Category Archives: Alternative Economics

Tiny House Essay Contest Entry

We’re living through a frightful era; one in which food rots in pantries of privilege while less fortunate children stir hungrily in their restless sleep. It’s an age of man-made scarcity. In the so-called developed countries of the world, people willingly sacrifice their autonomy at the alter of consumerism. Such people have long since forgotten how to cultivate sustenance and have instead turned to cheap, often genetically modified, industrial poison as a source of nourishment. They squander their futures on grotesque McMansions bought with credit from predatory lenders and isolate themselves in highly atomized gated communities. Here the hapless consumers obsess over frivolous products and entertainment, expertly marketed by cunning spin doctors in corporate boardrooms, and distract themselves from the horrendous faraway resource wars which enable their hollow lifestyles. In these suburban bastions of American consumerism, where humanitarian dissent is ridiculed and conformity celebrated, very little is sustainable, much less moral. 

I, for one, intend to bow out of this cruelly comical rat-race and rediscover a more simple, fulfilling means of survival. It’s not that I plan on retreating from our imperfect world; I hope to reform it. Acquiring a tiny house and educating myself and others about the benefits of alternative living would be a fitting first step in this process. I’m weary of reading longingly of the tiny house movement. I want to finally join its ranks and spread its gospel. The time for complaint has passed. We have arrived at a crisis point. Environmental degradation, homelessness, hunger and a plethora of other manufactured global problems demand immediate action and innovative solutions. Engaging in sustainable, tiny living won’t just clear my conscience and improve my life personally; it will substantively contribute to a peaceful grassroots revolution already underway. It’s a revolution that will ultimately reshape our world for the better.   
The late Robert Hart, the indomitable father of the modern food forest movement, once said that problems of hunger and resulting illness could be solved, “if only the know-how could be equalled by the will-to-serve.” I am strong-willed in this regard.
  

The New Cooperative Economy in Cuba

In an effort to jump start Cuba’s sluggish economy, the administration of President Raul Castro initiated a series of largely market-oriented economic reforms several years ago. These changes -dubbed “The Guidelines on Economic and Social Policy for the Party and the Revolution” when they were first approved by the Cuban Sixth Communist Party Congress in 2011- are designed to gradually shrink Cuba’s extensive, but hard-pressed, public sector and promote the development of more dynamic private enterprise in its place.

Like the Chinese regime before it, the Cuban government is attempting to liberalize its country’s economy without abandoning the core socialism of Cuba’s official state ideology and the successful aspects of their country’s half-century revolutionary experiment -most notably their popular and internationally lauded healthcare and education systems. They’re wary of the experiences of post-Soviet states like Russia, where a wholehearted and hasty embrace of dislocating capitalist reforms in the 1990s gave rise to a sort of oligarchic gangsterism that experts have since dubbed a “kleptocracy.” 

“The model is different from China and Vietnam,” a Cuban economist said of the reforms. “We have the advantage of learning from their experience.”

At the center of Cuba’s model for reform is a dedication to the expansion of private cooperatives. Cooperative businesses are generally for-profit enterprises which are collectively owned and democratically managed by the workers who staff them. This arrangement differs from the hierarchical and largely external control and ownership of government bureaucrats (in the case of statist business models) and shareholders/managerial staff (in capitalist business models). Like other private firms, they succeed or fail largely based on the dictates of the market. Importantly, cooperative’s decentralized and direct internal management and ownership often yield enhanced productivity, wages and longevity and promote notions of solidarity and equity. In this way, cooperatives businesses form a viable middle path between the extremes of fully market and state-based economic models, a path that the Cuban government is currently attempting to chart.

Prior to the implementation of 2011’s reforms, Cuban cooperatives were relegated to the agricultural sector; last year, agricultural coops were responsible for 70 percent of Cuba’s farmed land. The Castro regime’s new liberalizing program opens up most of the rest of Cuba’s economy to private -though individually state approved and monitored- cooperative enterprises. Today, Cuba is home to nearly 500 non-agricultural cooperative businesses in a whole range of sectors -including restaurants, cafes, wholesale and retail produce markets, construction firms, manufacturers of clothing and furniture, bus companies and car washes, recycling operations, body shops, computing and accounting services, beauty salons, night clubs and other industries.

