Tag Archives: economy

A Cooperative Economy

Introduction

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.

Worker 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.

Consumer cooperatives

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.

Housing cooperatives

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.

See also

The 21-hour-work week

Waste disposal, recycling and leasing

One of the most important issues in any given human society, is the management of its waste disposal. And space settlements will be no exception. Of course space colonists could simply dump their waste into outer space, but this will be inefficient since this also means the loss of valuable resources. Waste management of space colonies should be based on reduce, reuse and recycling. In this post we will discuss several policies which could be implemented to achieve these 3 R’s. Continue reading Waste disposal, recycling and leasing

Space colonies and monetary systems. Part 1

Introduction

A key aspect of any society is its monetary system, and Space settlements are no exception. Though money-less societies have existed in the past, and to some extent even to this day, all modern economic systems use money. However, there are different monetary systems possible, and the choice for a particular monetary system has fundamental consequences for how the economy operates. Therefore it is of great importance to choose a monetary system that fits into our commitment to create a secular, liberal and humanist society.

In this post and its sequels we will give a sketch of the monetary system we propose for a future space-based Republic. The basic features of this system are: 1. government issued debt-free money, 2. full reserve banking and 3. a federal credit bank for providing interest-free loans. We will deal with feature 1 in this post, feature 2 will be the subject of part 2, and part 3 will deal with the third feature. Though some people might argue that monetary and banking systems are separate issue, we believe that these two concepts are fundamentally connected with each other.

1 Debt-free money

First of all, we propose that space governments will have monetary sovereignty, e. g. they will issue their own currencies instead of using foreign currencies and also they won’t pledge the national currency to foreign currencies. If a space nation has no sovereign currency, it will not be able to implement its own monetary system.

Secondly, we propose a system of pure fiat money, which is money not backed by any commodity. Some readers might wonder how money with no intrinsic value would ever be accepted, this is an important question. The answer is given by what is known as modern monetary theory: taxation drives money. By mandating some payments in a specified currency, the government creates an effective demand for said currency. We will explain this by an appropriate example.

As the regular visitor of our site might know we support a land value tax as the primary method to fund government. It’s our opinion that all land in a space habitat should be the property of its respective government, but space governments will be able to lease their land to private parties. Since the government is the owner of the land, it is therefore capable of demanding that the lease has to be paid in the national currency. Subsequently the landholders will have a demand for some national currency, they have to earn this somehow. A landholder might, for instance, choose to become a farmer and to trade his crops for national currency. In their turn the buyers of these agricultural products will demand that their wages to be paid in national currency. And the end everyone will demand to be paid in national currency, and consequently the national currency will be generally accepted.

The requirement that the land value tax has to be paid in the national currency, also implies that so-called legal tender laws are superfluous. Legal tender laws are those laws which demand that a person must accept national currency as payment for debt. As we have seen, any sane person would accept the national currency because it is demanded by everyone else regardless of whether he is obliged to accept the national currency. Therefore legal tender laws could be abolished, or rather space colonies should not introduce such laws in the first place.

Now we know that taxation drives money, it follows that the government can create money, just by printing it. Once the government has imposed the obligation to pay land rents in national currency, it knows people will accept it in payments. And since the citizens has to get national currency somehow in the first place, they will be eager to sell goods and services to the government.

Since the government can print money at will, there is no need for the government to borrow any money, ever. This means that money issued by the government is debt-free, the government also pays no interest over it. The cautious reader should, however, be concerned about inflation. However, if the money supply grows proportionally with the economy, then inflation would be near zero. The problem of (hyper)inflation occurs when the government will print money at a faster rate than the growth of the economy.

It’s clear that even if the government can create money at will, it cannot afford to create an unlimited amount of money at a given time. According to modern monetary theory the growth of the money supply can be regulated by the government: by collecting tax, money is destroyed and by public spending, money is created. If more tax is collected than is spent, then the money supply will decrease. And if more money is spent than taxed, then the money supply will be increased.

Economists who support this theory, argues that in case of high inflation the government should raise taxes and to cut spending. Of course the problem will arise that if politicians control the money supply, they will use the tools of spending and taxing for political rather than economic reasons: decreasing taxes and increasing spending during the time just before an election. Therefore an independent agency should be created which decide whether taxes will be raised, and how much money the government is allowed to spend. Politician will be in charge of deciding how they spend the money, not how much.

Todd Altman has proposed an interesting idea: pegging the national currency to the consumer price index. If the general price level rises with, say, five percent, taxes will be raised also by five percent, whilst spending has to be cut down.

See also

External links

Richard Werner: Debt free & interest free money A YouTube video featuring economist Richard Werner, who explains how debt free money will work.

Modern Monetary Theory Primer An introduction to modern monetary theory on the “New economic perspectives” blog.

On “Republic of Lagrangia”

On the problem of taxation. Part One

On the problem of taxation. Part Two

On the economy of a Space colony

Space colonies and monetary systems. Part 2