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First, we need to go back in time more than a hundred years.

History of steward-ownership

Steward-ownership is relatively new as a term, but the underlying concept is almost as old as limited liability corporations, the structure adopted by most modern companies. The original steward-ownership model was invented by Ernst Abbe, co-owner of the successful German optics manufacturing company ZEISS, founded in 1846. Abbe had worked as a professor at the university of the city of Jena, where he invented the technology behind ZEISS’s success. This likely led him to the insight that the value and the profits created by ZEISS did not belong just to him, but to everyone working at the company and society at large.

After the company’s founder Carl Zeiss died in 1888, Abbe created the Carl Zeiss foundation, which has owned ZEISS ever since. The foundation ensures that the company cannot be sold and profits are either reinvested or donated to the common good. Abbe then introduced several important rights for the workers, amongst them a health and pension insurance for the workers and an 8-hour workday. He also instituted a principle that the highest salary of any ZEISS employee cannot be higher than 12 times the lowest salary a worker gets after being at the company for two years.

Today, more than hundred years later, ZEISS is thriving. Its business consists of manufacturing optical systems, industrial measurements, and medical devices. Its annual revenue exceeds 5 billion euros and annual profits 600 million euros. Charitable donations from ZEISS are an important source of funding for the university of Jena, where its technology was originally created.

Since then, several other major companies have adopted similar structures. The most well-known ones include German engineering and electronics company Bosch (revenue 78 billion euros and profit 5.3 billion euros in 2017) and British department store chain John Lewis (revenue 2015 11 billion pounds and profits more than 400 million pounds).

Professor Steen Thomsen, the chairman of the Center for Corporate Governance at Copenhagen Business School (CBS), has studied companies with comparable ownership structures extensively. His research shows that such companies:

1. Are more profitable than other companies in the medium term
2. Live longer — survival probability is 600% higher after 40 years
3. Are trusted more by their customers
4. Offer their employees better pay
5. Have better employee retention

In addition to all this, these companies typically generate many kinds of societal benefits that extend beyond their owners and customers. Charitable donations by ZEISS are a great example of this. Bosch, meanwhile, has been a pioneer in investing in environmentally friendly technology.

The term “steward-ownership” was coined by Purpose Network, a German organization that is researching this model, developing it further, and helping organizations transform into it. The team behind the organization also operates an impact fund called Purpose Ventures, which invests exclusively in steward-owned companies. Purpose Network works for a paradigm shift in the economy, with the goal of transforming it from profit maximization to purpose maximisation.

Based on the research Purpose Network has conducted, the following two key principles apply to all steward-owned companies.

Principle 1: Profits are a means to an end

Traditionally, a for-profit company exists to maximize returns for its shareholders. In many national legislations, it is stated that unless changed in the bylaws of the company, shareholder profit should be the north star guiding the decisions of its management.

For steward-owned companies, profits are a means to an end, not an end in themselves. In most legislations, it’s possible to make this official by changing the company’s purpose in its official articles of association. After this change, if the company’s management sees a way to increase its profits that is in conflict with the purpose of the company, it is no longer bound to choose profits over purpose.

Sharetribe’s new articles of association (which you can download from the “Documents” section of our equity crowdfunding campaign page) state the following: “The purpose of the company is to democratize the sharing economy. The company aims to foster an economy where resources are utilized efficiently, created value is distributed fairly, and people have control over the conditions of their work.”

What practical implications does this change have? Let’s take a concrete example. Based on a thorough analysis of the market situation of online marketplace technology, Sharetribe’s management might come to the conclusion that if the company focuses its efforts solely on building steeply priced proprietary marketplace technology that helps big organizations create marketplaces where retailers can sell their products to consumers more efficiently, it could increase its profits significantly. This approach would be in conflict with the company’s purpose in several ways. First of all, if our technology is accessible only to wealthy people or big organizations, we’re not moving towards our purpose of democratizing the sharing economy. Second, the company would be contributing to the increased consumption of new goods instead of decreasing it, which would be in conflict with the goal of more efficient utilization of resources. Thus, in such a situation, management would be incentivized to choose a business focus more aligned with the company’s purpose and ethics.

It should be noted that a company’s purpose is something that should be able to evolve. For instance, ten years from now, the term “sharing economy” might no longer be used. Because of this, steward-ownership allows the company to make changes to its official purpose statement. At Sharetribe, such a change can be made if people holding two-thirds of the company’s shares agree with it.

This raises the question whether a steward-owned company could initially be purpose-driven but later change its ways by redefining its purpose to profit maximization. And even if its purpose is not officially changed, these types of definitions are relatively fuzzy — they alone are not enough to guarantee that the company doesn’t end up creating an incentive structure that focuses on profits if free profit distribution to shareholders is allowed. To remedy these issues, steward-owned companies often cap the returns they offer to shareholders. We’ll return to this aspect a bit later. First, let’s examine the second principle of steward-ownership.

