Excerpted from Kevin Carson:

* BARRIERS TO COOPERATIVE INNOVATION

“Cooperative enterprise in the United States do not have a history of, for lack of a better word, cooperating. Cooperative businesses have for a long time worked together through their national associations to seek changes in public policy, and pool resources for capital investment endeavors. However, true coordinated, cooperative endeavors are somewhat foreign to the various sectors of US cooperatives.

One of the simplest policy innovations that would allow cooperatives to compete more effectively in a market economy is a removal of subsidies and tax incentives which privileges corporate energy models to the detriments of cooperative energy models.

Another barrier is the imposition of artificial capital outlay costs and overhead costs on production, in order to protect large, bureaucratic corporate dinosaurs from competition by small, networked, low-overhead producers.

Anything which artificially increases the initial capital outlay for entering the market, or increasing the ongoing cost of production, also increases the size of the minimum revenue stream required to service those costs at all times. The effect is to mandate large-batch production to fully utilize capacity and amortize costs, which in turn requires the social power to organize a guaranteed market for one’s full output. In other words, “get big or get out”—or rather, start out big or don’t start at all.

A wide variety of government-enforced artificial scarcities and artificial property rights have this effect. “Intellectual property” law, as we already saw above in connection with Tom Peters, is the reason the price of manufactured goods consists mainly of embedded rents rather than actual production costs. Patents serve as a restraint on the competing design and production of modular, open-source spare parts and accessories for proprietary platforms. “Intellectual property” is also the central structural support for the Nike “outsource everything” model of production, in which corporate headquarters contract out actual production to independent shops but retain control over them through ownership of IP, branding and marketing.

The same is true of “health” and “safety” regulations and business licensing which mandate unnecessary capital outlays, and zoning laws which prohibit mixed-use neighborhoods and criminalize operating a business out of one’s own house. The cumulative effect of such legislation is to prohibit the home-based microenterprise, using spare capacity of ordinary household capital goods which most people already own. For example, consider a household micro-bakery using an ordinary kitchen oven. Local “health” and “safety” codes may require it to purchase an industrial-sized oven, dishwasher, and refrigerator. Worse yet, local zoning laws may require the rental of stand-alone commercial real estate. The home-based micro-bakery, using ordinary household capital goods, has virtually no overhead cost and consequently can ride out long periods of slow business at no cost. The bakery organized in compliance with the regulations, on the other hand, has large rent payments and payments on the loans required to purchase the equipment; a period of slow business, consequently, means Chapter Eleven.

Yet another barrier to effective competition from cooperatives and the rest of the counter-economy is the contamination of cooperatives and non-profits by corporate organizational culture.

The large corporation and centralized government agency do not exist just as discrete individual organizations. Beyond a certain level of proliferation, such large organizations crystalize into an interlocking and mutually supporting system. Even the small and medium-sized firm, the cooperative, the non-profit, must function within an overall structure defined by large organizations. As Paul Goodman put it,

A system destroys its competitors by pre-empting the means and channels, and then proves that it is the only conceivable mode of operating.(17)

…[T]he genius of our centralized bureaucracies has been, as they interlock, to form a mutually accrediting establishment of decision-makers, with common interests and a common style that nullify the diversity of pluralism.(18)

The interlocking network of giant organizations includes not only the oligopoly corporation and government agency, but as Goodman pointed out, the large institutional non-profit: large universities, think tanks, and charities like the Red Cross and United Way. Goodman’s typology of organizations “cuts across the usual division of profit and non-profit,” as shown by the prevalence in the latter of “status salaries and expense accounts…, [and] excessive administration and overhead….”(19) Indeed, Goodman defines the typical culture of the large organization largely in terms of those qualities, which stem largely from the nature of hierarchy, with work being divorced from responsibility, power or intrinsic motivation (as suggested by the contrasting spontaneous and frugal style of bottom-up organizations):

To sum up: What swell the costs in enterprises carried on in the interlocking centralized systems of society, whether commercial, official, or non-profit institutional, are all the factors of organization, procedure, and motivation that are not directly determined to the function and the desire to perform it. Their patents and rents, fixed prices, union scales, featherbedding, fringe benefits, status salaries, expense accounts, proliferating administration, paper work, permanent overhead, public relations and promotions, waste of time and skill by departmentalizing task-roles, bureaucratic thinking that is penny-wise pound-foolish, inflexible procedure and tight scheduling that exaggerate congingencies and overtime.

But when enterprises can be carried on autonomously by professionals, artists, and workmen intrinsically committed to the job, there are economies all along the line. People make do on means. They spend on value, not convention. They flexibly improvise procedures as opportunity presents and they step in in emergencies. They do not watch the clock. The available skills of each person are put to use. They eschew status and in a pinch accept subsistence wages. Administration and overhead are ad hoc. The task is likely to be seen in its essence rather than abstractly.(20)

Goodman, taking the example of Columbia University, estimated the cost per capita if students hired instructors directly and paid market rents on the buildings, and found that actual tuition charges were “four times as much as is needed to directly pay the teachers and the rent! This seems to be an extraordinary mark-up for administration and overhead.”(21)

Far from the system of “countervailing power” hypothesized by Galbraith, the large for-profit corporation, large government agency, and large non-profit in fact cluster together into coalitions: “the industrial-military complex, the alliance of promoters, contractors, and government in Urban Renewal; the alliance of universities, corporations, and government in research and development. This is the great domain of cost-plus.”(22)

We seem to put an inordinate expense into maintaining the structure. Everywhere one turns… there seems to be a markup of 300 and 400 per cent, to do anything or make anything. …(23)

The ideal arrangement for the cooperative sector is to continue along the federated model to set out those aforementioned principles, objectives and ends, and then to set the federated members loose to stigmergically organize, innovate, and share the newly created knowledge.

Lastly, when we ponder the cooperative model as David taking on Goliath (the corporate-state industrial complex) we must remember we have the biggest rock available with which to toss at Goliath’s forehead: the cooperative membership. Cooperatives are estimated to serve roughly 350 millions memberships(24) in the United States alone. These members can be engaged to not only raise capital for cooperative expansion, but to free the opportunity structures blocked by Goliath – let me give you but one example of how Goliath is trying to pin David.

I am sure folks who know anything about cooperatives think they procure all their financing through credit unions (cooperative banks). Too bad they’re mostly wrong. Federal and state regulations limit the capacity with which credit unions are allowed to provide loans for businesses such as cooperatives, leaving the megabanks as the only viable option for loans needed by cooperative businesses. This then hinders daily interaction amongst cooperatives and encourages them to keep doing business with the corporate crooks so many of us loath. In this sense, regulation hurts our capacity to create this robust parallel cooperative economy, and shifts resources to the corporate sector.

But we have more resources than the corporate business sector: we have the people. We have tens to hundreds of millions of folks who are part of the cooperative movement. Taken as a whole, cooperative business member-owners have immense capacity to pool their resources for critical investments. Grocery store cooperatives have been innovating mechanisms to raise capital from their member-owners through member loans programs, bypassing the banks. Why can’t cooperatives mimic this model further, and source the servicing for the loans through their credit unions who are more adept at managing complex financial schemes, thereby alleviating the burden of non-financial cooperatives? If cooperatives were to work together to shape what the rules should be, across sectors, we get cooperatives to think in terms of self-governance to create interdependency, build a true parallel economy, and isolate the cooperative business from the cut-throat, subsidy seeking world of the corporation.”