As already discussed, individualism has been, by and large, glorified in capitalism and frequently equated with ‘private’: for instance, private property is linked to values such as individual freedom. This equation can be misleading, though. Things that are shared or collectively owned can actually support and enhance individual freedom – and private property, of course, can restrict it. For example, freedom of movement is enhanced by public spaces such as national parks and urban parks. Freedom in matrimony is enhanced by a social safety-net, as those involved are not forced to stay in a relationship that has become toxic. Furthermore, private property depends on public services, such as the legal system, the army, the police and the fire brigade. Still, as a reaction to communism, which favoured its own version of ‘public’, the concepts of private and privacy have been strongly emphasised in capitalism. For example, in some countries, asking a colleague how much they earn is considered bad manners. And yet, only bosses benefit from this, as it enables them to undercut wages. This is, of course, not the only instance of individualism and ‘privacy’ being used to serve the system. Individualistic zeitgeist is also inimical to people organising themselves and is, therefore, a lesser threat to the system (it is easier to deal with individuals than with groups). However, it seems that the tide is turning. The fastest growth of cooperatives and other communal projects is actually taking place in the US. This is seen as a form of resistance, in the same way that individualism used to be seen in the Soviet Union. But rather than being in conflict or pushing one side against the other, individualism and communality can support each other. Let’s see how this can be applied to various types of ownership.
There are certain things (such as underwear) that should always remain private property. But very quickly the demarcation line between private and shared becomes blurred. For example, most people, when they go bowling, wear shoes that are provided by the venue and worn by dozens, perhaps hundreds of users, yet very few of us would share walking shoes. Obviously, the question of practicality arises here. For example, the use of cars is highly inefficient and car sharing could be beneficial in many ways (as some have already found). However, the trouble is that most people need a car roughly at the same time as everybody else: in the morning and after work for their daily commute. By the same token, when they don’t need a car – the middle of the night – nor does anyone else. Also, there is an issue of not everybody being a careful or good driver – how do you divide the cost of repairs, cleaning, and wear and tear? We also need to take into account people’s mentality. For example, the provision of a reliable and extensive public transport system seems to be a win-win solution, but this has been rejected in some American towns on the ground that it is ‘socialism’. So, balancing the private and the shared in many cases is better left to individuals and grass-root initiatives. That is, with the exception of housing – a subject too big and too essential not to be considered in more detail.
When we think about housing, the following possibilities come to mind: private ownership, renting, and state-provided accommodation (so-called social housing in the UK). Let’s consider these options. Renting is inherited from pre-capitalist systems and is common in all corners of the world, as it is often the only option, or at least the only affordable one (e.g. when mortgages are unavailable or the deposits needed are too high). Renting also allows freedom of movement more than other options. On the other hand, a large proportion of this system is parasitic: many landlords accumulate wealth from others without directly contributing to the economy, and this can be a significant factor in creating housing bubbles (as in the case of the 2008 crisis, when many properties had been bought to rent rather than to live in them). Furthermore, renting out property is not only in conflict with the shared or communal, but also with personal ownership: personal use, as the main justification for private ownership, does not apply in this case and renting in effect reduces individual ownership as several properties may be owned by the same person and never come onto the market for others to buy. Thus, if we want to advance both the personal and the shared in a mutually supportive relationship, buying to rent should be discouraged except for short-term lets. The need for long-term lets would be dramatically reduced as buying one’s own accommodation would be more affordable. To help it further, the banks could be encouraged to offer low deposit mortgages to first-time buyers, particularly if they are in permanent employment. If some still do not qualify, the state could provide some long-term lets. It is anticipated that this would, on balance, benefit those who are now forced to rent long-term accommodation from private landlords.
To understand why treating buying to rent differently from buying to live is justified, we need to distinguish the intrinsic value from the instrumental value of assets. An intrinsic value enjoys the right to privacy, while an instrumental value relinquishes that privacy, and therefore should not be treated as something with the same rights. For example, your wedding ring has an intrinsic, sentimental, private value, but when you put it into the market for sale, such a value is transmuted into an instrumental one (the market price). Its intrinsic value is forsaken, and even though it may still be in your possession, it is no longer treated as your private thing. The same applies to a house. If you buy a house to live in, it has an intrinsic value that gives you the right to privacy (hence private property). However, if you buy a house to rent, this house has an instrumental, rather than intrinsic, value and should be treated differently. This value difference justifies giving priority to, and taxing differently, those who buy a property to live in as opposed to those who buy a property purely to rent it out. Let’s now consider the former in more detail.
