The recent tragedy in West-London in which at least thirty people have died, is probably the result of a lack of investment in fire safety measures by the landlord. According to classical liberalism the principal duty of any government is to protect the life, health and property of its citizens. And in this case both local and national government has utterly failed to protect the residents of Grenfell Tower. Continue reading Housing cooperatives
Earlier we have discussed on this blog some aspects of the economic structure of space settlements as part of our ideas of social reform. In particular we have defended the introduction of a basic income as well as the promotion of housing cooperatives. In this post we just give a calculation how things might work out.
Under our proposal the main procedure the finance home ownership is the hire purchase rather than mortgage loans. In order to stimulate this, the government should provide interest free loans to housing cooperatives, so that those cooperative can build houses.
In this post we will assume that the basic income guarantee is set at 1,200 Stella* per month per person. Suppose that Alice hire purchase a home worth 150,000 Stella, and the next 30 years she pays every month an instalment. This means that Alice has to pay 30×12=360 instalments, and the amount of money she has to pay each month is hence 150,000/360=416.67 Stella (rounded up). Which is slightly more than a third of her monthly basic income.
The clever reader might have noticed that 416.67×360=150,001.20 Stella. Hence Alice has paid 1.20 Stella too much in the end. How could we solve this? My guess would be to subtract that 1.20 Stella from the first (or the last, if you want) instalment, which would be 415.47 Stella instead.
*Here we assume that 1 Stella is approximately 1 Euro.
Classical republicanism is based on the principle of self-government. An individual is free, according to republicans, in so far (s)he is able to govern him or herself. Given that humans are social animals, the principle of self-government means the ability of an individual to participate in the political system.
The republican ideal of self-government requires a certain degree of economic independence. In modern capitalist societies there is a division between those who own capital, and those who have only their own labour. A large number of the population has to seek employment by the owners of capital, only a small number of people are self-employed, i.e. own their own means of production.
Wage-labourers are economically dependent from the so-called capitalists. This dependence-relation is at odds with the republican ideal of self-government. Some opponents of capitalism has proposed or tried to nationalize all means of production, but from a republican perspective this only replace one dependence-relation for another one.
Both corporate and state ownership of capital are antithetical to republicanism. Only if workers have capital at their own disposal, they can achieve self-government.
In this post we will discuss cooperatives as the major institution of the economy of space settlements. First we will discuss worker-cooperatives, subsequently we will turn to consumer cooperatives, and finally we will discuss housing cooperatives.
A worker cooperative is a business owned and managed by its workers. In practice this means that the worker will elect the cooperative’s management, which will take care of day-to-day decisions, whilst the general policy is determined by the general conference of its worker-members. Unlike joined-stock companies, worker cooperative subscribe to a strict one man-one vote rule.
Worker cooperatives earn money by selling goods and services to the public, like all other types of businesses. But the profits made by the cooperative are either reinvested or distributed among the worker-members, probably according to hours worked for the cooperative. Whatever option is chosen, or a combination of both, the decision is made by the members, instead of the board.
Typically worker cooperatives are based locally, and hence have a relatively small number of members. This enables effective control of the worker-members over the cooperative. Therefore worker-cooperatives are compatible with the principles of a republican society.
Though worker cooperatives are a socially desirable business model, it’s far from obvious that a cooperative-based economy will emerge spontaneously. There are several reason why people abstain from forming worker cooperatives. The two most important ones are uncertainty and lack of funding.
Uncertainty is an important factor in making (economic) decisions. In many cases we are not able to predict the results of our actions, and these results might be bad or good. And the risks associated with our action are sometimes great. Therefore many people prefer risk-avoiding behaviour, and chose for the safest option.
Many people try to reduce their financial uncertainty, which explains why many people prefer a wage-earning job to self-employment, even if they would be better of in the latter case. They prefer to be employees because they believe they will get predictable wages, and hence their sense of certainty is increased.
However, by becoming a member of a worker cooperative an individual is not a mere employee, but a co-entrepreneur. If the cooperative is doing well, (s)he earns much, but if the cooperative encounters bad times, the member will earn less or even nothing. This kind of uncertainty provides a strong motive for people to form or join a worker-cooperative.
The question is therefore, how can we as a society reduce this uncertainty which prevents the formation of worker cooperatives? We believe that the best way to reduce such uncertainty, is the introduction of a basic income guarantee. Under such arrangement people will receive an unconditional, periodical income from the government. The amount of income received should be sufficient to meet the basic needs, but not much more.
As we have shown in a previous post, there are many other arguments in favour of a basic income guarantee. But here the most relevant argument is the reduction of uncertainty for self-employed people. Regardless whether their business is doing well or bad, these people know they will have enough income to live from. This would create an incentive for more people to become self-employed or to form/join a worker cooperative.
A second important issue which prevents people from joining or forming a worker cooperative is funding. Any business needs funding to make investments, such buying tools or renting a workplace. One way of getting funding for a cooperative, is from the (founding) members. This would, however, require that the prospective members of the cooperative have enough savings to invest into it. Though some people might have such assets, it’s not quite likely that the majority of potential members will have such funds at their disposal.
