By Michelle Chen

Can good values be good business, too? For generations, the cooperative movement has been answering with a resounding “Yes!”

After a surge of entrepreneurial fervor following the 2007 economic collapse, cooperative ventures are even getting a nod from our divided government: In August, Congress passed the Main Street Employee Ownership Act. The measure aims to help launch the next crop of worker-ownership ventures by directing the Small Business Administration to take proactive steps to increase technical and financial assistance for budding worker-owned cooperatives. Although the law does not provide major new funding, advocates hope it broadens avenues for securing seed financing, and for conducting community-outreach programs through local SBA offices.

Although the law offers just a small boost to the sector, according to Melissa Hoover, executive director of the Democracy at Work Institute, “It’s a start. It’s the very first time that anyone ever said worker coops matter in federal legislation.”

Often the main barrier to launching a coop is simply lack of knowledge—worker cooperatives aren’t just a fluffy hippie social experiment, they’re viable businesses with a track record of promoting civic-minded sustainable enterprises. What worker-owned cooperatives offer is simply this: a stake for each worker in the future. Based on a structure centered on shared equity and worker autonomy, the business model, which hews to a principle of “one-member-one-vote” workplace governance, intrinsically guarantees that each worker profits in tandem with their labor. The key difference from the conventional corporate model is that workers share in the equity and direct how funds are reinvested, be it in pay raises and pensions, new hires, or investing in tech upgrades and staff training.

According to surveys of the roughly 300 to 400 cooperatives nationwide, more than a third were launched since 2000. Their trades range from craft breweries to cab companies. The median coop workforce has nine to 10 people (that’s basically the equivalent number of co-owners), and a total workforce of more than 6,800. Far from the penurious, tree-hugging stereotype, coops run on average a yearly profit margin of some 3 percent, yielding about $150,000 in profits. Compared to the precarious, low-wage jobs that are driving the fastest-growing industries, coop workers earn considerably more, about $15.80 per hour, and work just over 30 hours per week. Median tenure for employee-owners is also about 50 percent higher.

The foundation of the cooperative is an idea for a business that produces material and social good together, which in turn also does good for workers’ communities. This principle, reflecting an ethical framework known as the “solidarity economy,” is put to practice in ventures like the Queens-based eco-friendly cleaning company Pa’lante, which is cooperatively run by a group of housekeepers who merge environmental concern with labor empowerment. Or the driver-led Union Taxi coop of Denver, which also mobilizes against the expansion of exploitative ride-sharing apps.

Though worker-ownership doesn’t necessarily mesh with the traditional unionization model, the Oakland-based Design Action Collective has joined a unique cadre of unionized coops, represented by Pacific Media Guild, in order to fully embody the movement culture that the enterprise serves. On a larger scale, Cooperative Home Care Association has established a 2,000-strong presence in New York City’s home health-care sector, with a fully unionized staff of care workers, who also mobilize with labor-led campaigns for health-care funding.

The equity principle of worker-owned cooperatives could be especially crucial for communities of color, as a path toward expanding community investment and closing the abysmal racial wealth gap. A community-based cooperative can be a vital economic on-ramp for women, immigrants, and people of color historically excluded from entrepreneurship. So far, the cooperative sector is roughly 63 percent people of color, up from 59 percent in 2015.

While many coops are start-ups, conversion of conventional businesses to cooperatives can be a vital investment in marginalized communities, and also widen accessibility to credit, since start-up capital can be pooled collectively. Of the 15 new cooperatives that launched in 2016, 11 were conversions.

As struggling communities lose the mom-and-pop shops that have long been a bulwark of economic opportunity, Hoover says,“It’s really dangerous for our small-business ecosystem for [systematic sell-offs and closures, instead of conversion to coops] to happen.… What’s happening to those businesses as their owners are getting older is that they’re getting shut down or consolidated, it really changes that landscape.”

But conversions to more democratic ownership can preserve local assets, and in less-diverse economic landscapes, cooperatives can actively diversify historically white-male dominated sectors. “Who owns businesses in this country,” Hoover says, “are white men.… And who works in most businesses in this country are not white men.” When a retiring boss passes ownership onto workers, “you’re effectively making a racial wealth transfer from an aging white man to a much more diverse set of business owners.” Cleveland’s Evergreen Cooperatives, a coalition of worker-owned firms, has tried to expand its sector by launching a new Fund for Employee Ownership to finance fresh conversions of old local businesses.

When coops rescue a local family business, it could inject not just a capital infusion but an inspired redevelopment vision. Unlike your average big-box retailer, cooperatives tend to stick with their democratic ethos over the long run. Many coop enterprises actively partner with civic-minded financial institutions, like community credit unions. And while a single business won’t radically change the country’s dysfunctional social and economic policies, a network of cooperatives can foster progressive programs such as promoting workers’ healththrough providing comprehensive benefits, expanding access to affordable childcare, and cultivating more balanced schedule systems and labor-directed workplace-safety programs.

Now that the cooperative sector is entering a more complex economic horizon, it can push for more supportive public policies—like pro-cooperative labor laws that help worker-owners organize, city-based development programs like New York’s Worker Cooperative Business Development Initiative, and opening Workforce Development funding for coops.

“More and more, people who are developing coops to solve social problems are thinking at a bigger scale, and with more ambition,” Hoover says. “They’re thinking about…how do we leverage all the things that traditional businesses do, but for good?”

And since worker-owners practice and produce what they preach, the budding world of cooperatives is in a perfect position to make the change they want, and to pay it forward.

