Conceptualizing cooperatives as a challenge to capitalist thinking

As capitalism lurches from crisis to crisis, and a world beyond capitalism becomes a possibility contemplated by increasing numbers of people, finding a path forward becomes an ever more urgent task.

That path is likely to contain a multitude of possibilities and experiments, not all of which will prove viable. Psychological barriers will surely be a major inhibition to overcome; possibly the biggest roadblock given the still ubiquitous idea of “there is no alternative” that has survived despite growing despair at the mounting inequality and precarious futures offered by capitalism. In short, a viable alternative to the capitalist structure of enterprises and society is urgently necessary.

Cooperatives represent a “counter-narrative” to the idea, inculcated in us from our youngest ages, that a small group of bosses are naturally entitled to exert leadership and thus are the only people with the capabilities of running an enterprise, argues Peter Ranis in his latest book, Cooperatives Confront Capitalism: Challenging the Neoliberal Economy.* Putting to use his considerable knowledge of Argentine and Cuban cooperatives, and combining that with a challenging argument about the possibilities of worker cooperatives in the center of world capitalism, the United States, Professor Ranis argues that the cooperative form can indeed posit a challenge to capitalist hegemony.

In his opening chapter, in answering his own question “Why worker cooperatives?,” in the context of working people building a Gramscian “counter-hegemony,” he writes:

“This requires a working class movement that moves beyond wages, hours and working conditions and into the realm of owning and maintaining production that leads to controlling local economies that demonstrate working-class capacity for impacting on societal economies and, by extension, politics and the concomitant public policy. Cooperatives would, indeed, be the key ingredient to a proletarian hegemonic outcome. … What worker cooperatives provide is a counter-narrative to the one that assumes that only owners and managers can provide leadership and function effectively in the world of production.” [pages 15-16]

It is indisputably true that counterposing living examples of working people’s successful self-management is a prerequisite to breaking down current capitalist cultural hegemony. But, in contrast to more traditional ideas that state ownership should be the alternative, Professor Ranis argues that it is the cooperative form, because workers there assume all management functions, that can build an alternative. His argument, however, is not pollyannaish by any means — cooperatives face serious challenges at the hands of capitalist governments not to mention the direct hostility of capitalists themselves.

No easy path for Argentine cooperatives

For all the success of Argentina’s cooperatives in providing a better standard of living and vastly superior working conditions to their members, the road has been a hard one — and those cooperatives still constitute a minuscule portion of the Argentine economy. Moreover, not all those in Argentina who formed cooperatives necessarily wished to do so — converting the recovered factories into state-owned enterprises with worker control was often the original goal and in some cases that is still the hoped-for outcome. (Although at the moment, given the harsh neoliberal policies of the new government of Mauricio Macri, that is off the table for now.)

Cooperatives Confront Capitalism does not hold back from discussing the difficulties. These cooperatives formed when the former capitalist owners decided to close down production and/or had not paid the workers for long periods, sometimes months. Forced to take matters into their own hands, workers occupied their workplaces and physically defended themselves, with the help of the surrounding communities. Argentine law was not on their side — bankruptcy codes heavily favor creditors, assets are quickly sold and judges have too much arbitrary power. Nor is there a national law facilitating this process; a patchwork of provincial and municipal laws, with varying terms, prevail. New coops face difficulty obtaining loans and credit, and are often forced to pay for supplies in cash.

The taken-over Zanón ceramics factory, now known as FaSinPat, or Factory Without a Boss (photo by Guglielmo Celata)

The route to survival for coops has been involvement with local communities, making donations, becoming involved in others’ struggles and fostering the idea that cooperatives can’t survive on their own but must be part of a struggle for socialism. Leaders are rotated, positions of day-to-day management have set terms and all major strategic decisions are made collectively in meetings of all members. Coop salaries are higher than salaries in capitalist enterprises and working conditions are far safer. This sense of solidarity is a principal — Professor Ranis quotes a leader at the FaSinPat ceramics plant (the former Zánon factory) in this way:

“When we have to support another struggle, we stop production because it is a social investment, a sowing that we reap in the future.” [page 66]

Thus struggle does not stop at the factory gates. Professor Ranis elaborates:

“The Zánon workers see their factory as being at the service of the community and not the market, and that attitude has been translated into countless acts of solidarity, for which they have been compensated by the community in five attempts by the provincial police to take over the factory. … They argue that an effective state must take responsibility for creating jobs while allowing workers to control production and extend its surplus to the whole community.” [page 68]

An easier path in Cuba?

