Worker Ownership Model in Argentina

From a law professor at the Catholic University of Buenos Aires we recently received an inspiring story about workers who, without expropriation or otherwise harming the property rights of others, took over a bankrupt company and turned it into a success. As she reports,

You will like the story of the Zanello Pauny company. This is one of the factories known here in Argentina as fábricas recuperadas ("recovered factories") as the result of a group of workers continuing to work at the factory even though it was shut down after a bankruptcy — an instance of a business tragedy that has a happy ending.

Don Pedro Zanello founded this metal fabrication plant in 1950. It was located in a small town called "Las Varillas" in the Province of Córdoba. The factory was virtually the only source of employment for the people of the town.

As you know, during Menem´s administration a drastic change in economic policies took place. Markets were opened to importations. As a result, previously subsidized national industries collapsed. One of the victims of this sudden change from a controlled economy to free market principles was Zanello, S.A. In 2001, after more than 50 years of development in the national industry, the company went bankrupt, and the factory shut down after the equivalent of what is known in the United States as a "Chapter 7" bankruptcy. That is, instead of reorganizing the company to keep it alive (as under a U.S. "Chapter 11"), the company was closed and its assets put up for sale to satisfy the creditors.

Argentine law, however, allows workers at a bankrupt company to continue operations provisionally. This benefits the workers through continued employment, and also provides a small chance that the company can be brought back to life. As a result, workers organized and came together in free association as a "Work Cooperative." This gave them legal standing to rent the plant and equipment of the Zanello factory and continue operations.

The key to the success of this endeavor was gaining access to capital credit — the principal means in a modern economy to acquire and possess capital. The workers were able to obtain credit from the Provincial Bank of Córdoba that gave them the cash to purchase the factory. In an unusual move, the workers had no money or other wealth of their own to use as collateral for the loan. Instead of collateral, the Bank of Córdoba became the "principal and privileged creditor," using the factory itself to secure the loan to the Work Cooperative. This was a result of all the company workers, both members of the cooperative and administrative personnel, coming together to present their case to the loan officers at the bank.

In consequence, a new corporation, "Pauny S.A.," was created. The new company bought the Zanello assets thanks to the credit supplied by the Provincial Bank of Córdoba, which was able to transfer its privileged credit position in Zanello to the new Pauny S.A. As a result, Pauny S.A. secured a long term line of credit from the Córdoba Bank, and became the new owner of the factory.

The shares of the company were divided equitably among all the stakeholders. Workers owned a 33 % share through the cooperative, the administrative personnel had another 33 %, the dealers (retailers) had 33%, and the balance (1 %) was held by the City of Las Varillas as a fiscal creditor.

The operation grew, and it soon increased the number of workers from 20 to 400 people. In order to add more capital, the dealers sold 31% of their shares to private investors, while the workers took a cut in pay to contribute to the increase in capital.

Today, the sales are very high, and the corporate expansion has allowed the company to add cartage and road building machinery to its line of agricultural products. The latest news showed that the factory released a special line of tractors called "Rino 3000." This is only one model of a complete line of tractors that have been put into production since the year 2002. The tractor is equipped with a 180 horsepower engine and, according to the manufacturers, "its price is very competitive."

Today, the town of Las Varillas is surviving the economic crisis. The rate of unemployment has fallen from 25 % in 2002, to 4% today. This example shows that it is possible to have a successful enterprise thanks to the effort and the willpower of the people involved on the development of a community project — as long as they can secure capitalization on good terms, and the business is otherwise viable.