Cincinnati’s Experiment With An Economy That Works For Everyone
Above: Community members gathered for an owners meeting at Apple Street Market in February. (Facebook / Apple Street Market)
With the 2016 presidential campaigns underway, economic populism has taken center stage. Bernie Sanders, calling for a $1 trillion investment in a sustainable infrastructure jobs program along with publically funded health care and college education, has forced Hillary Clinton to offer vague support for similar measures, while even some Republican candidates, like Marco Rubio, have asserted the need to stop the “fall of the [American] worker.” Not content to wait for national politicians to follow through on non-binding proposals, 1worker1vote — a joint venture launched in 2009 by the United Steelworkers, or USW, and Mondragon USA — has been pursing a grassroots agenda to move populist discontent beyond protest and toward the building of new institutions.
The 1worker1vote network has developed and is beginning to implement a “union co-op” model, which calls for a business structure that combines worker, and sometimes community, ownership with union representation. With the model, 1worker1vote hopes to demonstrate the viability of a democratic economy, both in terms of ownership and management, capable of eventually replacing the corporate-managed economy that generates astounding wealth for those at the top while leaving nearly a quarter of the country living in poverty and half the population stuck in a debt trap with zero net assets.
“Profit should be for people, not for profit’s sake, and capital, while important, is subordinate to labor,” explained Ellen Vera, a founding member of both 1worker1vote and one of its member coops, the Cincinnati Union Cooperative Initiative, or CUCI.
The claim conjures images of the clashes between labor and capital of a bygone era, and, more recently, growing grassroots protest for a democratic global economy that began in 1994 with the Zapatistas in Chiapas, Mexico and have continued during the first years of the new millennium with the global justice and Occupy movements. Although protest can bring people together and demonstrate popular support for addressing problems, only new, or reformed, institutions can deliver lasting solutions. Situated within a broader movement for a “new economy,” the CUCI and 1worker1vote are beginning to move beyond rhetoric and protest to explore what can and should happen after the protesters inevitably return home.
Founded in 2011, the CUCI, a Cincinnati-based network of cooperatives, hopes to bring what it calls “family-sustaining jobs,” with livable wages and hours and full benefits, to Cincinnati — a city that exemplifies our country’s long-term, corporate-driven economic decay. Beginning in the 1960s, American investment capital has increasingly financed the globalization of multinational corporate operations, a practice made possible by the ongoing logistics revolution fueled by rapid innovation in transportation and communication technologies.
Cincinnati, along with the rest of the deindustrialized American rust belt, has born the brunt of this globalized corporate economic management. The city, which now has a poverty rate exceeding 30 percent, possesses our country’s second-highest citywide childhood poverty rate of 53.1 percent (currently, one out of three children in the United States live in poverty).
This crisis, without an end in sight, inspired the CUCI’s founding.
“Inequality, widespread poverty, underemployment and unemployment [have brought] the CUCI into being,” explained Kristen Barker, the CUCI’s president and a co-founder and key operational member of 1worker1vote. “Since 2011, the CUCI has been incubating, educating and launching an integrated network of worker-owned businesses that can sustain families, with a goal of breaking the cycle of poverty, and creating an economy that works for all.”
So far the CUCI has launched two worker-owned cooperatives, Our Harvest, a local farming and food distribution network, and Sustainergy, a construction company that installs renewable energy technology and improves the energy efficiency of commercial, industrial, institutional and residential properties. The two co-ops currently employ just over 20 people, a number the CUCI plans to increase significantly in the coming years as the existing co-ops attain scale and others are seeded and begin to operate.
A third co-op, Apple Street Market, is in late-stage development — it will open grocery stores in two local food deserts, in the communities of Northside and Avondale, and will be owned by both workers and the surrounding communities.
Additionally, two Cincinnati-based non-profits — the Sarah Center, a women’s jewelry making and education center, and Yucky Cookies, a cookie bakery — will convert to CUCI co-ops. A third non-profit, Renting Partnerships, which helps low-income people build equity through affordable housing rental, works closely with the CUCI network.
