[Nunt]

What obstacles are these? A lot of people get partially compensated with shares of the companies they work for. I am one of them.

I certainly wouldn't want to be required to "buy in" to my company (over what time period?). I could take a part my salary and use it to buy extra shares on the open market if I wanted to, but I just don't find that advantageous. I prefer to do the opposite: sell the shares that I do receive as soon as I am allowed to, and invest the proceeds in a more diversified portfolio. The idea of forcing me to invest in the company, for my own good, is ridiculous.

In my case, it would take a few million dollars to buy an equal per-employee share. Not interested.

That is my feeling as well. There are no rules against creating an employee owned firm. Such cooperatives do exist today, but they are not very numerous. The reason why people prefer an employment contract rather than owning an employee firm are the ones you state in your post. Its risky and its expensive.

I don't want to own an equal share of the firm I work for. If the firm goes bankrupt I lose my job and my savings.

[Eran]

The collective model that I and others have described would also provide that, without the exploitative practice of employment. In other words, that is not a benefit exclusive to the wage employment model.

There is nothing inherently exploitative about wage employment. Earlier in this thread I accepted the concept of "wage slavery", the topic of the thread, as one that sometimes (but certainly not as a rule) accompanies wage relationships.

As I and many other people can attest, one can be employed as an ordinary, wage-receiving employee without being treated as, or feeling like, a "wage slave". In fact, I would argue that in most cases, from the employer's own interests (specifically the interests of the owners, rather than of the managers), treating people as "wage slaves" is counterproductive.

Even if the machinery only needs twenty people to operate, they may opt to bring in 40 working members simply to halve the amount of money each individual would need to pony up.

This is very worrying. What you are essentially describing is precisely the kind of inefficiency that might make your co-op lose out in a free market competition.

The extra 20 people are wasting their time hanging around the factory just because you need their savings for your start-up capital. This is clearly a waste of human resources. That is why, centuries ago, we developed the institution of passive investors.

In your system, start-up equity capital (as opposed to bank loans, for example) and labour have to come from the same source. While this is sometimes possible, it is easy to envision situations in which such fortunate co-incidence is difficult to arrange. By allowing passive investors, we can get start-up equity from one source, and labour from another.

[SolarCross]

I think a subtle misunderstanding of coops has emerged in this discussion particularly by nunt and lucky. coops are most usually organised where 100% of the business's capital is owned by the coop's corporate name. Members don't have equity shares they just have democratic control over how the coop uses its capital and pays out its profits. If members (or anyone else) contributes capital they do so by lending money for interest rather than buying equity share. At least that is how coops operate typically. Any questions?

[Eran]

Yes.

If I understand correctly, the coop model works well when the primary mode of raising capital is through debt.

My concern with a coop-dominated economy as that I believe our current economy is already making excessive use of debt-capital as opposed to equity-capital. It is easy to see how governments discriminate in favour of the former (e.g. through tax laws which allow deduction of interest cost, but not of dividend payments). The instability of the banking system can also be associated with the excessive reliance on debt-capital over equity-capital.

Is there an alternative mechanism for effectively raising equity-capital in the coop model? Or are proponents of the model not concerned about the allocation of capital between debt and equity? Is there ever room for passive (non-employee) equity-holders? Could a coop legitimately accept an active oversight by the lending institution?

[SolarCross]

Yes.

If I understand correctly, the coop model works well when the primary mode of raising capital is through debt.

My concern with a coop-dominated economy as that I believe our current economy is already making excessive use of debt-capital as opposed to equity-capital. It is easy to see how governments discriminate in favour of the former (e.g. through tax laws which allow deduction of interest cost, but not of dividend payments). The instability of the banking system can also be associated with the excessive reliance on debt-capital over equity-capital.

Is there an alternative mechanism for effectively raising equity-capital in the coop model? Or are proponents of the model not concerned about the allocation of capital between debt and equity? Is there ever room for passive (non-employee) equity-holders? Could a coop legitimately accept an active oversight by the lending institution?

I think the problems with the banking system is not so much that they tend to lend for profit rather than buy shares for profit but more from monkeying around with the money supply, scamming the stock market, conjuring fake paper assets into existence and an assortment of other frauds.

But I suppose there could be other ways of financing a coop rather than borrowing. The main idea with a coop is democratic control by the workers so it follows that providing that the share of ownership which doesn't reside with the coop but externally in a passive investor doesn't compromise the democracy of the coop then that might ok.

Perhaps a coop could be financed something like a plc with publicly traded equity shares but with a corporate constitution that requires that management of the coop be done in some democratic fashion; for instance company officers are elected by the workers.

