285,000 jobs could be lost in Connecticut unless we act

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 19,000 business owners — with 25,000 businesses — will have retired or are on the verge of retirement. Otherwise put, half of Connecticut business owners will be at retirement age by 2027. If unaddressed, the effects will be farreaching. 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 smallbusiness owners unable to find successors. According to The ICA Group, an employee ownership consultancy, 87 percent of baby boomer smallbusiness 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 percent of businesses are passed down. Selling a business is nearly as difficult: only 20 percent of retiring smallbusiness owners find a buyer. In Connecticut, this number will only drop. According to the BlumShapiro and UConn report, the ratio of buyers to sellers dropped by 50 percent 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 employeeownership means workers don’t just elect governing boards, but participate in governance themselves — from the proverbial shop floor, to various adhoc and standing committees, to a transparent and opened board room.

Democratic employeeownership 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 scaledback capacity. This all ensures the continued health of the transitioning enterprise.

There is a third reason: bipartisan consensus. In a poll conducted by Public Policy Polling, it was found that 58 percent of Republicans and 79 percent of Democrats support employee ownership. 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. 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.

Bernie Sanders has once again introduced employeeownership legislation in Congress, but it is unclear how far federal government support can go. Action must be taken at the local and state level. 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 anchor institutions, such as Yale, to help do the uplifting— specifically, engaging in startup business development to service needs at places like Yale. Yet there are other options for uplifting people through democratic employee ownership. And there are other options for proliferating democratic employee ownership. 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 provide training to workers in democratic decisionmaking. 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.