How To Create An Economic Democracy

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					Regenerating Local Economies: Environment, Equity and
Entrepreneurship in America’s Post Industrial Cities
A publication series produced by the MIT Community Innovators Lab
with support from the Barr Foundation

Sustainable Economic
Worker Cooperatives for
the 21st Century
             Nicholas Iuviene
             Amy Stitely
             Lorlene Hoyt

October 2010
About CoLab                                        About this series
The Community Innovators Lab (CoLab) is            This guide is part in a series of publications
a center for research, teaching, and practice      on equitable economic development
within the MIT Department of Urban Studies         strategies for America’s post-industrial cities,
and Planning (DUSP). CoLab supports                funded in part by the Barr Foundation. Other
the development and use of knowledge               titles in this series include:
from excluded communities to deepen civic
engagement, improve community practice,            Strengthening Local Economies and
inform policy, mobilize community assets, and      Civic Life: The Untapped Power of Small
generate shared wealth.                            Businesses

We believe that community knowledge can            City Scale Retrofits: Learning from Portland
drive powerful innovation and can help             and Oakland
make markets an arena for supporting social        Network Power: Building Collaborative
justice. CoLab facilitates the interchange         Partnerships for Energy Efficiency and Equity
of knowledge and resources between MIT
and community organizations. We engage             This series is written for community partners
students to be practitioners of this approach      and urban planners who are working to build
to community change and sustainability.            a more equitable and sustainable economy.
For more information, visit our website at:

  phone 617.253.3216
     fax 617.258.6515
 address 77 Massachusetts Avenue, Building 7-307 Cambridge, MA 02139

Assistant Text Editor and Layout: Annis Sengupta
Cover Design and Graphics: Annis Sengupta and Amy Stitely
Sustainable Economic Democracy:
      Worker Cooperatives for the
                    21st Century

Table of Contents
4    Research Model
5    Introduction
8    Case One: Mondragon - Basque Region, Spain
10   Learning from Mondragon
13   Case Two: Evergreen - Cleveland, Ohio
16   Learning from Evergreen
17   Analysis: Key Differences between Mondragon and Evergreen
18   A Cooperative Development Framework
26   Conclusion
27   Key Considerations
28   Notes

Research Model

    Using teaching and research to inform practice:
    This series is one product flowing from a year-   Beyond the required thesis document, the
    long collaboration among students, staff at       students agreed to create media products and
    the Community Innovators Lab, and Professor       practice-oriented guides that could be broadly
    Lorlene Hoyt, all of whom participated in         distributed to community partners, policy-
    the pedagogical experiment called, “The           advocates, and policy-makers.
    Collaborative Thesis Project.”
                                                      CoLab faculty, staff, and affiliates supported
    The Collaborative Thesis Project was              the project by brokering relationships with
    initiated by Professor Hoyt and emerged           community partners, hosting reflective
    from her observation that many students           meetings, co-advising students, co-authoring
    find the thesis process harrowing and, to         and editing written products, providing
    some extent, unsatisfying, in part because        media support, and co-organizing public
    theses usually meet their end on the library      presentations.
    shelves. In hopes of making the process
    less isolating and more rewarding, and of         The Collaborative Thesis Project has been
    making the products more useful, Hoyt invited     a great vehicle for directing institutional
    six students to pursue their research as a        research capacity toward a deeper
    collaborative unit under her supervision.         understanding of equity, environment, and
                                                      entrepreneurship and their connection to
    Each student researched a different post-         democratic engagement. Through this project
    industrial American city or set of cities and     we’ve tried to mobilize academia for action
    their use or potential use of stimulus funds      and expand our range of impact. For more
    for regenerating local economies. The group       information visit our blog feed at:
    met regularly throughout the academic year
    to share discoveries, learn across cases,
    and co-develop recommendations for action.


Now is the time for an alternative economic    Initiative in Cleveland, Ohio (Evergreen).
development framework. In the past two         Drawing from these two cases, we then
years we witnessed the near collapse of        put forth a general framework for building a
global financial markets and the highest       scalable cooperative network in post-industrial
national unemployment rate since the           American cities.
early 80s. In the wake of this crisis, we
are challenged to find a sustainable and
democratic way to generate wealth in cities.
                                               What is economic
The kind of questions we need to answer are:   democracy?
                                               Economic democracy is a socio-economic
  What is an appropriate path to               arrangement where local economic
  economic development for de-                 institutions are democratically controlled.
  industrialized cities where the loss         These economic institutions include business,
  of a manufacturing economy has left          finance, research and development, and
  many people adrift?                          education sectors. Economic democracy
                                               does not reject the role of markets, but rather
  How can people who live and work in          de-emphasizes the primacy of the profit-
  cities build robust local economies          maximizing motive among economic decision
  that are based upon democratic               makers.
                                               One means to achieving economic democracy
  And, what role can rooted institutions       is through cooperative ownership of the
  play in helping to reorganize                local economy by all who participate. In this
  local economic activity so that              case, a wide ownership structure can force a
  communities have greater control?            realignment of interests that helps reconcile
                                               conflicts between the owners of productive
                                               assets and their laborers. Shared ownership
                                               of the local economy helps root wealth in
Worker cooperatives, when configured
                                               communities, keeping resources from “leaking
in a network with rooted institutions, can
                                               out” of the area. Cooperative businesses are
promote progressive, place-based, and
                                               one of the more natural firm types that fits
endogenous economic development. In this
                                               within the model of economic democracy, be
guide, we explore the worker cooperative
                                               they worker, producer, consumer, or housing
network as a neighborhood, municipal, and
regional strategy for generating wealth. We
present two examples: the well-established
Mondragon Complex in Spain (Mondragon)
and the nascent Evergreen Cooperative


    What is a worker                                On its website, the International Cooperative
                                                    Alliance traces the evolution of the original
    cooperative?                                    Rochdale principles to the adoption of the
    Worker cooperatives are typically for-profit    following seven in 1996:
    businesses that are jointly-owned and
    democratically controlled by the employees of    International Cooperative Alliance
    the firm, often referred to as worker-owners.    Statement of Cooperative Identity
    Cooperatives can range from small-scale          (1996):
    to multi-million dollar businesses. Globally
    cooperatives employ more than 100 million        1. Voluntary and Open membership.
    people and have over 800 million members
    (1). Although the form of organization           2. Democratic member control.
    varies dramatically between firms, most
    worker cooperatives generally adhere to the
                                                     3. Member Contribution to Capital.
    Rochdale principles that were established
    by the British Rochdale Society of Equitable
                                                     4. Autonomy and independence.
    Pioneers in 1844. These principles outline
    a set of ideals to which all cooperative
                                                     5. Education of members and public in
    businesses should adhere.
                                                        cooperative principles.
    Rochdale Principles of Cooperation
    (1844):                                          6. Cooperation between cooperatives.