Private ownership is appealing, but very few people can buy their accommodation outright; what is more common is the so-called ‘guaranteed sense of ownership’. When you take out a mortgage, your flat or house does not belong to you but to your bank. Your bank, however, guarantees your sense of ownership as long as you pay the mortgage regularly. For example, it cannot evict you for other reasons, check on what condition you keep your accommodation in, or place restrictions on how the house is decorated, what alterations you can make or what pets you can keep there (which all can and do happen when someone is renting); furthermore, it gives you the prospect of owning the place outright once the mortgage is paid off. These conditions allow the sense of ownership without actual ownership, and are supposed to protect the individual private from the corporate private. However, the system does not always work for the benefit of individuals. It ties them down to the kind of job that is considered ‘secure’ or pays a certain salary level, thereby encouraging conformism and discouraging professional freedom and entrepreneurship. Moreover, initial deposits on a property are increasingly unaffordable for many people, even if they can manage the actual mortgage repayments. Those who get a mortgage from a private bank typically have to pay twice as much the value of their property in interest before it becomes theirs (at an interest rate of roughly 6%). Furthermore, if regular payments are not made, the illusion of ownership can be quickly shattered. This was especially apparent in the aftermath of the 2008 crisis, when most banks and other lenders were bailed out, but individual mortgage holders were left to sink.
At the other end of the spectrum, the state provides accommodation, usually to the disadvantaged, for much less than the commercial rate or sometimes even free of charge. In the UK (particularly in larger towns and cities), these provisions are congregated in so-called council estates. Usually dense and low-quality, they have become notorious as they concentrate ‘underclass’ groups in a relatively small space, which often breeds anti-social behaviour such as violence, noise, drug and alcohol abuse and vandalism. It seems that when the sense of ownership decreases or is absent, the sense of care often declines too. This, however, does not always have to be the case. For example, in socialist Yugoslavia, the state, via its companies, provided housing for employees and their families. Most people would get a flat from their company or organisation when they started working. These companies (which were state owned) contributed to building the flats or bought them from other companies that built them. The occupants would have to make some contribution as a form of repayment to the company that invested in building their flat, but such payments were fairly small. One consequence of this system was mixed occupancy. So, in a building of, say, 60 flats, you would have doctors, road-sweepers, pensioners, students, car-mechanics, teachers, local politicians and so on. This, coupled with the high sense of ownership, made anti-social behaviour a relatively rare occurrence. The downside of such a system was that the choice of where you could live was fairly limited, the size of flats was small by Western standards (a two-bedroom flat for a family of four was the norm), and the buildings and estates where not always aesthetically pleasing. And yes, they were flats – new houses were rarely built, so forget about having your own garden.
We can see that all the above options have some merits but none are ideal. The good news is that there are alternatives – being at the mercy of private landlords, banks or the state is not inevitable. There are already some tried and tested initiatives that show how shared and individual interests can support each other.
- Online communities that connect people looking to rent their homes with people who are looking for accommodation can democratise renting and reduce its parasitic element in favour of those who are more personally involved.
- Building societies, credit unions and co-operative banks that already operate successfully in many parts of the world could increase their role as an alternative to private banks. Buyers can also organise to develop housing by, for example, creating a real estate investment fund.
- More imaginative options can be found within the public sector too. One example is a shared ownership scheme, where the occupiers partly buy and partly rent their flat from the local authority or a housing agency, with the prospect of subsequently buying the part they are renting when they can afford it.
What these examples have in common, and what makes them different from the mainstream, is greater cooperation between all the players involved. Let’s now turn to an even more pressing and important issue – land ownership, and see if the same principle can be of use in that case too.