Image: Glut collective member Fiifi Andoh tends to a customer in 2015. Glut is a worker-owned cooperative store that serves the community in in Mount Rainier, Maryland. (USDA / Lance Cheung)

Originally published on The Nation, 8th March 2019: https://www.thenation.com/article/worker-cooperatives-economy-business/

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Ed Mayo: I work in the co-operative sector. Co-ops are different and much of this, as I see it, comes down to the fact that co-ops tend to be characterised by complex purpose.

We are set up primarily to meet needs, not to generate profits. Our owners have overlapping interests, as they are both investors and participants in the enterprise (such as customers or workers). We are expected to live up to seven different (internationally agreed) principles and how we do that – our culture – is shaped by a range of ethical values.

Telegraph pole outside a co-operative nursery, Seoul

A tide of simplicity

In contrast, the wider business environment within which we operate is increasingly characterised by assumptions of simple purpose: return on capital for external investors.

In most markets, the shift to simple has shaped institutions and policies, such as accounting standards or taxation, that are designed to encourage performance against that purpose. As a result, as co-ops, we are often swimming against a tide of simplicity.

How do co-ops around the world track their performance or design their reporting systems? This is the topic next week in London (neatly falling in the UK Co-operatives Fortnight with its theme of the Co-operative Difference) for an international symposium on co-operative accounting and reporting, organised by the great co-op business school, Sobey (from St Mary’s Halifax, Canada).

Accounting, set up to make clear what is true and fair, is a case study of simplicity versus complexity in business. The move to harmonise international corporate accounting standards over the last decade looks to reduce the costs of complexities at a global level of different accounting traditions – a worthwhile goal (even if somehow in the process, the complexity of delivering global standards further reinforces the dominance of the big four accountancy firms).

But the drive for accounting simplicity can cross over into an attempt to reduce diversity. From time to time, international accounting policy makers want to move member capital from an asset, co-invested in a joint endeavour, to a liability, assuming that it is a promise of money owed by the business to those who participate in it. Why? For simplicity only, as if all companies could be treated as if they were owned by investors, rather than other stakeholders. But for financial co-operatives, among others, a move like this could mean instant closure.

For and against

Simplicity in business, in terms of return on capital, has significant strengths of course, including these five:

1. Decision-making. It is easier within the business to judge trade-offs and investment opportunities.
2. Capability. There are plenty of tools to draw on, plenty of expertise to bring in.
3. Communication. Not surprisingly, simplicity is easier to communicate. Expectations are clearer, the chance for conflict reduced.
4. Comparison. With net profit, return on capital and share prices, it easier to see and to compare how a business is performing.
5. Accountability. Simpler purpose makes simpler accountability, because it is clearer what to account for – less room for people who use complexity as a source of obfuscation.

Staircase at the National Co-op Centre, Warsaw

But simplicity becomes an obstacle, when the context changes and these same strengths turn to weakness:

X Decision-making. Chasing financial results, like share price, makes companies act for the short-term rather than on long-term drivers of success.

X Capability. More subtle aspects of the business, such as culture, are less valued.

X Communication. The purpose of making someone else money is not motivating for the workforce or for customers.

X Comparison. Simple metrics can be misleading, encouraging conformity rather than diversity and learning.

X Accountability. Wider social responsibility or stakeholder concerns are sidelined, generating the potential for risk and backlash

The case for complexity is that businesses operate in complex and fast-moving environments. To succeed, they need sufficient complexity in their own feedback and learning systems to adapt and improve.

One example is innovation. The two most common sources for business innovation are workers and customers. Where you are owned by your workforce, or by your customers, as in the co-operative model, you stand a better chance of capturing those ideas and adapting in line what they offer.

A second example is loyalty. Where people identify personally and collectively with the purpose of a business, going beyond simply making money, they are likely to be more engaged and more loyal to the business, as workers, suppliers or as customers.

The third example is the challenge of sustainable development, increasingly the focus of policy concern and action. Business is challenged to act on a complex array of risks and opportunities that are hard to reduce to simple metrics.

Taking these, the case for complexity in business can perhaps be expressed in these five characteristics:

1. Realism. The context within which companies operate is complex, so matching this can lead to more realistic decisions.
2. Responsiveness. Embracing complexity encourages a culture of openness and enquiry, helpful for listening and learning.
3. Safety. Companies that look at their interactions with the world through a lens of complexity are less likely to be blindsided when risks arise.
4. Strategy. In complex models, no one aspect is weighed alone without addressing the totality, supporting companies in moving forward in an integrated way.
5. Sustainability. The challenges of sustainability are complex and companies that succeed will be those able to sense and adapt to hard-to-predict changes.

There are other, more philosophical grounds too to affirm complex purpose – as a counter to the ‘financialisation’ of life, as an expression of freedom and as a component of cultural diversity.

The search for middle ground

As I see it, the response of business policy in many jurisdictions is to mitigate the weaknesses of simplicity, by interventions that encourage and require compensating actions to restore some complexity.

In a European context, stakeholder engagement and to a degree, stakeholder accountability, is a longstanding tradition. Having workers on the boards of German companies (co-determination), a tradition with roots post-war in the co-operative model, has been good for the German economy.

The Nordic countries have led the way on gender diversity, again with the argument that company boards need mixed perspectives rather than narrow unity – just one more example of the ‘law of requisite variety’: that you have to be able to reflect the complexity of your context in order to succeed in that context over time.

In the UK, the draft new governance code from the Financial Reporting Council is an overt attempt to move listed companies towards a greater degree of complexity – encouraging a focus on long-term purpose, engagement with the workforce, values and culture.

