Broadening ownership is a global issue, but there are strong reasons why its implementation requires action at the local or regional level: state and provincial legislative measures can encourage expanded ownership; regional and local programs are efficient providers of technical assistance to those seeking to implement employee ownership; and local action can encourage the creation of collaborative company networks, training cooperatives, and employee-owned suppliers.

COG's subnational discussion group canvassed existing subnational governmental, non-profit and for-profit initiatives, selected best practices worthy of dissemination, and proposed innovations in order to promote the expansion of employee ownership. We sought to find mechanisms within our scope of control to broaden ownership of productive assets and to deepen that ownership through encouraging greater employee participation.

This summary looks at what public and private subnational actors can do to promote employee ownership through (1) state legislation, (2) technical assistance, (3) local actions, (4) investment funds, (5) company networks, and (6) using the economic power of employee-owned firms within their communities.

Subnational Public Policy
Subnational political units can encourage employee ownership within their jurisdictions. The United States and Canada have taken the lead in this area. There is no reason why similar measures cannot be undertaken in other political systems which give latitude to subnational governmental bodies in economic development.

In the United States twenty-eight states have passed some sort of legislation encouraging employee ownership since 1974. Such measures run the gamut from policy declarations to substantial financial commitments. They include tax credits, exemption of Employee Stock Ownership Plans (ESOPs) from state securities regulations, legal recognition of workers cooperatives, earmarked loan funds and loan guarantees, interest rate subsidies, funding for or the direct provision of technical assistance, establishing state employee ownership centers, and using employee ownership in privatization of state services.
New initiatives proposed in the COG subnational discussion include:

· States could provide tax credits to companies for setting up more participatory ESOPs with caps based on a sliding scale varying with the percentage employee-owned.
· States can encourage electrical consumer co-ops in electricity deregulation.
· States can enact legislation giving employees the right to purchase facilities being shut by companies abandoning that line of business, or, more aggressively, to give employees right of first refusal on plants being put up for sale.
· Preferential bidding arrangements for government contracts could be arranged for employee-owned firms, as is done for cooperatives in France and Italy.
· A preference for employees in privatization can be provided as Virginia, North Carolina, Russia and some Eastern European countries have done with varying degrees of success.
· Partial employee ownership can be created within some or most public enterprises by simply paying employees a small capital wage in stock and underpinning ownership with dividends when the enterprise is profitable.
· The Alaska Permanent Fund constitutes a model of using public ownership rights (in this case, of oil royalties) to convey partial ownership rights to citizens. Why not do the same for other profitable public services-publicly owned utilities, parking garages, etc.-at the state or local levels when those streams of income are sufficient to be divided?

Technical Assistance and Support Organizations
Organizations which provide information, technical assistance, and training for employees seeking to purchase companies help broaden and deepen ownership. They can be governmental units, not-for-profit organizations, sectoral organizations, for-profit consulting firms, or national programs implemented locally.

State programs. During the latter part of the 1980s and early 1990s, seven state employee ownership programs (Hawaii, Massachusetts, Michigan, New York, Ohio, Oregon, and Washington) were established. A quasi-state entity--the Steel Valley Authority--provides similar services on a regional basis in Southwest Pennsylvania. More than anything else, these programs focused on outreach and assistance to union locals in plants facing shutdown and to retiring owners who might be interested in selling their companies to their employees. A study of three of these programs-New York, Ohio, and Washington-found them to be quite efficacious in increasing the rates of ESOP formation in the states in question.

Reviving state programs which have been defunded and creating new ones is clearly a viable ownership-broadening strategy.
Non-profits. In addition to public sector employee ownership assistance organizations, a dozen or so regional not-for-profits promote employee ownership in the United States, Canada, Mexico, and the United Kingdom and a number of local non-profits do the same. In addition, a few general purpose economic development organizations have developed special employee ownership competence.

Generally speaking, single-purpose employee ownership organizations require a relatively large catchment area; otherwise they have to broaden their scope of activities beyond employee ownership to prosper. General purpose economic development organizations screen enough firms through their other activities that they can identify individual firms as appropriate candidates for employee ownership. Too few of them, however, have any employee ownership expertise.

Consequently, it would be worthwhile to train additional economic development organization personnel in the appropriate uses of employee ownership.

