Tags: Benjamin Gillies, Business - Energy, Lifestyle - Poverty

One solution to growing income disparity

Worker cooperatives could be an Important tool for solving the problem of inequality

January 6, 2012

WINNIPEG, MB, Jan. 6, 2012/ Troy Media/ - As Canadians slowly got back to the old grind on Tuesday, the Canadian Centre for Policy Alternatives had a rather intriguing statistic for them: by mid-afternoon on that day, our country’s top 100 CEOs had already made over $44,300 – what it takes the average citizen an entire year to earn. In fact, the policy centre notes, these elite men and women took home an average $8.4 million in 2010, 189 times more than our mean national income.

Dialogue over this type of economic disparity has been ongoing for thousands of years, from Plato, who believed the income of the highest paid in a society should never be more than five times that of the lowest paid, to last year’s Occupy movement.

A company’s main role is not to create jobs

Most recently, the major proposal for curbing inequality among many progressive politicians is for the government to raise taxes on wealthy citizens and corporations. Those on the right of the political spectrum vehemently oppose such an approach, however, arguing passionately that to burden the companies we look to for job creation is a short-sighted strategy that can only leave us worse off as businesses head to lower-tax jurisdictions.

Undoubtedly, conservatives have a point that we rely on companies to generate employment. Yet, they overlook the fact that while corporations do provide jobs for Canadians, this is not actually their main objective. Their goal is profit maximization, and stockholders can even sue managers for making decisions that hurt the bottom line.

Directors are therefore forced to do whatever is necessary to increase returns, even when their actions are detrimental to workers. Over the past 30 years, for example, executives have used the threat of outsourcing to squeeze major concessions out of employees. While the middle class was thus hollowed out as citizens accepted lower wages and fewer benefits to prevent their jobs from going overseas, CEOs and investors enjoyed soaring profits.

Improving the financial position of the majority will always remain problematic when we acquiesce to the need for profit above all else. Ensuring profitability is an important economic goal, but improving the corporate balance sheet has oftentimes come at great expense to many citizens. Raising taxes cannot alone solve this problem, because it fails to address the contradictory objectives of profit-driven companies and the people they employ. Instead, it is time Canadians adopted a more holistic perspective on economic inequality, and examined the potential of an alternative business model – the worker cooperative.

Though worker cooperatives are relatively well-developed elsewhere (Spain’s famous Mondragon Cooperative, for example, has been rated one of the 10 best places to work in Europe by Forbes magazine), they remain marginal here, in no small part because they do not mesh well with North American corporate law. Nevertheless, in today’s economic climate they offer a number of enticing benefits. Like conventional corporations, cooperatives are private, for-profit enterprises. What sets them apart is the fact that workers, not outside investors, fully own the company. These owner/employees keep all profits, instead of seeing them distributed to stockholders who often have little connection to the business other than their initial investment.

Through a one-worker, one-vote system, members are responsible for steering the company, either directly through general assembly votes or, more commonly, by electing a board of directors. As such, the decisions made put workers’ interests first. Employment security, for example, is increased, as labourers are not going to send their own jobs abroad. During a downturn, employees will also logically choose to collectively reduce working hours or pay, and find innovative ways to boost productivity and sales, instead of laying themselves off.

Because members have a strong vested interest in the success of the business, studies show they work harder and require less supervision, leading to better productivity and long-term survival rates above those of conventional companies. Moreover, as they are not bound to increasing returns above all else, owner/operators can – and do – consider how to evolve their business in a more sustainable manner.

Empowering the worker

Cooperatives operate within the market while providing greater worker empowerment and a more equitable distribution of revenue without government intervention, which ought to appeal to those on both the political left and right. They put money in the hands of the labourers actually providing goods and services, and international analysis shows salaries are on par with or better than those of shareholder-owned companies. Perhaps most importantly, the wage gap between the highest and lowest earners in cooperatives is generally far less than in conventional businesses, and members are not as vulnerable to job loss as their corporate counterparts during times of economic uncertainty.

Inequality in Canada is increasing. A diversity of strategies will likely be necessary to address all the causes of our growing disparity, but fostering the worker cooperative movement could be one useful approach. Based on its success elsewhere, this business form could play an important role in injecting some much-needed democracy and fairness into our existing economic system.

Benjamin Gillies is a political economy graduate from the University of Manitoba, where he focused on economic development and energy policy.  He works as a consultant in Winnipeg.

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