To that extent, companies are being encouraged to be more co-operative, more complex. And these are areas in which co-ops have tended to lead – on values for example. As I point out in my book, Values: how to bring values to life in your business, values evolved as a collaborative decision-making tool in the context of complex options. Values are a short-cut way of making decisions – as one co-op procurement lead says to me, “values are our handrails.”

So, should co-ops also move the same way, adding to complexity, further complexity?

My view by and large is no. There are of course some of those opportunities, evident in the rise of more participatory tools for decision-making, and the hopeful interest in multi-stakeholder models of governance.

I would argue that if co-ops need to change, it is usually towards more simple complexity.

An example is the UK’s consumer retail co-ops. For larger and more longstanding co-ops, there can always be a degree of drift in the sheer accumulation of expectations. To succeed, a co-op needs to be clear on how it makes a difference to its members.

Lincolnshire Co-operative has been going through exactly this process, with some support from us at Co-operatives UK. Successful, with over 250,000 members, and 150 years under its belt, the Chief Executive, Ursula Lidbetter has supported a process where the Board and members develop a clear forward purpose for the society: a few words, simple to say but still rich and complex in content and intent for what makes it so different as a business.

With a clear focus on what matters, what value is for members, it is then easier to choose the metrics that can paint a picture, alongside other forms of feedback, of performance. Merthyr Valley Homes tracks a range of indicators, including spending in the local economy and weekly levels of litter. The results are open to the members: residents and staff. For one social club in Yorkshire, the lead indicator is barrels of beer sold weekly. Members tell them what else they should be doing – the benefit of a participatory co-op, but key indicators help to balance that complexity of expectation with a more simple story of performance over time.

That is something which we are helping with, through the development of guidelines for the co-operative sector in narrative reporting.

More simplicity or more complexity?

The balance between simple and complex is one many others have considered. The words of Oliver Wendell Holmes, a late nineteenth century US Supreme Court Justice, are worth the repetition: “for the simplicity that lies this side of complexity, I would not give a fig, but for the simplicity that lies on the other side of complexity, I would give my life.”

The great mathematicians and philosopher Alfred North Whitehead, said in a lecture a century ago: “we are apt to fall into the error of thinking that the facts are simple because simplicity is the goal of our quest. The guiding motto in the life of every natural philosopher should be, ‘Seek simplicity and distrust it.”

I appreciate the modern Law of Conservation of Complexity, also called Tesler’s Law, after Larry Tesler, the computer scientist who is credited with inventing cut/copy and paste. This states: Every application must have an inherent amount of irreducible complexity… The only question is who will have to deal with it.

The implication is that designers can help ensure that the simple is not over-simplistic and the complex is not over-complicated. Computers, since Tesler’s days at Xerox have become more complex in terms of technology but more simple in terms of ease of use. In turn, complex software, such as the open source Unix operating programme suite, might be designed on the basis of simple subsets, collaboratively assembled, that do a single task well.

In business, it seems that simplicity alone is of value, complexity a necessary constraint. In terms of business philosophy, simplicity sells.

Ceiling at a coop and trade union education centre, Helsingor

I argue the opposite. There is a value to complexity, and a growing value at that. And yet, the need for simplicity remains a necessary constraint.

Like a flock of birds, wheeling in the sky, complex systems can emerge from simple rules, while retaining a function, of collective intelligence, what Geoff Mulgan calls ‘the bigger mind’ – or to the observer, beauty – which can’t simply be reduced down to those rules.

For my colleagues in the co-operative sector, the moral is that we should embrace complexity – and promote our understanding on how best to organise around it.

——————-

Footnote

This is all an example perhaps of a wider challenge that goes to the heart of a generation of debates on economics. A substantive body of work looks to redefine wealth and progress beyond the simple aggregate of money flows in the economy (or Gross Domestic Product), to integrate the context of unpaid labour, well-being, economic externalities and sustainability thresholds.

What we have learned is that while a new map (such as the triple bottom line) can sometimes become part of the landscape itself, a static description is not enough. There needs to a dynamic perspective that integrates things – a theory of change.

You can, for example, have as many different forms of ‘capital’ as you like in your (satellite) national accounts, but if they don’t make it easier to build an account of what is happening across the complexity of those domains, they don’t necessarily help. Of course, the simple option, which is to use money as a common denominator simplifies may help even less if it assumes that we can buy our way out of one or another dimension of collapse in environmental functions that are critical to habitable life.

The United Nations Sustainable Development Goals gives one interpretative framework and offers an important reference point. It is good to see it used by so many co-ops and Fairtrade organisations worldwide in their planning. And yet, as a complex array, it does not resolve the challenge of displacing the dominant simplicity of economic growth.

The struggle for what Paul Ekins and Manfred Max-Neef many years ago called ‘Real-Life Economics’, reflecting the complexity of human nature and natural systems, continues…

Republished from Ed Mayo’s Blog

Photo by bdesham

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The book will be reflective of quite a few people’s thinking – a real community effort, coordinated by a strong core team.

It will be mixture of short essays, personal reflections, collective thinking and really practical guides. It’s being written to be relevant for both entrepreneurs, founders and freelancers as well leaders and cultural influencers in larger organisations.

We’re aiming for this project to share our learnings, inspire action and help grow the global movement of people putting purpose at the heart of their work – so we hope has a wide appeal.

We would love your support.

Our crowdfunding campaign is live and you can be part of the special first edition release of the book here.

You can support our campaign here and pre-order your copy of the book here – and we would love all the help we could get to share the word as well!

Thanks so much!

betterworktogether.co

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So I’ve been ending my talks with specific, actionable suggestions for how companies of all sizes and stages can become more sustainably profitable in the current environment. It amounts to a 12-step program for getting off the addiction to growth. If you need to grow in order to survive, then you’re not a real business – you’re just a brand name on debt.