Sectoral strategies. An alternative to a geographic focus is a sectoral employee ownership strategy. Several organizations have undertaken to promote employee ownership in the United States within particular economic sectors: daycare, homecare, temporary services, and the steel industry. Other employee ownership sectoral initiatives could be encouraged by trade associations, labor unions, and by the agricultural cooperatives in rural areas.

Private sector consultants. Private sector consultants outnumber public and non-profit staff specializing in employee ownership in the United States by perhaps 50:1, and are largely responsible for the rapid growth of the ESOP sector. If most of the outreach done to encourage the creation of more employee-owned companies is done by the professional community, can this effort be channeled toward even broader and more democratic employee ownership?

The growing evidence that participatory employee-owned firms outperform non-participatory employee-owned companies could encourage lenders to urge participation to improve debt service coverage and trustees to insist on employee participation to maximize value for ESOP participants.

An employee ownership extension service. One of the most successful American innovations in economic development is the Agricultural Extension Service. For decades it has been transferring research results, knowledge and technology from the lab to the family farm. The Extension Service has helped keep American family farmers competitive with corporate farming and promoted a continual process of intellectual renewal in agriculture.

The Department of Agriculture's rural development specialists already have the mandate to support cooperative development-including worker cooperatives-in rural areas. Creating an employee ownership extension service to supply technical and organizational development assistance to smaller firms could be done at the state level; once in place in a couple of states and successfully field-tested there, an employee-ownership extension service could be spread by Federal matching funds.

Maximizing leverage. For a tiny fraction of the costs of Federal tax expenditures for ESOPs (more than $3 billion annually in the 1990s), state and regional employee ownership assistance efforts could be multiplied. A modest Federal program to provide matching funds for state, regional and sectoral public and non-profit sector assistance programs would be highly cost effective. Only $5 million annually in Federal matching funds-less than 2/10s of 1% of the tax expenditure for ESOPs-would probably lead to the establishment of 20 to 30 state, regional, and sectoral employee ownership programs that would effectively cover the country.

While the discussion in this section is couched in terms of the United States, the same principles could easily be applied in other countries as well.

Action At The Local Level
Why should we limit ourselves to actions by state, provincial, or regional governmental entities? Much can be done to encourage broader employee ownership by municipalities, by charitable and religious organizations, and by unions. Among the proposals made during the COG process:

· Municipal or local economic development authorities can establish industrial parks for employee-owned companies and for other high performance companies which provide joint training facilities, and cooperative day-care and lunch facilities.
· Municipal governments can give preference in purchasing to employee-owned firms as is the case in Northern Italy, aiding the growth of production cooperatives there
· The Catholic hospital system can use its institutional strength to replicate New York's Cooperative Home Care Associates, creating better jobs and ownership for home health care aides and improving care for the homebound simultaneously.
· Local churches can encourage employee ownership within their spheres of influence through their purchasing and through social justice work within their congregations.
· Sale of religious or public hospitals to for-profit chains could be made contingent on their contracting home health care, janitorial services, and other services to employee-owned firms.
· Community foundations, educational institutions and churches can receive stock from local companies (charitable contribution at stepped up basis for donor) and create a market by selling to employees.
· Unions can negotiate contract language that gives their members the right to buy facilities put up for sale or right of first refusal at the time of such a sale.
· European and American universities concerned with the use of sweatshop labor in garments carrying their logos could require their production in worker-owned businesses, a positive screen more easily enforced than the current negative screens.
· A coalition at the provincial level between traditional cooperatives (agricultural, rural electric, mutual insurance companies, credit unions, consumer co-ops, etc.) and the employee-owned sector has dramatically increased the rate of cooperative formation in Quebec.

Employee Ownership Financing
Should there be special financing institutions for employee ownership? Opinion is divided. Some feel that it is salutary for employee-owned firms to utilize market financing sources: commercial banks, asset-based lenders, venture capital funds, and bond market. Others argue for a separate financing stream for the employee-owned sector. Over the years, a variety of public and private financing mechanisms for the employee-owned sector have been launched with mixed success.

State loans and loan guarantees. In the U.S., thirteen states have established loan funds, loan guarantees or interest rate subsidies specifically for ESOPs or explicitly authorized the use of state loan programs for ESOP companies. The effectiveness of such programs has varied. Earmarked employee ownership lending funds have generally been rolled into other economic development loan funds as small pots of money were either underutilized or overdrawn. On the other hand, both below market interest rates and public sector lenders willingness to subordinate their loans to commercial lenders seems to have played a significant role in supporting employee purchases of troubled and/or divested plants and firms. Loan guarantees-which are very cheap for the public sector-seem to have been underutilized.