The network has received support from labor unions — including the USW, the United Food and Commercial Workers, or UFCW, and the AFL-CIO. Experts in alternative economic enterprise — the Ohio Employee Ownership Center and the Ohio Cooperative Development Center — national social justice organizations, such as the NAACP and the Center for Community Change, and progressive Ohio politicians, like Senator Sherrod Brown, have also worked with the co-ops. And the CUCI is embedded in Cincinnati’s civic community, as it works closely with the Cincinnati AFL-CIO labor council and faith and community organizing groups associated with the Ohio Organizing Collaborative.
The CUCI traces its origins to 2009, when co-founder Phil Amadon, a retired railroad mechanic who had been an active union member, heard media reports of the agreement between the USW and Mondragon USA. Amadon had been exposed toMondragon in the 1980s through report backs from Cincinnati delegations sent by theIntercommunity Justice and Peace Center, or IJPC, to the Basque region of Spain, where Mondragon had begun to grow from a small collection of worker-owned cooperative in the 1950s to become Spain’s seventh-largest industrial group in 2013.
Amadon reached out to Barker, who was working with the IJPC, Ellen Vera at the UFCW’s Local 75, and Flequer Vera, then a community organizer with the Amos Project. For about a year, the group met regularly and studied the IJPC’s library on Mondragon along with the Knights of Labor’s vision for a cooperative commonwealth and the Mondragon-inspired Evergreen Cooperatives, a network of worker-owned and community-controlled co-ops that have brought economic development to Cleveland’s impoverished inner city.
At the start of 2011, the four CUCI co-founders decided to move forward with the union co-op model and solicited assistance from a group of about 35 local civic leaders. “We realized it would be worth investing our time, hearts and souls,” Barker explained. The larger group, according to Barker, divided into four groups — focusing on business feasibility, worker and strategic education, cooperative culture, and financing — to generate questions to take to the Ohio Employee Ownership Center’s annual conference in April of 2011. There they met Michael Peck, the head of Mondragon USA, who encouraged them to continue to develop their business plans.
In the following months, Peck would travel roughly every month to Cincinnati to discuss business plans for cooperatives in three chosen industries: manufacturing, construction and food. By October, the group had commissioned the Ohio Cooperative Development Center, which is housed at Ohio State University, to conduct a food hub viability study for what would eventually become Our Harvest. Soon thereafter, the CUCI filed for non-profit incorporation and established its 14-member board of directors.
The ‘union co-op’ model
The union co-op model is a reaction to uneven economic development and access to resources around the world.
The model, pioneered by Mondragon, offers a different approach to resource management, starting with radically different worker and community ownership structures and the potential for democratic economic participation that comes along with it. The network of cooperatives has developed into a sophisticated economic organization, with its own university, bank and insurance provider, and over 850 patents held by its cooperative laboratories. It employs over 80,000 people worldwide and has grown into a federation of over 110 cooperatives, with 147 subsidiary companies, eight foundations and a benefit society with total assets of 35.8 billion euros ($40.3 billion) and annual revenues of 14 billion euros. When cooperatives go out of business, workers are typically reassigned within the network. While Spain continues to suffer from the fallout of the 2008 financial crisis, the Basque region, once among the most impoverished parts of the country, experiences unemployment ratesroughly half of national averages.
The organization provides an example for the 1worker1vote network of a viable economic model that explicitly puts community stability and shared prosperity as its top priorities.
“We want to create a bunch of Mondragons all over the United States,” Ellen Vera said. “Everyone who is working hard should have the ability to work full time, have family-sustaining wages, health care, benefits, and a workplace where there is respect and dignity. Seeing how successful Mondragon has been in creating that kind of model has motivated us from the beginning.”
The foundations of the union co-op model are commitments to “one worker, one vote” decision-making and to Mondragon’s 10 principles, which inform everything from the co-op’s institutional structure to its participatory culture and emphasis on broad-based worker and community solidarity. Each worker-owner possesses one vote as part of the co-op’s general assembly, which elects representation on the co-op’s three additional primary institutions: a board of directors, a union committee and a management team.