Given the very nature of a worker cooperative, the sale of stock to outsiders is impossible. That leaves us with loans as the only method of external funding for cooperatives. But getting loans is a problem for many start-ups, since most banks prefer to give loans to existing businesses or to those start-ups with substantial equity, in order to reduce the risks for the banks.
Unlike private banks, the government can afford to make much greater risks. The government of a space settlement with a commitment to republicans ideals, could provide low-interest or interest-free loans to starting cooperatives. Of course these new cooperatives should submit sound business plans for examination, before they will get any loan.
Alternatively, the government could give grants to starting-up cooperatives. In contrast to loans, a grant has not to be paid back, and therefore a grant would add to the equity of the cooperative. Both start-up loans and grants will be given only once to a particular cooperative, this to ensure fair competition among cooperatives.
Another possibility for provide funding to cooperatives is for the government to set-up lease companies. By these companies worker cooperatives can lease or hire-purchase the equipment, such as 3D-printers, they need. This would lower the start-up costs of a worker cooperative.
In theory every business can be organized as a worker cooperative. But it is not a suitable business model for every economic sector. In particular labour intensive industries are best suited for the formation of worker cooperatives.
However through automation is number of labour intensive industries is decreasing. And further many modern businesses are actually intermediaries between the producers and the consumers of goods. And these intermediaries employ a relatively small number of people. That in many developed nations a large number of the population are working in this sector, is because most production is done in other countries
These intermediary businesses also take much of profits, the difference between the price paid to the producers and the price paid by the consumers. Of course these businesses has to make money, but in reality a large if not the largest part of the profit goes to the intermediaries. This happens because individual consumer have little or no influence on prices set by these businesses. Yes, the consumer can go to competing businesses, but that presumes the presence of adequate competition.
A consumer cooperative is many aspects similar to a worker cooperative, in particular both types of cooperatives are democratically controlled by its members. But the primary difference between those two, is that consumer cooperatives are owned by their consumers rather than their employees.
Unlike traditional businesses, consumer cooperatives do not aim to make as much profit as possible, but instead their purpose is to provide goods and services to their members for the best quality at the best price. Due to collective bargaining, consumer cooperatives can achieve better deals with suppliers easier than individual consumers.
What kind of businesses are most suited for consumer cooperatives? It follows from the definition of these organizations that their consumers should be identifiable. By definition a worker cooperative knows who is working for that cooperative, and hence who is allowed to vote and to share in the profits. But if I go to my local groceries store, they might not know me, for instance because I only go to that particular store only a few times a year.
Many companies deal with large number of anonymous consumers, and to some extent they do not bother to know their consumers, because they don’t care who is buying their stuff as long as they are paying. For a consumer cooperative it’s essential that only the real consumers can be members, otherwise the cooperative becomes vulnerable for outside manipulation.
One thing which can be done by a consumer cooperative, is restricting service only to its members. If non-members want to obtain access to the goods and services provided by the cooperative, they should become member first. It also follows that the subscription business model is best suited for consumer cooperatives (except in case of an occasional “cooperative”, which is beyond the scope of this article). An example of such cooperatives are utility cooperatives, think about a cooperative telephone company.
In our post about waste disposal in space settlements, we discussed the idea of leasing durable goods, instead of buying those. This idea can easily combined with the concept of consumer cooperatives. The cooperative either buys or produces certain durable goods, which are subsequently leased by its members.
A fundamental question we have to discuss, is how consumer cooperatives relate to republican ideals of self-government. One approach would be the idea of consumer-self governance, since consumer cooperatives allow the consumer the exert a greater influence on his consumption than under traditional businesses.
But on the other hand, one could raise the issue of wage labour, which is rejected by classical republicans. The employees of a consumer cooperative are not different from other employees, in the sense that they are not “self-employed”. However, we should realize that in many cases the employees of a consumer cooperative, will also be consumers of that cooperative, and hence be members.
Besides consumer cooperatives will often act as intermediaries between producers, and the final consumers. Nothing will prevent a consumer cooperative to obtain goods from a worker cooperative, and such arrangement could be beneficial for both. Further in some cases a consumer cooperative can be run by volunteers, member who spend a few hours a week to the cooperative.
If a consumer cooperative would have a large number of employees, we could consider a “hybrid” cooperative. In such cooperative both the consumers and workers have a vote in the management of the cooperatives. And votes can be split, for instance, fifty-fifty.
A special type of consumer cooperatives are housing cooperatives. But because of their (potential) importance, we will discuss this type of cooperative separately.
This idea is quite simple: a building is collectively owned by a cooperative, and the members of the cooperative are its renters or hire-purchasers. And like all other cooperatives, the board is elected by its members and all major decisions have to be approved by the members conference.
In order to ensure affordable housing, the government could extend its program of interest-free loans to housing cooperatives. This would also give the government the ability to impose certain conditions on these cooperatives, such as measures against racial discrimination.
An important argument for housing cooperatives, besides affordable housing, is that renters are protected against malevolent landlords. Some landlords are only interest in making money and are asking excessive rents, whilst they refuse to spend anything to maintaining their property. In a housing cooperative the renter-members are effectively their own landlords, and if the cooperative’s board would turn abusive, the member can recall them.