    1. Open membership.                              7. Concern for community.

    2. Democratic control (one person, one          The International Cooperative Alliance states
       vote).                                       that cooperatives are different than traditional
                                                    enterprises in that they put people at the
    3. Distribution of surplus in proportion        center of all their businesses, as opposed to
       to trade.                                    capital. Because cooperatives are owned and
                                                    democratically-controlled by their members,
    4. Payment of limited interest on               business decisions balance the need for
       capital.                                     profitability with the needs of their members
                                                    and the wider interests of the community.
    5. Political and religious neutrality.

    6. Cash trading (no credit extended).

    7. Promotion of education.


Worker Cooperatives in the                         and employs over one million people (2).
                                                   Mondragon, founded in 1956, now holds
U.S.                                               33.3 million euros in assets and employs
Studies on the efficiency of worker                over 85,000 people internationally (3). The
cooperatives and their success rate vary           questions arise:
considerably. Cooperatives emerged in the          What can be learned from these European
mid-19th century in response to the labor          experiences?
abuses and inequities that resulted from
the industrial revolution. In the U.S., the        Is it possible to achieve similar success rates
economic recession of the 70s and 80s led          in the U.S. context?
to a renewed interest in cooperatives. In this
era, the employee shared ownership program         The most important lesson from Legacoop
(ESOP) became the dominant business                and the Mondragon is the importance of
model for American firms that aspired to           developing an economically integrated
cooperative principles. However, despite its       network of cooperatives rather than a single
popularity, the ESOP model fell short in that it   cooperative. In a market based economy
failed to hand over decision-making power to       the cooperative business form suffers from
worker-owners.                                     several strategic challenges when operating
                                                   independently. One worker cooperative on its
Of the truly democratically governed               own is most likely doomed to fail in a highly
cooperatives, few in the U.S. have reached         competitive global economy.
significant scale in terms of number of firms
created, people employed, or revenue               However, an ecosystem of several worker
generated. Those that have reached scale,          cooperatives and support organizations
such as O&O Supermarkets in Philadelphia           can create an infrastructure that leads
and the plywood cooperatives of the                to sustained growth and expansion (4).
Northwest, were not able to stay viable over       In Mondragon the cooperative network
the long-term and ultimately dissolved.            expanded from a single cooperative
                                                   polytechnic school to a network of 256
                                                   industrial, retail, finance, educational, and
Worker Cooperatives in                             research and development firms. In the next
Europe                                             section of this guide we look at how they
                                                   achieved this growth.
In Europe, Italy’s Legacoop and Spain’s
Mondragon multi-sectoral cooperatives have
been able to both reach significant scale
and demonstrate long-term sustainability.
Legacoop, founded in 1886 in Milan, now
has over 15,000 member cooperatives

Case One: Mondragon
Basque Region, Spain

    Mondragon is a city in the Basque region,       established for the principle purpose of
    a semi autonomous zone of Spain on the          creating and expanding worker cooperatives,
    northern border, adjacent to the Southwest      the Caja acquired capital by providing
    corner of France. A priest, Don Jose Maria      savings deposit accounts for members
    Arizmendiarrieta (Arizmendi), founded           and social security (7). The Caja now acts
    the Mondragon Cooperative Complex (5).          as an anchoring and coordinating force
    Arizmendi arrived in Mondragon in 1941          for maintaining the cooperative network.
    after finishing seminary school where he had    In order for a cooperative firm to use the
    studied social movements.                       Caja’s financial, analytical, and business
                                                    development services, the cooperative
    In 1943 he organized a parents association      must enter into a contract of association,
    that pooled together funds to create a          which gives the Caja oversight over the
    technical school, Escuela Politecnica. The      cooperative’s internal organization. The
    school was organized as a cooperative where     Caja regulates the governance and internal
    each contributing individual (approximately     organization of cooperative firms, dictating
    600 people in total) received one vote for      capital-to-debt ratio requirements and norms
    electing members of a general assembly          and policies regarding hiring.
    who in turn elected members of the school
    board. Escuela Politecnica acted as both a      During the 1960’s the Mondragon complex
    means for developing the local workforce and    leaders adopted a policy of creating a new
    a venue for spreading Arizmendi’s particular    spinoff firm whenever a product line in one
    social vision (6).                              firm reached self-sufficiency. Spinoff firms
                                                    helped deter the emergence of bureaucratic,
    Thirteen years later, in 1956, five graduates   corporate-like structures. As this policy
    started Mondragon’s first industrial            increased the number of firms, Mondragon’s
    worker cooperative. Ulgor, which initially      leaders instituted the cooperative group as
    manufactured paraffin stoves and has since      an organizing mechanism among firms. The
    expanded into making other appliances,          cooperative group shares a governance
    heating equipment, and kitchen utensils,        structure, pools profits and losses, and allows
    became the model for future Mondragon           for the movement of worker-owners between
    worker cooperatives.                            its member firms. The first cooperative group
    In 1959, the Caja Laboral Popular, became       was named ULARCO and was made up of
    Mondragon’s first secondary cooperative.        the first cooperative firm Ulgor, as well as
    Starting with three worker cooperatives and     two other firms, Arrasate and Copreci, which
    a consumer cooperative as its principal         made machine components and tools for
    members, the Caja was the first organization    Ulgor. Over time all cooperative firms in the
    to connect Mondragon’s cooperatives in a        Mondragon complex were organized into
    network. Structured as a credit union and       cooperative groups (8).