The worker-owners directly elect both the board of directors, the co-op’s primary governance body responsible for strategic objectives, and the union committee, which is meant to be affiliated with regional and national unions — like the UFCW or the United Steelworkers — and to represent the worker-owners in negotiations with management. In addition to connecting the worker-owners to the larger union, the union committee is representative of the different worker categories within the co-op. For example, within Our Harvest, farm and retail workers will be represented on the union committee in proportion to their percentage of the co-op’s workforce. The board of directors appoints the management team, which is responsible for daily operations.
Managers, like the elected officials on the board of directors and the union committee, serve terms of a length determined by the worker-owners. No worker can serve simultaneously in multiple roles. After a trial period, workers are offered the opportunity to buy into the worker-owner equity stake through different payment options. Typically, equity can only begin to be liquidated upon retirement, though it can be used as collateral to attain credit. Workers who decide not to buy equity can vote for the union committee, but not for the board of directors. So far, however, only those who have chosen to work part-time are not owners, and the CUCI is attempting to develop an equitable ownership plan for part-time workers.
Once enough co-ops within the network achieve profitability, the model calls for 10 percent of profits to be sent to a central co-op that can provide start-up capital to new co-ops. Plans for the central co-op, a cooperative of cooperatives with elected representation from each co-op within the network, call for it to provide operational and strategic support for the co-ops; to produce industry feasibility studies that can chart opportunities for the network’s expansion; to educate worker-owners, people interested in starting co-ops, and the community at-large; and, as Mondragon has developed, to deliver in-house banking and insurance that can be offered far below market rates and even a social welfare agency capable of helping worker-owners from co-ops that fail. The CUCI is not yet able to create the central co-op.
For now, start-up financing must be found in creative ways, as risks associated with new businesses and the absence of a credit history can make credit expensive. Worker-owners can pool together their own start-up capital, though outside funding is usually necessary. CUCI funding has come from many areas: landlord rent reductions for one of the grocery co-ops; grants from the UFCW, the Greater Cincinnati Foundation and Interact for Health; loans from the USW, the Cincinnati Central Credit Union, Local Loans for Local Foods and ECAP Capital; and public funding through the Ohio Energy Loan Fund, Property Assessed Clean Energy, or PACE, the Cincinnati Development Fund and the local Community Development Financial Institution.
Founders, worker-owners, and community-members can co-sign on loans to access better rates. Money can be raised by offering equity to community-owners, as Apple Street Market has done with over 600 members of the surrounding community. And direct public offerings, which offer equity stakes without voting rights, are another possible source of financing. The eventual goal, no matter how it is achieved, is to attain complete worker or community ownership.
Education, which occurs on paid time often on site, is also key to the model. Worker-owners within the CUCI undergo an ongoing weekly education program on topics spanning financial expertise, co-op business strategy, and Mondragon and co-op values. The CUCI uses education materials from Mondragon along with the Great Game of Business management curriculum. Weekly education often happens within each worker unit of each co-op, though larger groups frequently convene. Team building exercises and conflict resolution training also help to make democratic-decision making more feasible.
The model’s transformation of traditional labor organizing
Through the union committee, which is inspired by Mondragon’s social council, the union co-op model offers workers wealth-generating opportunities and well-being that far surpass those of mainstream labor demands for $15 an hour wages and union recognition.
At worst, workers earn a local living wage while they control profits and determine their hours, working conditions, and business practices and strategies. By belonging to a union, worker-owners reap the benefit of union buying power and can access more cost effective health and retirement plans. Worker-owners of Our Harvest and Apple Street Market are affiliated with the UFCW, and Sustainergy worker-owners belong to the International Brotherhood of Electrical Workers Local 212 and Pipefitters Local 392.
Even more, since workers elect the board that appoints the co-op’s management, the model entirely bypasses the “broken labor laws” that Ellen Vera, an experienced labor organizer, said initially drew her to the model. “We need to be proactive, to build the kind of workplace we want to see, not just fight tooth and nail with big corporations to get a small amount that makes it possible to get by,” Vera said.