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Land ownership is an anachronistic leftover from the previous (feudal) system and is hugely problematic for several reasons:
- It propagates the unproductive use of land, as you can just hold on to a piece of land until its value increases. In fact, you Very few individuals can afford to invest in a piece of land and wait for its value to grow. Big companies and corporations, however, can. In many countries, it doesn’t cost them anything to sit and wait. It is an enormously lucrative business. Over the past 20 years, the value of land for housing has risen over four times faster than inflation.
- It is a destabilising factor for the economy: land ownership is implicated in many booms and busts (including the one in 2008).
- It leads to stark inequalities – less than 1% of the population now own more than 70% of the land globally.
- It fosters a parasitic element of society (in the case of living off rents).
- There are social consequences too. For example, building luxury flats on desirable land yields a greater profit than building affordable ones. However, this prices out people who are needed (e.g. cleaners, teachers, nurses, etc.). This, in turn, increases their expenses as they have to spend more time and money on commuting. Those who profit rarely bear the burden of these social costs.
- Environmental cost (such as the degradation of land) can also be very serious.
For these reasons, the new economy must include certain steps of a land reform. We suggest here three such steps, of which some are already tried:
Land value tax (LVT): introducing this tax would stabilise the economy, reduce the risk of boom and bust and prevent landowners from artificially creating property scarcity by holding onto properties in the hope that their value will increase. This tax would not be fixed; rather, it would vary depending on the use of the land as well as changes in the land’s value. For example, if a property benefits from improved infrastructure built from public money (such as new rail links), the owners would pay proportionally more on its increased value. Many economists of different colours, from Adam Smith and David Ricardo to Henry George and Joseph Stiglitz, have been in support of LVT. Even Milton Friedman was not averse, calling it ‘the least bad tax’. Some countries, such as Estonia, have already introduced a land tax – with multiple bands and exemptions to distinguish between homeowners and landlords.
Stewardship rather than ownership: ultimately, to paraphrase the community organiser and author of the book Land, Martin Adams, land should belong to everyone and no-one. A crucial word here is ‘no-one’, as it indicates that the stewardship of the land can be granted, but not the ownership – which should be public (‘everyone’). This does not mean that anybody would be able to walk into your back garden – you buy rights, including the right for privacy as discussed above, but these rights must go with responsibility (to take care of that piece of land). The less responsibility you take, the fewer rights you have over that land. Of course, this would apply not just to individual ownership but to corporate ownership too.
Democratisation of land (and housing) through Community Land Trusts (CLTs) can also play an important role. These trusts are local organisations set up and run by ordinary people to develop and manage homes as well as other assets important to that community, like community enterprises, places for growing food or workspaces. The CLTs’ main task is to make sure these homes are genuinely affordable, based on what people actually earn in their area, not just for now but for every future occupier. There are already successful examples in the US (Champlain Housing Trust), the UK (London Community Land Trust), Uruguay (housing co-operatives), Bolivia, (the Maria Auxiliadora community), Kenya (Bondeni Community Land Trust), and elsewhere. Of course, this does not only apply to land for housing. Other examples include community-owned forests in Nepal and Romania, lobster fisheries in Maine, and pastures in east Africa and Switzerland. Such initiatives, though, face the so-called tragedy of the commons challenge: individual users acting in self-interest may behave contrary to the common good by depleting or spoiling a shared resource. It is true that people who are intimately related to the land are more likely to take care of it, but this is by no means fool-proof. There are many cases in which short-term benefits are chosen over long-term, sustainable solutions. This is why it is important to learn from good examples of commons that thrive. For instance, Champlain Housing Trust successfully addressed the challenge: like many other Community Land Trusts, Champlain has a tripartite governing board: one-third of its membership is constituted by CHT residents; another third from surrounding communities; and the final third is composed of municipal officials and a regional representative who together are presumed to speak for the public interest (in other CLTs, this final third often comprises technical specialists like engineers, accountants, planners, architects, social workers or lawyers). Residents of the CHT obtain their land parcels through long-term ground leases for 20 years. They sign up to a contract in which they have full rights to the land, but only receive 25% of the appreciation of the land value if they choose to sell their property. This formula allows residents to regain their down-payment investment, the equity earned by paying off a mortgage and the value of pre-approved capital improvements, but also allows the housing to remain affordable for future residents.