                                                               Case One: Mondragon
                                                               Basque Region, Spain

Founded in 1977, Ikerlan, an applied             Measures of success and
industrial research cooperative, added
research and development capacity to the         growth
network. Supported by several industrial         Mondragon’s success can largely be
cooperatives and the Caja Laboral, Ikerlan       measured through its growth and expansion.
has a managing board that is made up of          Sixty-five years since the founding of Escuela
employee representatives and representatives     Polytecnica, in 2009,
from the network’s industrial cooperatives
and participating secondary cooperatives,        •   Mondragon’s educational centers enrolled
including the Escuela Politecnica. Arizmendi’s       8,567 students,
rationale for developing R&D capacity was to
remove the dependency from private capital       •   The Caja Laboral (the bank) administered
and the need to import advanced technology.          18.6 billion euros in assets,
In 1982 the Basque government began
                                                 •   and the number of R&D technology
providing funds to make Ikerlan’s services
                                                     centers had grown to 12, including Ikerlan
available to traditional firms as well (9).

                                                 Although the Mondragon complex has
    Mondragon Network                            experienced several waves of growth, much
                                                 of it has taken place over the last 20 years.
        Early Years                              According to their website, between 1989 to
                                                 •   the Caja’s holdings grew by almost ten
          Ulgor                  ULARCO              times,
                                                 •   industrial and international sales grew by
                                                     almost six times,

                                                 •   retail sales grew more than twenty-fold,
                                Copreci              and

                                                 •   employment more than tripled;
Caja                                             In addition, Mondragon now operates firms in
Laboral                                          18 countries outside of Spain, including the
                           COOPERATIVES          U.S.


Learning from Mondragon

     Reaching scale through a                        3. Finances, which includes:

     cooperative network                                 •   banking,

     The experience of Mondragon suggests a              •   social welfare, and
     network model that includes four components:
                                                         •   insurance;
     1. primary worker-cooperative firms in the
        industrial and retail sectors;               4. Knowledge, which is split into two
     2. secondary worker-cooperatives that
        support the primary cooperatives;                •   research and development, and

     3. spin-off cooperative firms that expand the       •   vocational training and education
        cooperative network; and
                                                     Secondary cooperatives
     4. cooperative groups that organize related
        cooperative firms, provide increased         In Mondragon, support organizations, or
        mobility, and pool risk and resources.       secondary cooperatives, were critical to early
                                                     growth and expansion. Typically, secondary
     Network firm categories                         cooperatives focus on finance and business
                                                     development. The Mondragon experience
     Mondragon divides the cooperative firms and     suggests the need for the following secondary
     secondary cooperatives into four categories:    cooperatives:

     1. Industrial, which has five subsectors:       •   finance and business development,

        •   capital goods,                           •   education and training, and

        •   consumer goods,                          •   research and development.

        •   construction,                            In Mondragon, the Escuela Polytecnica
                                                     preceded the development of worker
        •   industrial components, and               cooperatives, but the Caja was the first
        •   enterprise services;                     secondary cooperative opened to directly
                                                     serve firms and worker-owners. As both
     2. Retail, which includes:                      financier and governing entity, the Caja
                                                     wields significant control as a secondary
        •   livestock and vegetable farming,         cooperative. However, the training centers
                                                     and R&D centers are equally important to
        •   agro-food distribution, and
                                                     network and regional growth.
        •   food and specialty markets;

                                                 Learning from Mondragon

Spinoff Firms and Cooperative Groups
Beyond the secondary cooperatives,
complementary spinoff firms help grow the
cooperative network. Spinoff firms promote
innovation and diversification, capturing
new economic activity and adding to the
strength of the network and local economy.
Mondragon created a new spinoff firm
whenever a firm’s product line reached
the point where it could be marketed and
manufactured independently.

To deal with the need for coordinating among
an large number of spinoff firms, Mondragon
uses cooperative groups. A cooperative
group is a collection of firms that abide by a
shared governance structure, pool profits and
losses, and allow worker-owners to move
between different firms within the group. The
cooperative group allows for subdivisions
within the cooperative network, promoting
sub-networks that allow for more efficient
operations and management.

In Mondragon, secondary cooperatives
and cooperative groups create the larger
cooperative network. It is the cooperative
network that has given Mondragon its
competitive edge, promoting steady
expansion over the last sixty years.

Learning from Mondragon

     Transforming regional                              for testing alternative models of economic
                                                        development. Could cooperative networks
     economies via import                               of diversified, democratically-controlled
     replacement & diversification                      enterprises offer a solution?

     Beyond the innovation of the cooperative           Many challenge the replicability of the
     network, Mondragon uses a growth strategy          Mondragon cooperative model arguing that
     of import replacement, where firms produce         its unique cultural, historical, geographic,
     goods and services that were previously            and political context makes lessons non-
     imported into the region. This strategy has        transferable. Other critics assert that
     led to an ever expanding and increasingly          cooperatives can under no terms compete
     diverse set of interrelated firms that can buy     in the private American market. Yet,
     and sell from one another. One firm will figure    Mondragon’s diversified cooperative network
     out how to produce what another firm would         strategy has not been tested in the United
     otherwise import. This process then repeats        States. American worker cooperatives
     itself many times over in order to create an       have so far failed to reach network scale
     increasingly complex and interdependent            or transform regional economies. Having
     local economy. Together, the collection of         instead focused on single firm or single sector
     firms creates a labor market with increasingly     development, the majority of American worker
     skilled workers in various sectors (11).           cooperatives are small businesses (13).