Here’s the quintessence of the recommendations to be gleaned from hearing my talks, reading my book Throwing Rocks at the Google Bus, or listening to my TeamHuman podcast. Of course, if you read the book you’ll see the arguments for why these strategies will work, and how they expose the false assumptions we’ve been working under for a few centuries, now. But here are the basic principles.

1. In all decisions, optimize for the velocity of money over the accumulation of capital. How do we keep money moving instead of piling up? If you are sitting on money that can’t be deployed, you are taking too much out of the system.

2. Make them rich. Make your customers, suppliers, partners, and even your competitors rich. If you drain the value from your marketplace, your customers won’t have money to spend with you. If you squeeze your suppliers on margins, they will be looking to do business with anyone else at the first opportunity. If you make everyone who comes into contact with you wealthy, they will want to keep working with you.

3. Employ bounded investment strategies. Think of the US Steelworkers, who invested their retirement money in construction projects that also put steelworkers to work. Or their subsequent decision to invest in projects that hired them to build nursing homes for their own parents. This triple and quadruple dipping is not a conflict of interests, but the leverage that comes with bounded investing. With boundaries, you can generate the cyclone effect required to enhance the velocity of money. Don’t earn ten dollars once; earn one dollar ten times.

4. Push for a tax policy that promotes revenues instead capital gains. Shareholders are addicted to growth of share price because dividends are taxed higher. Reverse the tax code to promote flow over growth. Dividends and payroll should be tax incentivized; passive capital gains, discouraged.

5. Organize as Platform Cooperatives.  Think Uber, where the drivers own the company. Even if they’re getting replaced by autonomous vehicles, they are going to own the company for which their labor served as the R&D and machine learning.  Labor must participate in ownership of the means of production, instead of simply getting a redistribution of spoils after the fact through taxes. Coops like Winco beat shareholder companies like Walmart wherever they compete.

6. Local crowdfunding. If you run a bank or credit union, instead of giving 100k loan to a small business, give 50k contingent on their ability to raise the other 50k from the community, through advance-sale discount coupons. Customers pay $100 for $120 of pizza at the restaurant when it finishes expansion. Locals invest in their community and Main St, instead of outsourcing investment to the S&P, and draining local coffers.

7. Develop favor banks and local currencies. An economy is people with needs and people with skills. They shouldn’t be hampered for lack of a means of exchange. Local currencies and favor banks allow for the exchange of value without borrowing at interest from a central treasury. This also means local businesses in the chain can transcend the artificial growth requirement.

8. Cooperative businesses cooperate. Do everything open source, open API, and without “trade secrets.” Maintaining secrets shows you believe your company’s best innovations are in the past. Sharing secrets means you know your best innovations lie ahead, and that you benefit from everyone being smarter. It positions you as the center of competence in your field, dedicated to promoting a culture of learning and innovation.

9. Larger companies can enact economic experiments as local, limited trials. No need to turn the whole ship. Sell the ideas to the CEO or Board  as public relations stunts, then use their success to promote them throughout company. Walmart can introduce an aisle of locally produced goods; supermarkets can open parking lot to farmers market on Sundays; banks can offer local crowdfunding apps. Promote disruptive ideas as if they are just one-offs, not the radical game-changing innovations they really are.

10. Run your company like a family business. Family businesses do better in every metric than shareholder owned businesses. They make more money in the long run, have better-paid employees, more stability, less damage externalized to the community or environment, and so on. They are concerned with legacy, the family name, the relationship of their own families to communities in which they live, and the company itself as the inheritance they are bequeathing subsequent generations.

11. Develop new metrics for success other than growth. Put them down on paper. How prosperous is the community in which we are operating? How many unsolicited resumes from qualified candidates are coming in? How well are our suppliers doing? Do our frontline employees feel they are being supported by the company?

12. Your goods and services are your product – not your stock. Don’t build a company to sell it to someone else; build it to run it, yourself. Companies are not disposable. An “exit strategy” is for Ponzi schemes. The world is connected. The environment is limited. The economy is circular. There is nowhere to run.

Before emailing me for references for all this, please know that you can find everything in my book Throwing Rocks at the Google Bus: How Growth Became the Enemy of Prosperity. You can even just get it at the library, and use the index to find the answers you want.

Photo by naturalflow

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The big lesson of the twentieth century for commonards was to discover that collective decision-making is a “lesser evil,” a response to scarcity that must be limited to situations in which this is inevitable. It’s not necessary for everyone to vote on a uniform if everyone can wear what they want. It’s not necessary to agree on a menu if several different things can be cooked that will completely satisfy everyone.

That is, where one person’s decision does not drastically reduces others’ possible choices, the sphere of the decision should be personal, not collective. Collective choices, democratic methods and voting are ways of managing situations where, more or less explicitly, there is a conflict in the use of resources. They are a “last resort” imposed by scarcity. The point is to avoid, as much as possible, the homogenization that they involve.

That’s why, in a community committed to abundance, the wealth produced is measured by the extent of the personal decision-space. It’s no good to create more goods and income if that doesn’t have an impact on everyone’s option-space. It’s no good to defend individuality if resources are not created to make it possible without conflict.

To gain ground against scarcity, build abundance and therefore continuously enlarge the material base of personal decision-space is the objective of economic activity of an egalitarian community that works. We want be more efficient and more productive to be more free.