[Eran]

Non-voting shares are certainly an existing and functioning institution. One can easily envision a startup raising equity capital through issuing non-voting shares, with non-transferable voting shares equally held by employees.

In general, owners of non-voting shares have historically been concerned about "abuse" by voting share-holders. That concern limited appetite to investment in non-voting shares to specific circumstances in which it made sense (typically to get around regulatory issues associated with ownership of voting shares).

Having said that, I can see a pragmatic approach that balances employee desire to control the firm they work for, with the need to raise capital and consequently offer attractive terms to outside parties who wish to invest.

[SolarCross]

Abuse - yes I can see a potential problem with a company / coop having non-voting equity shares for capital and member votes for company management. Profit is just whatever income hasn't been eaten away by costs. The workers would however have control over the cost of their labour and could set their cost of labour to whatever it took to erase the profit and thereby deprive the passive investor of any return, worse doing so would decrease the value of the shares in the market effectively robbing the investor of his capital too. There probably is some way to structure worker pay such that they would have an incentive not to inflate their pay at the expense of profit, but it might be complicated. I suppose workers could have non-tradable labour shares that are in some way pegged to the returns of equity shares so that workers have an incentive to share their profit with their passive investors. I think the implementation could get rather complicated though which perhaps why no one has tried to do it that way.

Investing by lending to coops is much simpler if maybe a little boring and predictable for speculative types.

[Nunt]

I think a subtle misunderstanding of coops has emerged in this discussion particularly by nunt and lucky. coops are most usually organised where the 100% of the business's capital is owned by the coop's corporate name. Members don't have equity shares they just have democratic control over how the coop uses its capital and pays out its profits. If members (or anyone else) contributes capital they do so by lending money for interest rather than buying equity share. At least that is how coops operate typically. Any questions?

It doesn't really matter for my arguement whether members invest in the coop by lending or by equity. Both are risky and expensive. Workers typically don't want to put their savings in the stocks of one firm, nor do they want to lend money to one firm. If the firm goes bankrupt, your savings are gone and it doesn't matter whether you are a shareholder or moneylender to the firm. The same arguement holds for fronting up the money.

[SolarCross]

nunt

Yes but a coop doesn't have to borrow exclusively from its members it can also borrow from a bank. In the UK there is bank which itself is a coop that lends money to coops (mainly) there is another one I know of in europe called Triodos or something, probably there are others I don't know about. The UK's coop bank is doing rather well actually at the moment for while all the other banks were busy getting tangled up in risky bets, fraud and money laundering the coop bank stayed aloof.

[lucky]

I think a subtle misunderstanding of coops has emerged in this discussion particularly by nunt and lucky. coops are most usually organised where the 100% of the business's capital is owned by the coop's corporate name. Members don't have equity shares

You are talking about a different model than Someone5 was talking about, then. I was specifically responding to his ideas.

[SolarCross]

You are talking about a different model than Someone5 was talking about, then. I was specifically responding to his ideas.

Yeah I think you're right someone5 was the origin of that mistake. I wasn't being accusatory just offering a correction; a lot of people don't really understand how coops work.

[lucky]

Yeah I think you're right someone5 was the origin of that mistake. I wasn't being accusatory just offering a correction; a lot of people don't really understand how coops work.

I don't think it was a "mistake". He was proposing a radical change to how most people do business, not reflecting on the current state of affairs.

Nobody really makes an issue of how existing non-profit cooperatives operate, nobody wants to ban them. Few people think that mode of operation is best for most human affairs, and that's not what Someone5 was proposing. That would be an even more radical proposal. They work well for things like charities or social organizations, when the goal is to do something other than sell stuff that you produce to any buyer.

[Someone5]

Edited Together

[Someone5]

There is nothing inherently exploitative about wage employment.

Yes, there is. It is an explicit rental of labor--it is nothing but an agreement to do whatever your part-time master wishes in exchange for cash. There is no other adequate description for the wage employment model. It is fundamentally exploitative--even if the wage is "fair" relative to the going market rate. Even if the pay is generous, it is exploitative. Even if the master is kind, it is still an exploitative model.

As I and many other people can attest, one can be employed as an ordinary, wage-receiving employee without being treated as, or feeling like, a "wage slave". In fact, I would argue that in most cases, from the employer's own interests (specifically the interests of the owners, rather than of the managers), treating people as "wage slaves" is counterproductive.

