summary:Members who split profit equally have a reason to turn down growth that earns less per worker than they already do, so the model lets co-ops grow by starting new co-ops they invest in, under rules that stop that becoming a way to push lower-paid work out, and measures whether they grow as fast as other firms.
---
# When Growing Means Sharing
A conventional owner takes on a new line of business if it earns more than the money it ties up would earn elsewhere. How many people it employs doesn't matter.
A co-op's members decide differently. After the [ramp](worker-ownership.md), they split profit equally. So a new line has to earn at least as much per worker as the co-op already does, or it lowers everyone's share. **A line that makes money can still make each member poorer, unless it's set up as a co-op of its own, which this model makes the standard path.** Economists have known about the problem since Benjamin Ward described it in 1958, and it's a real weakness.
## A worked example
A 40-member co-op has a members' profit pool, the part left after the reserve and the federation fund ([Member Capital Accounts](capital-accounts.md#where-each-years-profit-goes)), of $800,000 a year. That's $20,000 per member.
It has a chance to open a new line. The line needs 20 more workers, pays them normal salaries, and adds $200,000 a year to the pool: $10,000 per new worker. Suppose that's comfortably more than the money it ties up would earn anywhere else. A conventional owner would take it.
For the members, it depends on the ramp. New members start at a fifth of a full share and reach a full share after five years. The founding plan allows up to ten.
| Year | Each full share, 5-year ramp | Each full share, 10-year ramp |
(The 10-year ramp here starts at a tenth of a share and adds a tenth each year.)
A member near retirement comes out ahead either way. A member with twenty years ahead loses about $50,000 over that time with a five-year ramp, and about $35,000 with a ten-year one. Counting money later as worth less than money now (at 7% a year), those losses are about $23,000 and $10,000. The gains come first and the losses later, so members who expect to leave soon and members who expect to stay long will vote differently. The ramp softens the problem. It doesn't remove it. In the end, **the new line has to earn the co-op's average, not just a profit, before the members come out even.**
**Where it bites, and where it doesn't.** The gap only matters when profit per member is high. In home care, a full share is worth a couple of thousand dollars a year ([When People Don't Stay Long](high-turnover.md#the-ramp-when-people-leave-early)), so a new line that earns less costs each member a few hundred dollars at most. In a firm making tens of thousands of dollars per worker, the kind described in [What If Conservice Had Been a Co-op?](conservice.md), it's real money. And the most profitable co-ops are the ones whose growth matters most.
## What the evidence says
**Co-ops are steadier, and slower to hire.** A study of Italian firms from 1982 to 1994, in the market economy with the most worker co-ops, found co-ops paid about 14% less on average. Their pay moved more with good and bad times, and their employment moved less, in both directions. When business picked up, co-ops added fewer workers than conventional firms. The co-ops in that data were larger on average than conventional firms, not smaller, though that comparison doesn't account for which industries they're in ([Pencavel, Pistaferri and Schivardi, 2006](https://docs.iza.org/dp2188.pdf)). A study of every co-op and conventional firm in Uruguay's social security records from 1996 to 2005 found the same pattern: co-op pay responds more to shocks, and employment less ([Burdín and Dean, 2009](https://doi.org/10.1016/j.jce.2009.08.001), as summarized by [Pencavel, 2012](https://docs.iza.org/dp6932.pdf)).
Ward's starkest prediction, that co-ops would *cut* jobs when prices rise, doesn't show up. What shows up is slower hiring and steadier jobs. The steadiness that protects members in bad years is the same thing that makes them slow to hire in good ones.
One caution: co-ops in Italy and Uruguay can hire non-members. Co-ops under this model mostly can't (below). So that evidence probably understates the problem here.
**When hiring members is costly, co-ops hire non-members instead.** The Olympia Veneer Company, the first of the Pacific Northwest plywood co-ops, started in 1921 with 125 worker-members. As founders left, the co-op bought back their shares and hired ordinary employees in their place. By 1952 fewer than 50 members were left, and in 1954 they sold the company for a handsome return. Mondragon's industrial co-ops saw non-members reach 29% of their workforce in 2000, before new rules brought it down to 12% by 2008. Counting the ordinary companies Mondragon owns in Spain and abroad, non-members went from 10% of its workforce in 1990 to 70% in 2007 ([Pencavel, 2012](https://docs.iza.org/dp6932.pdf), citing Arando and others, 2011).