Conflicts between community and business

One of the ways that commitment manifests economically is in prioritizing the needs of the community and its members over the business. It sounds nice, and it is. It’s also difficult, but not for the reasons normally imagined. In an egalitarian community, no one will hesitate to sacrifice opportunities or savings to support members, their families and their surroundings. The problems don’t come from there. The issue is that producing is absorbent. And we tend to forget that the cooperative is a tool that serves the community, is not the objective of the community.

We all know people who needlessly dedicate more hours to work than they should. Many times, it’s a form of refuge. To allow oneself to be absorbed in work is a more or less unconscious way of not confronting insecurities about family, partner, or friends. A similar thing happens to communities as a whole. When a community doesn’t “notice” priorities other than those of business, it’s no different from each of us when we “substitute” time in those life tasks in which we feel most insecure with work hours. By doing it, we are evading part of our responsibilities to ourselves.

That’s why the cooperative “spontaneously” tends to be the central concern and enforce its logic beyond what’s advisable on things that remain instrumental. This is why almost all communities establish principles to detect, as automatically as possible, cases in which collective decision-making would prefer to be “anti-economic” and take on, with different scopes, a rationality that is different from business in favor of their members, family and surroundings. This principle acts on schedules, spaces, time dedicated to children, funds for training on topics not linked to production, and even about the choice of lines of business.

Conclusions

The magic of a community lies in its capacity to make us feel abundance through personal improvement and the enjoyment of sharing. The most everyday way is learning: feeling that we are learning new things, and that this knowledge makes us more autonomous, wiser. The most subtle is coexistence. If a community is functional and its deliberation prospers, their members will shine more and more as they overcome their fears and stand out through their contributions, wherever they are.

But the economy also contributes. The meaning of what we make is not only born of the fact that the knowledge that it incorporates is available all over the world as free software, blueprints or cultural objects. Nor is it limited to the way our products are made being radically different and the human relations that make them possible “bringing a new world.” We have to feel that our work and our contributions ensure the welfare of those we love and improve the life of our surroundings. And that won’t happen if we don’t go out into the market.

Translated by Steve Herrick from the original (in Spanish)

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In this article, FairShares Association co-founder Rory Ridley-Duff outlines the continuing case for social and economic reform to support a FairShares Model of enterprise. FairShares brand principles change the way that investment activity is understood to ensure that capital is allocated for entrepreneurial, labour and user activities as well as financial contributions.  The result is wealth and power that is shared more fairly.

Download PDF Version

Introduction

At the start of 2014, I came across new studies that acted as a powerful reminder of the need for a FairShares Model.  In this article I will describe the most striking of these, then argue that the co?operative and social enterprise movements need to concern themselves with everyone in the ‘bottom’ 80% of the population, not just those in extreme poverty.  They also need to protect the wealth embedded in our natural environment.

I recently came across a YouTube animation that portrays private wealth distribution in the US using data from a study at Harvard University[1]. This tells a completely different story to Shift Change[2], a documentary about social economy in the US and Spain.  While the Harvard study reports that top US CEOs get380 times the average worker’s pay, Shift Change reports that worker co-operatives either adopt equal pay systems or accept small wage differentials sanctioned by the worker-owners.  For example, the ratio between top and lowest paid workers in the Mondragon Co-ops – where there are 100,000 workers – averages just 5:1[3] [4].

The Harvard study claims that 90% of citizens are impoverished by private sector business practices.  The ‘bottom’ 80% owns just 7% of total wealth, while the top 20% has 93%.  Only 10% gain, and the top 1% gain disproportionately.  There is no doubt.  Hayek’s theory that economic freedom leads to a ‘trickle down’ effect is untrue.  It produces a ‘trickle up’ effect instead [5] [6].  But Shift Change shows that where co?operative business models become dominant, wealth is spread more evenly and equitably.  Member-owned businesses more often than not, are as (commercially) successful as their private sector counterparts [7] [8].  That’s where the FairShares Model comes in – it stimulates change to support growth in the social economy.

Most social enterprises focus on the poorest communities.  Whilst important, it is more urgent that we reform systems that exploit and impoverish up to 90% of working people (as well as the environment in which they live).  We need social enterprises for the bottom 90% (everyone impoverished) not just the bottom 10% (the most impoverished).  We also need a way to prevent the top 10% of earners acquiring hegemonic control over investment decisions.  If this task is beyond us, the goals of social enterprise will also be beyond us.

It is not an accident that most people are getting poorer (in both absolute and relative terms).  Studies of company law make it clear than private enterprises are not designed to share power or wealth [9].  Founders fix structures at incorporation to privilege a set of interests (i.e. entrepreneur(s) and financial investors in companies, consumers or workers in single stakeholder co-operatives). Charitable organisations are also inflexible: board and workforce members are subordinate to charitable/social objects set by the founders.

Entrepreneurship research clarifies how enterprises start.  One or more founding members – by design or accident – find opportunities to develop new markets for products and services [10]. If viable, they organise resources to support a business and build socio-technical systems to maintain management control.  Growing enterprises, however, also depend on the goodwill of the workforce, customers (service users) and institutional investors to access the human, social and financial capital needed for sustainability [11].

The key issue is that while we have developed systems for recognising the contribution of financial capital, we do not have adequate arrangements for recognising contributions of intellectual, human, social and natural capital.  To understand why, we have to review the way social norms for constituting joint-stock companies and non-share companies have developed.

There is a connection between business ideology and the arrangements in law by which entrepreneurs acquire share capital (ordinary shares).  They register as directors, then recruit employees to operationalize their ideas. New capital is issued when more financial capital is needed, but not when more intellectual, human, social or natural capital are needed.  In an unadapted CLS, employees and customers are subordinated to the interests of shareholders. They are not invited to be full members or to contribute towards decisions outside their specialist area of expertise [12]. If employees are offered share capital, voting rights are often limited or controlled by trustees who – in many cases – are under no legal obligation to vote in accordance with the wishes of their beneficiaries [13].