     Beyond intra-dependency, diversification has       However, in Cleveland, a Mondragon-inspired
     also been a key element in Mondragon’s             cooperative network has recently emerged
     sustained success. The cooperative                 that seeks to transform six neighborhoods
     network has expanded via differentiation           and ultimately the entire city. Based on
     and diversification, as opposed to increased       principles of community wealth building and
     specialization. The multi-sectoral approach        sustainability, the Evergreen Initiative intends
     has allowed for flexibility, a key principle       to launch ten 50-person worker cooperatives
     underpinning the Mondragon cooperative             in a variety of sectors over the next five
     structure (12).                                    years. In the next section, we describe how
                                                        Evergreen has translated the Mondragon
     In post-industrial cities, we have seen the rise   model to fit the context of an American post-
     and fall of highly-specialized, single-industry    industrial city.
     economies. Now that these industries
     have migrated overseas, administrators,
     leaders, and entrepreneurs must find new
     ways to grow wealth in cities where it has
     been drained. In our “forgotten” cities and
     neighborhoods, we face an open opportunity

                                          Case Two: Evergreen
                                               Cleveland, Ohio

The City of Cleveland has followed a pattern      a combined median household income of
of decline typical among American post-           $18,500 and a poverty rate of 30% (16).
industrial cities. Having lost roughly half its
population since its golden age in the 50s,       During 2004-2006, the Cleveland Foundation
Cleveland has been hard-hit by the loss of        convened leaders of University Circle anchor
heavy industries and middle-class flight to       institutions in order to develop a strategy for
the suburbs (14). After the notorious Cayuga      neighborhood development. With support
River fire in 1969, Cleveland has fought to       from the Democracy Collaborative, a non-
shake its derisive nickname, “the mistake by      profit at the University of Maryland, the
the lake,” but downtown redevelopment and         foundation and institutions founded the
stadium building have not stemmed economic        Greater University Circle (GUC) Initiative. The
woes and outmigration. In 2009 Cleveland          GUC Initiative takes on collaborative projects
ranked second in lowest median income             and programs that address issues such as:
among American Cities, behind Detroit,            transportation, housing, open space, and
Michigan (15).                                    economic inclusion (17).

Yet, despite these challenges, Cleveland’s        Within the realm of economic inclusion, the
University Circle area has continued to           Evergreen Initiative (Evergreen) is striving
grow. Thirty minutes east of downtown,            to leverage institutional capacity to build
the University Circle is characterized by a       community wealth via worker-cooperatives.
concentration of major cultural, educational,     By capturing billions of procurement dollars
and medical institutions, including:              that would otherwise go to non-local firms,
                                                  the Evergreen cooperatives direct institutional
•   Case Western Reserve University,              investment into surrounding neighborhoods.

•   Cleveland Clinic,
                                                  Cooperative Firm Types
•   University Hospitals,
                                                  The first firm to open through the Evergreen
•   Veterans Administration Hospital,             Initiative was the Evergreen Cooperative
                                                  Laundry. Opened in the fall of 2009, the
•   Cleveland Botanical Gardens, and
                                                  laundry is the region’s first LEED certified
•   Cleveland Museum of Art, among others.        industrial laundry facility (18). It has the
                                                  capacity to meet the needs of medium to
As Cleveland’s largest employers, their           large institutions. In the first year, nursing
billion-dollar facilities sit adjacent to some    homes made up a large share of clientele.
of the poorest neighborhoods in the City.
East Cleveland, Wade Park/Heritage Lane,          The second cooperative, Ohio Solar, was
Eastern Hough/Upper Chester, Eastern              launched a few months after the laundry.
Fairfax, Buckeye/Shaker, and Little Italy have    Ohio Solar installs solar panels onto the roofs

Case Two: Evergreen
Cleveland, Ohio

     of large institutions. The cooperative buys       Support organizations,
     the panels, leases institutional roof space,
     and sells the energy back to institutions at      governance, and finance
     a guaranteed rate. At the end of the lease        Like Mondragon, the Evergreen Initiative
     period, the institution can opt to buy the        is attempting to create a diverse network
     solar panels. Ohio Solar also provides home       of firms that can share services and abide
     weatherization services.                          by mutual governance and operational
     By the end of 2010, two more cooperatives         agreements. However, it will likely take many
     will open. A five-acre hydroponic greenhouse      years to build the network infrastructure
     will sell lettuce and herbs to food vendors       for secondary cooperatives, spinoff firms,
     that have contracts with large institutions. In   and cooperative groups. In the meantime,
     addition, a bi-weekly community newspaper         the Evergreen network relies on support
     will report on hyper-local events around          from non-profits to deal with coordination,
     GUC. With the goal of building ten firms in       governance, finance, business development,
     five years, Evergreen anticipates other new       and workforce training.
     cooperatives will offer the following kinds of

     •   rehabilitation,
                                                        The Evergreen Eco-System:
                                                        Conceptual Development, Convening,
     •   recycling,
                                                        Coordination and Consensus Building:
     •   home care,                                     Cleveland Foundation and Democracy
     •   janitorial services,
                                                        Shaping Governance and Developing
     •   records retention,                             Operational Norms: Kent State Ohio
                                                        Employee Ownership Center (OEOC)
     •   medical kit assembly, and
                                                        Financing: Shorebank Enterprise
     •   a consulting firm focused on cooperative
         development (19).                              Business Development: Kent State Ohio
                                                        Employee Ownership Center (OEOC) and
                                                        Shorebank Enterprise

                                                        Workforce Training and Recruitment:
                                                        Towards Employment

                                                                      Case Two: Evergreen
                                                                           Cleveland, Ohio

