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Enterprise Fund to form Worker Owned Cooperatives as a vehicle for Economic Growth

Worker owned cooperatives can spark economic growth by allowing labor to be owners. The problem is access to capital and start-up guidance. An enterprise fund, like that used to build former communist countries, would provide both.

There is a lot being written about economic disparity and the lack of opportunity for large portions of our population. Indeed, the only prerequisite for participation in capitalism is having capital, which disqualifies many would-be participants.

A worker-owned cooperative is a business form which offers ownership to individuals in exchange for labor instead of capital. It reverses the logic of ‘capital hires labor’, allowing anyone to become a business owner.

Worker owned cooperatives have turned around the economies of entire regions, as is the case with the Mondragon Cooperative in Northern Spain. Yet they remain a rarity in the United States.

Some of the counties where I live in Alabama have unemployment close to 20% and poverty rates over 30%. Alabama is ripe for business model innovation aimed at leveraging our available and willing labor assets. Standardized work and manufacturing production systems have turned Alabama into a world-class automotive manufacturer. Industrial Cooperatives could turn Alabama into an entrepreneurial center and help reverse the cycle of poverty in many communities.

The problem becomes access to capital. Despite tremendous tax advantages for both the lender and the cooperative, traditional funding sources do not understand how to lend to cooperatives. Because of the limited interest rates allowed by usury laws, banks require collateral to hedge against the inherent risk of starting a business; collateral in most early stage cooperatives is non-existent.

An enterprise fund would help finance industrial cooperative formation while providing management guidance and consulting through the start-up process.

Enterprise funds were used successfully to turn around the economies of former Soviet-Bloc countries such as Poland when the risk was too high for traditional commercial finance. Similar conditions exist in many areas facing economic decline. The worker willingness exists, provided the right economic opportunity and guidance, these communities can thrive again with the job security that comes from cooperative ownership. 

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