and various religious groups who founded cooperatives in the United States, to the Eastern European Jews who initiated the kibbutzim in Palestine, to the Basques who created the industrial cooperatives of Mondragon, there has been a common experience and culture on which the democratic values and sense of destiny [and identity] have rested. Further, in all of these cases the cooperative endeavors were workplace manifestations of larger movements for solidarity and survival. (emphasis mine, Jackall and Levin, 1984, p.225)

I do not believe that any amount of organizational and structural innovation can substitute for a movement that infuses greater meaning into the workplace.

Any attempt to start a broad cooperative movement in the United States should draw on our historical commitment to democracy and play up the "all-American" and community reinforcing nature of the cooperative. America has changed a lot since its inception and perhaps a movement is what it needs to return to its "first principles."(213) America is no longer a society of small agrarian land holders:

We are today an urban people, largely propertyless (in the productive sense), and dependent on big organizations--in short a society of employees coordinated by bureaucratic elites and experts of every sort...the entire social fabric woven on this warp [has] come to assume a taken-for-granted status an aura of inevitability; it becomes difficult for most people to conceive of other ways of arranging the world, even when, as in our society, the social costs of the pattern begin to mount. (Jackall and Levin, 1984, p.278)

Pat Buchanan's populist message (mixed with racial paranoia) is indicative of a growing constituency fed up with a system that supports corporate CEOs who slash jobs and give themselves pay raises. Growing numbers of Americans are scared about their job security and will look to anyone who can seem to provide an answer to their anxiety--even if that answer is simply to scapegoat illegal immigrants, welfare mothers, and people of color. In order for any movement to start up two conditions must be felt in the minds of the people: 1) the existence of an intolerable condition and 2) a sense that the movement might succeed.(214)

Unlike past attempts to correct social ills, the cooperative movement does not assume an idealized form of human nature. It does not postulate that humans are primarily competitive or primarily cooperative. Instead it recognizes that humans have both tendencies to cooperate and to compete. The structures of the Mondragon cooperatives achieve cooperation by an appeal to the rational self-interest of the individual members. But cooperatives do not only appeal to the rational side of the human being. Cooperatives create a sense of belonging and team spirit that bring greater meaning to the work place. As automation and technological change render more and more jobs repetitive and redundant people will be looking for fulfilling and creative challenges within the work environment. Participating in management decisions and contributing ideas that improve overall productivity can decrease the sense of alienation and boredom that is all too common in the workplace of today.

Those involved in the field of community economic development, attempting to empower poor urban communities, have found the cooperative model especially inspiring. Local ownership and control fits very well into the philosophy of self-empowerment. Carol DiMarcello of ICA believes that for these communities the cooperative option has just been discovered. She expects that we will see it emerge in full force over the next couple of years.(215) She also points out that there is a large potential for cooperatives to be used in Native-American communities, but she is not aware of any current efforts to do so.(216)

It is likely that the future in America will not hold the high rates of economic growth that keep our growing population gainfully employed. Already many American workers are forced to hold down more than one job to support their families. Increased globalization will continue to send jobs oversees where there is cheaper labor and because employers do not have to worry about the environmental, health and safety regulations that protect workers in the US. Those who argue that the trend towards globalization should be stopped are akin to those who argue that technology should be abandoned. There is a way to achieve the economies of scale that globalization offers and to protect local communities and reduce the power of large impersonal multi-national corporations: Mondragon. Mondragon has shown that as cooperatives grow, they have a tendency to branch off and form autonomous units, linked in a horizontal web of mutual trade agreements. This system promotes small personal businesses and maintains the advantages of a flexible and diversified product line.

What Haverford Can Do

Haverford College has the potential to help further economic democracy in the United States. As was mentioned earlier, part of the reason for the failure of cooperatives is the steep learning curve, for both workers and management, of the new skills necessary to operate in a democratic workplace. Haverford has both a tradition of consensus making and a conflict management program that could begin to promote such skills. The conflict management program could be expanded to offer classes exploring different organizational management styles and the use of democratic procedures in the workplace. Such classes might appeal to students increasingly interested in acquiring skills that could translate directly into their places of future employment. It is also possible that a new requirement could be made so that students must learn the basics in conflict management before graduating. This would not only help students after graduation, in what ever organization they found themselves, but it would also change the organizational culture here at Haverford.