All of the above organizations have                  Measures of success and
representatives on Evergreen’s core
leadership team that handles daily                   growth
management and short- to medium-term                 Although the Evergreen Initiative started only
planning. Additional core leadership team            recently, it has already experienced some
members include a business consultant and a          growth and anticipates more.
human resources/diversity specialist.
                                                     •   As of August 2010, not one year since
Beyond the core team, there is a secondary               opening, the Evergreen Laundry and Ohio
leadership team that includes representatives            Solar each employed more than twenty
from the City and anchor institutions. Plus,             residents.
there is also a tertiary group that is made
up of community development corporations,            •   Based on first year growth, Ohio Solar is
affordable housing developers, and local civic           expected employ more than 100 people
and non-profit organizations. This tri-level             in the next 3-4 years, doubling the original
organization of leaders Is likely to change or           projection.
evolve over the next ten years.
                                                     If Evergreen reaches its five-year goal of
In terms of financing the growth of firms            launching ten firms with 50 employees
and the cooperative network, the City, the           each, then 1% of all GUC residents will be
Cleveland Foundation, and anchor institutions        an Evergreen worker-owner. However,
contributed seed capital to create the               Evergreen’s long-term goal is to build at least
Evergreen Development Fund. Shorebank                100 firms, so that the scale of impact is ten-
Enterprise manages the $10-12 million fund           fold.
that will potentially leverage around $40
million (20). As Evergreen cooperatives
become profitable, a portion of their profits will
                                                     Becoming a worker owner
cycle back into the fund.                            Initially, each worker is hired for a six-month
                                                     probationary period. After a successful
                                                     performance review, the employee is offered
                                                     the opportunity to become a part-owner of
                                                     the firm. The cost to “buy in” to the firm is
                                                     $3,000 and is paid through a 50-cent per hour
                                                     levy in their upgraded worker-owner salary.
                                                     As a worker-owner they receive full health
                                                     insurance, a vote in governance, and a share
                                                     of the profits. After eight years, employees
                                                     are expected to own about $65,000 in assets.

Learning from Evergreen

     Leveraging anchor                                 This reorganization of local non-profit and
                                                       government capacity to meet cooperative
     institutions                                      needs has given Evergreen many advantages
     Whereas the Mondragon model grew from             as a startup.
     a cooperative vocational-technical school
     that developed the human capital to create        Dealing with the challenge of
     industrial firms, Evergreen’s firm development
     strategy is shaped around anchor institution
                                                       philanthropic leadership
     procurement needs. The public resources           Evergreen Initiative is a relatively new effort
     that flow through the University Circle anchor    and does not claim to have perfected their
     institutions create the financial base to build   model in terms of addressing complex
     neighborhood cooperative enterprises.             issues like race, class, power, and the role
     Worker-owned businesses meet the                  of organized labor. Presently, Evergreen is
     consistent institutional demand for specific      led by outsiders—leaders of organizations
     goods and services. The network expands           that are not based in the Greater University
     by capturing larger and larger segments of        Circle neighborhoods. As a result, the local
     anchor institution expenditures. This growth      community was excluded from taking early
     strategy is essentially an import-replacement     positions of leadership. This contrasts with the
     strategy, where Evergreen firms replace the       Mondragon experience, which was driven by
     need for importing goods and services.            internal community leaders.

                                                       Though Evergreen’s worker-owners are
     Leveraging non-profits and                        predominantly low-income African-Americans,
     public agencies                                   current managers and the core leaders are
                                                       predominantly middle- to upper-class whites.
     Evergreen took the Mondragon cooperative          The leadership team has been successful in
     network model and adapted it to take              building high levels of mutual respect between
     advantage of existing local capacity. By          management and worker-owners; however,
     relying on community foundations, the City’s      they admit needing to address the challenge
     department of community development, and a        of recruiting skilled managers of color and
     host of non-profits, Evergreen has been able      creating clear promotional pathways for
     to quickly erect a network of support entities.   worker-owners into leadership positions.
     One foundation leads, another agency
     funds, one non-profit builds governance,
     and another handles finances. A set of
     formerly independent local organizations
     has re-oriented their individual activities to
     the common goal of launching cooperatives.

 Analysis: Key Differences between
         Mondragon and Evergreen

                                                 Mondragon                                        Evergreen
                     Scale of      City of Mondragon at first; later the entire   Six neighborhoods surrounding University
                     Impact        Basque Region and nation.                      Circle.
 Geographic Area

                                   Homogeneous in terms of ethnicity &            Racially, culturally, and economically
                      Culture      culture. Nationalist orientation. Tradition    diverse. Tradition of capitalism and big
                                   of political radicalism.                       industry.
                     Economic      Underdeveloped economy with low-skill          Varies: Acute distress in neighborhoods.
                      Climate      workforce.                                     Large institutions are profitable.
                                   Catholic Church, Strong Labor, Long-           Anchor Institutions: Universities,
                                   standing Cooperative Tradition.                Healthcare facilities, and Cutlural facilities.
                                                                                  Job-readiness training and placement
                   Education & Escuela Politecnica (Polytechnical
                                                                                  services provided by Towards Employment
                    Training School) was first cooperative.
                                   Caja Laboral Popular (Credit Union) is         Evergreen Fund managed by Shorebank
                      Finance      first secondary cooperative. Built upon        Enterprise (non-profit). Capital from City,
                                   member savings and social security.            foundation grants, and anchor institutions.
                     Business                                                     Ohio Employee Center at Kent State, plus
                               Caja Laboral Popular (Credit Union)
                   Development                                                    individual business consultants

                    Technology Ikerlan launched roughly 20 years after
                                                                                  None at this time
                       R&D     first cooperative.
                                                                          Individual cooperatives selling unrelated
                                   Primary and secondary cooperatives are
                   Configuration                                          products are networked with anchor
                                   organized in cooperative groups.
                                                                          institutions, non-profits, and city agencies.
                               Efforts driven by community leaders.               Core leaders not indigenous to
                    Leadership Cooperative leadership elected by                  neighborhood. Secondary and tertiary
                               member- and worker-owners                          leaders are neighborhood stakeholders.
                                   Caja Laboral Popular (itself a                 Core leadership governs. Plans to shift to
                                   cooperative) sets governance                   an elected holding company.

                                   Earliest industries: Knowledge, Capital        Earliest industries: Services Laundry and
                   Diversification and consumer goods. Later Industries:          Renewable Energy, Urban Agriculture,
                                   Industrial components, Finance                 Media

It is unfair to compare the four-year-old Evergreen Initiative to the fifty-plus-year-old
Mondragon Complex. Nevertheless it is important to understand how Evergreen has
translated Mondragon’s cooperative development model in the Basque region to suit
the Greater University Circle Area in Cleveland. The table above helps to illuminate
key differences in how the two cooperative networks were conceived and initiated.