Cooperatives have become a steadily growing experiment in Cuba. There, cooperatives have a firmer footing because they are being formed with government support. This, however, is mostly a top-down process, with most coops being formed at government insistence by converting state-owned enterprises. Cooperatives Confront Capitalism does not shy away from critiques of this process, noting the top-down decision-making, that although there is considerable input from below it remain consultative, and that bureaucratic barriers impede the formation of coops created from scratch.

The self-employed sector remains larger than the cooperative sector, and most Cuban workers continue to work in the state sector as the coops are concentrated in services. Professor Ranis also points out that inequality is returning to Cuba. Only some have relatives elsewhere who can send home remittances, and the re-sale of goods bought in the U.S. is highly profitable, and thus another source of inequality. The author argues that a movement from below is necessary to re-establish egalitarianism, especially as ration books are likely to be phased out for all but the poorest.

Nonetheless, he argues Cuban coops are a positive step forward and have a much better chance at success than do coops in Argentina or the United States. They are one of the best ways to democratize and de-centralize Cuban society, and also provides a path for fallow agricultural land to be put back into productive use. Neither private capital nor the state sector can meet workers’ needs; a worker-centered approach can defend against capitalist and state socialist forms, he writes.

Professor Ranis, in the middle of the book, makes a case for a great increase in the use of the cooperative form in the United States, where coops remain rare. Although most readers will likely find at least some of his prescriptions controversial, he does make them effectively. Arguing that capital that relocates should pay penalties for a “broken contract” with the local community, he calls for the use of eminent domain to block such moves. In what could be seen as a partial misstep, he argues that the controversial U.S. Supreme Court decision Kelo v. New London provides a legal precedent that can be used for worker and community benefit.

The argument for using eminent domain to take over enterprises that would otherwise be moved by their capitalist owners certainly is intriguing, and merits the exploration that Cooperatives Confront Capitalism provides. But an expansion of the Kelo decision runs the risk of becoming pyrrhic. The Supreme Court found constitutionally legal a plan by the city of New London, Connecticut, to tear down a neighborhood to build a speculative complex intended to attract shoppers and tourists; a move that backfired when the pharmaceutical company Pfizer did not in fact expand there but instead moved from the area.

The author paints the Kelo decision in a more positive light than merited by asserting that the city government had a well thought out plan that would have benefited the displaced community when in fact it was to benefit corporate interests. He also, without being specific, mentions a Brooklyn eminent-domain case as an example of positive development. I do not know what example the author had in mind, but the most prominent example of this activity in Brooklyn is the destruction of a neighborhood to build an unneeded basketball arena (there were already four in the metropolitan area) and luxury housing too expensive for the people of the surrounding area to afford. That is not the sort of “development” any community needs.

The creative use of eminent domain in the U.S.

Thus eminent domain risks being a tool for corporate plunder rather than the hoped-for tool to save jobs. Professor Ranis argues that the Kelo decision provides a legal cover for the taking of property for “the public good,” but doesn’t mention that the judge who wrote the decision, John Paul Stevens, was clearly uncomfortable and took the unusual step of advising state governments in how to circumvent the ruling. On the other hand, that such a decision went against the personal preferences of the ruling judges does admittedly boost the author’s argument that Kelo provides a possible route to expropriating runaway capitalists. In this reading, Kelo provides the legal basis for a government to take over an enterprise that would otherwise be moved and turn it into a cooperative, and should even become the “default option” to combat a closure.

