Borrowing versus leasing

In our post A Cooperative Economy we briefly discussed the option of leasing as a method of funding worker cooperatives. The essence of a worker cooperative is that workers own, or at least control the means of production, or capital, instead of being employed by the owners of capital.

The fundamental problem is how can workers who are starting a cooperative, can acquire the means of production they need. Suppose that Alice and Bob are setting up a worker cooperative, but need 100,000 worth of equipment. Assuming that both have a monthly basic income of 1,200, it will be clear that they can’t raise the money on their own.

Of course, Alice and Bob can borrow 100,000 from the bank or some other financial institution. But this we leave both Alice and Bob indebted, which they have to pay off even in case their cooperative proves to be a failure. This is a prospect which might and will deter workers from forming worker cooperatives.

The issue at stake here, is the idea that a worker cooperative should own their means of production, which means that the cooperative has to purchase those. A large one time expense. There are, however, alternatives for outright ownership of the means of production.

Instead of buying, Alice and Bob could decide to lease the equipment they need. Suppose they could lease this equipment for, say, 10,000 a year, their cooperative only needs to raise 10,000 in order to start-up. When the cooperative is successful, they will be able to pay for the capital they use without incurring additional debts.

Alternatively Alice and Bob could hire-purchase the capital goods. The difference between lease and hire-purchase, is that in the latter case the goods will become the property of the lessees, while in the former cases these will return to the lessor at the end of the contract (or the lease contract maybe renewed). Both forms of credit have a big advantage from the perspective of the A&B Coop: in case it will default on its payments the lessor can only take back the leased goods, and refuse further use, but Alice and Bob cannot go bankrupt.

Because the lessor can reclaim his goods in case of default by the lessees, he takes less risks than in case of a monetary loan. Hence the costs of funding a business by lease or hire-purchase will be lower than the interests on a monetary loan.

This leaves us with the question who should supply the goods for lease. We propose that local governments to set up publicly owned lease companies which specialize in leasing capital goods to worker cooperatives. These lease companies can be funded either by the revenue raised by the lease of land or by borrowing the required funds. Money can be borrowed either from the Federal Credit Bank or from private investors. In the latter case interest rates can be kept low, since the government will guarantee the payment of debts.

Though in Mordan space settlements, a substantial portion of the means of production will be owned by the community, our system differs from Soviet-style communism. First, unlike in the USSR the private ownership of capital goods will be legal. Second worker cooperatives will operate in a free market rather than in a command economy, i.e. the state does provide capital to the cooperatives, but it does not determine what should be produced.

In the economic system we propose, labour will hire capital rather than be hired by capital. And hence capitalism is essentially reversed without resorting to Soviet communism.


2 thoughts on “Borrowing versus leasing”

    1. If the system as we propose here, proves to be successful it might be possible to (partially) privatize the lease companies, and their shares might become a well sought opportunity for investment, since lease revenues provide a stable profit.

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