Democratizing Capital at Scale: Cooperative Enterprise and Beyond

by Joe Guinan, Thomas M. Hanna, originally published by Open Democracy  | TODAY

Faced with spiralling social, economic and environmental problems, many people are turning to economic democracy for solutions. But what shape should this democracy take? And how can it establish an effective process for the distribution of wealth?

 

Flickr/*eddie. Some rights reserved

Last year, total private wealth worldwide stood at $135 trillion. Of this, $52.8 trillion – almost 40 per cent – was held by the wealthiest one per cent, the true beneficiaries of three decades of upwards-distributing neoliberalism. Even through the locust years of economic difficulty and self-defeating austerity, the colossal wealth of this tiny global elite continues to grow. Over half of all bank assets are now routed offshore. Given such staggering concentrations, the capacity of governments around the world to hold the line against rising inequality through taxation and redistributive spending – even when they actually wish to do so – is ever more reduced. Faced with a downward spiral of debt, poverty and climate destruction, it is unsurprising that more and more people are embracing economic alternatives in which new wealth is built collectively and from the bottom up. After Keynesianism, after neoliberalism, serious thinking about the next economic paradigm is increasingly converging on the overriding principle of economic democracy, with the remaining questions being about what form it should take. For many, the jumping off point into alternative political economy is cooperative enterprise – and, in particular, employee ownership of the firm.

The five years since the financial crisis have been good to cooperatives. Today they are one of the few bright spots in an otherwise gloomy overall picture of stagnation, falling real wages, rising inequality, public retrenchment and social and environmental decay. Against such a tide, more than a billion people now stand as members of one or another form of cooperative in which producers, consumers and stakeholders in various combinations are the collective owners and principal beneficiaries. Since 2008, the UK’s co-op sector has grown a whopping 19.6 per cent while the economy as a whole contracted by 1.7 per cent. In 2011, the cooperative economy grew by 1.5 per cent, more than double the rate of the overall economy (0.7 per cent). Even judged against narrow capitalist criteria of economic efficiency, many cooperatives are outperforming the rest of the private sector. A 2013 International Labour Organisation (ILO) report found that, during the crisis, financial co-ops and mutuals outperformed traditional banks by almost every measure.

Political support for cooperatives is concomitantly on the rise. From the Archbishop of Canterbury to the United Nations Secretary General, “all the Powers of old” – to borrow a line from the Communist Manifesto – “have entered into a holy alliance” in their favour. Even the retrograde Coalition government has climbed on the bandwagon, with Deputy Prime Minister Nick Clegg calling for a ‘John Lewis society’ of worker-owners: ‘The 1980s was the decade of share ownership. I want this to be the decade of employee share ownership’.

On the left, cooperative ownership has an agreeable horizontality that endears it to a new generation of activists suspicious of hierarchy and centralisation. Crisis-driven worker-led transitions of previously capitalist enterprises into collective ventures in countries as diverse as Argentina, Greece, Italy and the United Statesoffer hope for a new future rising out of the ashes. The growing sophistication of co-op networks in the Basque region of Spain and Italy’s Emilia Romagna (as well as of lesser-known examples in Venezuela, Quebec and elsewhere) have proven the viability of such models over time and at scale.

Flickr/[Duncan]. Some rights reserved.

These are welcome developments. As Frances Fox Piven has argued, worker-owners – because their interests are “multifaceted, going beyond a singular preoccupation with the bottom line and the short-term to include concerns with, for example, job security and community well-being” – will “likely be better corporate decision-makers”. Marxian economist Richard Wolff sees “worker self-directed enterprises” as a solution to the problem of surplus value and alienated labour. Such thinking has an impressive lineage. For Karl Marx, inaugurating the International Working Men’s Association in 1864, the ‘value of these great social experiments cannot be overrated’:

“By deed, instead of by argument, they have shown that production on a large scale, and in accord with the behests of modern science, may be carried on without a class of masters employing a class of hands; that to bear fruit, the means of labour need not be monopolized as a means of domination over, and of extortion against, the labouring man himself; and that, like slave labour, like serf labour, hired labour is but a transitory and inferior form, destined to disappear before associated labour plying its toil with a willing hand, a ready mind, and a joyous heart”.