~ What we can do now ~
- Join existing land reform initiatives or start new ones that can make specific plans for how to carry out land reforms in your area, and lobby for their implementation.
- Contact political parties and pledge support to those willing to tackle this issue.
- Make inquiries about how to create a commons in your area.
- Disseminate information and encourage discussions on this topic.
It is now time to turn to a type of ownership that is of utmost importance for the economy: business ownership.
We will consider various options in this area: private sector, state sector, people’s sector and hybrid ownership.
The private sector is not good or bad per se. Private business ownership can be useful and rewarding. There are, however, parasitic businesses that are not productive in the sense of making a contribution to society. This quote from R. H. Tawney’s classic The Acquisitive Society, published in 1920, is instructive:
For it is not private ownership, but private ownership divorced from work, which is corrupting to the principle of industry; and the idea of some socialists that private property in land or capital is necessarily mischievous is a piece of scholastic pedantry as absurd as that of those conservatives who would invest all property with some kind of mysterious sanctity… It all depends what sort of property it is and for what purpose it is used. The fundamental issue is between property that is used for work and property which yields income without it. (p.86-87).
As already discussed, productive businesses are those that lead to non-zero-sum transactions, while unproductive ones are those that lead to negative or zero-sum transactions. In order to maximise the positive contribution of the private sector and minimise its corrosive effects on wider society and the environment, it may be necessary to put in place a few principles:
- Small businesses should be encouraged by enabling proper, fair and even-handed functioning of the invisible hand. Progressive corporate taxation and progressive corporate regulations can go a long way toward achieving that. For example, making sure that the amount of red tape or regulations are proportional to the size of a business would be of great benefit for small businesses.
- No corporation should be allowed to grow to the extent that it is too big (or too systemic) to fail or to be kept in check by national or international regulatory bodies. Size really matters in this case. That said, corporations should not necessarily be seen as bad. There are already corporations with strong social missions, such as the large foundation-controlled companies, common across northern Europe (such as Ikea and Novo Nordisk). Some of these companies publicly trade shares, but retain control of their mission via super-voting shares in the hands of the foundation.
- However, the involvement of the private sector in natural monopolies (public utilities such as water or sewage) should be discouraged, as competition – which is supposed to drive the quality and efficiency in the private sector – is by definition absent from monopolies. Even with competition, private providers of public services or utilities are not necessarily the best option. The US is the only Western country that relies solely on a private healthcare provision and it is the most expensive and arguably the least effective system in the West. The UK rail services, which were privatised in the 1980s, are another example. The 2012 Rebuilding Rail report claims that the cost of running the railways had more than doubled since privatisation, from £2.4 billion per year in 1990–95 to around £5.4 billion in 2005–10. The Rail Value for Money Study from 2011 estimated that the UK’s railways are around 30% more expensive than those in continental Europe and some still provide substandard services. In desperation, a commuter association made a bid to run some trains themselves! Part of the system (the rail tracks) was so badly neglected that it had become dangerous and had to be re-nationalised. Even some private banks and other financial institutions (in the UK and US) were nationalised after 2008 as they were not doing their job well. Sure, when public utilities and services are privatised, they may operate better for a while, but in the long term they inevitably deteriorate, as private companies sooner or later try to squeeze more profit from a low-competition environment.
- Private companies need to account for any ‘collateral damage’ and ‘externalities’ for which they are responsible. For example, mining companies often leave gaping holes in the ground after depleting it of minerals or other resources (particularly in developing countries). Such land cannot serve any good purpose in the future. It is only fair that negative social and environmental impacts are offset by businesses that have made money from them.
~ What we can do now ~
- Support local businesses and services. We can choose them over retail chains.
- Lobby against the privatisation of public utilities and services.
- Liaise with governmental and non-governmental organisations to confront companies that create social or environmental harm. This worked occasionally even in China, so surely it can work elsewhere. For instance, the community on Maui (a Hawaiian island) managed to fend off Monsanto, the biggest agricultural corporation in the world. We are not powerless against big businesses.