A new 21-member cooperative -a formerly state-owned Havana-based nightclub called Karabali- has seen its workers’ salaries triple since going private in late 2013.

“We have more of a sense that this belongs to us,” Heydell Alom, an employee-owner of Karabali told reporters. “Here no one steals. This place belongs to everyone. We earn depending on what we can accomplish without any problems from the government.”

Despite the success stories of new firms like Karabali, the burgeoning Cuban cooperative movement faces a number of serious challenges. Persistent state encroachment, uneven and inconsistent government policy and limited access to national and international markets -owing to political factors like the U.S.’s trade embargo- combine to stifle the growth of new Cuban cooperatives. These obstacles -and others- will need to be surmounted if the full potential of the Cuban cooperative movement is to be realized.



       

                   

Italian Solidarity

Worker cooperatives, worker owned and managed businesses, are especially prevalent in northern Italy. There are several reasons for this: Firstly, since the late 19th century, the labor movement in that region, which has historically been quite strong (though faced brutal repression during Mussolini’s rule), has consistently promoted small-scale worker cooperatives; Secondly, the Italian government, recognizing the undeniable socio-economic benefits of such enterprises, has been facilitating the expansion of worker cooperatives for decades. By 2011, 1.1 million, or 6% of the Italian population, were employee-owners in the country’s 43,000 cooperatives. Collectively, these businesses generate about 127 billion euros annually, that’s 7% of Italy’s GDP. In the Emilia-Romagna region in particular, which includes the city of Bologna, more than half the population are members of worker and/or consumer cooperatives and about 30% of the region’s GDP is derived from such enterprises. Unlike in other places, worker cooperatives in Italy, far from being rare but thought-provoking oddities, constitute a formidable segment of that country’s overall economy.

Worker cooperatives in Italy employ certain smart business strategies that allow them to persist and flourish in the contemporary transnational marketplace. Specifically, many Italian worker cooperatives have formed networks of small-to-mid scale worker cooperatives that are able to pool capital and risk and maintain a certain standard of employee-owner training and skill, practices which often counteract the detrimental impacts of international economic dislocations by promoting localized economies and flexible workforces. Additionally, Italian worker cooperatives, true to their history, remain highly politically mobilized. They’ve secured non-profit status from the Italian government and, in exchange for an obligation to reinvest a portion of their annual profits into growth and the creation of further worker cooperatives, enjoy certain tax exemptions. By maintaining a reasonable scale and investing, first and foremost, in their own employee-owners, Italian worker cooperatives are able to maintain sustainability and ensure firm and job survival even under volatile conditions (Italian cooperatives, like Spanish ones, weathered the 2008 financial crisis particularly well). While conventional hierarchical firms the world over continually fall victim to outsourcing, downsizing, bankruptcies, etc. as a result of globalization, most Italian cooperatives continue to prosper.

Legacoop, with 14,500 businesses and 450,000 worker-owners, is one of Italy’s largest cooperative networks. Like Mondragon, it encompasses cooperatives in a variety of industries: manufacturing, retail, insurance, travel, construction, agriculture and banking – just to name a few. Most importantly, Legacoop acts as a vehicle through which Italians promote and protect the interests of there country’s larger worker cooperative movement. Their “Generazioni” program provides vital vocational training and retraining for worker-owners in up-and-coming industries, a practice that adds to the workforce’s value and flexibility. Another program, “Bellacoopia,” allows young students in Emilia-Romagna to submit business plans focused on promoting economically sustainable start-ups in annual competitions; this helps to educate younger generations about the benefits of the worker cooperative business model and inculcates entrepreneurship among prospective worker-owners. The “Innovacoop” and “Rete Regional Dei Servizi” programs both provide consulting and other forms of support to cooperatives within Italy and facilitate cooperation among individual cooperatives within Italy and between Italian and other international cooperatives. Legacoop both ensures sustainable and relatively just economic activity in northern Italy and, like Mondragon, acts, to some degree, as a revolutionary catalyst for worker cooperative enterprises internationally.