Principle 2: Ownership equals entrepreneurship

The second principle of steward-ownership states that the company should be in control of people who hold active roles in it. Sometimes steward-ownership is also referred to as “self-ownership”: steward-owned companies are ultimately governed by the people working in them. This guarantees that the decisions conducted by the management of the company will be in the best interest of its employees and all other stakeholders.

Typically, this principle is achieved by restricting the ownership of shares with voting rights so that these can only be held by people who have an active role in the organization. As an example, at Sharetribe, we have several different share classes. Only A-shares and B-shares have voting rights, while only C-shares and D-shares have profit sharing rights. Our articles of association contain the following statements:

“Any acquisition of the company’s A, B or D Shares shall require a prior consent of the board except in a situation where D Shares are acquired by an existing holder of D Shares. As to A Shares, the consent can be given only to a person who is either in employment or in a service relationship with the company or one of its affiliates.”

In practice, this statement prevents the company from being sold to an outside buyer since such a buyer cannot achieve decision-making power in the company. It also means a steward-owned company cannot be taken public in a traditional way. If a person holding voting shares decides to quit active participation in the company, they need to give up their voting shares for a nominal cost (in our case, it’s one cent per share as Finnish legislation doesn’t allow share redemption without payment).

Steward-ownership doesn’t prescribe how the voting shares should be distributed among the team members. Currently, all of the members of our team hold some voting shares or options for them, but me and my co-founder Antti still hold the majority. The topic of how a steward-owned company should be governed is an interesting one. It’s beyond the scope of this post, but we hope to return to it later.

Reliable returns to investors: Redeemable shares

Like a traditionally structured company, a steward-owned company might also encounter a situation where its business would benefit from an outside investment. This means that it needs to be able to offer attractive return prospects to its investors.

In the world of technology startups, the most common source of funding is venture capital. VC firms typically expect their returns to come via a company sale or an IPO. They make high-risk investments and typically expect that one out of every ten companies they invest in will be able to generate enough returns to justify all the other nine investments (which end up returning nothing). In his excellent article, venture capitalist Homan Yuen explains why a venture firm investing $1M in a startup valued $10 million needs to believe the company has the potential to produce an exit with a valuation of $1B-$2B within the lifetime of the fund (typically 10 years) to justify its investment. This explains why venture capitalists are so obsessed with “unicorns” (startups that exceed $1B in valuation).

While steward-owned companies can’t generate such returns to their investors (as they won’t sell or go public), this doesn’t mean they can’t be attractive investment targets if the investment instruments are structured in a different way. After all, as Yuen notes, venture capital funds’ target returns to their investors (“limited partners”) that are typically between 2x and 4x in ten years, which translates to 6–15% per annum. The only reason VC funds have such high return expectations per company is the high failure rate of VC-funded companies.

As experienced impact investor Aner Ben-Ami of Candide Group points out, venture capital should have never become the default way of funding companies. It definitely has its place in building truly disruptive, capital-intensive businesses — if you’re building rockets or electric cars, for instance — but for many businesses, striving to become a unicorn can be detrimental: the increased burn rate causes the company to rapidly run out of cash before finding a sustainable business model.

What’s more, Ben-Ami notes that the traditional VC model is not even that great for the venture capitalists themselves:

“In general, only the elite ‘top quartile’ venture funds have generated what is often referred to as “venture returns” for their investors. Unicorn hunting is a tough business!”

Perhaps companies, investors, and society at large would be better off if, instead of focusing so much of their energy on the small group of potential unicorns, more investors would fund a large amount of profitable, medium-sized businesses that can become profitable early on. This is the investment thesis of Indie.vc, a US-based venture fund started by experienced venture capitalist Bryce Roberts. On their homepage, they state:

“At Indie.vc, we believe that companies with a focus on making a product customers love and selling it at a profit from the very beginning have a distinct long-term advantage over those who don’t. We’ll trade slower, thoughtful, compounding growth over scaling fast and failing fast every time.”

Such a focus also requires a new kind of funding instrument. Indie.vc, Candide Group, Purpose Ventures, and other pioneering investors have started investing with instruments based on profit-sharing instead of focusing on an exit.

Imagine a fund that still invests in ten companies and expects a return of 3x over a period of ten years. Instead of asking these companies to exit, it could require them to buy back its shares at a 5x price over that same period. This requires a much larger portion of these companies to succeed in generating the desired return (six out of ten), but on the other hand, they can do so without selling the company and their growth doesn’t need to be enormous. Ben-Ami presents a concrete scenario where the company has annual revenue of $1M and is not yet profitable at the time of the investment. After seven years, the company is generating $10M in revenue with an EBITDA of $1.5M. That sounds like a reasonable estimate. Ben-Ami’s calculations show that such growth — which would never attract a traditional venture capitalist — would be enough to provide investors with returns comparable to those of venture capital funds.

For Sharetribe, a profit-sharing model is a natural fit. In our current funding round, we offer investors redeemable shares for the price of 20 euros per piece. In the shareholder agreement, it is stated that our company uses 40% of its annual profits to redeem back these shares for 100 euros apiece until they have been fully redeemed. Our model has been inspired by a debt vehicle called Demand Dividends, which was designed to create reliable returns in impact investing, but our model uses redeemable shares instead of debt royalties.