- Name and shame antisocial businesses. Letting others know which companies are antisocial is already happening via social media. Mass petitions, negative reviews, or a wave of caustic tweets can have a significant effect on an organisation’s reputation. Until corporate social and environmental reports are made mandatory, these ‘grass root’ actions will have to do.
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State-run business is particularly conducive for natural monopolies. They need large-scale investment and significant coordination, while the advantages of private ownership, such as competition, are diminished. Also, the state is usually more responsive to long-term investments in the infrastructure and setting a reasonable, rather than excessive, price – a temptation for private companies, especially if they have a monopoly. In addition, public ownership allows for decommodification (discontinuing charges for the users when the margin cost is reduced to zero or near zero). Last but not least, the benefits of a state-run business can be dispersed throughout the country’s economy and society, rather than allowing to be captured for the vested interests of a few shareholders. Norwegian state-run North Sea oil and gas development is an excellent example, acclaimed around the world, for doing it.
The frequently heard argument against the public sector is its apparent inefficiency, but this is vastly exaggerated. Private companies are not necessarily more efficient in the long-term than state-owned businesses. A 2014 report that covered many industries and services in a number of countries makes the same conclusion. It all depends on good practice and management, and examples of those can be found in the state sector, as well as the private sector (Hall, 2014). State-run enterprises may sometimes be remote and not listen to local people, but this can be remedied by mandatory transparency, consultations and public debate. There is also a fear of over-centralisation, but we shouldn’t throw the baby out with the bathwater. Over-centralisation may indeed be bad, but centralisation may sometimes be necessary or the best choice. Large projects that cut across the boundaries of local areas may require central planning coordination and on national and even transnational levels.
There are a number of variations within this sector: producer cooperatives (Wilkinson & Pickett, 2009, 245-7), employee-ownership (ibid. 248-54), consumer co-operatives (popular in Canada and Japan) and mutuals. For the sake of simplicity, they will all be referred to here as co-ops. What is the main difference between a co-op and a corporation? Well, the former is based on the stakeholder business model and the latter on the shareholder model. They are both privately owned, but one is owned by those who have a stake in the business and the other by those who don’t (beyond the value of their shares), which is an additional, essentially parasitic, layer. There are many examples of long-lasting and successful co-ops such as Scott Bader Commonwealth Ltd. and, probably the most famous, the Mondragon cooperatives in the Basque country. The Crédit Agricole Group in France is the world’s biggest co-op, with annual revenue of over $103 billion. Japan has around 22 million members (approximately one in six people) in about 600 consumer co-ops (Simms, 2013, p.330). The US is catching up. The Democracy Collaborative, which is dedicated to catalysing transformative actions to build a more democratic economy, has launched the 50×50 initiative: 50 million employee-owners by 2050. Some good existing examples are the Ohio cooperative Solar, Equal Exchange in Massachusetts, and Isthmus Engineering in Wisconsin. In Europe, co-operatives employ about 4.5 million people and are attracting a growing number of social entrepreneurs.
The idea of co-ops is very appealing as they have many advantages. They are far more democratic (most operate on the ‘one member, one vote’ principle, which will be discussed below) and are better than the traditional private sector at both creating and retaining jobs. They are not guided by the maximisation of profit over everything else. Co-ops have loyalty to the community where they are based and are more conducive to a sustainable and environmentally friendly economy (as the Federation of Energy Co-operatives of Europe demonstrates). According to neurological research, social cooperation is also intrinsically rewarding (Simms, 2013, p.331). Nevertheless, co-ops represent a relatively small proportion of the global economy. They were first formalised as legal entities in 18th-century Europe and North America, predating modern corporations by about 100 years (Dietz & O’Neill, 2013, p.150). So, they have been around for a long time and haven’t taken the world by storm. Why? Efficiency is not an issue – research has concluded that worker cooperatives are more productive than conventional businesses, with staff working “better and smarter” and production organised more efficiently (Perotin, 2015). However, there are some other challenges unique to this mode of running business:
- Size: there are large co-ops – in the UK, Co-operative Group’s annual revenue is around £9.5 billion, and John Lewis Partnership is one of the largest retail and food chains. Crédit Agricole, along with Zen-Noh in Japan and the REWE Group in Germany are bigger still – much bigger, in fact. Overall, though, these are exceptions rather than the norm. The ability to operate on large scales is still a formidable challenge for co-ops. Some argue that cooperatives can’t extend their benefits to larger audiences because of their focus on democratic participation and the involvement of all individuals in the proceedings of the organisation. In other words, the famous co-operative tagline of ‘one member, one vote’ might seem to be a barrier to the expansion of co-ops.