A Cooperative Economic
Development Framework

                                               Defined Geographic Area

                                                         cohesive population

                                                scaled for cooperative firms to have
                                                          economic impact

                                                        diverse enough to
                                                     accommodate expansion

                                                                               Endogenous Economic
                 Cooperative Network
                                                                                Development Model
                    primary cooperatives
               provide goods and services previously
             imported from outside the geographic area




     secondary cooperatives or institutions
                                                                            Cooperatives provide goods that were
   support the primary cooperatives by providing                              previously imported into the area.
educational, financial, research and development and                       The cooperative network grows through
          business development services.                                               diversification.

                                                        A Cooperative Economic
                                                       Development Framework:
                                                      Defining a geographic area

In this section we present a framework          •   distribution of impact - the area ought to
that outlines a process for developing              be small enough that the firms’ resources
cooperative economic development strategies         can impact the local economy; and
for neighborhoods, cities, or regions. The
framework is based upon researching a set       •   expansion potential - the area ought large
of cooperative models including Spain’s             and diverse enough to accommodate
Mondragon and Cleveland’s Evergreen (21).           growth and expansion.

The framework is distilled into three           What is the economic climate?
interconnected parts, all of which should be
pursued simultaneously:                         Beyond size, one must look closely at the
                                                economic situation of any targeted geographic
•   an appropriately defined geographic area,   area. Highly developed local economies
                                                and weak local economies require different
•   the cooperative network (“the
                                                strategies. In post-industrial cities, weak
    ecosystem”), and
                                                economies are often the norm.
•   an endogenous (internally driven)
                                                •   Highly developed economy - cooperative
    economic development model.
                                                    strategy targeted to develop certain
                                                    sectors in a local economy.
(1) Defining an appropriate
geographic area                                 •   Weak economy - cooperative
                                                    development strategy focused on both
In identifying an appropriate geographic area       developing the local economy and
for cooperative based economic development,         creating job opportunities for residents.
one must consider three issues: scale,
economic climate, and assets and challenges     What are the local needs and assets?
within a defined space.
                                                When defining a geographic area for a
What is the right scale?                        cooperative network, one must look carefully
                                                at the needs and assets in place. The area
In order to determine the ideal geographic      should contain a diversity of:
scale for launching a cooperative network,
one must consider three elements:               •   workforce skills,

•   population cohesion - the area ought to     •   incomes,
    have some cohesion based on shared          •   educational attainment, and
    history, identity, and governance;
                                                •   potential partner organizations.

A Cooperative Economic
Development Framework:
Building a cooperative network

        The Evergreen Cooperatives link the needs        (2) Building a Cooperative
        of Greater University Circle institutions
        with the needs of the communities in which       Network - “the ecosystem”
        they are situated. Whereas the institutions      Support organizations are critical for growing
        demand certain services, the community           an expansive network of cooperatives.
        demands better work opportunities. Here, the     Most cooperative networks create a finance
        relationship is mutually beneficial where both   organization as a first support organization.
        parties experience gains. The diversity within   However, in Mondragon, they built a school
        the Greater University Circle area allows for    years before they built a bank. This was
        this arrangement.                                a strategic choice that responded to the
                                                         overall low educational attainment in the
                                                         Basque region. Cooperative leaders must
                                                         be strategic about the timing and sequencing
                  Evergreen                              of investment when launching secondary
                                                         cooperatives. In any case, certain types of
                                                         support organizations should be included in
                                                         any network. These include:
     (leadership team)                                   •	   Education and Training - provide
                                                              skill-based training, develop managers,
                                                              orient workers to concept of workplace
                                   WORKER                     democracy, nurture a culture of collective
                                   COOPERATIVES               ownership and solidarity. Can act as entry
                                                              point to cooperative network.
                                             Solar       •	   Finance – secures capital, manages
                                                              investment. Can be organized as member
                                          Evergreen           credit union or outside entity.
                                                         •	   Business Development - help firms

                            $$                                expand. Develop and evaluate business
                                                              plans, conduct market research, and
                                                              assess finance schemes. Can help
                                                              identify, propose, design, and incubate

     ANCHOR                                              •	   Research and Development - identify
     INSTITUTIONS                                             areas for firm expansion and appropriate
                                                              technologies to import into the region.
                                                              Crucial for manufacturing or advanced
                                                              industry sector.

                                                                   A Cooperative Economic
                                                                  Development Framework:
                                                             Building a cooperative network

                                    Organiza&ons                                    Local	
            Roles                                                                                           Founda&ons	
   Government     Labor
                                 CBOs    CDFIs    CDCs
  Training       X                           X             X                          X
Finance                                    X        X         X                           X            X             X
  Development                    X        X         X             X             X
  Development                                  X
  Coordina&on    X                 X         X             X             X            X             X
  Advocacy                X                 X         X             X             X            X             X
  Power                   X                 X         X             X             X            X             X
  Organizing           X                 X         X             X                          X
  Recruitment              X                 X                       X                          X

Recruiting Institutional Partners to                          Each partner can bring significant political and
Support the Network                                           financial capital to support the cooperative
                                                              network. Large institutional partners are
In Mondragon, all of the support organizations                generally risk averse, so cooperative leaders
are secondary cooperatives. However,                          must carefully steward those relationships.
in Evergreen, local institutional partners,                   For each partnership, the cooperative leaders
foundations, and non-profits act as the                       must consider the interest of the institution,
support organizations for cooperatives.                       the plausibility of the proposal, and a realistic
                                                              role that the institution can play.
Potential cooperative network institutional
partners fall into five broad categories:

•   community based organizations
    (CBOs), includes local non-profits and
    associations, community development
    corporations (CDCs) and community
    development financial institutions (CDFIs);

•   anchor institutions (health, education, and
    cultural institutions);

•   government (city agencies);

•   organized labor (unions and trade
    associations); and

•   foundations.