That route is closed here. [The lock](the-lock.md) requires members to work at least three-quarters of the hours, and any company a co-op controls is locked too. That stops a co-op from turning into a small club of owners with employees under them. But it also means a co-op can't get around dilution by hiring outsiders. So dilution bites *harder* here than in co-ops that allow hired labor. The model accepts that, because the alternative is the road the plywood co-ops took out of being co-ops.
## The model's answers
### 1. Grow by starting new co-ops
Mondragon found a way through early. When its first factory, Ulgor, grew new lines of business, it turned them into co-ops of their own. Its electronics division became a new co-op, Fagor Electrónica, in 1965, "continuing with the plans for creating spin-offs from Ulgor" ([Mondragon, *The Mondragón Co-operative Experience, 1956–2012*](https://laboress-afrique.org/boostsess/public/uploads/pdfdocuments/files/mondragon_1956_2012.pdf)).
But spin-offs weren't the whole system. Ulgor and its spin-offs formed a group, Ularco, that began partly pooling its co-ops' profits in the late 1960s and pooled them completely from 1976. When Mondragon reorganized in 1992, it planned to pool between 15% and 40% of profits across each of its new sectors. Workers moved between co-ops when one shrank. From 1979 to 1983, when Ulgor had to cut 1,300 of its 3,500 jobs, 145 members split off to form a new co-op and others moved within the group, and every move was voluntary ([Morris, *The Mondragón System*, 1992](https://www.ilsr.org/wp-content/uploads/files/images/mondragon.pdf)).
The model makes spin-offs the standard path for a new line that earns less per worker than the parent:
- **The new line becomes its own locked co-op,** with its own members, its own profit split, and a [lock share](the-lock.md#how-the-lock-is-made-to-hold) held by an independent lock-holder from the day it's founded.
- **The parent invests, but doesn't control.** It can fund the new co-op from its reserve, on the terms any investor gets ([Capital, After](capital.md)): repayment plus a share of profits, for at most 15 years, with no vote. If the new co-op borrows from the bank, the parent's claim ranks behind the bank and needs the bank's approval, like any other.
- **Reserve money stays reserve money.** When the new co-op repays the money, it goes back into the parent's reserve. Only the profit share counts as profit, and the reserve takes its cut of that too ([Investing for the Long Run](the-long-run.md)). No single spin-off can take more than a quarter of the parent's reserve.
- **The spin-off is still a co-op.** Its own workers become members, and it's in the same federation as the parent, so a failure in one doesn't leave the other's workers with nothing ([The Federation](federation.md)).
In the example, the parent's members keep their $20,000 and earn a return on what they put in. The 20 new workers build full shares of their own co-op's profit instead of partial shares of someone else's. Without the spin-off, the members would most likely have turned the line down, and the jobs wouldn't exist.
This matters most for exactly the case the founding plan worried about: **expansion that takes a lot of capital, into lower-margin work.** The parent's reserve can pay for it without anyone's share shrinking.
**Yes, this makes richer and poorer co-ops.** The spin-off's members earn a smaller profit share than the parent's. That's the honest cost. The model's line is that inside one firm, where people share a vote and a set of books, shares are equal. Between firms, they aren't, as they aren't between any two companies. What stops that becoming a way to push lower-paid workers out is the next set of rules.
### 2. Rules so spin-offs can't be abused
- **New lines only, unless the workers choose to go.** A co-op can't spin off work its members already do unless a majority of the workers whose jobs would move vote for it. Anyone who doesn't want to move keeps their place in the parent. A spin-off that sells mostly to the parent is treated as part of the parent for the membership rule.
- **Deals between parent and spin-off are insider deals.** Prices, fees, rent and contracts between them must match what outsiders would pay, and they're checked every year, like any [insider deal](pilot-safeguards.md#the-hidden-boss). The lock's limit on exclusive contracts applies: no contract gives one party a claim on most of what the other produces for longer than five years ([The Lock](the-lock.md#closing-the-back-doors)).
