Cooperative Enterprises for
Newfoundland and Labrador

[Return to Policy Summary Page]

Background

The standard North American arrangement for business is the corporation. These tend to be amoral, sociopathic organizations whose singular goal is providing "value" to shareholders. This value is usually short term profit.

Young people are often told that they should follow the American Dream, start their own business and get rich. There are a fundamental defects with this line of thinking including:

This leads to the ridiculous situation we have today. Thousands of Newfoundlanders graduate from Memorial University and our community colleges only to find there are virtually NO JOBS, and certainly nothing that requires the education they and our tax dollars just paid for. Count all the jobs posted at Jobs in NL and ask what are the educational requirements for these fifteen Chicken Catchers? Even if our highly educated workforce took every job at Kent, McDonalds and the local poultry farms, most would still be unemployed. Even positions like nursing whose services are in demand (e.g. hospitals are woefully understaffed) cannot find employment because the healthcare authorities have no budget to hire them. We have insane things like pizza shops full of employees with doctorate degrees in engineering but St. John's cannot re-engineer the failed Riverhead sewer plant. Tens of thousands of expats that would return if they could eek out a living on their home province. Something is clearly dysfunctional.

These problems are not unique to Newfoundland. Spanish youth unemployment is over 57% and France is at 25%. Things are getting worse everywhere as we enter the terminal decline phase of our oil and debt fueled industrial age. There is a silver lining though - we have the collective brains to create something better.

The cooperative structure outlined below, solves the following problems:

Some of the following may seem complicated, but once it is done somewhere in the province, others can simply clone them and wouldn't have to organize procedures from scratch, build accounting systems etc. Undoubtably, the first such cooperative in Newfoundland and Labrador would have modifications, but the general ideas would remain.

Mondragon Cooperative Enterprises

The Basques region of Spain has a distinct language and culture, and like Newfoundland, residents had little desire to leave for the large cities like Calgary or Toronto to survive. Out of desperation, the cooperative enterprise was developed and refined over the decades. These cooperatives survived the Great Depression and proved to be exceedingly successful organization models that could compete successfully with commercial enterprises. In many respects, they became a parallel government, running credit unions, hospitals as well as industry.

Cooperative enterprises are businesses that are owned solely by the current workforce workers receive cash salaries and receive a share of annual profits which is placed into a capital account. When workers leave the cooperative their capital is paid out in cash and their ownership position is dissolved.

Cooperative groups are sets of employee owned cooperatives that pool profits to minimize the collective risk benefits include risk sharing and a larger pool of capital to fund large investments factory expansion and infrastructure improvements groups usually have 6 to 12 members in a related sector like fish plants and aquaculture or wood pellets and forestry operations.

Salaries and Salary Spread

Salary is considered to be a share of anticipated earnings. Salary is monies paid in anticipation of future earnings to emphasize that salary is not an entitlement but a cash advance for value added activities that lead to business earnings.

The spread between the executive management and shop floor workers is less than 1 to 6 in large firms and 1 to 4 in small firms of 500 employees or less. Profits are distributed based on hours work and pay level and placed in a capital account. This capital is not paid out in cash like a salary but is retained until the worker leaves the guild or retires. All salaries are published.

Keeping things Small and Manageable

When a business unit grows sufficiently large it is spun off into a separate independent cooperative. To minimize risk the new cooperative receives exclusivity as a supplier to the parent cooperative for a few years and can join a cooperative group to pool capital. This is the opposite of what happens when large companies merge and promptly lay off people due to duplication of positions solely in order to make greater profits for wealthy shareholders and without regard for the cost to human capital. The following could be spin off examples:

Contract Labor for Temporary Needs

Contractors can be used. They are not members cannot vote in the general assembly and do not receive profit sharing distributions. Contract employees are not to be used solely as a cheaper form of labor or to avoid the cost of providing basic employee benefits. Contractors may join the cooperative credit union and receive the standard human resource benefits.

