AUTHOR: TUCKER GAUSS, EDITOR: BECCA PENG
This article is part of a two-part series on the role of co-ops in reducing inequality. Read Part 1 on The Cheese Board’s co-op here.
There’s an expression in Kung Fu Panda 4—no judgment, please, I’m a man of culture—that “each acorn reveals a promise of the larger peach tree.” While the filmmakers were definitely not writing about income inequality, I nonetheless found this relevant to my previous article about co-ops. (Yes, I’m a huge nerd).
While it’s just a small business in the local pizza market, The Cheese Board shows us that co-ops are an imperfect yet promising solution to inequality between employees and owners. Like the peach tree acorn, this cheese shop is a microcosm of broader discussions among academics and professors about the role of labor markets in an economy.
Nevertheless, The Cheese Board may only partially reflect what research experts think about co-ops. To learn more about the similarities and differences between academic research and the real-world applications of labor models, I interviewed Professor Emmanuel Saez and UC Berkeley student Max Moreno. Saez is renowned for his research on inequality, while Moreno is currently writing his senior Political Economy thesis on Namaste Solar, a solar panel co-op based in Colorado.
Can Co-ops Actually Reduce Inequality?
The experiences of The Cheese Board’s workers illustrate that co-ops are an important tool to combat inequality between workers and owners. Joint ownership among workers enables them to directly benefit from the business’s success, rather than receiving a fixed wage.
From an academic standpoint, there seems to be agreement—at least in principle. Saez cites the “split of economic surplus between workers and owners” as one of the primary causes of inequality. He sees co-ops as a “decentralized” way of bridging this gap by making the worker the owner. Max agrees that “co-ops can reduce inequality by creating an egalitarian structure, at least on a smaller scale.”
Nevertheless, academics seem to be a bit more skeptical of this rosy image. Saez notes that co-ops are “hard to expand” since the onboarding process for each employee is so intensive. Workers need to be trained in a variety of skills and incorporated into the business management system, which affirms Vanessa’s experience with some of the difficulties of working in a co-op. As a result of this arduous integration process, co-ops may be unable to match demand. Look no further than The Cheese Board’s “long queues,” says Saez.
In contrast to Saez, Max doesn’t cite the onboarding process as the primary obstacle to co-op expansion. Instead, he explains that “the main barrier is simply a lack of information or knowledge that this is even an option.” Max also contends that “cooperatives cannot meaningfully reduce inequality on their own” and emphasizes that “it would have to be combined with other changes or other programs.” In other words, there simply aren’t enough co-ops in the U.S. to make a true dent in inequality. So, what else can be done?
Co-ops Need to “Co-op”erate with Alternative Solutions
Saez, Max, and Vanessa all agree on one thing: co-ops are not the only solution to inequality.
Saez mentions the partnership model, whereby a group of “elite founders own equity” and “hire workers for pay.” This system may be more efficient, particularly for law firms, as it “specializes workers by skill set”—rather than expecting the bread baker to complete taxes, like at The Cheese Board. Onboarding employees is more straightforward since the business does not comprehensively integrate workers into the decision-making and management process. Even UC Berkeley is a partnership, according to Saez, in which an “elite workforce of professors” helps hire a “second tier of guest lecturers.” Despite the benefits of this alternative model, partnerships may suffer from significant discrepancies between work and pay. Saez admits there are flaws to Berkeley’s partnership since the hired lecturers receive “low pay but end up doing a lot of the teaching.”
Max underscores the importance of policy frameworks in supplementing co-ops and partnerships. Legal and tax structures are essential to codify co-ops into the law in that they foster co-op development through legitimacy and potential tax incentives. For example, Namaste Solar benefits from Colorado’s “public benefit corporations” legislation, a distinct legal structure in which “companies can pursue specific environmental and social goals, including workplace democracy or worker-owned cooperatives.” Although some lawmakers have aimed to strengthen labor power in recent years, such as through the proposed PRO Act, there remains considerable room for improvement.