Several policies of the Italian government have been vital to the continued growth of worker cooperatives in that country. Foremost among them are those derived from Italy’s Marcora Law, which was passed in 1985. This law provides recently laid-off Italian workers with the option of immediately collecting their accumulated unemployment payment from the Italian government in a lump sum, as opposed to in increments over the course of several years like in most countries. The said lump sum recipient is subsequently required to capitalize the greater part of their payment in a local cooperative startup (often in the same industry that they were laid off from); their investment in the enterprise is then matched threefold by several Italian government funds. The first of these funds, FONCOOPER promotes and facilitates cooperative expansion generally, while the CFI provides fair loans to cooperative startups. Capitalization funding for cooperative startups have further been supplemented by the recent allowance by the Italian government of outside investing in such enterprises (vitally, the cooperative startups must remain 75% owned by their worker-owners, with outside investing generally coming from public bodies and other cooperatives). With a 90% success-rate over the course of several decades, Italian cooperatives which have been incubated through the Marcora Law provide an incredibly useful example to policy makers across the globe.

Here in Italy is a government successfully seizing on the opportunity provided by the problems of deindustrialization, outsourcing and globalization to both alleviate the pains of dislocated workers and give them the tools to become successful small-scale entrepreneurs themselves. Most impressively, the Italian government and, importantly, the popular labor movements that they’re responding to, exemplified by Legacoop, are crafting a more sustainable and just economy defined by solidarity, cooperation and mutual aid – one free from the domination of the capitalist and managerial classes. Governments and labor movements across the globe should take note. There are few concrete reasons why some variant of Italy’s Marcora Law could not find success in postindustrial American communities.

For more information on worker cooperatives, check out: https://newgracchi.wordpress.com/2014/06/16/alternative-economics-the-worker-cooperative-2/

For more on the Mondragon example, check out: https://newgracchi.wordpress.com/2014/06/16/alternative-economics-the-mondargon-story/

Sources: 1) John Logue “Economics, Cooperation, and Employee Ownership: The Emilia Romagna model – in more detail” Ohio Employee Ownership Center (2006): accessed December 3, 2014 http://dept.kent.edu/oeoc/oeoclibrary/emiliaromagnalong.htm
2) Jeffery Hollender “Legacoop Cooperative in Bologna, Italy Empowers Worker-Owners” TriplePundit (August 26, 2011): accessed December 3, 2014 http://www.triplepundit.com/2011/08/legacoop-cooperative-bologna-italy-empowers-worker-owners/
3) “Marcora Law” Wikipreneurship: accessed December 3, 2014 http://wikipreneurship.eu/index.php/Marcora_Law

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Shareholder vs. Stakeholder Management

All too often, critics of the contemporary economic order, who rightly bemoan the inequality, un and underemployment, etc. of modern American capitalism, fail to offer immediately viable and meaningful economic alternatives. For example, such critics tend to either highlight the successes of small-scale or foreign alternatives (i.e. worker cooperatives in the case of this writer) to the traditional shareholder business model and/or demand the prompt popular overthrow of the American, and/or world, capitalist system writ-large. As virtuous as these, and other similarly radical, initiatives are, many laymen are left alienated by the apparent irrelevance of such proposals to their own individual experiences. Specifically, the average American wage slave is simply generally too caught-up in the undeniably arduous monotony of their own daily struggle to subsist within the economic system (i.e. whether they can retain their hated job, whether their child is feed sufficiently, etc.) to seriously contemplate whether or not to personally engage in experimental economic living or revolutionary behavior. That said, the revolutionary potential, indeed necessity, of the masses cannot be ignored and must be gradually cultivated through education, organization and mobilization if the rule of contemporary economic elites is to ever be seriously undermined, let along discontinued.