A Cooperative Economic
Development Framework:
Organizing and governing a network

     Organizing and governing                          a diverse set of skills and a range of cross-
                                                       sectoral relationships. Skills needed among
     the network                                       the leadership team:
     A cooperative network is generally understood     •   economic development finance and
     to be composed of: worker cooperatives,               planning,
     support organizations (often organized as
     secondary cooperatives), and a central            •   business development and planning,
     leadership institution.
                                                       •   cooperative firm development,
     One challenge in governing a cooperative
     network is the need to balance power              •   workforce training,
     between worker owners and efficient               •   business management,
     management. In the case of Mondragon the
     leadership role was filled both by the Caja       •   community organizing, and
     Laboral (the financial institution secondary
     cooperative) as well as the overarching           •   policy advocacy.
     governing bodies established by the               Relationships needed among the leadership
     Mondragon Cooperative Complex (MCC). In           team:
     Cleveland, Evergreen’s core leadership team
     tightly controls and manages the network.         •   anchor institutions,
     In developing an organizational structure,        •   community organizations,
     some questions to consider are:
                                                       •   the banking community,
     •   Who are the decision makers?
                                                       •   foundations,
     •   How are firms governed?
                                                       •   the business community,
     •   How is the network governed?
                                                       •   government, and
     Who are the decision makers?                      •   organized labor.
     The leadership team is the core entity that
     guides early cooperative development
     efforts and acts as an anchoring body for the
     network. It provides a sense of longevity,
     capability, and capacity that is critical for
     building partnerships with larger institutions.
     The members of the leadership team need

                                                   A Cooperative Economic
                                                  Development Framework:
                                        Organizing and governing a network

How are firms governed?                        In the start up phase, a careful balance must
                                               be struck between ensuring democracy and
Establishing a governance structure            efficiency. One method for balancing these
for cooperative firms is important for         two goals is to break the governance strategy
establishing clear roles and relationships     into phases. In a startup phase, worker-
among employees, members, managers,            owners would have less decision making
representative boards, and leadership teams.   authority, and more authority would belong
                                               to management and support organizations.
At the firm level, the governance structure
                                               After a period, authority would be transitioned
needs to establish:
                                               to the firm owners. One challenge to this
•   how managers are selected,                 approach is that it may compromise the
                                               collective sense of worker ownership.
•   how board members are selected, and        However, this is one way to lift a new
•   who has decision authority over issues

       - operations,

       - management,

       - hiring,

       - firing,

       - compensation,

       - membership and ownership,

       - promotion,

       - investments, and

       - strategy.

A Cooperative Economic
Development Framework:
Organizing and governing a network

     How is the network governed?                       The network might also mandate firms’
                                                        adherence to baseline cooperative principles
     Beyond the individual firm, the network must       set out by the International Cooperative
     also create a governance structure that            Alliance.
     defines principles and practices to which the
     network adheres. Protocols are needed for:         Because the network dictates norms,
                                                        practices and policies for individual firms, it is
     •   creating a representative board,               critical that the network is strongly democratic
                                                        for worker-owners. Otherwise the effort will
     •   clearly defining the board’s jurisdiction,
                                                        create a false sense that individual workers
                                                        have real control of their firms when they do
     •   defining how the leadership team and           not. This would undermine the creation of a
         other support organizations will participate   culture of collective ownership.
         in decision making over time.

     At some point, leaders who drive the start-up
                                                        (3) Endogenous development
     phase of a network must eventually either          model
     join the cooperative or devolve their decision-
                                                        An endogenous economic development
     making power to the members and worker-
                                                        model explores the following growth
     owners. This transition should be carefully
     orchestrated. One solution is to allow
     non-cooperative network leaders to run for         •   import-replacement
     positions on the member-elected board.
                                                        •   diversification, and
     Network leaders must also set other protocols
     including:                                         •   leveraging internal assets and macro-
     •   pay differentials between highest and
         lowest paid workers;                           Import-replacement
     •   permitted percentage of wage laborers;         As explained earlier in this guide, import-
     •   profit and loss sharing;                       replacement happens when a firm finds
                                                        an economically feasible way to produce a
     •   debt to capital ratio; and                     previously imported good or service. If local
                                                        production is feasible, the import is replaced
     •   contributions to                               and the local economy grows as the firm
           - member capital accounts,                   begins exporting to other markets.

           - a common loan fund, and

           - a social programs fund.

                                                      A Cooperative Economic
                                                     Development Framework:
                                               Endogenous development model

                                                       Endogenous Economic
                                                        Development Model
                                                   1. Identify goods and services imported
                                                      from outside the defined geographic area.
Beyond local production, another key element
to endogenous development is “increasing
numbers of firms that buy from and sell to
one another” (22). As the process of import
                                                               goods and services
replacement continues over time, the result
is a diversification that leads to “increasingly
skilled workers and technical and professional
people” (23). Diversification allows for
flexibility, a key principle underpinning
sustainability (24).                                 $$                                   $$
Leveraging internal assets and macro-
                                                   2. Seed primary cooperatives to replace
                                                      those imports.
Though an endogenous development strategy
is configured around local assets, it is also                   goods and services
important to capitalize upon changes in the
national and global economy. Local assets
can create opportunities for developing firms,                         $$
as was the case in the Evergreen Laundry.
However, macro trends can also provide new
opportunities for firm growth. For instance,
                                                     $$                                   $$
the green movement encourages local
sourcing and reduced energy consumption.           3. Support cooperatives' growth and diversification
Ohio Solar responds to these normative                through secondary cooperatives and
values, by offering locally produced energy           supporting institutions.
from renewable sources. As the green
economy continues to expand, new industries
might lead to manufacturing opportunities in


                                                                goods and services


     In this guide, we explored the idea of
                                                      Cooperative Network Model of
     cooperatives and cooperative networks
     as an alternative and sustainable way          Endogenous Economic Development
     to build wealth in cities. We presented
     the Mondragon Cooperative Complex
     and Evergreen Initiative as examples of
                                                                     BD         ET
     economic democracy, showing how shared
     ownership structures can help root wealth in            F                           RD

     communities and transform local economies.
     Drawing from these and other cases, we
     presented a framework for cooperative                                $$
     economic development. This framework is
     distilled into three major components:
                                                                  goods and services
     1. an appropriately defined geographic area