Outside the US
While the bulk of Saez and Max’s research concentrates on U.S. businesses, they also delve into international examples of co-op (or co-op-adjacent) models.
Max explains how co-ops globally support each other akin to how workers support each other. Most notably, the “International Co-operative Alliance brings together cooperatives from around the world, and they all are able to share ideas.” This inter-co-operative collaboration enables the customization of business models to suit different industries, worker environments, labor policies, and collectivist cultures. Through this synergetic network, co-ops often consult with one another for direction or advice—Namaste Solar, for example. As the Colorado-based company completely transformed its management, organization, and pay structure, a key inspiration for its business was Equal Exchange, a co-operative that sells coffee and chocolate. Despite industry-level differences, Equal Exchange was able to offer them many insights into the structure and design of a co-op business.
These international variations not only enrich economists’ understanding of co-operatives, but also guide policy research. Saez distinguishes the US and Western European countries by labor power, as it is generally “higher in Western Europe due to stronger wage regulations.” This comparison allows economists to evaluate the efficacy of European versus American labor policies in terms of promoting equality and empowering employees. Saez regards European labor policies as a guide for U.S. lawmakers, viewing minimum wage as a first step but stronger union policy as a “necessary form of decentralized minimum wage tailored to industry and geography.” For instance, in Scandinavia, there is “no need for a minimum wage since unions and sectoral bargaining are specific to industries and occupation.”
Saez also references the Israeli Kibbutz as a “model of a voluntary socialist society.” Although these organizations differ from co-ops, Kibbutz shares similar issues since their “central goal isn’t just to produce something, but to maintain a community.” Namely, they are “hard to sustain except in small communities where people have stronger bonds.” As economics and policymakers seek to expand co-ops, the social aspect of economic and political organization cannot be overlooked. Thus, Israel’s Kibbutz reveals a fundamental lesson in economics: business is a social endeavor.
It’s Not All About the Money
In a lecture hall somewhere, behavioral economists are celebrating. (Well, assuming they read a random article from a know-it-all Berkeley student.) The crux of the matter? Social factors, most notably a sense of community, are more important than just paychecks.
Namaste Solar is a prime example. Max lauds its “commitment to community involvement, such as through charitable donations or vocational training programs.” Here, the closely knit connection between local citizens and business ownership drives genuine community impact since “cooperatives are owned by the community that they serve, rather than by outside investors who may have no connection to the local community.” The data reflects this, too. In Canada, co-ops donated 4.1% of their 2016 pre-tax profits—in stark contrast to other businesses, which contributed a mere 1% of their earnings.
The Cheese Board further demonstrates the importance of a sense of community in business. While some economists may bemoan its surplus demand and less-than-efficient production, Saez is in awe of the shop’s “incredible diversity” and passion for their work. Co-ops like The Cheese Board give us “a sense that businesses are not just an economic relationship.” They foster “a sense of community,” which seems to be missing for most multinational, multibillion-dollar corporations. After all, “humans are social creatures who care about more than just the paycheck.”
And if a French (soon-to-be) Nobel Prize winner believes that your shop has “the best cheese in the United States,” you must be doing something right.
Economics Is A Game Rated E: for Everyone
Although it may seem bizarre to place an award-winning economist, a Berkeley student, and a cheese shop worker at the same table, these varying perspectives illustrate that economics involves everyone. Not only does this comparative analysis teach us about co-ops and inequality, but it also demonstrates that economics isn’t in the exclusive domain of esteemed academics. Everyone has a place in the economy, and everyone’s perspective is legitimate.
Perhaps this inclusivity is the core reason why inequality remains such a problem. The widening gap between the rich and the poor paints a false picture of who matters in the economy. Economics ought to be democratic—like co-ops, everyone has a say. Absolute equality may be unrealistic, but economic parity is necessary to ensure everyone’s voice is heard.
Photo Credit: Fine Art America
Insightful article. Solving the scalability issue of co-ops is crucial to them moving from local pizza shops to major businesses. Seems social media can play a role in bridging this gap through expanded community awareness.