It is also possible for the faculty to become more proactive in encouraging students to take control of their academic careers here at Haverford. Instead of assuming student apathy, think of the years of conditioning students must fight against before they can realize that they have the potential to have some say in what their learning process will look like. Faculty could promote the use of independent study and distribute information on decisions being made by the Educational Policy Committee. The student representatives could be helped and encouraged to set up forums to debate the issues and could be requested to canvass the student body for opinions. Of course this would require a faculty committed to seeing the college education process as extending beyond their classrooms and the library.

Haverford itself could be reorganized as a "worker-owned cooperative," possibly through an ESOP plan. Such an innovation would probably increase Haverford's publicity and would also increase the publicity of ESOPs and the changing workplace culture. Any such effort would have to be spearheaded by a committed activist within the employment structure of Haverford. Haverford's Quaker roots of consensus, community, and the egalitarian belief of "the light of god in everybody," offer a rich ideology in which to base an appeal for more democratic involvement. Haverford has the potential to play a progressive role in transforming our society and promoting democracy.

Final Thoughts

Any attempt to form a cooperative network similar to Mondragon will require broad based support from many Americans. It is possible for cooperatives to be formed without such broad support in the marginalized communities of our society. To the extent that it is possible, community activists are currently establishing cooperative enterprises. However, as the situations of many Americans worsen, more and more people will be resentful of our current system and will be looking for alternatives. In the near future cooperatives might be able to gain a regional foothold in certain depressed communities in the US. If this occurs, their vibrant success amidst economic despair might attract the attention of politicians always looking to increase jobs in their constituency. If it is true that cooperatives and ESOPs are more efficient than capitalist firms, it is likely that they will be adopted out of necessity as economic competition becomes more fierce. Ultimately, I believe cooperatives have the potential to increase political equality and social justice throughout American society.

Appendix A: Democracy as A Conflict Management Tool

This search for Democracy can be rewritten from a conflict management perspective. Communities exist within communities (a nuclear family that is Jewish and American; pluralism) and there are struggles between individuals and the community as well as between one community and another community. In a world where resources are scarce and ultimately limited we expect conflict to arise between self-interested communities. All outcomes of such conflict can be grouped into three categories: 1) one group loses and another wins (as in slavery), 2) both groups lose (as in MAD nuclear war), 3) both groups win (as in a well negotiated business contract). Outcome 1 and 2 can be described as violent and outcome 3 as peaceful. Although "violent" and "peaceful" should not be interpreted simplistically--the process of achieving outcome 3 might involve many deaths (the Israeli-Palestinian Peace Process), and outcome 1 might be achieved without any killing (management closes a plant despite union protests).

Obviously violent outcomes violate our previous basic assumptions (namely liberty and equality). However, our society has been founded on a history of violent outcomes and many times we are not aware of the violence being done:

Complexity and giantism have created such a distance between our actions and their consequences that our capacity for moral action has been dangerously impoverished.(Dahl, 1985, p.98)

The study of conflict management is an attempt to understand how to maximize win-win outcomes, and how to transform situations that look as if one party must lose into situations in which both parties may win. The goal is not to force both sides into compromise, but instead to promote an understanding that leads to an empathy that allows for a redefinition of the situation as a shared problem needing a shared solution. Without empathy the parties will be resentful that they had to accommodate the needs of others. The parties might reach a compromise solution without empathy, but the conflict will be renewed as soon as one party feels it has the ability to out maneuver the other party and attain its goals. Empathy is necessary for a pluralistic community to remain cohesive. Otherwise the community will split into the oppressor groups and the oppressed groups both of which will feel alienated from each other despite their interdependence.(217)

A successful conflict management process will contain these three ingredients: 1) fair outcomes, 2) efficiency, and 3) enlightened participation. If the outcome is not understood to be fair then the conflict has not been resolved. If the process is not efficient then the status quo is maintained. If the participants are not aware of their own interests and the available options then the conflict will reappear. What process can lead to consensus, empathy and peaceful negotiations of our ongoing conflicts? What basic principles must we share? I believe the minimal answer is Procedural Democracy.


1. I am leaving out discussion of slavery and other exclusions from the polity. I want to focus on the rationale of why democratic rights were seen as only applying to the government.