Currently the National Labor Relations Board, or NLRB, is the sole federal agency vested with the power to safeguard U.S. workers’ legal rights. The agency possesses a dual mandate: first, to prevent and remedy unfair labor practices committed by private sector employers and labor unions; second, to provide the legal framework for private-sector employees to elect to organize or dissolve bargaining units in their workplaces.
The NLRB, according to a 2009 Economic Policy Institute report, is incapable of executing either mandate. The report found that throughout a random sample of 1,004 NLRB election campaigns between 1999 and 2003 employers systematically subjected workers to illegal practices such as threats, interrogation, harassment, surveillance and retaliation for union activity.
Punitive measures available to the NLRB are restricted by a 1938 decision by the U.S. Supreme Court in Consolidated Edison v. NLRB. The court ruled that the NLRB can’t sanction an employer for acting illegally. It can only require the employer to “desist from such practices” and to restore the status quo prior to the unfair labor practices through a measure like back pay for an employee who was illegally fired or whose wages were systematically stolen, as is pervasive throughout the fast food industry,where recent Service Employee International Union organizing has been most active.
Vera recalls an organizing campaign against M.A. Folkes, a manufacturing and logistics company, to restore employment for 40 undocumented workers. According to Vera, after a six-month process with the NLRB, the workers were not reinstated nor did they receive full back pay. The company, which had willingly employed the undocumented workers before the dispute, was able to get around labor laws simply because it could then prove the workers were undocumented.
A small victory for Vera has been the ability to hire, with Our Harvest, workers she has seen fired throughout her time with the UFCW. “It’s one of the most exciting things I’ve done as an organizer,” she said. The union co-op model represents a potentially far larger victory, with its potential to democratically rewrite the legal relationship between the workforce and management.
The CUCI’s three industries of emphasis
The CUCI, during its first three years of existence, has decided to focus on three industries: food, due to the founders’ connection to local food operations and Ellen Vera’s work with the UFCW; manufacturing, since the industry possesses high margins, and with them the potential to create significant amounts of family-sustaining jobs; and construction, as various board members are connected with the local building trades.
In late 2011, the CUCI, in one of its first decisions, commissioned a food industry feasibility study from the Ohio Employee Ownership Center. Our Harvest, the result of the study, incorporated in February 2012. Around the same time, the CUCI focused on attracting Danobat, a Mondragon manufacturing group, to Cincinnati. The company conducted a rail passenger industry feasibility study, but decided demand in the area was insufficient. And Sustainergy incorporated in the summer of 2013, after the CUCI participated in a citywide campaign to make available PACE funding to ease the burden of investments in energy efficiency for consumers.
The CUCI’s work with the other co-ops in development — Apple Street Market, the Sarah Center, Yucky Cookies, and the non-profit Renting Partnerships — came about after those co-ops reached out to the CUCI. The CUCI, initially focused on launching its first co-ops, is beginning to build its support infrastructure so that the network can be more proactive about expansion.
Both Our Harvest and Sustainergy have begun operations, though Sustainergy’s operations are currently paused as a key member’s son passed away late last year. The two co-ops have each developed multiple service lines and are poised for growth.
Ellen Vera worked full-time as the head of Our Harvest during its incubation stage — she has since moved to working with Apple Street Markets — and Kristen Barker has taken her place. Vera describes the opportunities regarding the absence of local food infrastructure the group was initially able to identify.
“We were having a local food renaissance, but we weren’t seeing local food institutions,” Vera said. “We saw there was a lack of both local production to meet demand and infrastructure to distribute local food.”
Our Harvest decided to market its local farming for both retail and wholesale, and to develop a food hub to coordinate distribution of other local farm produce. The co-op operates two farms — a smaller urban farm and a 30-acre farm within the city limits. After two seasons, realizing it needed more space, the co-op leased 100 acres from an urban farm, which it plans to soon bring fully into production. Worker-owners, according to Vera, make a minimum of $10 per hour, with full-time hours and a $450 per month health care stipend. Total annual compensation is between $26,200 and $57,400, while, according to the Bureau of Labor Statistics, national average annual income for farmworkers is $18,910.
The co-op sells its produce directly to consumers through it’s weekly harvest box, which essentially functions like a community-supported agriculture, or CSA, network. Over 350 families subscribed to the weekly harvest box last year.
