Opportunities to Build Wealth through Cooperative Ownership

1. Opportunities to Build Wealth through Cooperative Ownership Jessica Gordon Nembhard, Ph.D. Center for Race and Wealth, Howard University Insight webinar, September 24, 2008 jgordonnembhard@gmail.com

2. Middle Class • Most middle class and the poor who have assets have wealth because they own their own home. • Have few if any other assets. • Housing crisis hurts these people the most. Jessica Gordon Nembhard 08 2

3. Lack of Wealth • The poor consume more of income; pay more for basics. • Rising costs of basic necessities, stagnating wages and income transfers. • High unemployment & instability. • Barriers to credit & mortgage markets. Jessica Gordon Nembhard 08 3

4. Wealth Inequality • The average African American family holds at best 16% of the wealth the average White family holds. [SCF 2004] – gap increasing • Black median NW: $5,446; White $87,056 [SIPP 2002] Jessica Gordon Nembhard 08

5. Asset Poverty • Do the assets held by the household enable it to live at a minimum level of consumption • for a temporary period ( 3 months) and • with no other source of income.  As serious a measure as income poverty . Jessica Gordon Nembhard 08 5

6. Asset Poverty Rates (2001) • Head aged less than 25 years 72% • Non-aged Female heads 71% with children • Renters 64% • Blacks/Hispanics 62% • Head with less than 60% high school degree • Head aged 25-34 years 52% Jessica Gordon Nembhard 08 6

7. Causes of Asset Poverty • Lack of income and asset accumulation. • Policy discrimination and failed policies. • Economic and racial discrimination. • Financial behavior. Jessica Gordon Nembhard 08 7

8. Behavioral Interventions Have a role and some success: • Savings programs – IDA accounts • Financial literacy • Home ownership programs Jessica Gordon Nembhard 08

9. Limitations • Presume deficit model • Assume no savings • Ignore financial shocks • Ignore nontraditional resources & assets, don’t help leverage existing. • Results very micro – incremental change, small impact, one minor asset acquired. • Ignore policy and discrimination. Jessica Gordon Nembhard 08

10. Wealth Solutions? • If ultimate aim is wealth accumulation and the elimination of asset poverty, a savings account or two will not be enough. • Realistically first help low-income people gain income and acquire an asset. Jessica Gordon Nembhard 08 10

11. Income Need family friendly wages, living wages, benefits, stable income. Enhanced income and benefits can contribute to wealth accumulation Increase stability & ability to save Increase disposable income for patient capital (to take advantage of investment opportunities). Jessica Gordon Nembhard 08

12. Creating Wealth • Need to increase income stability and use benefits to minimize financial shocks. • In addition, need strategies to help low-income families own, or at least benefit from, a variety of assets. Jessica Gordon Nembhard 08

13. Portfolio Span • Increase variety of assets. • The wealth portfolio (asset holdings) of the richest people is diverse, complex and wide ranging – at least 4 different kinds of assets. • Business equity is an important component. Jessica Gordon Nembhard 08

14. Collective Action • Limitations of what inds., families, gov’t can do. • Use community-based institutions & econ dev. • Economic grassroots collective action. • Democratization of capital/assets – enable collective ownership of a variety of assets to increase income & equity. Jessica Gordon Nembhard 08

15. Community-Based Collective Action • Unions • Community/shared ownership • Cooperative businesses • Community-based assets Jessica Gordon Nembhard 08

16. Cooperative Ownership • Autonomous association of persons united voluntarily to meet their common economic, social, and cultural needs and aspirations through a jointly-owned and democratically-controlled enterprise. Jessica Gordon Nembhard 08

17. Co-ops cont’d • Consumer, worker, producer owned. • Designed for use • Address market failure • Pool resources • Democratic governance • Double or triple bottom line. Jessica Gordon Nembhard 08

18. Co-op Advantages • Save costs • Provide quality goods & services • Increase income • Mitigate racial discrimination • Increase economic stability & self-sufficiency • Build assets. Jessica Gordon Nembhard 08

19. Co-op Wealth • Member accounts translate into individual assets –equity share, patronage refund. • Net worth of the business –contributes to individual wealth, and is a communal asset. Jessica Gordon Nembhard 08