2. This is apparent in two ways: 1) a brief look at history shows that humans need community to survive the trials of life. 2) a brief look at modern science--biologically humans have been proven to come from a common ancestor as Chimpanzees (which are only found in social units); anthropology shows our "state of nature" has always involved social groups; psychology shows that young infants denied social contact, but provided with all necessary material needs, stop eating and some die (Stitz, Rene; "Hospitalization: An Inquiry Into The Genesis Of Psychiatric Conditions In Early Childhood, Psychoanalytic Study Of The Child, vol. 1, 1945, pp.53-73).

3. I actually think that "consciousness" or "individuality" evolved only in "social" organisms--each time community bonds were strengthened, so was the brain's conception of itself.

4. Humanists would have us extend this principle to EVERYONE, and environmentalists want this principle to be extended to the totality of ecological activity on the planet. (Essentially we are progressively realizing the existence of two things in this world: I and thou, self and other).

5. If we do not play fair, the game will soon be over. The earth is too crowded and technology too powerful for a grossly unfair system to have a chance of remaining viable.

6. Anarchy might seem like the absence of organization, but I view it as resting on the organizational principle that "anything goes"--which is hard to justify.

7. "Adult" is a term that is difficult to define, but for our purpose it excludes mentally indigent people (however a person must be proved to be mentally deficient, and that creates issues of standards, etc.. which I will not get into here).

8. Dahl, 1985 p.57

9. "Share" is a tangible piece, "lot" is a chance.

10. Dahl, 1985, p.58

11. See Appendix A for another route to the same conclusion.

12. Dahl, 1986

13. Dahl, 1986, pp.191-95

14. Ibid (p.195)

15. Ibid (p.221)

16. Ibid (p.221)

17. This is refuted by Dahl as follows: 1) no distribution of socially allocated entities, whether actions, forebearances or objects is acceptable if it violates the principle that the good or interest of each member is entitled to equal consideration.

2) Burden of Proof: In the absence of compelling evidence to the contrary everyone is assumed to be the best judge of his/her own good/interests.

3) In the absence of its natural defenders [i.e. Itself] the interests of the excluded are always in danger of being overlooked. However the bonds between parent and child are unique in the human species, and are thus an exception. (Dahl, 1986, pp.213-21)

18. Dahl feels all three criteria obviously apply to children but can not possibly apply to any set of adults except for mentally disabled people (which he excludes from his definition of adult). (Dahl, 1986, pp.219-21)

19. Dahl, 1985, p.68

20. Ibid (p.68-69)

21. Ibid (p.67)

22. Ibid (p.80)

23. Ibid (p.80-81)

24. Ibid (p.81)

25. Dahl examines in sufficient detail and very eloquently the arguments of several key philosophers (Locke, Mill, Nozick, Becker) on a natural right to property and so I will not go into detail here. (Dahl, 1985, p.73-83)

26. Ibid (p.72)

27. Ibid (p.139)

28. Or who have a pragmatic understanding that their "self-interest" is linked with the interests of all other citizens.

29. Steinem, 1994, p.225-231

30. Ibid (p.217)

31. Ibid (p.215)

32. Ibid (p.208)

33. Gloria Steinem asks why "office cleaning women," who perform the same job as male "janitors," are paid less? Or why when there is a shortage of nurses in the country, instead of raising their wages to attract more applicants, training requirements are lowered and nurses are imported from other countries? (Steinem, 1994, pp.208-09)

34. "You can bet that truck drivers would no longer be paid more than social workers--as is now the case--were truck drivers mostly women and social workers were mostly men with MSW degrees." Well you could bet, but to win your bet you'd have to prove it--however she does raise an interesting challenge (Steinem, 1994, p.212).

35. Mollner, 1991, p.245

36. Ibid

37. Ellerman, 1990, p.210

38. If a sovereign is democratically elected then that can not be said to have violated the principles of democracy. But Hobbes is assuming, a priori, that the people have willfully forfeited their democratic rights--no election has taken place.