Our Harvest’s local food hub coordinates the weekly harvest boxes, adding local produce from other farms to the mix, while also focusing on pooling together the local food production for wholesale. “A lot of stores couldn’t call 50 different farmers to get what they needed — they needed to call just one place,” Vera explained. Wholesale efforts have focused on restaurants, farmers’ markets, grocery stores and anchor institutions, like hospitals and universities, which receive public funding and spendbillions of dollars annually on basic goods and services, including food. The co-op currently sells to Cincinnati State University.
Due to the relatively high costs of local food produced without scale, Our Harvest’s initial consumers are primarily affluent. Given its community-based mission, the co-op is seeking to expand to lower-income markets through a partnership with Freestore Food Bank. The food bank possesses established distribution networks that reach over 20 food pantries throughout the 20 county, tri-state area of Ohio, Kentucky and Indiana that surrounds Cincinnati. The food bank distributes primarily processed foods, which Our Harvest is looking to supplement with fresh produce.
While local food produced without industrial chemicals has its health benefits, the Our Harvest founders believe that their model for operations and decision-making provides other tangible local benefits as well. “Instead of putting a bunch of shareholders in a far away board room making decisions only about maximizing profits, worker-owners become the executives who live in the community,” Vera said. “They aren’t going to decide to pay themselves poverty wages, or to move their factory.”
Sustainergy possesses a similar social mission embedded in its operational and decision-making structures. Flequer Vera — Ellen Vera’s husband, the head of Sustainergy and vice president of the CUCI — embodies this mission. He moved to New York from Lima, Peru during high school. Then an undocumented immigrant, Vera worked in construction before moving to Cincinnati. Seeing widespread abuse of undocumented immigrants in the construction industry, he worked as an organizer with the Amos Project, a faith group in Cincinnati. Having grown up in Peru as part of a family with a small business background, he decided to go to school to study business and finance.
Flequer Vera has taken his socially-conscious business sense and financial expertise with him to Sustainergy. The co-op initially focused on industrial and commercial work, installing things like LED lighting and motion-sensor lights, to reduce property-owner energy expenses.
In September, Sustainergy partnered with Empower Gas & Electric, a unique energy utility that develops plans compatible with economic development strategies for cities, not regions, as is industry practice. Empower does all of the marketing, delivering residential clients to Sustainergy, which installs more efficient forms of lighting, smart thermostats and improves insulation. The residential market provides another unintended benefit, as the relatively simple installations allow the co-op to bring lower-skilled worker-owners into the fold. As their project load increases, Sustainergy plans to leverage its enhanced buying power within two years to work on more capital-intensive upgrades, like energy-efficient boilers.
PACE funding had been made available in nearby Toledo, where, according to Vera, there are $21 million of PACE-financed projects in the pipeline. Along with other members of Green Umbrella, a Cincinnati-based regional sustainability alliance, Vera lobbied the city government to bring PACE financing to Cincinnati. The program eliminates up-front costs for energy-efficiency investments through low-cost and long-term bond financing that is repaid as property tax assessments, beholden to the property not the owner, over a period as long as 20 years. The Port of Greater Cincinnati provided the initial capital for the PACE bonds.
PACE funding is just one mechanism to finance sustainable energy investments. Since the savings from energy efficiency are often large, investments often make financial sense for the consumer. If the energy-efficiency savings cover the costs of the equipment and installation within two years, then the project is considered viable. “Financing has not been a problem,” Vera explained.
The co-op currently employs three people and requires, according to Vera, roughly $120,000 of annual sales to support each additional job. Vera expects around $750,000 of sales during the first year and around $1.4 million during year three.
Obstacles to achieving scale
The CUCI faces several barriers to building sustainable cooperatives capable of supporting a significant number of family-sustaining jobs, all of which are related to the difficult path start-ups face to achieving scale.
First, the start-up capital required for capital-intensive industries, like manufacturing, is very difficult to obtain. This problem was demonstrated by the conclusions drawn from Danobat’s rail passenger feasibility study about the absence of demand needed to meet the capital-intensive production costs.