- Investment: investors are less likely to make large investments in a co-op because the perceived risk is greater as they have less control over their investment. On the other hand, relying only on small investors who would each invest roughly the same can be limiting. This issue is resolved in the private sector by shares, but shares (as they are usually conceived) are antithetical to co-ops. A co-op ceases to be a co-op if it can be controlled by outside investors.
- Equity capital: As co-operatives normally do not have access to equity capital (money put in by shareholders), they cannot get hold of capital and grow quickly. Private companies can grow faster because they float their own shares on the market. Equity is also valuable for businesses because it does not show up on balance sheets as a liability (the argument being that shareholders would ultimately forfeit their whole investment if things go wrong).
- Managing: democratic decision making seems good but has some well-known challenges. One is that major decisions are often made by unqualified and/or inexperienced individuals; the Co-op Bank in the UK almost collapsed, in part, because of such mismanagement. Another issue is that much time can be spent on discussions, substantially slowing down the decision-making process. For example, in a conversation with a taxi driver in a European city, it transpired that he moved from a co-operative taxi company to a private one because he was fed up with politicking and endless meetings in his previous company. He just wanted to drive, and even if his earnings were no better, he was more content in the new company. Oscar Wilde, in his own witty way, made a similar point: “The problem with socialism is that it takes up too many evenings”.
- Demutualisation: stakeholders can get tempting windfalls if they turn into shareholders. With deregulation in the 1980s, many mutuals, such as building societies in the UK and insurance mutuals in the US, were demutualised – that is, they became public limited companies (PLCs). Particularly successful co-ops and mutuals were regarded as an unexploited goldmine, so various strategies and loopholes were used to persuade existing members and entice new members (so-called ‘carpetbaggers’) to tip the balance in favour of demutualisation. Following some changes to the rules, this trend ended around 2000, but by that time most major building societies, savings and loan associations and insurance mutuals had already been demutualised.
- Imbalance between collectivism and individualism: as suggested in the title of this part, we believe that we need a better balance between these two rather than shunning individualism and the benefits it can bring. Failing to stimulate and reward the motivation, creativity and innovation associated with special individuals who want to excel can be disadvantageous for a co-op.
Co-ops should play a much greater role in the future economy than is currently the case. But to do so, they also need to evolve and claim the wide no-man’s-land that exists between them and the private sector. Here are suggestions that are designed to enable them to do so by addressing the above challenges (in the same order):
- One way of dealing with the challenge of size is to form co-op groups, consisting of many autonomous units. This is already the case in some of the examples discussed, but it cannot be the answer for all of them. A delegative system (which some co-ops implement) would not work in large co-ops as most members would not know the potential delegates well enough to make a meaningful choice. For this reason, we suggest a policy system, in which members vote for policies rather than for individuals. It may also be helpful to be more flexible with the ‘one-member, one-vote’ principle and be open to a spectrum of alternative possibilities.
