Opportunities to Build Wealth through Cooperative Ownership Jessica Gordon Nembhard, Ph.D. Center for Race and Wealth, Howard University Insight webinar,

Jessica Gordon Nembhard 08 1

Opportunities to Build Wealth through

Cooperative Ownership

Jessica Gordon Nembhard, Ph.D.Center for Race and Wealth, Howard University

Insight webinar, September 24, [email protected]


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.

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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.

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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]


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 .

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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%6


Causes of Asset Poverty

• Lack of income and asset accumulation.• Policy discrimination and failed policies.• Economic and racial discrimination.• Financial behavior.

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Behavioral Interventions

Have a role and some success:

• Savings programs – IDA accounts• Financial literacy• Home ownership programs


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.


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.

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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).


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.


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.


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.


Community-Based Collective Action

• Unions• Community/shared ownership• Cooperative businesses• Community-based assets


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.


Co-ops cont’d• Consumer, worker, producer

owned.• Designed for use• Address market failure• Pool resources• Democratic governance• Double or triple bottom line.


Co-op Advantages• Save costs• Provide quality goods & services• Increase income• Mitigate racial discrimination• Increase economic stability &

self-sufficiency• Build assets.


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.


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.

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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.

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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


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.

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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.

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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.


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.


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.


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.

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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.


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.

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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.


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.

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Worker Co-op SectorsAlmost any including:• Food processing and food retail

stores and restaurants; • Manufacturing; • Information technology; • Childcare, healthcare; • Staffing services; • bookstores, copy centers and

printing presses.33


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.

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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.


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.

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Opportunities to Build Wealth through Cooperative Ownership Jessica Gordon Nembhard, Ph.D. Center for Race and Wealth, Howard University Insight webinar,

Documents

income poverty

income stability

income equity

wealth need

individual wealth

lack of wealth

income transfers

stable income