Funny, the vast majority of the human race works under wage slave conditions. Obviously the business world disagrees with you. Even if you somehow accept that people in the US and Europe don't normally work that way (which is itself a questionable claim--have you seen how poor workers are treated in southern states and poorer regions of the EU?), that comprises only a very small portion of the global workforce.

This is very worrying. What you are essentially describing is precisely the kind of inefficiency that might make your co-op lose out in a free market competition.

How so? They aren't paying fixed wages, remember. Their prices would not need to be any higher. Their labor costs aren't directly related to the size of the workforce. A collective can add more people without paying any extra for doing so--they simply take a smaller distribution for it. That might be a trade-off that a high-capital collective would be willing to make under this model. They might be willing to take half pay in order to actually be able to afford to start the collective.

Yes, hiring more people than required would be bad for a privately held corporation. It wouldn't really mean very much for a collective under this model, assuming that the workers were willing to accept the reduced distribution (which is implied by the cooperative's decision to expand the workforce in the first place).

I would also be careful about slinging around the term "inefficient", since efficiency depends very much on what you're trying to do. If your goal is maximization of profit, then yes, this probably is an inefficient model. If your goal is maximization of workplace happiness, perhaps not. It's entirely possible that people would consider it an acceptable trade-off to take smaller distributions in exchange for actually being able to do their job.

But again, these sorts of decisions would be something for the collective to make, not any outside planner. I am not saying that all collectives under this model would hire more people than required--they would hire as many people as they found acceptable. They would choose for themselves which balance of individual capital requirement and prospective profit distribution they were willing to live with. It wouldn't be chosen for them by outside management or investors. You asked how a high-capital cooperative might organized and finance itself, and I provided one example of a solution that such a cooperative might use under my proposed model. They might bring more people on board. Alternately, they might be willing to just pay more up front. Or maybe they're able to get more favorable borrowing terms and can have their cake and eat it too. That's something the collective would decide for themselves. For that matter, they might have some other solution to the problem--maybe they can find ways to cut capital costs further, thereby providing yet another solution to the dilemma.

I would also add that is also quite possible that such collectives would simply arrive at different decisions regarding optimal organizational size and structure. It is entirely possible that they would opt for a more distributed method of production that reduces initial capital cost, or changes their intended scope to produce less (but at a greater individual profit). Alternative models would not be drop-in replacements for existing models. Our industrial organizations are structured according to their models, after all, and a different model would quite probably result in different forms of organization.

The extra 20 people are wasting their time hanging around the factory just because you need their savings for your start-up capital. This is clearly a waste of human resources. That is why, centuries ago, we developed the institution of passive investors.

Or the put them to work doing something else, like reducing the length of shifts, or providing daycare services, or simply entertaining the workforce, or tending the factory bar "after hours", or whatever. For a collective this sort of thing might make sense--because their goal isn't to maximize someone else's profit, it's to maximize their own enjoyment of work. I mean, 1/40th of 20 million is better than 1/20th of 0 dollars--if more people are required to capitalize, then hiring them and letting them do something else makes more sense than abandoning the project or selling yourself into part-time servitude.

For that matter, it might actually be an advantage since those people would have the free time and resources necessary to explore new product ideas, new production methods, perform marketing analyses, etc. It's not hard to find work for people to do. Maybe they could be involved in doing something totally unrelated to the original purpose of the collective--they could just be sharing facilities or something. There's lots of options about things a collective could do with excess labor due to capitalization requirements.

I mean, let's face it--if the collective needs to bring on more people in order to properly capitalize, then there's probably something wrong with the original idea.

In your system, start-up equity capital (as opposed to bank loans, for example) and labour have to come from the same source. While this is sometimes possible, it is easy to envision situations in which such fortunate co-incidence is difficult to arrange.

Most businesses start up in exactly this way; the initial partners are both the labor pool and the initial investors. They may borrow money from there in order to expand (through wage employment or possibly ESOPs), but most businesses start that way. It's not really any different from a normal business started by someone who can't really afford it out of pocket. The difference lies in how they intend to expand, and how they intend to structure workplace relationships.

By allowing passive investors, we can get start-up equity from one source, and labour from another.

At the cost of a share of everyone's labor being stolen as economic rent by a parasite-investor. That's a severe inefficiency.

What obstacles are these? A lot of people get partially compensated with shares of the companies they work for. I am one of them.

ESOPs aren't quite the same thing as getting full shares; they're non-voting preferential shares generally. It really depends on the situation; a privately held LLC has a different situation than a publicly held C corporation, for example.

I certainly wouldn't want to be required to "buy in" to my company (over what time period?).