While radicalism is necessary in the long term, there are reforms to the economic system that can be implemented tomorrow in order to immediately and practically improve the conditions under which most people find themselves enslaved by shareholder capitalism (both a morally and practically attractive goal in so far as doing so will help to empower workers and ease their suffering). One potential reform is the expansion of the German shareholder business model into the U.S. and U.K. (the modern bastions of shareholder capitalism). Though by no means the only nation in which co-determination, as stakeholder corporate governance is also known, can be found widely (see Japan, France, Scandinavia, etc), Germany and its Mitbestimmung offers arguably the most successful and relevant example.

The 1976 Co-determination or Mitbestimmungsgesetz act, passed in the West German parliament or Bundestag, mandated that West German, and later all German, large companies maintain near parity between employee and shareholder representation on their supervisory boards or Aufsichtsrats (a body that elects a company’s management board). Furthermore, German companies maintain works councils or Betriebsrats that serve as employee elected “shop-floor” representative bodies, the members of which generally serve for four year terms. These councils tailor and implement the general labor agreements reached by national German unions and employer associations to their own constituent workers’ objective circumstances and also, most importantly, educate, organize and mobilize those same constituent workers. By institutionalizing employee organizing and mandating that workers have a concrete say, even if it is limited, in company management, German co-determination represents a significant improvement over the shareholder business model (which almost exclusively prioritizes the interests of investing shareholders in company decision making [with hasty pay-cuts, layoffs, and closures resulting in situations of short-term business hardship]) in terms of safeguarding the interests of workers.

Studies of the impact of German co-determinism indicate that such firms usually retain equal or better productivity and significantly superior longevity, wages and benefits compared to parallel shareholder firms in the same industries. However, they also warn that since stakeholder companies decrease the maximal profitability of firm assets, such firms are less attractive to outside investors on the globalized capital market. For this reason, the blunt instrument of government policy should be used to punish shareholder firms and reward stakeholder firms (with subsidies, tax breaks, etc.) in an effort to correct this market imbalance. Additionally, stakeholder firms should follow the example of various worker cooperative networks by practicing inter-firm lending and risk pooling. Given the fact that the practice of co-determinism enhances the general economic welfare more-so than usage of the traditional shareholder model, it should not be difficult to muster popular support for public and private measures aimed at promoting and protecting stakeholder firms.

German co-determinism represents an improvement over the hierarchical dictatorial nightmare that is American corporate governance. Still, it is just that, an improvement. The interests of capital are still disproportionately prioritized in the stakeholder model relative to those of labor. This will always be the case so long as firm ownership, and thus societal wealth, remains concentrated among an elite few, as it does in both shareholder and stakeholder economies. Only by fully linking a company’s ownership, management and labor among the same individuals (I.e. worker cooperatives) will the incentive structure governing that firm’s behavior align in a harmonious and maximally socially beneficial way.

Source(s): 1) Rebecca Page, “Co-determination in Germany – A Beginner’s Guide,” Arbeitspapier 33, http://www.boeckler.de (2009): accessed August 19, 2014, http://www.boeckler.de/pdf/p_arbp_033.pdf
2) Gary Gordon and Frank Schmid, “Class Struggle Inside the Firm: A Study of German Codetermination,” Nber Working Paper Series, National Bureau of Economic Research (2000): accessed August 19, 2014, http://www.nber.org/papers/w7945.pdf?new_window=1
3) Matthew Yglesias, “Should Workers be Represented on Corporate Boards?” Slate (2012): accessed August 19, 2014, http://www.slate.com/blogs/moneybox/2012/10/03/corporate_co_determination_should_workers_be_represented_on_corporate_boards_.html

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the Mondargon Story

What started as a 600 member educational parents association in 1941 in the city of Mondragon in the semi-autonomous Basque region of Spain, has by today evolved into an expansive network of worker cooperatives worth 33.3 million Euros and employing 85,000 people internationally. The Mondragon Cooperative Complex is famous for its success, growth, and longevity. By 2009, its educational centers had enrolled 8,567 students, it’s Caja Laboral (a bank) had administered 18.6 billion euros in assets, and its number of research and development technology centers had grown to 12. Furthermore, its growth in the past 20 years has been exponential: it’s Caja’s holdings grew by almost ten times, industrial and international sales grew by almost six times, retail sales grew more than twenty-fold, and employment more than tripled.

