Worker co-op bill means more Rhode Islanders can own businesses

On September 19, 2017 the Rhode Island General Assembly passed Senator Donna Nesslebush’s Senate Bill 0676 Sub A and Representative Shelby Maldonado’s House Bill H6155, “Corporations, Associations, and Partnerships.” The bill will be signed officially by Governor Raimondo on October 25, 2017 at Fuerza Laboral in Central Falls.

The bill “creates a statutory vehicle for the creation of worker owned cooperatives.” A worker owned cooperative is a business entity that is owned and controlled by the people who actually perform the work, and profit is delivered in the form of wages. Employees, rather than a sole proprietor or CEO, would make business decisions through a democratic process. US News reported, on June 2, 2017, that when worker owned cooperative legislation is signed, startup companies could file a certificate of incorporation to become a cooperative. According to the bill, worker owned cooperatives function on the principle of one person one vote.

According to a 2016 report by the Economic Progress Institute, Black or Latino Rhode Islanders were twice as likely to live in poverty as non-Hispanic White Rhode Islanders. Executive Director of Rhode Island Jobs with Justice, Mike Araujo, explains that in an era where we have a vast wealth disparity which disproportionately affects working-class black and brown communities, workers cooperatives would create an inclusive economy for all Rhode Islanders. The path to an inclusive economy would be innovated by workers who would be in cooperation with each other and would mix their needs with the needs of the enterprise.

Araujo argues, “Who better to know what a business would do, how best to respond to market needs?” He adds that cooperatives are hopefully a decreasingly rare expression of democracy in the economy. In a April, 2017 RI Future article, Liz McDonnell a worker owner of Fortnight Wine Bar in Providence remarked that workers are more invested in a business when they own it.

Araujo argues that there are four main advantages of workers’ cooperatives. First, they are a vehicle for direct economic democracy. This means workers would decide who they are going to hire, how their corporation is managed, and control the means of production. Second, the success rate of workers’ cooperatives is high. Though only 3% of traditional businesses succeed in the first year, cooperatives have a success rate greater than 40%. Third, the workers’ cooperatives bill would make cooperatives scalable. Scalable means the amount of people who are members participating in a small worker owned cooperative business can increase without altering the co-op’s democratic structure.

Araujo points out, “It increases democracy.”

Mondragon, a workers’ cooperative based in the Basque region of Spain, and other cooperatives are able to do this because they place employment as central to their industry. While there are already workers’ cooperatives in Rhode Island, such as some acupuncturist organizations, they are based on a “gentleman’s agreement.” This means they rely on informal relationships which make them less scalable. Finally, workers’ cooperatives eliminate capital flight. In a sole proprietorship, capital can be pulled out of Rhode Island, for example, and re- invested in other states or countries. Worker owned cooperatives would eliminate disinvestment locally because the capital would be invested directly in the workers. The bill also shows promise as a way for employers to transfer their businesses to the hands of their workers rather than closing them upon retirement or death. On October 2, 2017, Araujo, Figueroa, and Wood argued in the Providence Journal that if the workers cooperatives bill had been ratified sooner, Benny’s, which has been open for 3 generations, could potentially have stayed open by transferring ownership to its employees.

Worker owned cooperative enterprise are 40% successful versus a 97% failure rate for traditional business such as sole ownership and limited liability corporations. Therefore, they maintain a more stable and resilient workforce, and have significantly lower externalized costs. Since worker owners have a more stable income, they spend more in the local economy. A June, 2017 article in GoLocalProv argues that worker owned cooperatives would help stabilize Rhode Island’s economy. Araujo says the workers’ cooperatives structure has been understood in places such as Spain, Mozambique, and Brazil, as a way to stabilize regional economies. This law will allow worker owners to make the vital business decisions over hiring, management, and production. People could join worker owned cooperatives and increase the size of their new business while still having equal participation in enterprise decision making.

Furthermore, people could work in a corporate model that has a higher success rate so they would have a more stable source of income. In addition, people would equally profit and could control where their money is invested. When Governor Raimondo signs this historic bill into law Rhode Island will be a step closer to an economy that puts people over profit.