Some Problems

There is no question that co-ops, together with kindred ownership forms, are a powerful tool for democratising wealth. But because many people are now gravitating toward them it is important to recognise their limitations. Some of the problems can be seen in the recent strike of out-sourced cleaning staff at John Lewis and the ongoing financial tribulations of the Co-operative Bank. We must interrogate these difficulties to identify problem dynamics built into the institutional forms themselves.

To begin with, there is the familiar problem of externalities – the interests of the worker-owners of a given enterprise are not completely identical to those of the community as a whole. While they may not relocate overseas, what is to stop worker-owners, any more than traditional capitalists, from maximising profit by passing on pollution costs and other negative externalities to the wider community? For firms free-floating in capitalist markets, this is often not a matter of choice, but of necessity: the pressures of competition force behaviour detrimental to wider social and environmental purposes.

Distributional problems, too, will persist. Markets, left to their own devices, are powerful engines of inequality and likely to overwhelm economic models based solely on worker ownership, producing undesirable outcomes and power relationships. As Gar Alperovitz has pointed out, “workers who “own” the garbage companies are clearly on a different footing, for instance, than specific groups of workers lucky enough to “own” the oil industry”. What limited evidence we have suggests that workers in ‘democratised’ firms can easily develop narrow ‘worker-capitalist’ attitudes. Edward Greenberg’s classic studies of the plywood cooperatives in America’s Pacific Northwest found that, far from potential recruits for Marx’s International, worker-owners were more likely to adopt the petit bourgeois mind set of the conservative small business owner  – hardly the stuff of Gramscian counter-hegemony.

Also discouraging is a tendency toward capitalist recidivism. In the absence of preventative legal structures, co-ops can display the unfortunate habit of pulling up the ladder after themselves, setting extremely high standards for future participation and hiring new workers on a wage basis rather than an ownership one. The SACMI cooperative in Italy, as John Restakis has shown, is “still owned and directed by its 390 members … but [its] operations include control of 60 capitalist firms, 37 of them abroad, and sales in 100 countries”. All told, it employs around 3,000 non-member employees, making worker-owners a tiny fraction of the total workforce. Potential new members must have worked for the company for five years, be nominated and assessed by other members and pay a membership cost of around $300,000, made as a loan and paid back over fifteen years though salary deductions. Mondragón’s use of “non-member wage labour” and “external non-voting capital stakes” raises similar issues. Far from economic democracy, all this is reminiscent of the exclusionary practices of medieval craft guilds.

Accompanying regulatory strategies could constrain such dynamics. But relying on ‘after-the-fact’ interventions in political economy is a risky proposition – witness the crisis of social democratic redistributive taxation. To achieve genuinely different outcomes we must look to the deeper engineering of institutional arrangements. It is time to get much more serious about systemic design. 

Systemic Design

Fortunately, there are solutions (or the beginnings of them). In Cleveland, Ohio, theDemocracy Collaborative has been helping develop a linked group of worker co-ops embedded in overarching community structures. The companies are nested under a community-serving non-profit corporation and return 10 per cent of their annual profits to a revolving fund, the purpose of which is to develop additional co-ops and thereby grow the network. Moreover, the ‘Cleveland Model’ seeks to incorporate a quasi-public community planning system using the partially protected market of massive purchasing power (over $3 billion a year in goods and services) by large local ‘anchors’ (hospitals, universities) that are themselves beneficiaries of considerable public support.

Such innovations incorporate worker ownership, but also reach beyond to “the democratisation of wealth and community building in general”. The ills of capitalism do not all reside at the level of the ownership of the firm. Capitalism also operates and impacts at the level of the city, the region, the nation and internationally. Alternatives must do so as well and must include mechanisms and transition strategies for the democratisation of capital at a variety of scales.

