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Worker Co-op Model Gaining Traction in Santa Clara

It is a dreary Tuesday evening at the Stevens Creek location of A Slice of New York. Despite the frigid winter rain, a small cadre of customers gather outside the hole-in-the-wall pizzeria, bivouacked beneath the building’s overhang.

On the other side of the window, General Manager Kirk Vartan takes orders with a smile, evident even beneath the mask he wears to protect customers and co-workers from coronavirus. Like a shark, he never stops moving — answering calls, taking orders, running the register, calling out orders to his co-workers and handing food to customers.

Behind him, the pizzeria buzzes with activity. Heat pours from the massive brick ovens. Baking crust, tomato sauce, veggies and protein suffuse the air with the mouth-watering aroma of one of America’s most popular foods.

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Colleagues scuttle about. They retrieve food from the ovens. They ladle sauce atop pies. They sprinkled the dough with strands of white cheese. They feed the ovens. The restaurant runs like a well-oiled machine.

While Vartan is the general manager, three of the five other workers here are also owners. That is because, in 2015, Vartan floated the idea of the pizzeria becoming a worker co-op, offering employees a chance to become owners of the local mainstay. Although he was unsure if this was something his team wanted, 15 employees, nearly half of the team, put their names on the signup sheet indicating interest.

After nearly two years of hammering out details, A Slice of New York (ASoNY) converted to a worker co-op in 2017, making it the first brick-and-mortar worker co-op in Santa Clara County.

A Fish Out of Water

Vartan, a native Manhattanite, moved to the Bay Area in 1998, taking a job at tech giant Cisco. He worked to expand the video consulting arm of the company until, in 2006, he opted to call it quits. Although he said the experience was rewarding, he was ready for something different, something where he didn’t have to play corporate politics.

Arriving in the Bay Area, the pizza selection disappointed Vartan. He called his old friend Benny back in New York; Vartan asked him to start a New-York-style pizzeria in the Bay. Benny told Vartan that he should do it.

Reluctant at first, Vartan would eventually come around to the idea, taking advice from Benny on running a kitchen and recipes. Experience at Cisco and his study of philosophy while at university came in handy when Vartan eventually decided to start his own business.

“I like collaborating with people and organizations to create a common goal,” he said. “I treat people as ends, not as a means, in general. I don’t look to exploit anybody. Your people are everything. It is not about your product.”

While he had envisioned ASoNY as some kind of employee-owned structure from the early days of opening the pizzeria with his wife and co-founder Marguerite Lee, his attorney advised against it. The worker co-op model, he said, already aligns with how the pizzeria operates, so, in 2015 he suggested converting the shop to a cooperative.

Working with Project Equity and investing roughly $50,000 to make the conversion took nearly two years. When it was done, ASoNY became the first business in Santa Clara County — out of more than 160,000 businesses —  to turn its equity over to employees.

“We wanted to use this as an example of how others could do this,” Vartan said. “There [are] no tools to help small businesses right now. This is the first tool the city has to give small businesses options.”

In order to become members, that is buy into the business, employees need to meet a few requirements. They need to have been employed at the company for one year and on the schedule for at least 25 hours a week, having worked at least 1,200 hours.

Then, the candidate pays a $750 deposit that the company keeps if the candidate leaves before the end of two years. After a year-long candidacy, provided they are approved by a 75 percent supermajority of the board, they pay the remainder of the $3,000 member fee. If the member wants, the business will deduct that fee from payroll over two years.

Just like anything, worker co-ops cut both ways, Vartan said. There are perks. There are drawbacks. For him and his wife, they don’t have full control over how to spend company money. Members need to be engaged because, unlike someone who is simply an employee, they are vested in the company’s success. Taking an “I just work here” attitude is not a viable option.

Vartan has been an evangelist for the worker co-op model ever since converting, lobbying for its use across the Bay. He was instrumental in getting the Santa Clara City Council to pony up $100,000 toward a worker co-op initiative. He has even led co-op workshops at Mission College in Santa Clara, touting the model for would-be entrepreneurs.

“We have seen first-hand the impact [of the high cost of living] on someone who is trying to work and survive here. Even with [a $60,000 yearly salary], you can’t survive in this area. There is no way for them to get a foothold here unless you work in tech,” Vartan said. “This model, to me, is an answer nobody knows about.  I believe in this structure. I am kind of going on faith here. I don’t expect anybody to share that, to have that blind faith without understanding how it works.”

Lineage Of Cooperation

Worker co-ops are not new. Founded by a Catholic priest to help a Basque town recover from the Spanish Civil War, Spain’s Mondragon Corp. began in 1956 and, as of 2019, has nearly 82,000 employees across more than 257 companies. In 2015, its revenue topped $13.5 billion.

Closer to home, Olympia Veneer Co., established in 1921, is located in Washington. A plywood company, Olympia was competitive with more traditional firms during its early years.

Jon Pencaval, a Stanford economist specializing in labor economics, said misconceptions have made it difficult for worker co-ops to gain a foothold in the U.S. Many view worker co-ops as a bastion of socialist ideology, he said, chalked full of loafers looking for an easy payday.