In our projections, we expect faster growth than in Ben-Ami’s scenario — while the target we agreed upon with our investors is ten years, we hope to be able to redeem all the investors’ shares within six to seven years. If these projections fail, Ben-Ami’s calculations show how even a relatively modest annual growth would be enough to provide a sufficient return in the target timeline.

If we don’t meet the 10-year target, we would need to either redeem back the remaining shares immediately from our free cash flow, figure out a refinancing option, or continue using 100% of our EBITDA in the following years for redemptions until all investor shares are bought back. This condition ensures that it is also in the best interest of the company to redeem all the shares on time.

In our specific model, there’s an aspect that gives the management of the company a personal financial incentive to ensure the investors will get their shares redeemed: there will be a “delayed compensation” waiting for them once the investor shares have been redeemed in full.

Rewarding founders and early employees: Delayed compensation

Starting a technology company is a risky business. It often involves at least some level of personal financial risk from the founders and early employees. Our situation is not an exception. Sharetribe was founded in October 2011, and during the early years of the company, we worked for a relatively low salary (during some periods even without any salary) to get the fledgling business going. Similarly, the first team members to join typically accepted a salary lower than their market rate. To compensate for this, they received stock options that would entitle them to a financial reward in case of a liquidity event in the form of a company sale or an IPO.

Our transition to steward-ownership removes the possibility of such a liquidity event. Thus, we needed to come up with an alternative way to reward the team for their early financial risk. Such incentive structures are important if we want more people to start steward-owned companies and join them. The steward-ownership model didn’t have a standardized way of structuring delayed compensation, so we decided to design our own.

We opted to create one more class of redeemable shares. In our transition, the earlier shares held by founders and early team members were split in two: each old share became one A-share and nine D-shares. A-shares have voting rights but no rights to profit-sharing. D-shares don’t have voting rights, but they have a similar right to a redemption as investor shares. The redemption schedule of D-shares is designed in a way that most of their redemptions will happen only once the C-shares (the shares of the investors) have been redeemed in full.

What, then, is a fair compensation for the early risk? We calculated this by assuming a situation where, instead of founding the company, we would have taken day jobs with the average market rate salary for people with our specific degree. We then calculated how much extra income we would have earned this way compared to our earnings during our time at the company, and used this calculation to give our original investment a monetary value. To this sum, we then applied the same average annual interest rate as what our investors would get in a scenario where all their shares are redeemed. We arrived at roughly 1.9 million euros (before taxes) per founder. A similar calculation was then applied to each team member, but in a way that the compensation each team member would get would be in proportion to the number of shares or options they were holding. We then had conversations with the entire team to calibrate these calculations and figure out a fair level of delayed compensation for everyone.

Beyond the share redemptions, the only other financial compensation team members (including founders) can receive is a salary, which cannot exceed market rates. Sharetribe will never pay dividends as our articles of association prevent that for A and B shares (and holders of C and D shares get their returns via share redemptions). This guarantees that once all the C and D shares have been redeemed, 100% of the company’s profits will be used either to develop the company further or other activities aligned with its purpose, like charitable donations or investments in other steward-owned companies.

After this final piece of the puzzle, all the components of Sharetribe’s steward-ownership structure were in place. There was just one more thing: how can we prevent the management of the company from changing the structure later on?

Safeguarding the structure: Foundation and veto shares

When a company transitions into a steward-ownership structure, it’s important that the transition is permanent. This way, it can give a binding promise to all its stakeholders — employees, customers, investors, and society at large — that it won’t change its ways later on and revert back to profit-maximization, even if there’s a change in the company’s management.

Since ZEISS, steward-owned companies have used foundations to safeguard their structures. The great thing about a foundation is that it can be assigned rules that its board must obey, no matter what their personal preferences.

Creating a new foundation is, of course, expensive and requires quite a lot of work; it wouldn’t make sense for every startup to create their own. Luckily, there’s no need for that: Purpose Network has created a foundation that any steward-owned company can use. The Purpose Foundation is dedicated to helping companies stay independent and mission driven for the long-term through steward-ownership.

In our case, we created one more share class (B-shares) and issued exactly one of these shares, which was then given to the Purpose Foundation. This veto share can only be used to veto any change in the company’s articles of association that would attempt to dismantle the steward-ownership structure. The foundation is bound by its rules to veto any such change, and whoever is on the board of the foundation must respect these unchangeable rules.

In a nutshell: from now on, Sharetribe will always remain a steward-owned company.

Summary: The best of capitalism

Steward-ownership is not only reserved for “impact companies” trying to cure diseases, build technology for renewable energy, or tackling poverty. The model can be applied to any company that is building useful products, like the examples of Bosch, John Lewis and ZEISS show. The purpose of the structure is simply to make sure that our companies are in service of society, not the other way around. If the management of a steward-owned company comes to the conclusion that the company’s net impact is no longer positive due to its negative externalities, the management is incentivized to change the company’s ways.