The intellectual property created by the workforce is acquired by the Company and controlled by executive managers and directors. In effect, majority shareholders treat intellectual, human, social and natural capital investments by others as if they were additional financial investments by themselves.  They continue to acquire rights to all the property created by the interactions between employees, customers and the natural environment.  This system of enterprise widens the wealth gap between those who own and govern the enterprise, and those who sell their labour to it, or buy goods from it.  Even in the richest countries, wealth inequalities grow wider (unless the state intervenes) [14] and the natural environment is degraded [15].

A typical response to the social problems created by privately owned economies is to create (private) charities and ‘non-profit’ companies using a Company Limited by Guarantee (CLG). This form of incorporation usually involves specifying charitable or social objects that define the purpose(s) of the enterprise. Founders reframe themselves as trustee-directors responsible for allocating resources in pursuit of social goals.

Charitable CLGs do not issue share capital so trustee-directors give up personal rights to the surplus wealth created by the enterprise. Their role (in law) is one of stewardship, ensuring that funds raised are used to further charitable (or social) objectives defined in the Articles of Association. As in a CLS, they employ staff to pursue social goals. Employees are still not (usually) legal members.  They continue to be subordinate to the trustee-directors and give up the (intellectual) property they create.

Do we have to choose between these two models? Three bodies of knowledge suggest we do not. Firstly, there is a global movement backed by the UN to increase responsible use of corporate assets [16]. Secondly, the UN’s International Year of Co-operatives highlighted the global growth of the social economy [17]. Particularly important is the way that the internet has reduced the costs associated with co-operative working.  The upsides of co-operation (intellectual exchange and collaborative decision-making) no longer come with the downsides of democracy (hefty co-ordination costs) [18]. Lastly, more enterprises identify themselves as social, deploying business models that improve human well-being through innovative trading strategies [19].

Creating non-shareholding companies enables the wealthier sections of society to address some symptoms of poverty and exclusion that private enterprises create, but it cannot address the root causes because it changes neither the ownership structure nor governance processes that creates and sustains them. Traditional private / non-profit models continue to institutionalise a division between producers and consumers on the one hand, and entrepreneurs and (social) investors on the other. For this reason, Level 1 of the FairShares Model asks important questions about representation in ownership, governance and management.

FairShares Model – Level 1

As shown above, the FairShares Model is based on an approach to social economy defined by Social Enterprise Europe.  It operates from the assumption that the exclusion of primary stakeholders from member-ownership (i.e. employees, producers, customers and service users) is a cause of contemporary poverty. At Level 2, the answer to each FairShares question suggests the set of corporate arrangements that is most favourable: entrepreneurs get Founder Shares; workforce members get Labour Shares; trading commitments are rewarded with User Shares; and financial capital creation is rewarded with Investor Shares.

FairShares Model – Level 2

This represents a new approach to valuing investments.  When there are surpluses (profits), not only do the providers of financial capital get a return, but also the contributors of other types of capital.  In a FairShares Company, half the capital gain is issued to Labour and User Shareholders as new Investor Shares,while the other half increases the value of existing Investor Shares.  In a FairShares Co-operative, surpluses can be allocated to restricted funds controlled by Labour and User member-owners, who then use their chosen approach to direct democracy to allocate surpluses to social investment projects.

None of this means that the conventional mechanism for allocating shares to external financial investors has to stop.  In a FairShares Company / Co-operative, Investor Shares can be issued to external investors if debt finance is hard to secure.  But, even with this, at least 70% of the wealth accumulated will find its way into the hands (and bank balances) of producers and consumers.  It enriches the ‘bottom’ 90% as much as the ‘top’ 10%.  And if this is not sufficient, FairShares Articles of Association (at Level 3) includes community dividends that act as an asset lock for philanthropic capital if the enterprise is dissolved.

The Articles of Association provided by the FairShares Association are not the only model rules that support FairShares brand principles [20].  But they do represent an ambitious attempt to bring together the most enduring developments in multi?stakeholder ownership, governance and management so that we change the way investments are recognised and valued [21] [22].  The FairShares Model offers a system for ensuring that capital is allocated to different types of contribution so that wealth and power can be more fairly shared.

References

The post The Case for FairShares appeared first on P2P Foundation.

From our friends at The Extraenviromentalist Podcast.

From the episode notes:

The catastrophe at Fukushima presents the opportunity to re-evaluate basic assumptions about energy and technology but the temptation to double down on business as usual becomes incredibly strong. Will our species obtain a paradigm shift in the face of an energy emergency? Could we create new models for business that regenerate ecological functions rather than destroy the planet?

In Extraenvironmentalist #66 we speak with Michael Stone and Ian MacKenzie about their new film Reactor which covers their recent trip to Japan. Is the social fallout from Fukushima a template for social change elsewhere? Then we speak with Willem Ferwerda of the Ecosystem Return Foundation about scaling up the ecosystem restoration techniques we discussed on XE #65 with John Liu. We talk about the potential for regenerating ecological functions through new models for business and investing. Can we develop a process for launching permaculture businesses around the world?

The post Podcast of the day: The Extraenviromentalist: Changing Reactions. appeared first on P2P Foundation.