     2. the cooperative network (“the ecosystem”)

     3. an endogenous (internally driven)
        economic development model

                                                                 Defined Geographic Area

                                                                 Secondary Cooperatives or
                                                                 F = Finance
                                                                 BD = Business Development
                                                                 ET = Education/Training
                                                                 RD = Research & Development

                                                                 First generation cooperatives

                                                                 Second generation cooperatives

                                                                 Spin-off Cooperatives

                                                                 Cooperative Groups

                                             Final Considerations

In the United States, and particularly in        Cultivate the Values of Local
our post-industrial cities, cooperative          Ownership and Solidarity.
development has the potential to help mitigate
the negative effects of growing income           It can be challenging to nurture a culture of
inequality and acute economic distress.          collective ownership in a highly individualistic
While the Evergreen Initiative is still young,   context. Leaders must be committed
it is a promising example of how to leverage     to developing leadership within the firm
the emerging green economy, local assets,        regardless of worker-owners’ prior educational
and public support for greater equity and        attainment. In addition, cooperatives
sustainability.                                  should be socially committed to the greater
                                                 community in which they are situated and
In closing, we offer the following               provide means for meaningful interchange.
considerations for community organizers,
policy advocates, entrepreneurs, civic           Education Builds Network Capacity.
leaders, and urban planning professionals:
                                                 Though resource intensive, education is
Leadership must be effective and                 critical for a cooperative network’s long-
democratic.                                      term sustainability. Some think of education
                                                 as job readiness and skill training, but in a
Cooperative developments require support         cooperative setting it is key for leadership
from people with certain skills and certain      development, management training,
relationships. They also require institutional   workplace democracy acculturation, political
partnerships. However, leaders must know         education and promoting a social vision.
when to hand over control to worker-owners
and be mindful of perpetuating relationships     Cooperatives are Organizing Entities.
of dominance and subservience that can
undermine democratic intentions.                 Beyond job creation and economic growth,
                                                 cooperative development initiatives can
                                                 play a role in larger social movements.
                                                 Cooperatives can help organize a community
                                                 across ethnic and racial divides to advocate
                                                 for economic solidarity.


     (1)“What is a Cooperative?” International     website, accessed September 19, 2010,
     Co-operative Alliance, accessed July 22,
                                                   (14) Alperovitz, G. et al. “Cleveland’s
     (2) Legacoop website, accessed September      Worker Owned Boom.” Yes! June 9, 2009.
     19, 2010,            Accessed September 19, 2010. http://www.
     (3) Mondragon. 2009 Annual Report.            clevelands-worker-owned-boom.
     Accessed September 13, 2010, http://www.     (15) Bishaw, Al and Semega, J. Income,
     ENG/Economic-Data/Yearly-Report.aspx.         Earnings, and Poverty Data From the 2007
                                                   American Community Survey. August 2008.
     (4) Smith, Stephen. “Network Externalities
     and Cooperative Networks: A Comparative       (16) Alperovitz, G. et al. “Cleveland’s Worker
     Case Study of Mondragon and La Lega           Owned Boom.”
     with Implications for Developing and
     Transitional Countries” in Ownership          (17) Pierce Lee and Kuri, “Interview with India
     and Governance of Enterprises: Recent         Piece Lee and Lillian Kuri.”
     Innovative Developments, ed. Laixiang Sun.    (18) Evergreen website. http://www.
     (Basingstoke: Palgrave, 2003).      
     (5) Whyte, William Foote, and Kathleen King   Accessed September 20, 2010.
     Whyte. Making Mondragon: The Growth           (19) Howeard, Ted. The Evergreen
     and Dynamics of the Worker Cooperative        Cooperative Initiative. February 11, 2010.
     Complex (Ithaca: Cornell University Press,
     1991),                                        (20) Ibid.
     (6) Ibid., 25-30.                             (21) MIT alumnus, Nick Iuviene developed
                                                   this framework for his 2010 masters thesis
     (7) Ibid., 49-53.                             in the Department of Urban Studies and
     (8) Ibid., 58-62.                             Planning.

     (9) Ibid., 64.                                (22) Whyte and Whyte, Making Mondragon,
     (10) Mondragon Corporation. 2009 Annual
     Report.                                       (23) Mondragon. 2009 Annual Report.

     (11) Whyte and Whyte. Making Mondragon,

     (12) Mondragon. 2009 Annual Report.

     (13) US Federation of Worker Cooperatives


The MIT Community Innovators Lab thanks key partners and informants for
participating in and providing valuable insight to this research:

Evergreen Initiative Partners:
Margaret Carney, Case Western Reserve University
Steve Dubb, Democracy Collaborative
Ted Howard, Democracy Collaborative
Stephen Keil, Ohio Solar
Lillian Kuri, Cleveland Foundation
India Pierce Lee, Cleveland Foundation
Mary Ann Stropkay, Shorebank Enterprise
John Wheeler, Case Western Reserve University

Bronx Green Jobs Roundtable

The authors also offer deep thanks to our leaders and supporters:

The Collaborative Thesis Team:
Leila Bozorg, Benjamin Brandin, Gayle Christiansen,
Eric Mackres, and Marianna Leavy-Sperounis

MIT Community Innovators Lab:
Dayna Cunningham, Executive Director
Alexa Mills, Community Media Specialist
Kate Levitt and Lily Song, PhD affiliates

Faculty at MIT Department of Urban Studies and Planning:
Harvey Michaels, Paul Osterman, Karl Seidman, Anne Spirn,
J. Phillip Thompson, and Lawrence Susskind

Emerald Cities Collaborative:
Gerry Hudson, Chairman of the Board

Barr Foundation:
Mariella Tan Puerto, Senior Program Officer
 phone 617.253.3216
    fax 617.258.6515
address 77 Massachusetts Avenue, Building 7-307 Cambridge, MA 02139

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