Socially Responsible Investment for Worker Cooperatives

* Report: REDEFINING THE CONCEPT OF AN “ETHICAL BUSINESS”. By Amelia Evans. The Institute for Digital Cooperative Economy ; Platform Cooperativism Consortium, 2021.

URL = https://ia801807.us.archive.org/29/items/amelia-evans-single-web/Amelia%20Evans_single_web.pdf

"Redefining the concept of an “ethical business”: A roadmap for unlocking access to socially responsible investment funding for worker cooperatives."

Summary

From the introduction:

"Cooperatives have long existed as a more equitable alternative to corporations. Cooperative grocery stores, which tend to have strong links to local farms and supply chains—often themselves cooperatives—stand in stark contrast to the monolithic sourcing practices of national supermarket chains; electricity and internet have been made available to rural areas through locally operated cooperatives in areas where corporations refused; workers in industries historically rife with mistreatment, exploitation and low wages, such as domestic work or construction, are effusive about the experience of working in cooperatively run businesses in those industries.1 In particular, worker cooperatives, which are premised on their member-workers being collective owners, and therefore having democratic control over their workplace and sharing in the profits of the business, are inherently a more just and worker-centric structure than corporations, which are premised on extracting profits generated by a workforce to a shareholding ownership class.

While cooperatives are themselves no silver bullet, and can be at risk of replicating some of the same problematic practices as corporations–from replicating existing power imbalances by discriminating within their hiring practices, to failing to adequately reduce their carbon footprint–their basic structures offers enormous potential for mitigating the economic and social inequities now bound up in corporate activity.

The sharing of profits amongst workers makes them a powerful tool for addressing economic inequality; the accountability of their internal governance structures, which mean that worker-members ultimately govern and rule cooperatives, also means that labor abuses, such as wage theft or forced overtime, are less likely to occur.

Yet, it is conventional corporations that have been receiving the nearly 31 trillion US dollars of “ethical finance”, while worker cooperatives have often struggled to attract even small-scale loans from traditional forms of finance. It is these contradictions that this paper explores, arguing that it is time to debunk the myth of the ethical corporation, and to reframe business ethics and equitability. An “ethical company” ought to be one that shares its profits and power with its workers and the communities that it impacts. Ethical finance ought to mean investing in businesses that enable workers to profit from the labor and have a voice in the conditions of their work; it ought to mean investing in worker cooperatives. To do so, would also help overcome the barriers to growth and formation that many worker cooperatives struggle with: the lack of access to capital.

Importantly, such ethical investing ought to be done in a manner that respects the fundamental principles of cooperatives. As this paper highlights, in their need to access capital, some cooperatives are turning to funding options that risk undermining the fundamental member-ownership and control principles of cooperativism, by providing investors some degree of decision-making power in return for more capital. While not prescribing to a rigid purity test for financing cooperatives, the paper argues at the very least against relinquishing governance rights unless absolutely necessary and for being careful to minimize the potential for harm when doing so. Instead of escaping the capital conundrum by embracing financing that undermines a key tenet of the cooperative— its refusal to privilege capital over labor—the author sketches a roadmap for how cooperatives, and their advocates and allies, can change the norms of “ethical financing”. This would unlock not just more funding for cooperatives, but a more equitable economy and society.

Part one of the paper briefly outlines the fundamental principles and benefits of worker cooperatives. The second part explores the existing funding sources available to cooperatives that are consistent with the underlying principles of cooperativism, as well as the rise of experimentation with new types of capital-raising, and the limitations of all these existing sources. It outlines the benefits of obtaining debt-funding, while recognizing the limited amount of such funding that is available. The paper then turns to proposing a new strategy: promoting cooperatives as the only ethical optional for selfidentified socially-responsible investors. Throughout, the paper particularly focuses on cooperatives with worker-members that are operating in the technology sector, which are part of the universe of “platform cooperatives”, and in particular in the United States. As a sector known for its experimentation and willingness to reject traditional business conventions, as well as significance and growth of the industry globally, the technology industry represents a strategically important sector for cooperativism to gain traction. Those cooperatives that have been launched in tech sector are often competing against large Silicon Valley firms, and are operating in an industry that receives more seed-level investment than any other. Venture capital provides aggressive levels of funding to technology companies —with over 130 billion US dollars having been invested in small start-ups in 2018 alone—that enable recipients to rapidly scale or operate below-cost to eradicate their competition.

This makes their capital conundrum particularly pronounced. However, while focused on the tech sector, the ideas in this paper can be applied to the worker cooperative field more broadly.

Finally, the fact that this paper looks solely at the ways in which private actors in finance—or some of them—might be targeted to provide more capital to cooperatives, is not meant to suggest that policy interventions, such as preferential tax treatment or government-supported funding, are not warranted. To the contrary, they are desperately needed. Building a cooperative economy will require a range of strategies—none of which should be seen as mutually exclusive—and ideally the efforts proposed in this paper to influence private actors would be supplemented by related policy and legislative reforms to incentivize cooperative growth and stem corporate power."