Genetic testing promises to put the ability to decide about our life choices in our hands, as well as help solve crucial health problems by preventing the insurgence of diseases. But what happens when these exams are managed by private companies in a free market? Public communication and marketing have proven to be crucial battlefields on which companies companies need to engage in order to emerge. This issue of JCOM tries to shed some light on the communication and marketing practices used by private companies that sell direct-to-consumer genetic testing, from single genetic mutations to whole genome sequencing.

As Levina and Quinn point out, “these companies radically expand the definition of a patient by claiming all consumers are simply pre-symptomatic patients. Moreover, by placing genomic data on both the marketplace and cyberspace, personal genomic companies seek to create new avenues of research that alter how we define (and access) research agendas and human subjects.”

In her article on the deeper relationship between genomics and communication, Jenny Reardon argues that “the communication problem these companies face runs much deeper. It is a problem that lies at the heart of any genomics: the very understanding of communication and information around which genomics is built. While the value of genomic information for persons has been widely questioned, questions about the very notion of information that undergirds the production of genomic information rarely, if ever, has been broached.“

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Gladwell drew on the work of psychologists such as Stanley Milgram who did experiments testing the social chains between people–what is known today as “six degrees of separation.” Milgram found that “sociometric stars” were a key to shortening the chain of connection to your desired target. But Watts staged his own experiment that updated Milgram’s work, and in doing so, uncovered different findings. … [Watts discovered] that highly connected people–the hubs or influencers–played no significant role. People selected the next person in the chain based on qualities such as living in geographic proximity, sharing occupations, and other factors more so than being heavily connected, or having high status.

Another key point is around the definition and role on this mythical ‘influencer’;

Watts points out we all talk so much about influencers, we’ve accepted the term without knowing its definition. Are influencers ordinary people with extraordinary reach? Are they celebrities or “opinion leaders” as they were named in earlier stages of pr theory? Even if we were to exclude bloggers, media, and Oprah from our definition–how then do we measure how an influencer impacts the opinions of others? Watts says some studies measure an influencer as someone whom at least three people say they would turn to for advice. But that scale — reaching people who are three times better connected than others — does not move the millions of people marketers, political campaigns, and brands need to reach. Stripped of the media spin, an influencer’s clout is limited without the amplifying power of the Internet.

Put simply, influencers are only that because of the media amplification afforded them. Which means it is less about their influence and more about the broadcasting of their ideas. With that definition, then anyone can be an influencer, all you have to do is re-broadcast what they say. This article takes the ideas of trends and places them firmly back in the crowd setting and away from a perceived band of elite people.

(Also published on the P2P Foundation blog, Hat-tip to Michel for the link.)

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The citation follows the sections where I describe more in details the theories of cognitive capitalism and the vectoral class.

“Above I have summarized the key theses about the new ‘class configuration’. In this section I offer my own take on the matter, since I am convinced that both main interpretations miss something important, that the peer to peer era is creating a new type of capitalists, which are not based on the accumulation of knowledge assets or vectors of information, but on the enablement and ‘exploitation’ of the networks of participatory culture. The invention of service-based business strategies based on the use of collective-produced open source code may be considered a subset of this development.

Recall the following: the thesis of cognitive capitalism says that we have entered a new phase of capitalism based on the accumulation of knowledge assets, rather than the capital involved in physical production tools. The vectoralist thesis says that a new class has arisen which controls the vectors of information, i.e. the means through which information and creative products have to pass, for them to realize their exchange value. They both describe the processes of the last 40 years, say the post-1968 period, which saw a furious competition through knowledge-based competition and for the acquisition of knowledge assets, which led to the extraordinary weakening of the scientific and technical commons. And they do this rather well.

But in my opinion, both these hypotheses fail to account for the newest of the new, i.e. to take into account the emergence of peer to peer as social format. What is happening?

In terms of knowledge creation, a vast new information commons is being created, which is increasingly out of the control of cognitive capitalism. And the new information infrastructure, cannot be said to ‘belong’ in any real sense to the vectoralist class.

Therefore, my hypothesis is that a new capitalist class is emerging, which I propose to call the netarchists (since netocracy ‘is already taken’ by Alexander Bard, and I reject his interpretation, see above). These are the forces which both ‘enable’ and exploit the participatory networks arising in the peer to peer era. Examples abound:

So we can clearly see that for these firms, accumulating knowledge assets is not crucial, owning patents is not crucial, though, driven by the profit motive and the desire to obtain monopolies, they use it as a secondary strategy. You could argue that they are ‘vectors’ in the sense of Wark, but they do not have a monopoly on it, as in the mass media age. Rather they are ‘acceptable’ intermediaries for the actors of the participatory culture. They exploit the economy of attention of the networks, even as they enable it. They are crucially dependent on the trust of the user communities. Yet, as private for-profit companies they try to rig the game, but they can only get away with so much, because, if they loose the trust, users would leave in droves, as we have seen in the extraordinary volatility of the search engine market before Google’s dominance. Such companies reflect a deeper change into the general practices of business, which is increasingly being re-organized around participatory customer cultures — see section 3.1.B about the cooperative nature of cognitive capitalism, where this shift is already discussed.

Knowledge and other workers using participatory platforms will generally use both the commons and the market, the latter in order to make a living, and forms of distributed capitalism, which lessen their dependence on the larger firms and the salary dependence, may appeal to them. Such workers do have access to their own information machines, but need platforms to connect. Obviously they are drawn to the participatory platforms devised by these new types of companies, even feeling an allegiance to them. At the same time ,the relationship is uneasy since these firms will generally try to evolve towards monopolistic practices, or at least, towards short-term for-profit strategies and tactics which may not be in their interests. Knowledge workers and other forces creating the P2P commons can take a variety of roles in the economy, and in present circumstances clearly need a market, but which they are trying to mold to their own interest. Thus the new forms of distributed capitalism are needed and supported because it lessens the dependence on classic firms and monopolies. The trend fulfills a desire for ‘autonomy within the market’, and allows for various forms of ‘consumer aggregation’ that were hitherto difficult to achieve. Similarly, many of the new netarchical leaders are vocal in their general support for participation.