To me, steward-ownership is a way for our society to get all the benefits of capitalism and free markets while remedying their negative effects. A decentralized market economy is an extremely efficient solution to allocating scarce resources when compared to alternative solutions like central planning. Entrepreneurship is a great way to increase the standard of living of everyone, and capitalism offers good incentives for both entrepreneurs and investors. This system has brought us enormous wealth and prosperity and lifted large amounts of people out of poverty. However, it has also brought enormous inequality and a myriad of environmental problems with it. Steward-ownership is a great example of how, with a few simple changes in how companies are structured and governed, we can get the benefits of capitalism without its downsides. To use Silicon Valley terminology, steward-ownership is capitalism 2.0.

For Sharetribe, there’s another reason why the steward-ownership model is a perfect fit. The goal of our company is to do to the sharing economy what steward-ownership does to capitalism: restructure it in order to get its benefits without the downsides. In the next post, I’m going to discuss how exactly that will happen.

***

If you’re inspired by this story, it is now possible to join us on our journey! We have just launched an equity crowdfunding campaign that is unlike any other crowdfunding round seen before due to our steward-ownership structure. It’s now possible for anyone from around the world to invest in Sharetribe and own shares in our company, for amounts starting from 500 euros. Check out the campaign here.

A mandatory regulatory disclaimer: investments in unlisted companies like Sharetribe always carry a risk of losing capital. Invest responsibly. Because of financial regulations, certain restrictions in terms of who can invest apply to residents of the following countries: United States, Canada, Australia, Hong Kong, Singapore, Japan, New Zealand, and South Africa. You will find more information about this on the investment platform.

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‘As an open platform, anyone can use our platform no matter who they are, where they live, and what they believe… This is why you’ll see an extremely wide range of petitions, as they’ve all been created by people in the community.’ Ben Rattray, founder and CEO of Change.org

Steve Andrews: Uber’s huge online petition, hosted by Change.org, protested the removal of its London licence for refusal to comply with safety concerns. At first glance, the petition looked like an emphatic show of support by citizens for a cab company popular for its low fares. Yet the e-petition raises serious questions about contemporary civil society, transparency and corporate power.

Uber’s petition demonstrates how large companies can manipulate democracy through contemporary modes of political participation – and also reveals some uncomfortable contradictions in the business model of the petition platform Change.org.

Uber’s lobbying strategy

It’s first worth putting Uber’s ‘mass’ and ‘viral’ online mobilisation in context. Uber faces significant challenges in convincing people and politicians that the problems caused by the platform are worth the cheap fares and precarious jobs.

The controversy is not just about Transport for London’s concerns over safety. Problems also include the welfare of drivers without rights to sick, holiday or parental pay, and their vulnerability to being removed from the platform or pay reduced without any accountability or consultation. The long-term sustainability of the platform itself, which runs at a significant loss, is also under question – this too puts drivers’ pay and continued employment at risk.

In response to these challenges, the company has developed a wider political strategy that has given the firm a reputation for ignoring, defying or co-opting elected politicians the world over. After a ban in Germany, Uber simply carried on operating until the ban was lifted. The firm spends vast amounts of money on lobbying politicians behind closed doors.

Uber’s petition on Change.org

 

Their use of online petitions on platforms marketed as progressive is just an extension of this extensive PR and lobbying work, and it appears to be part of Uber’s standard strategy for pushing back against regulation. The company initiates petitions on its own behalf, for its own interests, either hosted on its own website or on Change.org. We found examples in numerous North American cities and states (e.g. Dallas, Seattle, Houston, Baltimore, Chicago, San Antonio, Calgary, Pennsylvania, Portland) as well as many other countries (Denmark, Spain, India).It also promotes these petitions aggressively, through its access to user data, drivers and mass marketing. Uber customers are mass emailed asking them to sign the petition, Uber drivers have been instructed to sign petitions with emails and splash screens, and app users receive notifications. Uber even promote their petitions using Google advertising space (we found these by accident when searching for information about Uber). Far from being a spontaneous ‘viral’ exercise, mass marketed and widely promoted petitions are part of a wider strategy to maintain market position.

Petitioning for profit

The corporate use of petitions already contradicts a basic premise of grassroots organising. Petitions have a long history as a mode of participation allowing ordinary people with a grievance to collectively address political actors and hold them accountable: particularly important for those without other recourse to political action. The Chartists petitioned parliament to demand the right to vote, while the petition to free Nelson Mandela from political imprisonment allowed international civil society to address South Africa’s apartheid regime.

The internet has revolutionised petitions, lowering the costs for producing and administering them, which has led to a host of mainly non-profits (eg. 38 Degrees, SumOfUs and Avaaz) as well as public platforms (such as the UK parliament’s own petition website), and a rise in the use of petitions as a mode of participation easy to engage with and cheap to administrate.

Change.org, however, also allows huge corporations a platform on the site, giving them the opportunity to orchestrate civil society methods to advance their agenda alongside the usual campaigns started by ordinary citizens. And the idea of the petition as a democratic, bottom-up tool for demanding social change is further thrown into question by Change.org’s other practices, which suit Uber’s aggressive political strategy rather well.