39. Dahl, 1985, p.61

40. I am paraphrasing the argument that Dahl provides (see Dahl, 1985, Ch. 4)

41. Of course, this argument ignores black-lists.

42. Dahl, 1985, p.114

43. Ibid (p.117)

44. Ibid (p.100)

45. Mollner, 1991, p.246

46. Jones and Svejnar, 1982, p.46

47. This has all been proven empirically from the examples of worker-owned firms such as Mondragon and the plywood coops. (Dahl, 1985, p.123)

48. Jones and Svejnar, 1982, p.46

49. Dahl, 1985, p.155

50. Ibid (p.80)

51. Ibid (p.100)

52. Ibid (p.102)

53. Ibid (p.104)

54. Ibid (p.109)

55. Ibid (pp.96-97)

56. See Dahl, 1986

57. From an interview with Steve Quebec, who has a Masters in public education and is a co-founder of Dunmire Hollow, an intentional community in Tennessee.

58. Dahl, 1986

59. "Agrarianism, anarchism, socialism, individually owned consumer's and producer's cooperatives, selective government ownership and operation, economic regulation, limits on corporate

size, monetary schemes, enforced competition and many others--were thrust forward debated, and finally pretty much defeated." (Dahl, Impediments to Democracy, p.129)

60. "As we all know, it took the trauma of the Great Depression finally to convert a hitherto oppositional minority into a majority coalition. The product of this coalition was the fourth historic commitment which was, of course, to the idea and institutions of the welfare state." (Ibid, p.130)

61. Ibid (p.128)

62. Ibid (p.140)

63. Ibid (p.146)

64. Although it is hard to explain, Dahl points out that most survey data (from the mid-1960's) shows that Americans today share much of the same attitudes ascribed to them in the nineteenth century by Toqueville: 1) It nearly impossible to find an American who claims to be opposed to democracy, 2) Although certain minorities see defects in aspects of the constitutional system, the broad elements are widely endorsed, 3) Most Americans are complacent in regards to our economic institutions (a minority say that corporations should be severely regulated, a smaller minority wants to nationalize industry; many want trade unions to be severely regulated but few want them done away with), 4) Most Americans place themselves in the working class (emphasis on working, not class), 5) Most American profess a strong confidence in personal success through hard work and skill, 6) Most Americans think that their life is the best they could attain anywhere in the world.

65. This is not all that bad, especially when one looks at Latin America and sees what happens in highly politicized and polarized countries--moderates and consensus help avoid revolution and civil war. But, as any one who has tried to change Haverford can tell you, consensus can be awfully stifling if you do not approve of the status quo.

66. "There is a strong bias against majorities in the political system the framers helped to create. Because they succeeded in designing a system that maker it easier for privileged minorities to prevent changes they dislike than for majorities to bring about the changes they want, it is strongly tilted in favor of the status quo against reform." (Dahl, 1986, p.133)

67. Whyte, 1991, p.296

68. Ibid

69. Dahl, 1986, p.137

70. Ibid

71. Jones and Svejnar, 1982, p.56

72. Ellerman, 1980

73. Jones and Svejnar, 1982, p.57

74. Ibid

75. Ibid

76. Ellerman, 1990, p.100

77. Mollner, 1991, p.237

78. Jones and Svejnar, 1982, p.131

79. Mollner, 1991, p.238

80. Jones and Svejnar, 1982, p.132

81. Ibid

82. Ibid

83. Ibid

84. Ibid (p.149)

85. Mollner, 1991, p.240

86. Ibid

87. Ibid

88. see previous section on Procedural Democracy (Dahl, 1986, pp.191-95)

89. Whyte, 1988, p.277

90. Ibid

91. Ibid (p.58)

92. Ibid

93. Dahl, 1986, p.114

94. Jones and Svejnar, 1982, p.135

95. Mollner, 1991 p.243

96. Dahl, 1986, pp.191-95

97. Ibid

98. Whyte (1988) mentions that there are elaborate psychological tests, but I have not managed to find the details.

99. Jones and Svejnar, 1982, p.158

100. Although it is more common to find the level at 4.5 to 1 or lower (Whyte, 1988, p.45).

101. Jones and Svejnar, 1982, p.136

102. Ibid

103. Mollner, 1991, p.243

104. Ibid

105. From a phone interview conducted 4/8/96

106. Mollner, 1991, p.243

107. Jones and Svejnar, 1982, p.168

108. Ibid (p.150)

109. Mollner, 1991, p.238

110. Whyte, 1988, p.73

111. For example, in 1983 the bank recruited young men with some technical agricultural education to build a milk and beef producing cooperative (Whyte, 1988, p.72).