In section five, where we examine the ‘physical laws’ operating in networks, and following the summary of David Reed, we see how the linear value growth of individual membership creates a economy of attention where portals and new intermediaries emerge; how the square value growth of interactions creates the transactional web and the associated platforms; and how the exponential growth of the Group-Forming-Networks quality of networks creates infinite autonomous content for ever-shifting ‘infinite’ affinity groups, thereby transcending the ‘economy of attention’ characteristics in significant ways. (Ebay profits from the three properties: as an intermediary to content (i.e. what is available where), from the transactions amongst its members, and from their ability to form auction groups themselves.)

My conclusion is that the emergence of P2P begets a new capitalist sub-class, which accommodates itself with the networks, places itself at crucial nodes and proposes itself as voluntary hubs, rather than living off knowledge assets. In this sense, vectoralists, even as they ascend to the heights of power through restrictive copyright legislation, have already reached the zenith of their power, and they will eventually be replaced by new formats of capitalist exploitation, which accommodate themselves in much more intelligent ways to the peer to peer realities. The fact that large infrastructural companies such as eBay and Google get a lot of attention should not blind us to the fact that this also is a bottom-up process that enables for a much wider spread of entrepreneurship, sometimes called ‘minipreneurs’. For such minipreneurs, a whole infrastructure is in the process of being set up. A first layer of websites and services allows for the distribution and eventually sale of digital material, i.e. publishing of text through self-publishing (lulu.com, booksurge), of self-produced music (PureVolume.com), and digital art (Deviant Art.com). It is also possible to create and sell self-made physical products such as designs (CafePress.com) and even to use online tools for designing products who ‘first physical models’ can be outsourced, such as with eMachineShop.com. Personal fabricators are an extension of this model but are not yet available; in the meantime sites like iFabricate attempt to fill the gap. A related growing trend is the use of personal outsourcing where by individuals can easily find assistance in the developing countries. There is also a financial infrastructure being on offer. The creation of the Zopabank, where any ‘consumer’ can also be a lender, is an important development as well. Others are experiment with a ‘Corporate Digital Commons’ format to pool resources. EBay, with its 64 million active users and 260,000 associated stores (and similar initiatives by Amazon.com) have create a whole parallel economy of primary or secondary earnings.

Related to the trend of netarchical capitalism is the user-driven innovation process that we explained before. This can happen within companies but also through the creation of new kinds of exchanges where companies offer incentives to communities of researchers to come up with technical or scientific solutions. Among the examples are Innocentive.com. These initiatives blur the distinction between the commons and the market, since the supply is organized with P2P formats, but the corporate incentives create competition for the resources offered, and eventual payment is involved. At the same time, we might except peer to peer exchanges that fall outside of any for-profit priorities, and businesses from the social economy sector, for whom profit is a subsidiary concern. This new sector may seem marginal today, but is in my opinion, ‘the next wave’ in terms of new types of corporations. What seems important in a possible evolution towards a participatory society is the following. Although the large netarchical corporations do enable participatory networks, their for-profit nature makes them dangerous trustees of commons-favorable protocols. Their will be a continuous tension between their need to retain the trust of their user base, and the pressure of advertisers as well as their own bottom-line needs. It would be preferable that minipreneurs and those who need platforms to transform use value into exchange value, to have access to open platforms. Projects like the Broadcast Machine of the Participatory Culture Group, or the Prodigal marketplace seem to go into that direction.

The emergence of a netarchical ideology

The emergence of the netarchy is accompanied by a new ‘ideology’ which both embraces participation, but crucially sees capitalism as the only conceivable horizon for the future of humanity. It is the kind of ideology one can identify with the “California ideology” expressed in Wired magazine.

The netarchical ideology has its expression especially in the international political economy, especially in the form of ‘bottom-of-the-pyramid’ economic development, as championed by C.H. Prahalad. Prahalad and the movement he inspired, recognize that the one billion people at the bottom of the pyramid manage to have a cash flow of $2 per day, even though they do not have the capital. And Hernando de Soto, with the social capital movement in general, shows how this capital can be partly generated by ‘formalizing’ the informal capital that they often do have, but that the current institutional framework cannot recognize. Thus Prahalad and others try to convince capital and development institutions to develop solutions like micro-banking, creating bottom-up collectives of the most poor and a virtuous cycle. A bottom-up, distributed form of capitalism if you like, which shows an uncanny resemblance to P2P processes, and this is why we consider this position to be netarchical. The problem with these solutions is that they often aim to ‘capitalize’ everything, and do not have any regard for the surviving forms of the commons which are still very much alive in certain areas of the South, destroying the traditional social fabric. The profit requirement – and one cannot see how the current 15% profit requirement of financial investors and multinational corporations can lead to any permanent engagement of these forces in B.O.P projects.

Jock Gill of the Greater Democracy weblog has criticized BOP schemes for these reasons, and has offered an alternative approach: namely citizen-to-citizen or ‘edge to edge’ development partnerships. Whereby collectives of individuals with capital, would directly provide collectives of individuals without capital, with the necessary amounts of small capital, and without imposing the profit requirement. Such practices are already widespread within the U.S. themselves, in the form of Gifting Circles, whereby local groups collate gifting money of its members, study options for giving together, and decide on appropriate local initiatives to support.

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