Unusually for a petitions website, Change.org Inc is a for-profit company rather than a charity and, following a controversial change of direction in 2012 after hosting a union-busting organisation’s petition, it became the only petitions site to stop filtering causes (apart from excluding hate speech), thus opening up the platform to anyone and everyone – including corporations and conservative organisations with a rather different agenda to those of citizens.

Yet it’s the site’s business model that must really appeal to Uber, as despite now refusing direct advertisements, Change.org allows ‘supporters’ (anyone) the opportunity to ‘chip in to help specific campaigns get seen by more people’ (‘promoted petitions’). Like Facebook advertising, promoting a petition means an increase in visibility.

Of course, ‘chipping in’ if you are a company worth $62 billion gives the corporate petition a significant advantage over the rest of us – certainly the traditional petition, where ‘going viral’ depends on the work of citizens and the level of commitment of its adherents. A lack of transparency on the part of Change.org means we can’t know just how much Uber, or any other company that might want to run a petition, has paid. This makes it hard to trust petitions and evaluate their significance.

Might a company that carries out screenings for the NHS have ‘chipped in’ to a petition asking that routine cancer screenings are carried out at a younger age? Might a building company be ‘chipping in’ to a petition on the building of more homes? While these may seem relatively benign scenarios, the point is that the platform model could give added weight to campaigns backed by corporations who happen to share a single goal with an individual – or perhaps more problematically, as could be the case with Uber, it offers them the potential to buy a successful campaign all of their own. Thanks to the opacity of the platform, we’ll never know.

Corporatising democracy

Change.org argues that these features allow a win-win situation. Its commitment to democracy, it suggests, is furthered by its openness to petitions begun by anyone. Oddly, their characterisation of petitions as set up by ‘people in the community’ includes the UK head of Uber Tom Elvidge, who initiated the London petition.

More insight into Change.org Inc’s vision comes from further statements of its CEO Ben Rattray, in the context of having raised $25 million after a funding round (investors were largely drawn from the tech sector, perhaps drawn to Change.org’s access to rich user data (see their privacy policy). He said: ‘This investment is recognition that there’s an opportunity to democratise democracy in the same way that we’ve democratised everything from media and communications to commerce to, increasingly, transportation… It’s about lowering the barriers to entry in industries that traditionally are difficult to participate in.’

This is quite a novel understanding of democracy. Rattray’s vision of democracy appears to refer to a new company’s right to corporate advantage in an ‘industry that is difficult to participate in’ (ie. regulated), and extends citizenship to corporate actors. In the case of Uber, the ‘democracy’ also comes from the company using its own drivers and customers as proxy voters against regulators in theory answerable to an entire population.

The Uber London ban and petition is part of a shift in the way transportation is organised, one that may not, as the evidence suggests, be sustainable. Yet it seems clear Uber will continue to fight legislation here and all over the world to guarantee its investors a return. There is potential for innovation around ‘sharing’ to use resources and deliver services in a way that is more responsive to our needs and more accountable to workers and consumers – but this isn’t it.

The petition controversy highlights another attempted shift: to radically change the meaning of civil society and the traditional tools of citizen participation by ‘opening them up’, ‘democratising’ them – to businesses. The growth of online civil society platforms can empower people who otherwise don’t have a voice in democracies largely unaccountable to their populations. However, the Uber Change.org petition suggests they can further entrench corporate power, ensuring that here, as elsewhere in contemporary democracies, businesses will enjoy huge advantages over ordinary people.

Photo by meliesthebunny

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Republished from Grassroots Economic Organizing (GEO).

Nic Wistreich: Uberfication has become shorthand for many new concepts—from the sharing economy to any significantly disruptive digital business model. But what exactly did Uber do that was materially different to earlier disruptive digital businesses? In short:

• It created software…

• To replace existing industry-wide operational structures…

• That created huge cost and efficiency savings at the supply end (by removing human operators and taxi stands)…

• And created significant user-experience benefits at the delivery end (by providing an interface and fixed fee structure)…

• Which together has allowed the company to rapidly scale globally, threatening traditional taxi companies in every territory in which it operates.

Of course, the question remains, why is Uber not a coop? In principle, it would be the perfect model for a worker coop: a piece of software owned by drivers around the world that helped them do their work better with the costs and surplus or profits shared. In reality, it required the high-risk VC (Venture Capital) environment to finance and build such an innovative and disruptive piece of software. Public agencies, NGOs, social enterprises and coops do not have a strong track record building innovative technology. Even the great and successful collaboratively made pieces of technology—from within the open source community—are regularly criticised for not having a great user interface. Open source exceptions to this, such as WordPress, are run as private, profit-making companies.

The coop version of Uber will surely inevitably come, but at such a pace that when it does, Uber may have Facebook-levels of market saturation, and be midway through being hardwired into bus stops and taxi ranks the world over. Before looking at the cultural approaches that set successful digital businesses and services apart, it’s worth considering what exactly Uberfication could mean in the context of cooperatives, and why it’s of increasing social urgency that future Ubers are owned by the people who are governed by them —be that workers or consumers.

