What Works: Leveraging Union Support for Business Growth – the Mondragon USA Model

Objective: This case study looks at the importance of the United Steelworkers agreement with Mondragon, one of the most successful coalitions of worker-owned cooperatives in the world, and how that facilitated the growth of worker-owned cooperatives in Cincinnati, Ohio.

Major Participants: Cincinnati Union Coop Initiative, Mondragon USA, the Ohio Employee Ownership Center, United Steelworkers, United Electrical, United Food and  Commercial Workers, International Brotherhood of Electrical Workers.

Background: As industrial activity in Cincinnati slowed, social justice workers began looking for alternative employment opportunities for residents. Led by longtime rail mechanic and union worker Phil Amadon, Cincinnati began sending delegations to Spain in the 1980s and 1990s to learn about Mondragon Corporation – a collection of worker-owned cooperatives that had proven successful in reducing the widespread poverty experienced by the Basque Region following the Spanish Civil War. Mondragon Corporation, which essentially functions as a Co-Op of Co-Ops, provided the solidarity needed to strengthen worker-owned co-operatives and to reduce Basque unemployment from more than 50% to just 4% (versus 27% nationwide) in three decades. Cincinnati’s advocates were excited about the Mondragon model, but were concerned that Cincinnati lacked the collective orientation of the Basque people. Simply, while poverty in Cincinnati was high, it was not felt equally and therefore, the city lacked a unifying force behind the movement.

That changed in October 2009 when Mondragon signed an agreement with the United Steelworkers (USW), which provided the structure for bringing the Mondragon model to the United States. Amadon recruited three others: an economic justice advocate, an immigrant rights organizer and a person from United Food and Commercial Workers (UFCW) to research and study Mondragon in detail. In February 2011, there were more than 30 local residents committed to bringing the Mondragon model to Cincinnati. Together, they formed the Cincinnati Union Cooperative Initiative (CUCI). CUCI worked closely with Mondragon International on proposals for cooperatives in three industries: manufacturing (because of the relationship with the Steelworkers), the food cluster (from production to distribution and retail), and the building trades/construction.

How it Works: The Mondragon/USW model is based upon ten central principles: (1) open admission; (2) democratic organization; (3) sovereignty of labor; (4) subordination of capital; (5) participation in management; (6) wage solidarity; (7) inter-cooperation; (8) social transformation; (9) universality; and (10) education.

One of the key tenets of the Mondragon model is that each cooperative is tied to a labor union. Union co-ops differ from traditional worker-owned co-ops in that workers in a union co-op can appoint a management team (see below) and then bargain collectively with management. Because of the 2009 Mondragon/United Steelworks agreement, many of the early Mondragon USA cooperatives involved the USW. Several other unions have become involved since then.

In each case, the Mondragon model promotes the following government structure: Cooperatives each have worker-owners, all of whom are part of a General Assembly. Together, the worker-owners elect a Board of Directors and a Union Committee. The Board appoints the management, and management runs the business. Together, the Union Committee and Management negotiate the operating details of the business, including wages, hours and working conditions. The Union Committee represents that worker-owners to the larger union, and the union provides the workers with more cost-effective health/retirement plans and a platform for acting in solidarity with other workers.

Results for Local Economy: Since its 2012 formation, CUCI has launched two co-ops and transformed two nonprofit organizations using the Mondragon model. The first was Our Harvest “Food Hub”, a cooperative launched in partnership with UFCW that grows, aggregates and distributes food while training local farmers and creating family-sustaining jobs. There are already 20 worker-owners, with an additional 14 on the worker-owner track. Our Harvest has leased more than 100 acres of land for food production to date; the goal is to have 700 acres under cultivation and 200 jobs within the next 5-7 years. The second business cooperative is Sustainergy, a construction company that performs energy retrofits for commercial buildings and nonprofit organizations.

The nonprofits to adopt the Mondragon model through CUCI are Renting Partnerships and a jewelry co-op. Renting Partnerships provides structure and support for renters to help them build financial equity. The jewelry co-op was established to sustain the Sarah Center, a nonprofit that encourages marginalized women to improve their lives through jewelry making, health and wellness programming and entrepreneurial education. The goal is to transform hobbies into sustainable businesses that create well-paying, full-time jobs.

CUCI is also in the process of launching cooperatives with Yucky Cookies and Apple Street Market. The founder of Yucky Cookies experienced great success in New York but relocated to Cincinnati and wanted to re-launch the company. The artisan cookie company began selling its products in Remke Markets in September 2014; as the company grows locally, it seeks to create a cooperative of full-time baking and distribution workers to service the company. Apple Street Market is a worker- and community-owned grocery store that will provide access to health foods in a desperately underserved Cincinnati neighborhood. Apple Street Market is slated to open in early 2015 and is intended to serve as a catalyst for broader neighborhood revitalization.

Remaining Challenges: The structure of worker-owned cooperatives makes them inherently difficult to finance. Initial capitalization often requires a cobbling together of resources, including individual investors (the worker-owners), grants, fundraising campaigns and small loans from community banks. As CUCI builds its model for worker-owned cooperatives, it continues to experiment with various ways to access capital in order to help start and grow its co-ops.

Moreover, scaling the number of worker-owned cooperatives can be a challenge. For most executives, the worker-owned model is entirely foreign. Finding a CEO that is willing to empower his or her teams using this model is an ongoing challenge.

Lessons Learned: The success of CUCI’s first two business cooperatives, Our Harvest and Sustainergy, was largely due to the unanticipated alignment around access to healthcare benefits. While worker-owners experience an array of benefits versus traditional lower-wage jobs, including higher wages and promotional opportunities, most rallied around healthcare. One group of worker-owners opted for traditional healthcare benefits, while another opted to receive vouchers that could be used for any medical-related expense.

Second, CUCI has learned that training employees – especially those in Human Resources – is a critical component to the cooperative’s success. Management and workers must both understand the Mondragon model, its principles and business basics. Human Resources and their handbooks help to maintain consistency across CUCI co-operatives. Additionally, CUCI supplements workers’ on-the-job training with other social programming, including financial literacy. This helps workers in their personal lives, while also ensuring they can effectively participate in the co-ops’ important business decisions.