Distribution of Retained Earings

The arbitrary example below shows a net profit of 1.6 million. 50% of this is reserved as working capital. Every worker gets a credit of $1 per hour worked plus a bonus based on salary grade such that the $800,000 is completely distributed. These funds accumulate and are used for capital expenses like purchasing buildings. When the worker retires, his accumulated share is paid out in cash.

Mondragon Profit Distribution

The cash pool allows the cooperative to finance complex operations that would not otherwise be possible.

The general assembly and social committee determine the detailed profit distribution. Formulas are based on local circumstances.

No layoff policy

Joining a Cooperative

Each member contributes the equivalent of one year's salary at the lowest pay scale 1x to their capital account at the credit union. Interest is paid at the standard rate for savings deposits the cash contribution can be borrowed from the credit union. The general assembly votes to accept new members. Capital is returned upon retirement or leaving the coop. 20% of the capital can be retained by the coop if the member leaves for bad reasons but this would have to be approved by the majority of the general assembly and would have to be something truly extraordinary to incur such wrath. This is not expected to occur.

Alternates to a cash contribution could be the loan of equipment need for coop production or 1 year of volunteer work. For a fish plant, perhaps someone owns a building, and another owns food processing equipment.

Organizational structure

A small cooperative wouldn't need all of this.

Mondragon Org Structure

General Assembly

The entire membership of a cooperative meets once a year and is called the general assembly. Each member has one vote regardless of their position in the firm. Extraordinary meetings can be called by collecting the signatures of the majority of members.

The general assembly:

Governing Council

The president, vice president and secretary of the general assembly along with several other members make up the governing council. It is similar to a board of directors except that all are members of the cooperative. Members are elected for a single term of 4 years. The governing council prepares annual plans, proposes distribution of profits for the general assembly, appoints and oversees the managers, determines job classifications, prepares annual reports.

General Manager

Management council

This is a consultatory body that supports the general manager. It is made up of departmental heads and executives appointed by the governing council and the general manager. Social council workers are represented to management by the social council which is elected from the shop floor activities are similar to what trade unions do except unions see management as the enemy are usually adversarial and aren't commonly involved with business decisions in a single location coop. The shop floor workers are a major force in elections and can remove members from the governing council collectively, own most of the company and are all in the same boat so to speak.

These activities are therefore more cooperative than adversarial and include examining business plans and contributing proposals to management provide different points of view to management of to improve decision making analyzing and proposing changes to standard operation procedures, labor relations organization of work health and safety, monitoring annual evaluation of pay scales, keeping workers up-to-date on proposals for new products, informing workers about social council activities, allowing worker concerns to flow back up to management, analyzing methods to improve labor relations.

Regular labor union activities in private firms are performed on paid time. A mechanism must be provided to allow coop workers to take time off work and perform work on social council issues about 2 days a month is required. There will be a natural tendency for management to give floor level workers no time at all off production external non member professional consultation must be allowed a budget must be established for outside consultations. The shop floor workers are not accounting experts and may want to consult external experts. Usually the experts are in management and the same people being challenged. This annual budget should be sufficient to cover several hours of accounting, legal review and perhaps a site visit from a local professional engineer. This is an important function because if the workers feel strongly that something is wrong given their intimate understanding of detailed operations, it is likely an important concern to the cooperative. A simple majority of workers can disband the social council.

If their concerns are not acted upon there may still be a place for labor unions a union could accept dues from workers and provide consultation to the social council example management proposes a 2nd shift to boost production workers don't want night shifts the social council works on an alternative plan to improve throughput and hires and independent professional engineer to review advise and compare with management's plan the social council presents the new plan to management audit committee inspect all documents brought before the general assembly this function was originally required by Spanish law however it is a good idea for any business to guard against corruption this function should be term limited require a professional license such as a chartered accountant or lawyer and contain at least one non-member.

No doubt you will find a few anomolies in the notes above. Once the first such organization is created in the province, a detailed guide will be produced with legal documents, calculations, job descriptions, and procedures to comply with occupational health and safety, environmental regulations etc.

The role of Govenment is to be an enabler of self-sufficiency and to wisely spend its tax revenues to maximize value society. With that in mind, the following policies should be implemented.

Policy Items