The digital boss

While computers have been used in management for decades, they have typically been one of two types: perhaps easiest categorised as either communication or alert. Communication-type machine management is where a manager creates a task on a system and assigns it, maybe on a space where people can leave comments. Perhaps there are a bunch of open tasks, such as on O-Desk or a Github bug list you can chose from, or perhaps you are assigned the task. Perhaps it tracks your time, calculates the cost, and takes a snapshot of your screen every ten seconds to make sure you’re not on Twitter – but in principle it’s just a machine streamlining the process of communicating (and recording) instructions. Alerts are similar but automated: for instance ‘the printer is out of paper’, or ‘the hydroelectric dam is about to collapse if you don’t open a sluice gate’. It’s communication, but the manager in this instance is a sensor of some sort, and it’s doing a job that a human probably can’t even do.

Interface machine management, as used by Uber, is a shade different because it acts as an interpreterbetween consumer and worker. The consumer creates a command, ‘I want a lift’, and the machine reinterprets that into instructions for workers, who compete to do the task. Finally, the consumer takes on the role of manager, writing the worker’s job assessment and inadvertently helping collectively decide how likely the driver is to stay in the job or not.

So humans are still vital. But the machine has become line manager, while the consumer has become empowered by the machine to have the final signoff, irrespective of their expertise. This fits within a ‘customer is always right’ sort of business, but less so in one full of drunk people arguing with taxi drivers about the quickest way home.

Putting aside such a disempowerment of the worker to the benefit of the consumer—we live under capitalism after all—the more concerning aspect is the massive empowerment of the machine in the process. Ultimately the software is answerable only to the management of Uber—not to the workers or even the consumers—i.e. the software is not answerable to any humans who are directly involved in each transaction.

It will always be part of the company’s legal obligations to their shareholders to keep maximising possible profit, regardless of the consequences to the humans involved. Although this is nothing new, traditionally that hard edge has been softened by the natural compassion of the people involved, capable of using judgement (“Your partner is in the hospital? Please take the rest of the evening off”). When the machine is our boss, and that machine is programmed solely to serve shareholder interests, there is less hope for compassion as that’s a programming cost with little economic benefit (so we’d get the review: “driver was quiet and moody, tried to tell me their life story, would NOT recommend”).

To conclude: The promised disintermediation of management structures – with web 2’s End of the Middleman potentially becoming Web 3’s End of the Middle Manager – will empower machines and software over the worker and consumer to unimaginable levels. Where those pieces of software are designed to serve solely a CEO’s corporate responsibility to maximise returns for shareholders, this empowerment offers considerable social, health and environmental risks, and at a speed of growth that will outpace lawmakers. However, if the software is answerable instead to the workers (and perhaps consumers) it manages and serves, then the considerable efficiencies, user-experience, and flexible working benefits that this shift could bring could be cause for a certain level of hope.

A cooperative rethink

As has been demonstrated by the Amazon workers sprinting around warehouses trying not to lose their jobs by meeting their numerical targets, machine-led human management feels like the harbinger of a dystopian sci-fi nightmare, somewhere between Terminator and Modern Times. A natural response might be : “such systems must be resisted, and the only answer must be to avoid them, boycott them or legislate against them”, a bit like some politicians’ understandable – if deluded – desire to outlaw any form of encryption.

But what if taxi software had been written with priorities other than maximising profits, growth and shareholder satisfaction—and instead a set of social values:

• Personal. Prioritising driver mental and physical health in a job that traditionally sees high levels of heart attacks because so much time is spent sitting down, while providing a secure level of income with flexible working hours.

• Social. By training drivers in basic first aid and intervention, to empower them to help, or get help, for vulnerable people on the street, and potentially act as first-movers to anyone in distress or needing a quick exit.

• Environmental. To reduce the number of cars on the road by a certain percent through car-pooling and lift sharing (experiments show reduced congestion by some 50%).

This fits into the model of win-win-win (W3?) enterprise where the personal, collective and planetary benefits each more than offset any social, individual or environmental costs. It also fits comfortably with the social values embedded within much of the cooperative world.

Cooperatives offer a further benefit unique to this culture shift of empowered machines. If software is to become the worker’s direct line-manager, then by letting the worker in turn be the machine’s line-manager a positive feedback loop can be created where bugs, injustices and problems within the software can be ironed out—in a humane, worker- and person-centric way.

But how does something like this get created without the VC support that backs startups and pushes them through rigorous development to be launch ready, then through rapid growth and into IPO? While there are countless open source projects proposing enviro-social benefits (from the Fairphone to Precious Plastic, many struggle to raise the capital and scale sufficiently to offer a convincing alternative to mainstream approaches.

So if there is one question to answer, it is not whether uberfication of the majority of industries is increasing (it seems to be), or whether worker- and user-owned coops can offer a more socially responsible and humane counter to this model (of course they do)… it’s how to finance and build software that can rival shareholder-owned, VC and IPO-driven alternatives.

