Wednesday, September 30, 2009

Co-operative Constitutions

Financial and Metric Adjustments for the Constitution of Co-operatives

By John Taylor; 2009 Sep 30, Mashiyyat 04, 166 BE

(This incorporates a revision of a blog entry originally written Aug 05, 2008, called, "Continuing Monbiot's Apocalypse")

The leadership of a hillside neighbourhood is itself a cooperative real estate enterprise, as well as being a professional association for the family household, by nature the most basic and co-operative of all institutions. Within its boundaries a neighbourhood also supports and brokers a variety of subsidiary co-operative enterprises.

For example, we have just seen that Comenius advocated a free traveller's hospice combined with a speaker's bureau in every locality. Meetings held every month with visiting dignitaries, experts and tourists would facilitate communication and information exchange among neighbourhoods. In addition, co-operative workshops in a neighbourhood would allow hobbyists to express themselves. Residents would have a right to a workstation at informal workshops near their homes. This amateur activity, combined with trade schools and apprenticeship programs, would spawn new professional entrepreneurial endeavours in the neighbourhood.

In order for this co-operative activity to prevail in a neighbourhood, at least two serious deficiencies of co-operatives have to be corrected first.

In an essay called "A Vehicle for Equality," George Monbiot discusses the worker's cooperative, which stands as an alternative to what he calls "hierarchical capitalism," which is the normal variety everywhere. Although these coops were invented along with the division of labour, Monbiot attributes their formalization in modern form to Robert Owen, the 19th Century capitalist and social reformer. Monbiot points out that although Owen's worker communities collapsed, England still has many small coops and partnerships, and one large cooperative, the John Lewis Partnership. However,

"In several other countries, workers' co-ops, in which all the workers have a stake in the business and a voice in its decision-making processes, have flourished... Dutch and Danish farmers have survived the invasion of the superstores because, unlike British farmers, they process and market much of their produce cooperatively, and so can bargain collectively. They can also achieve economies of scale, which is why British people eat Danish butter and Danish bacon. The Mondragon co-op is now the biggest industrial group in Euskadi (the Basque country) and the 7th biggest in Spain, with 71,000 workers. Altogether, workers' co-ops around the world employ about 100 million people." ("A Vehicle for Equality," from George Monbiot, April 12, 2005,

Monbiot points out that although modern hierarchical capitalists are violently opposed to cooperatives, in the past few decades they in effect have been imitating them by paying upper management in shares, options and other ownership incentives. Hence the "central idea of the co-op is now a standard feature of corporate capitalism." This is because worker-owned enterprises have many inherent advantages.

In Argentina, for example, laid-off former workers took over about 160 factories that had been shut down and abandoned by their hierarchical capitalist owners. The new worker-owned enterprises have a long-term interest in the survival of their factories than their former owners, who were looking for the quick buck. Even in the short-term, the workers manage themselves better because they do not have to pay huge salaries to well connected "high-powered" executives.

As Monbiot puts it, "The money which would have been snaffled by the executives has instead been re-invested." Needless to say, the owner class is fighting this furiously, as a recent documentary by Naomi Kline demonstrates.

Monbiot brings up the received criticisms of coops documented by Harvard economist Michael Kremer. Kremer showed that dividends in a co-op tend to transfer wealth from more productive workers to less productive ones. Worse, worker democracy nullifies innovation and efficiency, which often demand harsh, unpopular sacrifices in the short run.

"The greater the capital investment, he shows, the greater the potential inefficiency, which could explain the scarcity of manufacturing co-ops. Co-ops, in other words, like hierarchical firms, suffer from conflicts of interest. There are other constraints too: the lack of access to capital (keeping the business in the hands of the workers means keeping absentee owners - and their money - out) and the lack of opportunities for capital (you can't move it around as freely as other shareholders can). The Mondragon co-op appears to have overcome both these problems, by establishing its own bank, which circulates money among its 200 affiliated businesses, and by encouraging diversification." (Id.)

The right regulatory climate, especially in a Universal Civic Society (the economy that would come about under a world government), would tweak worker-owned companies to get around such shortcomings and conflicts of interest. Why not have a tie to a cooperative banking system built into the constitution of every worker-owned company? It is already technically possible even for individuals to become their own banks, and the wealthy routinely become their own trusts. Why not make co-operative companies their own banks, connected all together through a cooperative system of credit, savings and loans?

A standard co-operative constitution for every company would have to put internal mechanisms in place to eliminate conflicts of interest and reverse the flow of capital from productive workers to unproductive ones. For example, metrics might measure statistical measures of a worker's productivity in real-time. Having this displayed on an AR dashboard would allow unproductive workers to see their productivity and make whatever adjustments are needed to become more productive. Such minor changes might allow co-ops and profit sharing schemes to succeed even in capital-intensive industries like manufacturing.


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