- **Assets move at an independent appraisal.** Equipment, customers or buildings moved to the spin-off count as a sale of part of the business, which goes through the lock-holder. The parent keeps any debts and obligations from before the split. So a spin-off can't be used to park a failing line or old liabilities.
- **Those who move don't vote on the money.** Parent members who plan to join the spin-off can't vote on the parent's investment in it. They keep their tenure on the ramp only if the spin-off's founding papers agree to it, so senior members can't move over and dilute the new members in their turn.
- **A second opinion on big investments.** Before a parent puts more than a tenth of its reserve into a spin-off, the federation gives a written opinion on the plan to the parent's members. It's advice, not a veto. The investment is the members' call.
### 3. Sharing across the group, if the co-ops choose
Parent and spin-off can agree to pool part of their profits and split it per member across both, as Mondragon's groups did. That narrows the gap between them. It also brings back part of the dilution the spin-off avoided, which is why it's up to them. A pool of 15% to 40%, the range Mondragon settled on, is a reasonable place to start. The federation offers a standard agreement.
### 4. Where a line can't be split off
Some growth can't be spun off. More customers for the same service, or a cheaper product sold by the same team, can't easily become a separate company. There, the dilution stays. What softens it:
- **The ramp.** A co-op can choose the long end, ten years. That comes at a cost to newer members, who are more often younger or outsiders, and to workers who don't stay long ([When People Don't Stay Long](high-turnover.md#the-ramp-when-people-leave-early)).
- **The founding share is a fixed slice.** Founders' extra reward is a set share of the pool, not extra weight per head, so founders gain nothing by keeping the co-op small ([The Founder Problem](founder-problem.md)).
- **Growth that earns the average is free.** Adding workers to work that's as profitable as the rest doesn't dilute anyone. The problem is only lower-margin growth.
- **Someone else can take it.** A line the members turn down can be offered to the federation, or to a group of workers, to start as a new co-op.
### 5. Measuring it
The pilot already publishes how many jobs its co-ops create ([The Pilot, in Numbers](pilot-spec.md#what-gets-measured)). It also publishes, with the comparisons filed in advance:
- **Job growth compared with matched conventional firms,** in full-time-equivalent jobs, counted both with and without spin-offs, and broken out by thirds of value added per worker (a way to compare how productive firms are that doesn't depend on how a co-op splits pay and profit). The gap should show up most in the most productive co-ops.
- **Expansions voted down.** Each co-op reports major expansion proposals and how members voted on them.
- **Spin-offs:** how many, how they do, and the gap in pay and profit share per member between each parent and its spin-offs.
- **Who gets hired.** Applicants and hires by gender and race, compared with the matched firms, since members who share profit have a reason to hire few people, and people like themselves.
Spin-offs can borrow from the bank. Because they start with an established co-op behind them, they're reported separately and don't count in the pilot's main test, the same way the pilot handles businesses that aren't really new ([Guarding the Pilot](pilot-safeguards.md#relabeling-an-old-business-as-new)). That keeps them from flattering the survival numbers, and keeps a struggling low-margin spin-off from counting against the test.
If the most productive co-ops grow much more slowly than similar conventional firms, that's evidence the problem is real where it matters most, and it gets reported that way.
## What wasn't done
- **Profit shares by division.** Paying each member partly from their own division's profit would remove most of the problem inside one firm. But the founding plan says that after the ramp, everyone's share is identical. Spin-offs do create differences, but between separate firms with separate votes, not between people who govern the same firm together.
- **Profit shares in proportion to pay.** Splitting profit by pay instead of equally would make lower-paid new hires cost the others less. That also breaks the equal share.
- **More room for non-members.** It would make growth easier, and it's the road the plywood co-ops took out of being co-ops.
## What this doesn't solve
- **Not every line can be spun off.** Where growth has to happen inside one firm, members still have a reason to turn down work that earns less than their average. Reporting the expansions they vote down makes that visible. It doesn't stop it.
- **Spin-offs cost something.** Separate books, a separate board and separate legal costs. For a small line, that may be more than it's worth. And splitting a line off a firm that shares its customers and managers can make both work less well.