A national bank with a preference for employee ownership with regional intermediaries. Since the New Deal, the agricultural cooperative sector has been underpinned by specialized Federal lending institutions. So has home ownership. While the National Cooperative Bank, established during the Carter administration as a specialty lender for housing, consumer, and worker cooperatives is a subject for the national level paper, it has begun to support regional cooperative lending funds, like the Northcountry Cooperative Development Fund. They serve as regional intermediaries for the NCB, working with local borrowers who are too small to be serviced efficiently from Washington.

Special purpose local or regional loan funds for employee ownership. The outstanding example internationally is the Caja Laboral Popular, the financial institution which is part of the foundation for the Mondragon cooperatives in the Basque region of Spain. The Caja Laboral is a consumer cooperative-a credit union-with a special mandate for investing in worker co-operatives. With assets in excess of $7 billion, it has become one of Spain's biggest financial institutions .

The Caja Laboral provided the financing to grow the Mondragon cooperative complex from a handful of co-ops in 1959 to its current size of about 25,000 employees in the industrial sector with sales of more than $3 billion and 26,000 employees in the retail sector with sales of more than $4 billion in 1999.

Credit unions and mutual insurance companies could be encouraged to play the same role elsewhere as the Caja Laboral does in the Mondragon region. The Desjardins credit union federation in Quebec has developed economic development subsidiaries, and the central body of the Australian credit unions, the Credit Union Services Corporation of Australia, is moving into business lending; neither has yet focused on employee ownership, however.

Private sector venture capital funds. Several national venture capital funds have been created in the United States with a preference for employee ownership, including Churchill Capital's Churchill ESOP Capital Partners, Keilen and Company's KPS Special Situations Fund, and American Capital Strategies. Between them they have raised about $1 billion from conventional venture capital sources including institutional investors and high net-worth individuals. Each has, however, found itself doing more non-ESOP transactions than employee ownership deals.

Judging from their experience, the employee ownership market is not big enough or lucrative to be a niche for venture funds specializing purely in employee ownership.

On the other hand, every venture capitalist wants to exit. Employee ownership venture funds may create more owners at the time they sell their equity than in the initial transaction. One promising idea is to encourage conventional venture capital funds to consider employee ownership as an exit strategy. This idea would appear to be potentially viable in all countries with significant venture capital markets. The real question is how to educate venture capitalists about this possibility.

Regional labor-sponsored venture capital funds. The Canadians have developed a very different means of raising venture capital that is not dependent on "Wall Street" and that has important implications for the future development of employee ownership in that country and for other countries where it might be replicated.

Pioneered by the Quebec Federation of Labor in the early 1980s, Canadian labor-sponsored investment funds use provincial and Federal tax credits to entice employees to place some of their retirement savings in venture funds which anchor capital locally. Rates of return are comparable to the historical average for the market, rather than the 35-40% rates of return sought by Wall Street venture funds. Since then Quebec's Solidarity Fund has grown into the largest single source of venture capital in Canada, and there are labor-sponsored investment funds in six of Canada's ten provinces.

While the Canadian labor-sponsored funds generally focus simply on reinvesting locally with certain screens (for good employment practices, environmental record, workplace safety, etc.), Manitoba's Crocus Fund has added a preference for employee ownership to its investment criteria. Crocus's employee ownership strategy has two thrusts. The first is that Crocus is a friendly investor with the employees, partnering with employee owners in purchasing or growing employee-owned businesses. The second is that Crocus's preferred exit strategy is to sell its equity stake to the employees.

This model could easily be replicated outside Canada, and several organizations are already seeking to do that. They include Framtid i Norr, a fund being established by the trade unions in the north of Sweden, and the Industrial Heartland Investment Fund in the US. Both are designed as vehicles for union pension fund investments and for other institutional investors, rather than for individual pension investments, as in the Canadian model.

An ESOP partnership fund? Existing employee-owned companies could set up their own equity fund to invest in partnership with employees in existing and in new employee-owned enterprises. This employee-owned company investment pool could also become a financial institution for employee-owned firms more generally, including securitizing the debt of ESOP companies to lower interest costs and extend terms.

Building Company Networks
Existing employee-owned firms tend to be islands unto themselves. One positive step is to associate them as archipelagoes, and to build linkages between them that would strengthen them individually and as a group. Three different models from three countries provide evidence that such linkages are productive.

