Relaunching the economy with worker and community buy-outs of bankrupt businesses

Leo Sammallahti


Covid-19 is inflicting great suffering upon many of us upon many of us, whilst wreaking havoc on the economy on a scale not seen in the history of the modern world, according to many measurements. The crisis will be a turning point, and the way we choose to relaunch our economy once the pandemic has passed could set up a trajectory that has implications for generations to come. 

Marcora Law

In 2009, a group of 16 Italian workers in Padova in Italy saw their lives turn from bad to worse. A 30 year old foundry business they worked for had been in economic trouble for years, and had been bought by a businessman from Egypt, in the aftermath of the financial crisis. He was not good at his job, and had failed to pay the workers for 5 months before filing for bankruptcy. With the support of trade unions and cooperative organisations, the workers chose to restart the activities, but as a worker cooperative. The founding workers secured initial share capital via advances on their unemployment insurance and their severance pay. They also managed to gain the financial support of three customers who they had maintained good relations with, and received further funding and support from four other cooperatives. The beginning was not easy; the contracts with the firm’s utility providers had already been cancelled, resulting in the workers receiving a plant without electricity, water, or natural gas. The members had to shrink salaries to the minimum required by their contracts. Regardless of the difficulties, the cooperative managed to close the first year of business with a balanced budget. By 2011 they had a turnover of more than 1 million euros, which has been sustained ever since.

They were enabled to do this through an Italian law, known as “Marcora Law”; this gives workers a preferential right to buy businesses when they are closed or put up for sale.

Before the Covid-19 crisis, there was already an ongoing, massive “silver tsunami” of baby boomer business owners retiring, with many having difficulties finding a new owner.

This is an unprecedented opportunity to expand employee ownership through worker buy-outs of these businesses. With Covid 19 forcing a record number of businesses to close, there should be consideration as to whether a law similar to the Italian “Marcora law” could be used to relaunch these businesses through worker buy-outs. Indeed there are some signs of this already happening - in Japan, the hotel chain Unizo has been bought by the employees, making it the first instance in the history of the country of a worker buy-out of a publicly traded company.

Below are two facts about Marcora law.



Community buy-outs

The crisis of the high streets is something that has been evident for a long time. According to the Centre for Retail Research, there was around 50,000 fewer shops on British High Streets in 2019 compared to a decade earlier. The number of people visiting the High Street has dropped by 20.5% during the same period. Similar trends are happening are elsewhere - in 2019, it was predicted that one in four shopping malls would have to be closed in the next 5 years.

 With Covid-19, this development has accelerated rapidly. The latest retail monitor found that footfall in the UK has dropped by 70.1% compared to the earlier year. An estimated 20,000 stores will be lost by the end of the year, a massive jump on the 4,547 that closed in 2019.

In contrast, community ownership of these properties, that often takes the form of cooperatives, has shown incredible resilience. Of the 300 community owned shops in the UK that have been established between 2009 - 2019, only a handful have collapsed. For example, not a single community owned pub has gone bankrupt, even though one fifth of all pubs in the UK have closed down during the ten year period.

Legislation to make community buy-outs of vacant properties easier should be considered. For example, in Scotland there is a Community Empowerment Act that gives community groups with a strong track record and a solid business case priority rights to buy land and a right to force the sale of a building or land if it is in a state of significant disrepair or neglect and is contributing to the decline of a local neighbourhood.

Lessons from the New Deal

In these exceptional times the case could be made for governments to, not just enable, but provide active support for community and worker buy-outs. Whether this takes the form of guaranteed low-interest loans, grants, investment or/and debt write-offs could be worth looking into.

 During the New Deal, when America was attempting to relaunch the economy after the Great Depression, most rural Americans didn’t have electricity. Through a program of federally guaranteed, cheap loans local residents brought electricity to almost all of rural America by setting up electric cooperatives that continue to provide electricity to around one in six Americans to this day.

Perhaps we need similar programs to tackle the new great depression brought about by Covid-19. As we start recreating the wealth that has been wiped out, we should consider doing so in a way that distributes in a more effective way, with a larger share going to those whose lives it will improve the most.