Second, large-scale buyers — like hospitals, universities or national retail chains — require low price points that are very difficult to reach until production is built up to a point where it can leverage economies of scale. This makes it very difficult for start-up cooperatives to supply basic goods like food, laundry and energy-efficiency infrastructure to “anchor institutions,” like hospitals and universities, which spend over $200 billion nationally in inner cities each year on such services. Tapping into this immense source of demand, which is rooted to geographic space, could be essential to union co-op growth and the model’s attempts to stabilize communities with “family-sustaining” jobs.
Third, large-scale buyers, including anchor institutions, often require the highest levels of third-party certification in any given industry, which can be an insurmountable expense for start-ups that must focus their capital directly on operations. Our Harvest needs Good Agricultural Practices, or GAP, certification in order to sell to large buyers like Cincinnati State University, and Sustainergy needs Building Performance Institute, or BPI, certification in order to work with Empower Gas & Electric.
Leaders from both cooperatives do not believe attaining either certification will be difficult in a relatively short period of time, but the need to do so is an opportunity cost that ties up resources that could otherwise be invested in enhancing production and employing more people. Resources must be invested in record keeping, infrastructure required to meet cleanliness and safety standards, and educating worker-owners about certification practices. Our Harvest has sponsored GAP certification for their local food suppliers and the Ohio State University Extension has hosted similar trainings.
Fourth, credit is expensive for start-ups that are risky and lack collateral and credit history. A huge percentage of start-ups fail, and traditional lenders treat them with appropriate risk. The CUCI has overcome this challenge through Community Development Financial Institutions and credit unions, but it is a constant obstacle. Mondragon USA, according to Barker, is working on creating links between 1worker1vote and the National Cooperative Bank.
Fifth, experience with co-operative economic enterprise is rare in the general population. Financial institutions are unfamiliar with co-ops, entrepreneurs, even those with explicitly social missions, are often unaware that co-ops are a viable business strategy, and education infrastructure to educate people is largely absent. Mondragon USA is working on starting an online masters program in cooperative business development, which will launch through a pilot program with the City University of New York, or CUNY, in September, Barker explained. CUNY also currently provides legal support to co-ops.
And lastly, the CUCI currently lacks the support infrastructure that, according to the union co-op model, the central co-op of coops should provide. It is currently unable to be proactive in starting new co-ops, and, according to Barker, it has even had to turn down groups who have come to the CUCI with ideas. The CUCI is actively seeking grants to further develop its support structures, and it is hoping to address the education problem in the short-term by establishing a course that will bring groups in to train them together over a couple weeks.
Mondragon USA and the long-term vision
If the CUCI and the larger 1worker1vote network are successful, they will demonstrate a viable alternative model of resource management capable of significantly augmenting, or even beginning to displace, the current model that has divided our society into an elite wealthy minority and a great mass of disenfranchised people.
Existing only as an idea in 2009, when United Steelworkers and Mondragon USA joined forces, the union co-op model has spread to 10 U.S. cities. While its implementation is most developed in Cincinnati, and in Cleveland with the Evergreen Cooperatives, significant union co-ops exist in Pittsburgh, with the Clean & Green Laundry, and in Denver, where a Colorado-Denver Union Co-op Initiative is under development.
The national network is also developing, as Mondragon USA initiatives to increase access to credit, through the National Cooperative Bank, and to educate about cooperative business practices, with CUNY, are underway. Cincinnati will also host a union co-op conference on November 13 and 14 that will bring people together from around the country.
The CUCI founders are certainly convinced it can work. “I’ve believed in the model since I saw that it there [in Spain],” said Flequer Vera, who traveled to Mondragon with Ellen Vera and Kristen Barker. “They’ve been there 59 years and it’s working. Made me think you can be scalable.”
They’ve begun to build the model piece by piece, with a commitment to incremental progress focused on the long-term. “Within a 25-30 year timeframe, the integrated network of the Mondragon cooperatives helped transform their region from a poverty stricken area to a thriving community with nearly full employment,” Barker explained. “That’s the kind of transformative change we are working towards.”
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