There has been a great deal of innovative new thinking along these lines in recent years, spurred in part by the failure of traditional social democratic solutions. Alternative system models (or partial models) are now on offer from an array of thinkers, including David Schweickart, Richard Wolff, Gar Alperovitz, Michael Albert, Herman Daly and Erik Olin Wright. For example, in place of the traditional elements of capitalism – private ownership of the means of production with markets in capital, labour, goods and services – Schweickart proposes worker self-management of enterprises and social control of investment. His model has neither capital markets nor labour markets in the usual sense, for the good old-fashioned reason that "when the market extends beyond goods and services to capital and labor, it begins biting the neighbors, urinating on the carpet, and worse”. Alperovitz sets out the lineaments of a system based on different ownership and growth paradigms he calls the “Pluralist Commonwealth”:

““Pluralist” to emphasise the priority given to democratic diversity and individual liberty; “Commonwealth” to underscore the centrality of new public and quasi-public wealth-holding institutions that take on ever greater power on behalf of the community of the nation as a whole”

This conversation is increasingly sophisticated, but must grow even more so. Such models point past the embrace of one economic institution or another to crosscutting themes of systemic design. Take investment: “control over investment”, as Adam Przeworski has reminded us, “is the central political issue under capitalism precisely because no other privately made decisions have such a profound public impact”. At present, decisions about what portion of society’s resources should be set aside from consumption and how they should be allocated are treated as private prerogatives. This is particularly objectionable given that finance – the rentier province of the economy par excellence – has been the site of major crises at catastrophic economic, social and human cost.

Flickr/Kake Pugh. Some rights reserved.

One solution, of course, is cooperative finance. Globally, more than 50,000 credit unions already serve nearly 200 million members in 100 countries. Europe’s cooperative banking sector comprises almost 4,000 co-op banks with 50 million members. But there is probably also the need for a strong public utility function in banking. Retaining community control over investment through public banks, or even community control over fixed capital in enterprises (in effect renting out the means of production to self-managing groups of workers), could help internalise externalities, the community being the ultimate universal owner.

Public ownership more generally, should be reclaimed from its fate as a bailout mechanism for private capital. Andrew Cumbers, Professor of Geographical Political Economy at the University of Glasgow, argues convincingly for a democratised public ownership that is “not only an increasingly urgent requirement but also a practical possibility in the years ahead”. His “preliminary sketch” of a system designed around public ownership extends the definition of “public” to encompass “all those attempts, both outside and through the state, to create forms of collective ownership in opposition to … capitalist social relations”. Overall, he concludes, “we should aspire towards examples of democratically controlled forms of public ownership that are technically necessary at higher levels while relinquishing control of other activities as far as possible to the local level”.

Finally, after three decades of market expansionism and the impoverishment of the public domain, a strong dose of decommodification should be included in any model with regard to public space, the environment, health care, education and all the other crucial ingredients of a flourishing commons. “Only this”, Robin Blackburn argues, “can ‘neutralise’ the floating electric charge of capital by tying it to the ‘earth’ of mutual or public property, which can no longer be bought and sold”.

Democratising Capital at Scale

Part of the intuitive appeal of co-ops is their practicality and immediacy, such that it is easy to imagine an economy in which cooperative forms proliferate. But there are plenty of other real-world examples of democratic wealth-holding institutions and strategies that work in practice and can also be taken to scale. 

Take public banking: the US federal government currently operates around 140different banks and quasi-banks, from the Import-Export Bank to agricultural lending programs. At the state level, the Bank of North Dakota has contributedmore than $300 million to public revenues over ten years and has been highly successful in promoting community lending by local banks and developing the state economy. In Germany, in addition to more than a thousand cooperative banks there are over 400 Sparkassen, publicly owned savings banks that together have nearly 250,000 employees and 50 million customers. Unlike some of the larger banks (private and public), these two pillars of the German banking system have, according to the Economist, “come through the crisis with barely a scratch”.