Modragon’s success is attributable to aspects of its structural design and several of its practices. For one thing, Mondragon was able to achieve a large scale by growing a network of primary (industrial and retail) and secondary (finance/business development, education/training, research/development) worker cooperatives. Importantly, secondary firms, like the Caja Laboral, facilitated the growth and functioning of its more labor intensive primary firms. When a firm in the Mondragon group reaches a certain size, a spinoff worker cooperative is created, thereby keeping firms self manageable without hindering growth. Finally, similar worker cooperatives are divided into groups of firms that are able to formulate norms of governance, pool risk and resources, and enhance worker owner mobility between firms.

Mondragon also worked to create a highly independent, and thus resilient, local economy. By pursuing a policy of import-replacement, wherein firms produce goods and services that would otherwise be imported into the region, local communities under the Mondragon network and within their worker cooperative groups have been able to form complex, interdependent localized economic units that are relatively shielded from global economic turmoil and competition. In addition, while most economies at the national and local level focused on specialization throughout most of the 20th century, with resulting fragile monoculture economies and subsequent post-industrial outsourcing and downsizing in the face of global competition (Detroit and the auto-industry), Mondragon has consistently focused on diversification and differentiation. As a result, the Mondragon network has experienced sustained growth while retaining flexibility and jobs.

Source: Nicholas Iuviene and Amy Stitely and Lorlene Hoyt, “Sustainable Economic Democracy: Worker Cooperatives for the 21st Century,” Regenerating Local Economies: Environment, Equity and Entrepreneurship in America’s Post Industrial Cities, MIT Community Innovators Lab (2010): accessed May 2, 2014, http://web.mit.edu/colab/pdf/papers/Sustainable_Economic_Democracy.pdf.

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the Worker Cooperative

Given that the prevalence of the traditional “shareholder” business model (characterized by a perverse incentive structure resulting from hierarchical management and external ownership), coupled with the trend toward neoliberal globalization, is a primary cause of several debilitating ills (i.e. un and underemployment, downsizing, outsourcing, etc.) currently afflicting the “developed” world (I.e. the United States, Canada, and Western Europe), economists are compelled to examine the viability of alternative firm types in a contemporary capitalist context. One such alternative is the worker cooperative business model. The term worker cooperative refers to generally for-profit businesses that are jointly-owned and democratically controlled by the firms’ employees. Such businesses expand economic democracy without rejecting the market and de-emphasis the aspects of private economic activity that prioritize short-term profit-maximization. Many argue that the worker cooperative business model both promotes jobs and businesses that are more economically sustainable than those delivered by traditional firm types and encourages more egalitarian wages among a firm’s worker owners.

Data show that worker cooperatives are either more or as productive as traditional firm types. Any increase in productivity among worker cooperatives is likely attributable to the increased rights to the returns of such firms among their employee owners. By expanding employees’ stakes in firm outcomes, worker cooperatives enhance the incentives among these individuals to improve their performances. The result is greater employee morale and cohesion and a better intra-firm flow of information. Importantly, some note that the size of an employee’s right to the returns of their firm is significant. Specifically, the larger an employee’s material stake in firm outcomes, the greater the increase in firm productivity. For that reason, when firm profit sharing and employee ownership is limited, productivity is only excepted to be marginally enhanced.