Engineering better online cooperation

It would be over-ambitious in this article to offer a single proposal to solving that challenge. Indeed, the act of answering that question may need to take the form of some engaged form of doing, i.e. only in trying to build such coops may the pitfalls and perils be understood and resolved.

There’s a considerable and demonstrable demand for better digital tools to support traditional coops…

There’s a secondary issue: as well as creating a new environment and techno-legal structures to facilitate digital-cooperative-Ubers, YouTubes or Facebooks, there’s a considerable and demonstrable demand for better digital tools to support traditional coops with everything from fundraising, transparency, communication, management and decision making. While this is a much different set of needs, the spectrum of digital tools around coops needs to encompass that which can support the 100,000 member ‘legacy’ coop, the small vegetable shop that wants to integrate their checkout system with their membership system, and the new Uber that wants every account holder to be a shareholder.

Rather than trying to solve all these problems at once, a sensible approach might be to create the environment for multiple people and coops to start trying to solve different parts of these problems at the same time—collaborating and sharing code, costs, information or ideas where it is useful, and trusting that the outcomes will start to materialise when sufficient numbers of smart people are resourced and networked together to try and tackle some of these problems. In other words, for there to be an incubator, with a core set of requirements, a guiding vision and core projects and APIs, but sufficient room for a range of outcomes and approaches to emerge in parallel.

This approach may help cover some of the main cultural and structural questions:

• The agile and lean startup, typically driven by headstrong individuals with a small team, vs the democratic, board-accountable and sometimes bulky large coop or public body. Greater scale typically means a slower process and more inefficiency and greater democracy can increase those tendencies (or seem to).

• Full democratic open source, where anyone can submit code or fork, as in Linux, vs the (benevolent) dictatorship management model of Apple, where user-journey and experience is put ahead of any other considerations; the two extremes of software development practice as we currently know it

• Following from this, the choice between a platform that is focused, elegant and easy to use, vs one that can serve all the different needs many different coops might have.

• And, perhaps most key, whether to build on the work of those who have gone before or to start from scratch? In other words, CiviCRM has the advantage that it works across Drupal, Joomla and WordPress – it’s free, open source and has a large active community of developers and users and countless extensions for different needs from Direct Debit to HR Management. But it’s large, demanding, sometimes problematic, and if built from scratch today would have a much different and lighter architecture.

These four questions represent a version of the age old tension between the conservative and radical, the orthodox and innovative. It may be helpful to keep that tension (aka Woody vs Buzz Lightyear) as an operating condition rather than choosing one side, but to ensure that tension fuels serious, positive and responsible innovation, rather than keeping it forever trapped at committee stage or plunging into rapid innovation without considering the wider socio-enviro-personal impacts. Either way, it’s likely the solutions will be found in the doing.

Photo by timlewisnm

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Michel Bauwens

Michel Bauwens: I’d like to start with outlining the issue, the problem around the emergence of peer production within the current neoliberal capitalist form of society and economy that we have. We now have a technology which allows us to globally scale small group dynamics, and to create huge productive communities, self-organized around the collaborative production of knowledge, code, and design. But the key issue is that we are not able to live from that, right?

The situation is that we have created communities consisting of people who are sometimes paid, sometimes volunteers, and by using open licenses, we are actually creating commonses – think about Linux, Wikipedia, Arduino, those kinds of things. But what is the problem? The problem is I can only make a living by still working for capital. So, there is an accumulation of the commons on the one side, we are effectively producing a commons, but we don’t have what Marx used to call social reproduction. We cannot create our own livelihood within that sphere. The solution that I propose is related to the work of Dmytri Kleiner – Dmytri proposed some years ago to create a peer production license. I’ll give you my interpretation of it; you can only use our commons if you reciprocate to some degree. So, instead of having a totally open commons, which allows multinationals to use our commons and reinforce the system of capital, the idea is to keep the accumulation within the sphere of the commons. Imagine that you have a community of producers, and around that you have an entrepreneurial coalition of cooperative, ethical, social, solidarity enterprise.

The idea is that you would have an immaterial commons of codes and knowledge, but then the material work, the work of working for clients and making a livelihood, would be done through co-ops. The result would be a type of open cooperative-ism, a kind of synthesis or convergence between peer production and cooperative modes of production. That’s the basic idea. I think that a number of things are happening around that, like solidarity co-ops, and other new forms of cooperative-ism.

The young people, the developers in open source or free software, the people who are in co-working centers, hacker spaces, maker spaces. When they are thinking of making a living, they think startups. They have been very influenced by this neoliberal atmosphere that has been dominant in their generation. They have a kind of generic reaction, “oh, let’s do a startup”, and then they look for venture funds. But this is a very dangerous path to take. Typically, the venture capital will ask for a controlling stake, they have the right to close down your start up whenever they feel like it, when they feel that they’re not going to make enough money. They forbid you to continue to work in the same sector after your company has failed, and you have a gag order, so you don’t even have free speech to talk about your negative experience. This is a very common experience. Don’t forget that with venture capital, only 1 out of 10 companies will actually make it, and they may be very rich, but it’s a winner-take-all system.