- If we put aside ideology, the ‘one-member, one-vote’ principle may not always be the best option, so why should co-op members be shackled with it? It does not seem right that, for example, somebody who works one day a week should have the same voting entitlement as somebody who works six days a week. Would it not be fairer that the latter has six votes, as they have a greater stake in the co-op? A co-op would still be a co-op even if it is based on voting power that is proportional to the contribution. By the same token, would it not be fairer that somebody who invests more has greater voting power? This might seem common sense, but the real difficulty is how to compare a monetary investment with an investment of labour. One way to do so would be to divide the total gain (not just the profit) by the number of workers and take this as the value of their labour. However, this may not work in all cases (in particular with start-up companies), so stakeholders should be given the freedom to decide. They can reject an offer of an investment or they can negotiate how much voting power an investor should have relative to their voting power, with the caveat that the investor can never have a majority vote. This could provide sufficient flexibility without abandoning the essence of the co-op. It could also encourage large-scale investment, and everybody would still get their fair (proportional) share. Those who invest more capital may have proportionally greater capital gains, but this is moderated by those who invest more of their labour. How about risk? Should those who invest more capital be given extra reward for taking more risk (which is the main justification for shareholder gains)? It can be argued that those who invest their time, skills and energy also take a risk, so no special provisions should be made for those who invest capital (beyond the aforementioned proportionality). Does this model itself involve some risk? Possibly. We can never underestimate the power and seduction of corruption. However, these suggestions would make co-ops more competitive in relation to private corporations and draw more of the workforce into co-ops. This, in turn, would make the workforce more valued in the private sector too, creating a virtuous circle. Without making some changes along these lines, co-ops are likely to remain an underdog on the economic margins.
- In regard to capital, one possible answer would be to get the capital from the members themselves. Canada’s largest co-operative financial group, Desjardins, used this method to raise around £800m in less than two years from the members of its federated savings banks. These ‘capital shares’ can be traded between all Desjardins’ members on an internal secondary market. In the UK, the Phone Co-op has raised £4 million in capital from its 11,000+ members. These shares are withdrawable under specific rules, but cannot simply be sold to anyone who is not a stakeholder. The other option is socially responsible investment (by individuals and by institutional investors such as charities and pension funds). Currently, most ethical investment goes into PLCs. Co-ops are clearly missing out. Tapping into that potential would benefit growing businesses in the sector.
- Regarding the management issue, a fact experienced by the taxi driver we met earlier, not to mention the British Co-operative Bank, is that doing business and running a business are not the same thing. Workers would not expect a manager to operate machinery they are not trained to use. The reverse also applies. Just as with machinery, managing a business is a complex process that requires skills, knowledge and experience. Large co-ops especially would gain from trained and experienced managers, as they do from trained workers who operate machinery or drive vehicles. This does not have to lead to the dreaded managerialism. With private companies, managers are accountable to shareholders; in co-ops, they are accountable to stakeholders. Co-operatives can have professional managers and still be democratic (e.g. the members can vote out a manager who is underperforming). Major decisions should be approved by the members, but we suggest that a rejection of a proposal has to be coupled with an alternative. For example, if the management proposes a cut in salaries in hard times, and the employees reject that, they need to come up with another way of saving money.
- The fact that a company is owned by its workers (or consumers) is not a guarantee that it will always do what is best for the larger community, the environment or even for the company itself. There are many examples of those who have benefited most from mutuals and co-ops turning them into PLCs for short-term, selfish gains, thereby forfeiting an opportunity for the next generation to benefit too. Thus, some regulations are necessary in this sector too. In fact, they are already in place in some cases: worker-owned firms are mandated – either by law or corporate by-laws (which make up the co-op’s constitution) – to reserve a portion of their assets for longer-term preservation of the co-op model. Even if the owners close or leave the business, these indivisible assets are recycled back into future co-op generations or co-op support organisations. In many places though, the regulatory environment for co-operatives, community-owned and social enterprises can be improved by providing more consistent, joined-up and smarter regulation through organisations such as a Community Interest Companies (CIC) Regulator.
- Creativity and innovation need to be stimulated and rewarded. Let’s say that somebody comes up with a resourceful idea that brings in extra revenue. Should they be rewarded for their ingenuity, without which these gains would not have occurred, even though no extra investment in terms of capital or labour is involved? We suggest that they should, again proportionally to the increase in output or revenue resulting from the creative idea. It is not easy to create a good measure with which to compare such diverse categories of investment, but it is not impossible. It should be left to the stakeholders to make decisions in this respect, but contributing with one’s creativity and ideas must be adequately rewarded to avoid co-ops losing talent to the private sector.
One may ask, “what does this have to do with the impending crisis and the decline of capitalism?” Ask the Greeks. They went through an unprecedented post-crisis period. When the state collapsed in all but name, the market came up short and the managerial class literally fled, leaving workers to attempt to fill in the gaps. Some people who have been failed by capitalism now reject capitalism itself as a failure and have shown that they can be successful without it. The Viome factory, taken over by workers to avoid an imminent closure, is an example and proof that, in the words of one of its workers, “an alternative economy is feasible”.