- **Reserve money can be wasted.** Money that can't be paid out is tempting to spend. Fagor, Mondragon's appliance maker, overexpanded and went bankrupt in 2013 ([Investing for the Long Run](the-long-run.md#whats-still-open)). The quarter cap and the federation's opinion are limits, not a test of whether an investment is wise.
- **The parent profits from people it doesn't work with.** For up to 15 years, the parent collects a share of the new co-op's profit. It's finite, it carries no vote, and dealings between them are checked at outside prices. That's the model's line between renting capital and owning people's work ([Capital, After](capital.md)). Some will say it's still the wrong side of that line.
- **Richer and poorer co-ops.** Spin-offs will often be lower-paid than their parents, and lower-margin work is disproportionately done by women and workers of color. Voluntary pooling and published gaps are the answer offered. Neither closes the gap.
- **Steady employment cuts both ways.** Co-ops keep people on in bad years and hire slowly in good ones. Where that means fewer jobs than the business could support, the people who don't get hired pay for it, and they don't get a vote.
@@ -13,7 +13,7 @@ summary: A working model for building an economy where the people who do the wor
This model doesn't buy, seize or convert anyone's company. Instead it builds new worker-owned companies alongside existing ones, then lets customers and workers choose between them.
- **Workers own their company.** Every member gets one vote. A share of the profits grows with tenure until long-time members split them equally. Salaries still exist, and hard jobs still pay more. Part of each year's profit builds up in a personal account that's paid out when you leave, and part goes into a permanent reserve that keeps the business investing. An insurance pool the co-ops pay for protects workers' last paychecks and part of their savings if the co-op fails. Membership comes automatically after a short probation, so co-ops in high-turnover work like home care don't end up run by the few who stay. [Worker Ownership](worker-ownership.md), [When People Don't Stay Long](high-turnover.md), [Member Capital Accounts](capital-accounts.md), [Protecting Members' Savings](savings-guarantee.md) and [Investing for the Long Run](the-long-run.md)
- **Workers own their company.** Every member gets one vote. A share of the profits grows with tenure until long-time members split them equally. Salaries still exist, and hard jobs still pay more. Part of each year's profit builds up in a personal account that's paid out when you leave, and part goes into a permanent reserve that keeps the business investing. An insurance pool the co-ops pay for protects workers' last paychecks and part of their savings if the co-op fails. Membership comes automatically after a short probation, so co-ops in high-turnover work like home care don't end up run by the few who stay. Equal shares give members a reason to turn down growth into lower-paying work, so co-ops can grow by starting new co-ops they invest in instead. [Worker Ownership](worker-ownership.md), [When People Don't Stay Long](high-turnover.md), [When Growing Means Sharing](growth.md), [Member Capital Accounts](capital-accounts.md), [Protecting Members' Savings](savings-guarantee.md) and [Investing for the Long Run](the-long-run.md)
- **A small public bank lends to worker co-ops.** It charges market rates, so it only succeeds if co-ops can really compete. Its whole job is to be willing to lend to a kind of company other banks won't. Spain, Italy and the US have all tried versions of this, and the pilot is built around what went right and wrong. [The Bank](the-bank.md) and [Has This Been Tried?](precedents.md)
- **Owners who want to sell to their workers can.** The bank lends for these sales on a separate track, with its own $100 million and its own test. Only healthy firms qualify, there's no new tax break, the price is capped at an independent appraisal, the seller shares the risk, and the whole workforce votes. [When an Owner Wants to Sell to the Workers](buyouts.md)
- **Co-ops funded this way stay co-ops forever.** They can't be sold to conventional owners, and members can't vote to cash out what earlier members built. An independent lock-holder can veto any attempt, including selling the business off piece by piece. [The Lock](the-lock.md)
@@ -21,7 +21,7 @@ An honest list of what the model hasn't solved yet, most dangerous first.
6.**Political durability.***(Partly answered.)* Gradual construction invites gradual repeal. [Making It Last](durability.md) builds the bank to survive a hostile government: the lending standards and the test are fixed in law, board vacancies can't freeze lending, the verdict says "not tested" rather than "failed" if the bank turns away applicants who meet its own standards, and repeal can't unlock the co-ops. Still open: after the Supreme Court's 2026 ruling any president can replace the bank's board; money not yet lent can be taken back in a budget bill; the lock's bankruptcy protection depends on a federal law that can be repealed; and at pilot scale the sector has no real constituency.