Other opportunities for democratic control over investment abound. City and local government economic development programs increasingly lend to – or make direct investments in – local businesses. Economically targeted investments channel public pension assets into job creation and community economic development. Venture capital funds give public authorities an equity stake in local investments. Municipal enterprises build infrastructure and provide services, raising revenue and promoting employment and economic stability, diversifying the base of locally controlled capital. New experiments with participatory budgeting allow for direct citizen engagement in the allocation of public funds. ‘Commons management systems’ cover everything from the Internet to public libraries, parks and blood banks. Public trusts receive revenues from timber and mineral rights to grazing and oil production, in turn providing funding streams that (as with the Texas Permanent School Fund) underwrite public spending or (as with the Alaska Permanent Fund) issue a citizen dividend. 

Two additional intermediate strategies are suggestive of possibilities for a transition to economic democracy: mobilising ‘labour’s capital’ in the form of workers’ vast pension assets, and enacting a share levy on major corporations.

‘Pension fund socialism’ may not be emblazoned on many banners, but proposals going back to the seventies and eighties have called upon the trade union movement to ‘harness pension power’ by taking command of the huge pools of capital amassed by workers’ retirement funds as a critical first step toward a democratic investment agenda based on the premise that workers generate capital and should also direct its uses. As Tony Benn has argued, pension funds “belong to the workers, they are their own deferred earnings. Workers want them not only as income when they retire, but to sustain and create jobs while they are at work, and so to guarantee that they will retire in a buoyant economy”. 

Any such strategy by trade unions or public agencies should be focussed on “the potential for using pension capital as an opening wedge in the development of basic economic alternatives”, shifting the power that flows from control of pension assets to advance “a worker-owner view of value in the allocation of capital by firms and markets”. 

Lastly, there is the example of the Meidner Plan. Rudolf Meidner, chief economist at the Landorganisationen, the Swedish trade union federation, outlined his visionary proposal as a radical response to the strategic challenges facing the labour movement in the 1970s. He wrote: “how to increase the level of savings but not inequality of wealth, and how to ensure that an increase in savings would translate into the kinds of investment that would sustain full employment, real-wage growth, and continued welfare-state expansion”. Against the backdrop of a solidaristic wage policy, and based on the moral claim that corporate profits derived in part from hidden public subsidy, the Meidner Plan required that corporations return a percentage of their profits to workers as equity. These shares would be entrusted to regional public bodies – ‘wage-earner funds’ – which would direct the eventual returns to meet agreed-upon social purposes. 

Companies with over 50 or 100 employees (depending on the version) would thus have been transferred to collective ownership as the funds increased their holdings through the receipt of new shares. Meidner estimated that it would have taken wage-earner funds 35 years to acquire 49 per cent of the equity of a corporation operating at an annual rate of profit of 10 per cent. But the real beauty of the scheme was that the higher the profits, the faster the socialisation: the mirror-opposite of the various instances of ‘lemon socialism’ which have seen public ownership extended only to those sectors of the economy where enterprises were operating at a loss. 

With transition strategies, what matters are the broader political consequences of institutional reforms. “From a democratic socialist perspective”, Jonas Pontusson points out, the issue “is not the immediate results of a given reform, but what possibilities it opens up for further reforms by altering the terms of public debate or encouraging popular mobilization”. This is critical. A re-emboldening vampire capitalism is seeking a return to profitability through the extraction of every last drop of value from the public domain. In our “loaned out” economy, as Michael Hudson has warned, a “neo-feudal rentier class” is turning to outright ownership, forcing debt-burdened governments into sell-offs in order to extract monopoly rents. Almost everywhere, supine political classes are inclined to surrender.

This need not be the case. There are real alternatives capable of moving us away from neoliberal austerity and in the direction of democratised ownership of the economy. Many of these alternatives – which go beyond cooperatives to public and quasi-public capital strategies – are already being put into practice in states and localities around the world. As the wave of asset-stripping privatisation comes crashing in, threatening to engulf schools, hospitals and public services, we must resist the sly voices of resignation and hold instead to the simple determination that, whatever else may happen, they shall not impoverish our imaginations too.

This piece is part of the Democratic Wealth series, hosted by OurKingdom in partnership with Politics in Spires.