Australian economist Bill Mitchell is a known critic of basic income guarantee (BIG) programs and a support of a job guarantee (JG) programs. In this post on his blog, Mitchell presents the following argument against BIG: Continue reading On the capital-labour conflict
On this site we have proposed several methods which the government could use to stimulate the creation of a cooperative economy.
First of all, the government should give preferential treatment to worker cooperatives when procuring goods and services from the private sector. This will give cooperatives an advantage and hence create an inducement to start a cooperative and to maintain them.
Also the government could set up a finance company which will help people with funding a cooperative through either finance or operating lease. This way the start-up costs and hence risks for new cooperatives will be reduced. By reducing the costs of setting up a cooperative, their formation will become more attractive.
Further the government should create a level playing field between wage labor and self-employment. This requires, for instance, the abolition of minimum wage laws and its replacement with some kind of basic income guarantee. A basic income will reduce the risk people face when they run their own businesses.
Another idea is when people who have lost their job apply for unemployment benefits, to inform them of the possibility to set up a cooperative with other people who lost their jobs. This should be combined with a retraining program, to ensure people will have the necessary skills to operate a worker cooperative.
Here some interesting articles on worker cooperatives:
The Case for Worker Cooperatives – by Nancy Folbre, New York Times
Worker Cooperatives: A Bipartisan Solution to America’s Growing Income Inequality – by Benjamin Gillies, Kennedy School Review
10 Lessons from Kenya’s Remarkable Cooperatives – Nathan Schneider, Shareable
Mondragón Cooperative: A Bussiness with a Commitment to a Common Good – by Georgia Kelly and Shaula Massena, Yes! Magazine
We endorse self-employment and worker-cooperatives as alternative for the current system of wage labor which breeds inequality, exploitation and undermines democratic and republican society. On The Nation there is a good article on worker cooperative, we highly recommend:
In this post we will discuss commanditary partnerships (German: Kommanditgesellschaft, French: société en commandite, Dutch: commanditaire vennootschap) as a way to fund (worker) cooperatives. Continue reading Commanditary Partnerships
Most readers will be familiar with government bonds. Bonds are a type of loan, which is divided in multiple pieces which could be traded. Continue reading Cooperative bonds
We want that cooperatives shall play a central role in the economy of space settlements. In this post an overview of entries on cooperatives on this site.
A Cooperative Economy – A general discussion of what cooperatives are and why we favour cooperatives.
A few words on Consumer Cooperatives – A more detailed discussion on consumer cooperatives.
Borrowing versus leasing – A further discussion on funding worker cooperatives.
A Calculation Example – A in-depth discussion of housing cooperatives and hire-purchase as an alternative for mortgage loans.
Banking reform – The proposal that only consumer cooperatives should be able to obtain bank licenses.
Some thoughts on prostitution – Discusses cooperative brothels as a possible measure against abuse in prostitution.
In Radio spectrum in space settlements there is a short note on that mobile phone operators should be required to be consumer cooperatives.
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.
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.