The Mondragon Co-operative Corporation in the Basque region of Spain is perhaps the most outstanding company network in any Western economy. Started in the 1950s by a Catholic priest, this network of firms owned by their employees now comprises one of the largest industrial groups in Spain with more than $3 billion in sales; it is among Spain's top ten exporters, selling 47% of its production outside Spain in 1999. The Mondragon cooperatives' retail group does an additional $4 billion in sales; it ranks number three in the Spanish retail sector. The Mondragon cooperatives' bank is one of the largest in Spain, with more than $7 billion in assets. All in all, the Mondragon cooperative network constitutes the seventh largest closely held business in Spain and employs more than 53,000.

The average size of a Mondragon co-op is quite small-most are less than 500 employees-but the Network of more than 110 firms provides large scale economies for the small enterprises, including a common financing source (the Caja Laboral Popular), joint research and development services, a broad range of joint health and social services, a strategic management group that can support managers in existing enterprises that are under strain, and both technical training for employees and a management training program.

The Mondragon model has inspired others. It is being replicated in Valencia, Spain. There 10 associated worker-owned firms employ 4200 and do $575 million (US) in sales. RORAC in the valley of Mexico is attempting to establish a network of cooperatively owned businesses as well.

Manitoba's Crocus Fund has established its own network to improve the performance of the enterprises it invests in. To achieve this end, the Crocus Fund has embarked upon an ambitious program of using networking to do three things. First, it has a general director "club" with regular meetings where general directors of Crocus investee companies share their experience. Second, it provides business training for enterprise employees in those companies that Crocus has invested in. Third, it has developed, with the University of Manitoba, a management training program for investee companies that trains managers in high performance workplace practices.

Ohio's Employee-Owned Network is a dues-paying association of about sixty companies staffed by the Ohio Employee Ownership Center to provide joint training services. It provides 20 to 24 days of courses to more than 500 employee owners annually. About half the programs are designed for shopfloor employees. Other courses are designed for supervisory employees, those who administer ESOP plans, and managers. One result is that participating companies learn best practices from each other and benchmark themselves against each other.

A recent study found that Ohio Network member companies systematically outperform other Ohio employee-owned companies which did not take part in networking activities.

The Employee-Owned Firm In The Community
Individual employee-owned companies can do a great deal to broaden ownership in their communities.

· Employee-owned companies can use their economic clout to broaden ownership locally. They can choose to buy from neighboring employee-owned companies and they can choose to support the development of additional employee-owned suppliers.
· Well established employee-owned companies with ample management resources can undertake to manage an incubator for new employee-owned firms. Such firms could provide accounting, purchasing, and management support for recently established employee-owned firms. As these firms became better established, direct support would shift to mentoring.
· Many existing employee-owned companies work with local schools to provide coop jobs, internships, job training, and apprenticeships. Those school-to-work programs can be expanded by including ownership principles, participation, understanding business basics, and other knowledge and skills that create an interest in and basis for broader ownership in the future.
· Existing employee-owned companies can act jointly to create local company networks. These networks can share common facilities, such as training facilities, jointly purchase supplies, or employee benefits like health and dental insurance. Such company networks can also set up joint child care programs or provide other joint services to their employees.
· When employee-owned companies begin to think in community terms, there are a wealth of possible initiatives that can be undertaken to enrich the community while not impoverishing the company. Employee-owned Friesens, one of Canada's largest book publishers, in the Mennonite community of Altoona, Manitoba, is a model of what can be done. The company provides a graphics classroom, instructor, and training for the local high school, and runs a two-week summer camp for its employees' 10-12 year old children in which they write, set, lay out, and print a book about their families and what their parents do. Company management explain that this is part of their future employee recruitment for a major industrial enterprise in rural Manitoba.

Other possible joint steps might include establishing multi-employer ESOP plans for firms which use the hiring hall model for employment, such as construction firms, setting up a marketing label for products of employee-owned companies, and establishing an internet top domain ".esop" for electronic commerce as the co-operatives have done with ".coop".

Dealing with the widening gap in income and wealth globally clearly requires action at the transnational and national levels. At the same time, we know that most of us live and work in an entirely different world: that of our company, our local community, our church, union local and civic organizations or, occasionally, our state or province. Certainly the most striking conclusion of the COG subnational group discussion is that there is an astonishing amount to broaden ownership that can be done by each of us today where we live and work.

Together, the combination of our small steps can yield large scale change.