There is a real lack of knowledge within the young generation that there are other forms of enterprise possible. I think that the other way is also true. A lot of co-ops have been neo-liberalizing, as it were, have become competitive enterprises competing against other companies but also against other co-ops, and they don’t share their knowledge. They don’t have a commons of design or code, they privatize and patent, just like private competitive enterprise, their knowledge. They’re also not aware that there’s a new way of becoming more competitive through increased cooperation of open knowledge commons. This is the human side of it, and we need to work on the knowledge and mutual experience of these two sectors. Both are growing at the same time; after the crisis of 2008, we’ve had an explosion of the sharing economy and the peer production economy on the one side, but also a revitalization of the cooperative sector.

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“[…This] is gonna kinda hurt: In the startup world, you work hard and you move fast in order to make other people rich.”

Don’t miss this outrageously inspiring video, where Bruce Sterling proceeds to break the hearts of a few thousands wannabe venture capital baiters at last year’s NEXT Berlin conference for “digital forethinkers and tech experts”.

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“If Oculus turned into a billion-dollar company on their own by selling hardware, publishing software, and forging strategic alliances with other companies, I don’t think I would have given my Kickstarter money a second thought. But that’s not what happened to Oculus. Instead, the money given by me and my fellow Kickstarter backers served as bait for venture capitalists, who invested three rounds of $29 million and $85 million apiece, leading to an eventual sale to Facebook for $2 billion. “

There is a standing presumption when one backs a Kickstarter project: you may lose your money. But there’s a new—or at least now proven—angle to consider, in light of Facebook’s acquisition of the virtual reality company Oculus: people may use your money to make a lot more money without ever properly starting a successful company in the first place.

I have a lot of emotion tied up in Oculus, I’ll admit. As one of the first 9,500 backers of the original Kickstarter—not to mention the backer of the very first successful Kickstarter ever—I put up $300 of my own money to have access to one of the first development kits. I don’t feel ripped off by that transaction, in and of itself. I’ve written publicly in various outlets about my ardor for the Rift and virtual reality. And I remain convinced that VR is going to be a huge new format for media and interactivity in general.

If anything, I am frustrated with a narrative, not the mechanism of a Kickstarter campaign. It’s implicit when you back a product-based project that they will turn into a profitable company, if their idea and execution are solid. If Oculus turned into a billion-dollar company on their own by selling hardware, publishing software, and forging strategic alliances with other companies, I don’t think I would have given my Kickstarter money a second thought.

But that’s not what happened to Oculus. Instead, the money given by me and my fellow Kickstarter backers served as bait for venture capitalists, who invested three rounds of $29 million and $85 million apiece, leading to an eventual sale to Facebook for $2 billion. It’s safe to presume that the VC involvement accelerated a sale to Facebook; surely Oculus could have gotten a product to market for $100 million, but no sane VC is going to turn down a 20x return on their investment.

The fact that everyone involved made a rational choice to sell out isn’t what I find frustrating, I don’t think. (I don’t even particularly care that Oculus sold to Facebook and not, say, Microsoft. Ultimately a sale is a sale, even if Facebook is the worst possible partner for Oculus of any of the large technology companies.) It’s that I, as a consumer, bought into the narrative that underpins almost every Kickstarter project: that without my contribution, something novel would not exist. And while that remains true—and is a reason that Kickstarter’s owners continue to underline that their goal is to fund “creators” and not “products”—Oculus’ sale to Facebook also highlights the disparity inherent in the current capitalist and investment structure, where small investors are excluded from returns by regulation, but investors with more capital can quickly extract more capital by pushing a quick expansion into untapped markets, even without proving that those markets actually, truly exist.

I mean, I don’t even get to claim my contribution to Oculus on my taxes as a charitable deduction.

At a certain practical layer, caveat emptor still applies. I spent my $300 with no promise of equity in Oculus, only the (not legally binding) promise that I’d get a development kit with which to screw around. Even if they turned my $300 into what was eventually a roughly $250,000 return (by my quick estimation*) they still delivered what they initially promised, which was a fully functional dev kit. (Pity those who donated cash at levels that returned no reward but a “Thanks!” Many backers on Kickstarter are not pleased, to say the least.)

But I still feel as if circumstance removed me from an opportunity to turn my speculative belief in the future of VR and Oculus’s role in it into real money. Their story—a genuine garage hacker does what billion-dollar companies would not—didn’t imply its eventual end: that the barefoot, teenage founder would sell his startup to a giant technology corporation before they sold a single retail product. No injury, perhaps, but plenty of insult.

Until the regulations change to allow venture investments of any amount—something Title III of the JOBS Act, when implemented, will put into place; opposed to the current system, which limits equity-based crowd funding to “Accredited Investors,” or people who make over $200k a year—I won’t be backing any more Kickstarter or crowd-funded projects. It’s not that the risk is too great; it’s that the potential reward is too little.

* People more intelligent than me, from the European equity-based crowd funding company Seedrs, calculated something more like $20,000 on a $300 investment after dilution from the VC rounds.

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