20. Returns to Ownership Co-ops and employee-owned businesses provide dividends and financial returns . The employee ownership index outperformed the overall stock market during 1997 and since has tended to converge toward the broad stock market indicators. Jessica Gordon Nembhard 08 20

21. Returns to ESOP Ownership • ESOP retirement savings are higher than non-employee-owned companies: • Massachusetts ESOP study • Per participant retirement savings of $39,895 • 12% of ESOPs have average participant accounts worth over $100,000. Jessica Gordon Nembhard 08 21

22. ESOP Returns Washington State ESOPS Higher wages and significantly higher retirement wealth than similar non-ESOP firms Average per employee account worth $24,260 (1995) compared with $12,735 Jessica Gordon Nembhard 08

23. Ag Co-ops Returns • U.S. Ag Co-ops – have higher average payout rate to members than shareholder dividends from public agribusiness corporations. • U.S. Farmers Cooperatives • Total member equity at $9.9 billion in 1998; • Member accounts worth $1.3 billion. Jessica Gordon Nembhard 08 23

24. Dairy Co-op Returns • U.S. dairy cooperatives paid 14.3% of equity in total member patronage dividends in 1997- better than the long-term rate of return on publically traded equities in US. Jessica Gordon Nembhard 08 24

25. Credit Union Savings Modest savings can be enabled in low income households Credit unions are growing, so the potential for increasing savings and investment, and providing financial services to low income communities is growing. Can compete with predatory lenders. Jessica Gordon Nembhard 08

26. Why Coops/Worker Ownership? • Cooperative ownership helps address market failures, underdevelopment and economic isolation and marginality. • Co-ops anchor the local economy. • Lead their industries in providing living wages, and often health, vacation and retirement benefits. Jessica Gordon Nembhard 08

27. Re-circulation • Local wages stay in community, • Use of local suppliers (buying local and the local suppliers’ activity stay in community), • Surplus returned to members, • Equity belongs to members, • Direct dollars to community and to community development. Jessica Gordon Nembhard 08

28. Worker Co-op Outcomes • Worker-owned cooperatives create assets- own business. • Worker Co-ops increase • production and productivity, • flexibility and innovation; • self-management and “labor”- management inter-cooperation. Jessica Gordon Nembhard 08 28

29. Worker Co-op Returns Cooperative Home Care Associates in NYC (1987- present) • pays annual dividends often at 25% of initial equity investment; • leads the industry in above average wages, benefits, career ladder, leadership training, advocacy, and low turnover. Jessica Gordon Nembhard 08

30. CHCA • Own a share of a thriving business. • Currently over 1000 employees. • More than 700 of them are owners. • Largest worker cooperative in the U.S. but not unique in terms of returns. Jessica Gordon Nembhard 08 30

31. SSC Employment Agency • A worker-owned co-op temporary hospitality services agency in Baltimore, MD; sponsored by Baltimore BUILD in 1997. • In 2000, the agency placed 260 employees in hospitality jobs. • In March 2001 there were seventeen worker-owners who elected the company’s board of directors and received dividends. Jessica Gordon Nembhard 08

32. More Examples • Many smaller worker cooperatives also provide significant dividends on shares and democratic control of a growing asset. • Worker co-ops and employee ownership are a growing movement in the US and around the world. Jessica Gordon Nembhard 08 32

33. Worker Co-op Sectors Almost any including: Food processing and food retail stores and restaurants; Manufacturing; Information technology; Childcare, healthcare; Staffing services; bookstores, copy centers and printing presses. Jessica Gordon Nembhard 08 33

34. Add Worker Co-op Dev. to CED Strategies • Connect with urban planners, unions, elected officials, and asset community – to include worker co-ops as a strategy. • Engage funders and funding sources in co-op development. • Need policy support for worker co-op business development. Jessica Gordon Nembhard 08 34

35. Significant for Low-Income Families • All these elements of cooperative and joint ownership are especially important to low income, low resource, and under served communities. • They help provide control over economic resources, activities, assets and productive capacities; and increased income and wealth. Jessica Gordon Nembhard 08

36. Worker Co-op Benefits • Control over income, with living wages and benefits • Control over work rules • Job ladder mobility • Experience – human and social capital increase • Asset ownership – business equity • Control over surplus distribution - present and retirement • Leverage co-op corporate assets • Benefit families & community. Jessica Gordon Nembhard 08 36