~ What we can do now ~
- Get involved. Join theInternational Co-operative Alliance (ICA). ICA has launched a commission to encourage innovative ideas. If you are in the US, the United States Federation of Worker Cooperatives (USFWC) helps incubate new co-ops and promotes policies that foster grassroots worker-ownership through advocacy and training programmes. In Europe, the European Commission provides extensive information and support for the ‘social economy’ (co-operatives, mutual societies, non-profit associations, foundations and social enterprises). Co-operatives UK provides advice on how to start a co-op, while Puerto Rico has incorporated the co-op model into its educational system – something that could be potentially copied in other countries.
- Start a new co-op, along the lines suggested above. There is already support and help in some places for those who would like to start an enterprise within their local community, especially where there is a degree of economic disadvantage. For example, Biz Fizz was developed in the UK by the New Economics Foundation and the Civic Trust to provide coaching and fund-raising ideas for start-ups, entrepreneurs and local communities. If you need help with finances, you can join the UK Sustainable Investment and Finance Association. Also in the UK, Responsible Finance represents and supports providers of fair and affordable finance, supporting local jobs, families and economies. Many other countries have similar organisations, and if yours doesn’t, the ones mentioned here may be able to offer advice.
- If you are already a member or otherwise involved in a co-op, start discussions about their future evolution.
- Invest in employee-owned companies. Companies with some degree of broad-based employee ownership tend to perform better than comparable firms, with higher workplace satisfaction, productivity and morale, lower turnover, and somewhat higher profits. The National Center for Employee Ownership in the US has created the brokerage platform Motif, which allows investors to focus on businesses with shared ownership and high engagement workplace culture.
- Lobby your local authority to prioritise worker-owned co-op businesses when contracting for services and supplies. This can make the difference between a community being able to circulate financial capital within the community and money going out to large corporations. In 2019, the Californian city of Berkeley approved such a move, so your town may be able to do the same.
Partnership between all the sectors mentioned can be also productive. Private–public partnerships (PPPs) are already quite common. Unfortunately, this concept is too often used as a euphemism for outsourcing pubic services to the private sector, effectively achieving privatisation through the back door. To be really useful, such a partnership needs to take a different direction: Private enterprises team up with the state (that can, for instance, reduce taxes or secure necessary infrastructure) with an explicit aim to produce socially beneficial outcomes. In Germany, for example, public interest companies do not pay income tax, creating an additional incentive for social enterprise (Dietz & O’Neill, 2013, p.150). Encouraging a partnership between the corporate sector and communities can also be beneficial. An example of this is Swedish economist Rudolf Meidner’s share levy initiative (Wall, 2015, p.148). The initiative recommends that companies should every year issue new shares (as a proportion of their profit) to the workforce and local communities, effectively making stakeholder shareholders.
~ What we can do now ~
We can be creative. The only limit is our imagination. Use some of the above suggestions or come up with your own idea, and get in touch with local authorities, businesses, organisations and communities to promote partnership between them.
 Commons is a term used for such a shared resource, usually but not necessarily applied to land.
 An important difference between the UK Co-operative Group and John Lewis Partnership is that the former has 8 million members, but they are mostly shoppers/consumers, while the latter is a partnership owned by those who work for it. In the strictest sense though, John Lewis Partnership is ‘not a co-operative but is very close’ (for more details see here).
 There were other factors that contributed to its demise, as suggested by an independent report: however, it is not far-fetched to say that mismanagement (which is, of course, not unique to cooperative banks) was the most significant, as it underlay some of these factors. The remaining ones, such as the economic downturn, were shared with other banks of which most did not end in the same situation.
 Co-ops sometimes behave not better than corporate businesses. For example, BBC research suggests that the Arla Foods co-operative, which is one of the largest dairy companies in the UK, pays farmers less per pint of milk than supermarkets do.
 Assets that can never be divided among members. They are created by allocating a set percentage of annual surpluses to the indivisible reserve. Think of it as a piggy-bank that no individual stakeholder can take money out of.