“There is a tendency to think that workers in worker co-ops have a tendency to malinger, to take it easy. What I have found is exactly the opposite. If they see a slacker, they tell them,” Pencaval said. “They tend to not be idealist socialists. They tend to be hard-headed business people.”

Whether one views worker co-ops as a socialist breeding ground or a worker utopia likely depends on one’s political persuasion. But these views mark the edge of the bell curve, and neither is likely to be true — at least not entirely.

While worker co-ops strive for more so-called socialist equity-like profit sharing, they often eventually end up resembling capitalist firms over time. Pencaval said this is a worry that proponents of worker co-ops have, that the cooperative will eventually “sell out.”

That fear is not unfounded.

As Phil Gasper writes for the International Socialist Review: “By [1993] daily life for most Mondragón workers was not noticeably different from working for a more traditional capitalist employer, although with greater job security. Decision-making had become highly centralized, with most co-op members having no say in the company’s day-to-day operations.”

He continues: “Perhaps not surprisingly, in a survey comparing job satisfaction of Mondragón manual workers with workers in a similarly sized privately-owned company, there was little difference between the two groups, with the Mondragón workers slightly less satisfied.”

Olympia’s fate told a similar story. According to Carmen Molinari, writing for Organizing Work, such phenomena are prevalent because worker co-ops are essentially playing in the same sandbox as capitalist firms. If one’s goal is to establish a socialist company, this is a losing battle, she writes, because “capitalism functions by leveraging worker exploitation,” something socialist firms are not willing to do.

Worker co-ops tend to thrive in low-capital sectors, like the service industry and are unlikely to ever accrue enough capital to compete with, say, Boeing in the commercial air market, she notes.

However, what worker co-ops are is, as Vartan said, another option, one that provides different perks for workers. Dispersing the myth that worker co-ops are inherently tied to socialism, Pencaval said, could go a long way toward making the model more viable. The trend has already begun and seems to be gaining traction in today’s political climate.

“After the success of a few worker co-ops, banks were no longer concerned with getting their money and began loaning more money,” Pencaval said. “It could be given the great income disparity, the growth of which we have had since the 1980s…Because money buys so much in America, it is not one person [equals] one vote, it is $100 buys one vote. It could be that the interest in worker co-ops is in reaction to this unfairness.”

Raising Local Awareness

Santa Clara has seen value in promoting worker co-ops across the City. In addition to the money it has invested, the City, in partnership with Project Equity and the Democracy At Work Institute, has examined how many businesses in Santa Clara are at risk of closing. Further, it has hosted eight educational webinars with 122 attendees over the past year.

One business is determining whether switching to a worker co-op makes sense.

In a response to a request for an interview on the subject, Lon Peterson, the City’s public relations person, wrote that he was “unable to get someone for an interview, as both staff members who oversaw the program are not available.”

However, he wrote, the goal of the work co-op initiative is to “familiarize the business community with the worker co-operative business model,” adding that “it has been a success, and City staff is better equipped to discuss this model with businesses and connect them with resources.”

While Peterson would not answer what Vartan’s special advisor to the Mayor status entails, he previously said the title does not make him a City employee or a lobbyist.

Vartan said his special advisor status is to keep Mayor Lisa Gillmor “apprised of what is happening at the local, state and federal level” on the worker co-op front. He is “not asking for anything other than awareness,” he said, and dismissed the notion that there is a conflict of interest since he operates a worker co-op, the City has invested money into the worker co-op initiative and he advises the mayor on the topic.

“If that is the measure, you could say any member of the public going to a public meeting saying they don’t want a development near their house, they are a lobbyist because the development devalues their property,” he said. “Anytime anybody approaches the council for anything at any time, it would be lobbying.”

A New Generation

As these small businesses continue to age, and their proprietors near retirement, many worry about a “silver tsunami” that could cause many small businesses to shutter their doors, devastating local economies. A study by Project Equity showed that roughly 20 percent — 1,138 — businesses in Santa Clara have been in business at least 20 years. These businesses employ a third of private-sector employees and generate 57 percent of small business revenue.

“Most kids don’t want their parents’ business, because they saw how much of a boat anchor it was while they were growing up,” Vartan said. “This model is a good option. That is the low-hanging fruit. This can be an option to keep their legacy in place and provide them a fair payout for their work and give their employees wealth equity.”

Niall Adler, Director of Communications at Mission College, said the “silver tsunami” is a real concern for local businesses. To help alleviate this, Mission College aims to educate a new generation of the workforce that worker co-ops are an option that may prove viable for some businesses.

“Transitioning to a worker co-op model is essentially an exit strategy for business owners, a sort of retirement plan,” Adler said. “This way, the business owner can have peace of mind and the community doesn’t lose a local mainstay.”

It is important to note, he added, that transforming a business to a worker co-op is a business transaction.

“These owners aren’t giving away their business. They are handing over the business to the next generation,” Adler said. “These workers aren’t doing it out of the goodness of their heart and neither are the owners.”

Part of the reason worker co-ops seem to be popping up with increasing frequency is that the information campaigns — such as those by Mission College and Santa Clara — are getting the word out, Adler said. Further, by educating students with workshops like the one Vartan put on in conjunction with the college, a new generation of business owners might see value in building worker co-ops from the start.

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