7.**Growth and dilution.** Softened by the tenure ramp, not eliminated. In steady state, an equal split per head still means a marginal hire must generate the average surplus to break even for incumbents. Capital-intensive expansion into lower-margin lines will face internal resistance conventional firms don't have.
7.**Growth and dilution.***(Partly answered.)* Softened by the tenure ramp, not eliminated. In steady state, an equal split per head still means a marginal hire must generate the average surplus to break even for incumbents. Capital-intensive expansion into lower-margin lines will face internal resistance conventional firms don't have. [When Growing Means Sharing](growth.md) makes Mondragon's answer the standard path: a lower-margin line becomes its own locked co-op, funded from the parent's reserve as a finite, voteless investment, under rules that stop it being used to push existing workers out or move money through insider deals. Still open: growth that can't be split off still dilutes, spin-offs create richer and poorer co-ops (the groups can pool profits, but don't have to), and the evidence comes from co-ops that could hire non-members, so it probably understates the problem under the lock.
8.**Who decides which sectors are "essential"?** Subsidy authority is price-setting power over a large chunk of the labor market, and every low-margin industry will suddenly discover it is Essential.
@@ -115,7 +115,7 @@ All of this is written down and filed in a public study registry before the firs
A useful yardstick: among the SBA's mature loan groups from 1992 to 2004, loans making up about 6% to 10% of the money lent eventually defaulted, and about 37% of the defaulted amount was later recovered ([GAO-20-618](https://www.gao.gov/products/gao-20-618)). A lender charging market rates with losses in that range covers them from interest.
**Measures that are published but don't decide:** jobs created, wages at the bottom and top and the gap between them, the share of pay above the going rate, how often higher-paid members leave, pay gaps by gender and race within the same job ([Who Sets the Pay](pay.md)), revenue per worker (a rough measure of productivity), how long members stay, injury rates, and the bank's default and recovery rates. Also:
**Measures that are published but don't decide:** jobs created (with growth compared with matched firms, spin-offs, and expansions members voted down; see [When Growing Means Sharing](growth.md#5-measuring-it)), wages at the bottom and top and the gap between them, the share of pay above the going rate, how often higher-paid members leave, pay gaps by gender and race within the same job ([Who Sets the Pay](pay.md)), revenue per worker (a rough measure of productivity), how long members stay, injury rates, and the bank's default and recovery rates. Also:
- **Who got loans.** Approval rates and loan terms by the founders' race, gender and personal wealth. If collateral-based lending quietly shuts out the people co-ops mostly serve, it should show.
- **Who gets the profits inside each co-op.** Profit shares, founding shares and membership approvals by race and gender, so that an in-group of early members can't quietly take most of the pool.
@@ -13,7 +13,7 @@ A worker co-op under this model means two things, and they are not the same thin
**Profit share ramps with tenure, then caps.** A new member starts at a partial share and grows to a full, equal share over roughly five to ten years. After the cap, everyone's share is identical. The thirty-year lifer and the eight-year veteran split profit the same.
Why the ramp: it kills the dilution panic. Under flat equal shares, every new hire immediately eats everyone's slice, and cooperatives empirically under-hire for exactly that reason. With a ramp, hiring decisions move toward "does this person grow the pie" during precisely the window when their value is most uncertain.
Why the ramp: it kills the dilution panic. Under flat equal shares, every new hire immediately eats everyone's slice, and cooperatives empirically under-hire for exactly that reason. With a ramp, hiring decisions move toward "does this person grow the pie" during precisely the window when their value is most uncertain. The ramp only softens the problem, though. How co-ops can grow into lower-margin work without shrinking everyone's share is in [When Growing Means Sharing](growth.md).
Protected leave (parental, medical, caregiving) counts as tenure, so taking time off to care for someone doesn't set your share back. So does earlier time at the same co-op: someone who leaves and comes back within a few years picks up where they left off.
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