112. Mollner, 1991, p.238

113. Ibid

114. Ibid

115. Ibid

116. Jones and Svejnar, 1982, p.134

117. Ibid

118. Ibid

119. Whyte, 1991, p.273

120. Ibid

121. Ibid

122. Jackall and Levin, 1984, p.278

123. Ibid

124. Ibid (p.87)

125. Ibid (p.88)

126. Ibid (p.94)

127. Ibid

128. Ibid

129. A Boston non-profit consulting firm, set up to encourage the formation of cooperatives.

130. Whyte, 1988, p.282

131. Ellerman, 1990, p.103

132. These tax advantages are discussed in more detail in the section on ESOPs.

133. Whyte, 1988, p.283

134. Ibid (p.284)

135. Ibid

136. Ibid

137. Ibid

138. Ibid

139. Ibid

140. Phone interview conducted 4/9/96

141. Whyte, 1988, p.284

142. Phone interview with Carol DiMarcello of ICA (4/9/96)

143. Ibid

144. Ibid

145. Whyte, 1988, p.285

146. Krimerman and Lindenfeld, 1992, p.200

147. Ibid

148. Ibid (p.193)

149. Ibid

150. Ibid

151. Ibid (p.201)

152. Ibid

153. Ibid

154. Ibid

155. Ibid (p.197)

156. From a phone interview with Andrew Lamas of Praxis(4/8/96).

157. Ibid

158. (see Chart for organizational structure)

159. Jackall and Levin, 1984, P.188

160. Ellerman, 1990, p.97

161. Ibid

162. Ibid

163. (Whyte, 1988, p.289)

164. Phone interview with Corey Rosen founder of the National Center of Employee Ownership (4/5/96)

165. Whyte, 1988, p.289

166. Ibid (p.290)

167. Employee Ownership Report, March/April 1996 (an NCEO publication)

168. Ellerman, 1990, p.105

169. Ibid

170. Ibid

171. Ibid

172. Ibid

173. Ibid

174. Ibid

175. Ibid (p.110)

176. Ibid (p.116)

177. Steiker, 1992, p.29

178. Ibid

179. The Journal Of Employee Ownership Law And Finance, Summer 1992, p.1 (Introduction written by Staff at NCEO)

180. Snyder, 1992, p.49

181. Corporate here has a specific political science meaning that is different form the way I have been using the word through out the paper.

182. Business Week, March 18, 1996, p.97

183. See Appendix B: UAL Corp., Corporate Governance

184. See Appendix C: Transaction Question and Answers (prepared by the UAL-MEC Negotiating Committee).

185. See appendix B: UAL Corp., Corporate Governance

186. For a complete description see Appendix B

187. (Corporate Advertising, Nov/Dec 1995, p.73)

188. Business Week, March 18, 1996

189. (Rocky Mountain News, Boulder, Colorado, March 19, 1995)

190. Ibid

191. (Corporate Advertising, Nov/Dec, 1995)

192. Ibid

193. Ibid

194. Ibid

195. (Business Week, March 18, 1996)

196. Ibid

197. (Business Week, 1996)

198. Ibid

199. Ibid

200. Ibid

201. Ibid

202. Ibid

203. Jackall and Levin, 1984, p.238

204. Ibid

205. Whyte, 1988, p.295

206. This information comes from interviews I conducted with veteran coop members at Dunmire Hollow (March 10-16, 1996). (Similar conclusions occur in Jackall and Levin, Worker Cooperatives in America, Part III: "The Contemporary Small Cooperative Movement," 1984).

207. Ibid

208. From conversations with folks at Dunmire Hollow.

209. Ellerman, 1990, p.121

210. Ibid (p.122)

211. Gurisatti, 1992, p.83

212. ESOPs might be seen as a technological innovation. A new technology of organizational structure and management styles.

213. Machiavelli believes that every great society must periodically be returned to its first principles or else suffer an inevitable degradation into corruption.

214. (Kriegman and Solomon, 1985)

215. Interview already cited.

216. Ibid

217. It is important to take note that the oppressor is using the oppressed for its survival, the interdependent nature of relationship still exists and thus the oppressor needs to recognize the needs of the oppressed (to a limited degree).