The details would, obviously, vary from collective to collective. Some would have more favorable terms than others--the terms of the agreement would no doubt be something that one collective can offer over another.

I could take a part my salary and use it to buy extra shares on the open market if I wanted to, but I just don't find that advantageous.

That isn't an option in businesses that aren't publicly traded and which do not offer ESOPs. Those are more common than publicly traded companies or companies with ESOPs.

I prefer to do the opposite: sell the shares that I do receive as soon as I am allowed to, and invest the proceeds in a more diversified portfolio. The idea of forcing me to invest in the company, for my own good, is ridiculous.

Why? It is certainly a less ridiculous "investment" (note; this isn't about investment, it is about workplace ownership and control) than buying a car.

In my case, it would take a few million dollars to buy an equal per-employee share. Not interested.

Apparently you didn't actually read the proposal.

[SolarCross]

I don't think it was a "mistake". He was proposing a radical change to how most people do business, not reflecting on the current state of affairs.

Nobody really makes an issue of how existing non-profit cooperatives operate, nobody wants to ban them. Few people think that mode of operation is best for most human affairs, and that's not what Someone5 was proposing. That would be an even more radical proposal. They work well for things like charities or social organizations, when the goal is to do something other than sell stuff that you produce to any buyer.

Um coops are businesses and do the same stuff as any other business they are just organised democratically not in the usual totalitarian way that most businesses are. Sometimes they like to call their profits 'income surpluses' but essentially they are profit seeking businesses.

[Someone5]

Um coops are businesses and do the same stuff as any other business they are just organised democratically not in the usual totalitarian way that most businesses are. Sometimes they like to call their profits 'income surpluses' but essentially they are profit seeking businesses.

To be fair, lucky is correct that I am proposing a radically different way of doing business that links capital to labor--this seems to me the most direct and obvious way to empower the working class... by removing the capitalist from the workplace. Incidentally, that happens to be a form of collective.

[SolarCross]

@someone5
Could you explicate the essential features of your model of a collective / coop in one post? And how it differs from a regular coop? I'd like to hear your ideas but it is a bit tricky for me to get a complete picture of what you propose as it is spread out over many long posts. thanks

[Someone5]

@someone5
Could you explicate the essential features of your model of a collective / coop in one post?

Yes; my model of a collective has all workers as equal joint owners who purchase their share with up-front capital investment. To join the collective, a prospective worker would need to invest an amount of capital equal to the value of the share they intend to "buy". For workers who do not have that much capital available, the collective would offer to advance that share in exchange for a garnishment of that worker's profit distribution--until the share is paid for (and perhaps with interest, depending on the collective's terms of membership). This model is advantageous because it provides a reason for a collective to add new members.

It's not really that weird an idea, and not terribly far from what some collectives have done. But it is nonetheless a model that is rarely articulated.

And how it differs from a regular coop?

In some sense it doesn't really differ from the fundamental concept--all cooperatives work on the basis of individual ownership of shares. This is just a bit more blatant and direct about it. Rather than saying that "you have to be a member in order to work here", then having one set of membership terms and another set of employment terms, the membership terms are the same as employment terms. Not that the term "employment" is entirely correct either.

This is hard to really describe specifically because there is great variety between cooperatives and how they're organized. This is very different from, say, a utility cooperative (wherein the customers are the members, and the employees are normal wage employees). What, exactly, would you consider a "normal" cooperative? As far as I know, there really isn't a standard model, rather a few sets of related models that individual cooperatives modify as their membership sees fit.

[lucky]

Um coops are businesses and do the same stuff as any other business they are just organised democratically not in the usual totalitarian way that most businesses are. Sometimes they like to call their profits 'income surpluses' but essentially they are profit seeking businesses.

There are only two possibilities, if there are profits:
1. The company eventually distributes profits to equity holders.
2. The company increases expenses in the following years, so that profits cancel out over time.

In your case, you said there are no equity holders, so 1 is impossible. Hence it must be number 2, which is called a "nonprofit".

[SolarCross]

There are only two possibilities:
1. The company eventually distributes profits to equity holders.
2. The company increases expenses next year so that the profits add up to zero over time.

In your case, you said there are no equity holders, so 1 is impossible. Hence it must be number 2, which is called a "non-profit".

In a typical coop income surpluses (profits) are either re-invested in the business or distributed to the members depending on what the voting members decide to do. The members that would get the dividend would be the workers in the case of a worker cooperative and the customers in the case of a consumer cooperative. I said that 100% of the coops assets are owned by the coops corporate name not that members couldn't divide the profits amongst themselves.