Worker cooperatives generally retain greater survivability rates and longevity than traditional firm types. Specifically, firms that are 100% owned by their employees, worker cooperatives, are only 33.5% as likely to fail or face a merger/acquisition as other firms. By directly linking ownership to employment, worker cooperatives greatly reduce the incentive among worker owners to make business decisions that are profitable in the short term at the expensive of long term firm health. Additionally, the increased productivity and intra-firm investments in employee training that define worker cooperatives facilitate greater firm sustainability.

Wages tend to increase as employees’ share of ownership in their businesses grows, with worker cooperatives generally showing the strongest wages. When additional costs on firm profitability associated with traditional firm types, like CEO compensation, are eliminated in worker cooperatives, a more egalitarian distribution of wages usually results. Additionally, research indicates that employee benefits are stronger in worker cooperatives than traditional firm types, with some worker owned grocery stores even providing healthcare coverage to part time employees. The realignment of business priorities in worker cooperatives naturally results in an increased focus on firm labor over capital, with obviously beneficial results for employees.

Because worker cooperatives involve employees in the decision making process, such firms generally tighten their belts and weather short term hardships more nimbly and less painfully than traditional firm models. Specifically, worker cooperatives are more likely to adjust wages when faced with adverse economic situations than lay off employees as this would involve firing themselves. These temporary pay cuts are collectively agreed to with the understanding that recouping compensation will be achieved through future profits. Importantly, research also indicated that worker cooperatives showed a greater tendency to maintain, and strikingly sometimes increase, employment levels during economic recessions. The Great Recession, specifically, was weathered by worker cooperatives much more successfully than traditional firm types in France, Italy, and Spain.

Enhanced employee agency, brought about through self management, strengthens job satisfaction and limits quitting. While self management comes with increased responsibilities among worker owners, the benefits of this change seem to outweigh the negatives, with such firms encouraging greater employee owner independence and value. With the prioritization and heightened value of labor in worker cooperatives, such firms generally devote more resources to the education of their employees than traditional firms (they must as these employees are or will become owners as well). Greater skill accumulation and worker value results from this renewed focus, ultimately hampering the general economic trend towards labor commodification.

Yet for all that, worker cooperatives face a number of potential challenges. For one thing, some scholars warn that a free rider problem can potentially arise when an individual’s reward is pegged to their group’s performance. They specifically fear that employee owners won’t fully apply themselves to their work if their assumption is that they will be paid, regardless of their effort, according to the productivity of their firm. Additionally, these scholars stress that as the size of worker cooperatives increases, the incentive to work hard individually could decrease. These negative assumptions, purely abstract and theoretical in nature, don’t take into account the realities of intra-firm horizontal, or peer, monitoring in the workplace and the aforementioned measurable productivity gains, resulting from heightened morale and cohesion, that have been observed among really existing firms that utilize cooperative ownership and management.

Some scholars suggest that the heightened financial risk associated with the ownership of a business is to great for individual workers to shoulder. Whereas traditional business owners, generally comparatively wealthy, can often afford to experience business failure, some contend that such occurrences could be crippling to less well off worker owners. This worry overlooks, or undervalues, the fact that risk is highly divided among worker owners, thereby assuaging some of the risk involved in potential failure. Furthermore, high levels of unemployment in the modern economy indicate that job loss for an employee in a traditional firm can be just as crippling.

Surely the most problematic challenge facing worker cooperatives lay in the potentially challenging need to acquire, at least initial, financing. Start-up costs in particular are difficult to muster from potential worker owners themselves and wealthy outside investors have little reason to inject funding into a potential business that they can’t profit from. Worker cooperatives will likely need to rely on external loans in order to form a business. Inter-cooperative lending (cooperative networks with internal banking) and publicly financed loans are some ways to address this challenge.

Source: Georgeanne M. Artz and Younjun Kim, “Business Ownership by Workers: Are Worker Cooperatives a Viable Option?” Iowa State University, Department of Economics (2011): accessed May 2, 2014, http://www.econ.iastate.edu/research/working-papers/p14575.

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