Empowering workers to become owners

Ronald Mitchell

For the last half dozen years, advocates in Massachusetts have been pushing for the creation of more worker-owned businesses, often called co-ops, as a way to share profits with the people who create products and deliver services. The Coalition for Worker Ownership and Power has lobbied, successfully on occasion, for state legislation and funding to help increase the number of employees who own a piece of their workplace.

At the same time, a body of opinion has emerged in the Black community that such co-ops could be helpful in attacking the community’s biggest challenge, the massive racial wealth gap.

“We think that this is a really critical way of doing wealth transfer and also keeping the employment levels in our community high,” Nicole Obi, president and CEO of the Black Economic Council of Massachusetts, told the Banner last year.

State Senator Lydia Edwards sees even broader implications. “We need to make sure that cooperatives, the movement, is actually part of our economic future. It is the only way we’re honestly going to bring people across the generational wealth gap that we have seen talked about so much” she said in 2022.

The creation of more worker-owned businesses was one of the potential approaches to closing the racial wealth gap that participants in an all-day hackathon, organized by MIT Professor Karilyn Crockett, endorsed last month.

The gap between Black and white wealth is so vast and structural that a single approach won’t wipe out the disparity. That gap developed over 250 years when most African Americans were enslaved and the fruits of their labor were transferred to whites — not just plantation owners, but also the owners of textile mills, shipping vessels, banks and other ancillary businesses. Then came a century of most Black workers being locked into the lowest-paying jobs and Black entrepreneurs being denied loans. After all that, institutional racism has persisted the last 60 years despite the civil rights laws enacted in the 1960s.

So, it will take a multi-pronged and sustained campaign, as intentional as the systemic denial and removal of Black wealth, to close the gap. Worker-owned co-ops are worth trying as a piece of that broader effort.

The Massachusetts government should do its part to encourage the establishment, nourishment and maintenance of such co-ops. The Legislature has already taken a step or two.

Three years ago, the Massachusetts Center for Employee Ownership was established with a 19-member advisory board. The Small Business Technical Assistance program provides managers of worker-owned companies with the kind of business savvy they need.

The Coalition for Worker Ownership and Power has pushed for the Legislature to increase that program’s funding, which would be an investment in equity and economic growth. Lawmakers should try to find money to do that in the state’s next budget.

Pending legislation, which the coalition supports, would give employees the first right of refusal when an owner intends to sell a business.  

As the Banner’s Avery Bleichfeld has reported, the bill sponsored by Representatives Christopher Worrell of Dorchester and Sean Garballey of Arlington would require owners looking to sell their small, privately held business to inform employees of their intent. A group of employees would then have 30 days to match other purchase offers. Businesses being sold or transferred to siblings, children or spouses would be exempt.

As an incentive, sellers would not have to pay a 5.15% tax on the first million in capital gains — if the business is bought by a group of employees. Any gain above $1 million would be taxed as usual.

The bill, the subject of a recent committee hearing, might need some tweaks as it goes through the legislative process, but it should made law.

Thirty days seems like a mighty short window to secure financing, particularly for a group of potential buyers, rather than an individual. Lawmakers at the hearing had questions about the $1 million threshold, which would cost the state and save the seller $51,000 at the current tax rate. Is that enough of an incentive? From a revenue perspective, it seems like a small price for the state to pay to sustain a small business and spread its profits around.

Just because the bill pertains to small businesses doesn’t mean it’s small potatoes. Most enterprises in Massachusetts and the country are small businesses, which can grow.

The company we know as UPS started in 1907 as a local messenger service whose workers delivered messages on foot and bicycles in Seattle. It became employee-owned 20 years later.

In 1999, after UPS had become a dominant player in the package delivery business, the company issued a public offering of stock. Employees who wished to sell their share made a handsome profit enabling them, for instance, to build an addition to their home, finance a child’s education or open a business of their own.

The Massachusetts Legislature must do what it can to encourage the creation of co-ops, make sure Black and other employees of color get a fair share of that action and then support the scaling up of worker-owned businesses. It’s an approach that has the promise to narrow the racial wealth gap but unfortunately not to wipe it out on its own.

Ronald Mitchell
Editor and Publisher, Bay State Banner