A jobs crisis looms over the nation, and Connecticut is no exception. According to a BlumShapiro and University of Connecticut study, between 2015 and 2027 about 19,000 business owners — with 25,000 businesses — will have retired or are on the verge of retirement.
In other words, half of Connecticut business owners will be at retirement age by 2027. If unaddressed, the effects will be far-reaching. According to research from Project Equity, this will could lead to the loss of 285,600 jobs in Connecticut. Jobs that amount to $12.7 billion in aggregate income. These 25,000 businesses generate over $68.9 billion in sales.
Over the next 10 years, approximately 25 million jobs nationwide could be directly lost from retiring small business owners unable to find successors. According to The ICA Group, an employee ownership consultancy, 87% of baby boomer small business owners do not possess a written succession plan.
Many assume these businesses will be passed onto relatives. This is less and less the case: only 15% of businesses are passed down, according to Project Equity. Selling a business is nearly as difficult: only 20% of retiring small business owners find a buyer. In Connecticut, this number will only drop. According to the BlumShapiro and University of Connecticut report, the ratio of buyers-to-sellers dropped by 50% between 2000 and 2015.
This demands policies for retaining jobs, keeping money in our communities, and preserving the integrity and identity of small businesses. One such policy: easing business succession to democratic employee-ownership. Democratic employee-ownership means the majority of a business’s board of directors are selected according to one worker, one vote. It could also mean a firm’s trustees are elected according to one worker, one vote. In many enterprises, democratic employee-ownership means workers don’t just elect governing boards, but participate in governance themselves — from the proverbial shop floor, to various ad hoc and standing committees, to a transparent and opened board room.
Democratic employee-ownership allows those who know the business best to keep it running and enjoy its rewards: the employees. Second, conversion to democratic employee-ownership can occur smoothly. Full conversions need not occur overnight. Transition can occur over the course of years. This way institutional-knowledge is steadily transferred from retiring owners to employees. It also does not require retiring business owners to step away before they are ready. Retiring business owners can even remain involved in a scaled-back capacity. This all ensures the continued health of the transitioning enterprise.
There is a third reason: bipartisan consensus. In a survey conducted by Public Policy Polling, it was found that 58% of Republicans and 79% of Democrats support employee-ownership. Largely referring to employee stock ownership plans (ESOPs), Ronald Reagan asserted that in the United States and the West “the next logical step” is “employee ownership” as “it is a path that befits a free people.” Democratic socialist Bernie Sanders has noted that “Study after study has shown that employee ownership increases employment, increases productivity, increases sales, and increases wages in the United States.”
This is different from most employee stock ownership plans (ESOPs). At most ESOPs, workers do not elect board directors or even the designated ESOP trustee. ESOP law even prevents workers from making decisions about nonfinancial matters. Many ESOPs also do not operate in perpetuity — meaning that employee-ownership is extended to a fixed group of workers. In time, many such ESOPs only include ownership for retirees, but not current employees. As a result, employee-ownership of a company can be phased out, and with it all of its benefits to employees.
Many traditional ESOPs do empower workers, but we should look to full democratic employee-ownership as a more promising answer. Democratic employee-ownership means workers fully buy-in to the decisions made at the enterprise-level. Such firms possess mechanisms demanding the constant attention of workers. This means that when big decisions are made, workers are prepared to handle them.
Four Democrats have once introduced employee-ownership legislation in Congress. It is unclear how far federal government support can go. Action must be taken at the local and state levels. We are seeing steps taken. The city of New Haven is in the early development stages of a worker cooperative laundromat. This has meant primarily looking to service needs at anchor institutions, such as Yale University. In addition, there are other means of uplifting people through democratic employee-ownership, and there are other options for proliferating the model. These options include building an administrative and fiscal infrastructure to convert businesses. Anchor institution support and conversions are not mutually exclusive.
At the state level, our lawmakers can provide loan guarantees, create a state employee-ownership center that reaches out to impending retirees and provides training to workers in democratic decision-making. At the city level, agency officials and retiree associations can play a strong role in identifying enterprises for conversion, and connecting employees and business owners to needed resources.
All of this is relatively inexpensive, requiring millions rather than billions of dollars in investment. In the state of Connecticut, this could mean saving nearly 300,000 jobs — and likely even creating additional ones. Connecticut lawmakers should be taking the lead in fresh thinking and innovative policy in saving and creating small businesses.
Alexander Kolokotronis is a Ph.D. student in political science at Yale University. Prior to Yale University he was a Worker Cooperative Development Assistant at Make the Road New York, and Student Coordinator at NYC Network of Worker Cooperatives. His a current member of the Central Connecticut chapter of Democratic Socialists of America.
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