Notwithstanding issues we might have with specific examples, the author does advance his case well:

“We need to use eminent domain for development purposes much as we use the legislative rights to tax and spend, zone for economic purposes, and regulate for consumer and environmental protections. … When workers occupy factories and enterprises they are not really taking something. They are trying to keep something that is already theirs, through their work, through their production of important goods and services, through allowing capital to be invested, and supplying the community with their taxes, their consumption expenditures and their everyday involvement in the civic life of their community.” [page 109]

Regardless of the route to their formation, government support and early subsidies are necessary for the coop sector to flourish. Such support is not currently the case; as an example, New York City provided $3 million in subsidies for 44 cooperatives while the New York state government gave $70 million to one capitalist aluminum factory to keep it from relocating. Without government help and access to low-interest credit, the odds of success are not high, given the capitalist headwinds that are inevitable, although the author notes that, for one example, Canadian coops survive at a higher rate than traditional enterprises.

But those that do make it provide a sterling example, superseding the “simplistic idea” that private property belongs only to the owner — “workers cannot be separated from the capital they produce.” [page 116] The book concludes with a call for “human development”:

“Cooperatives are basic to human development because their success depends on the emancipation of the whole worker rather than what the erstwhile capitalist wanted of them and determined for them.” [page 155]

However we might quibble with this or that specific passage, Professor Ranis has provided a well-reasoned argument for cooperatives as a form that shatters the tired, self-serving shibboleths of capitalism, when advanced in tandem with militant social movements at community and national levels. Demonstrating to ourselves that we can run the enterprises we work in is indispensable, and his book is thus a strong step forward.

* Peter Ranis, Cooperatives Confront Capitalism: Challenging the Neoliberal Economy [Zed Books, London 2016]

Working collectively beats working for a boss

Cooperative enterprises are more stable than conventional capitalist enterprises, are more productive and create jobs that are more sustainable. And although the temptation to see coops as a magical solution to the ills of capitalism should be resisted, that they are better for workers than top-down enterprises shouldn’t be any surprise.

The better performance of cooperative enterprises, and the better results for workers, than that of traditionally run capitalist enterprises was recently summarized by the organization Co-operatives UK in its report, “What do we really know about worker co-operatives?” Written by Virginie Pérotin, the report analyzed international data on worker-owned and -run businesses in Europe, the U.S. and Latin America and compared the results with conventional businesses.

Moreover, the report said, conventional enterprises have something to learn from cooperatives: “in several industries, conventional companies would produce more with their current levels of employment and capital if they behaved like employee-owned firms.” Setting aside the unlikelihood of capitalists suddenly deciding to cede control and/or share profits, the preceding quote only makes sense. Why wouldn’t we be more productive if we were working for ourselves and had a say in the running of the business rather than toiling within the traditional concept of having to accept orders from above by people who have no interest other than squeezing as much out of you as possible?

Les Mees Cereal Food Cooperative PAD in France (photo by JPS68)

The Co-operatives UK report defined a worker co-operative as an enterprise in which all or most of the capital is owned by employees (members) whether individually and/or collectively; all categories of employees can become members; most employees are members; in accordance with international co-operative principles, members each have one vote, regardless of the amount of capital they have invested in the business; and members vote on strategic issues in annual general meetings and elect the chief executive officer. Law firms were excluded because only some lawyers can be partners nor can any support staff.

The main findings of the report are:

• Worker co-operatives are larger than conventional businesses and not necessarily less capital-intensive.
• Worker co-operatives survive at least as long as other businesses and have more stable employment.
• Worker cooperatives are more productive than conventional businesses, with staff working “better and smarter” and production organized more efficiently.
• Worker co-operatives retain a larger share of their profits than other business models.
• Executive and non-executive pay differentials are much narrower in worker co-operatives than in other firms.

More productive and more stable

There are benefits not only for the workers of the cooperative, but also for the local community:

“Labour-managed firms are probably more productive and may preserve jobs better in recessions than conventional firms, creating more sustainable jobs. Promoting worker co-operatives could therefore improve local communities’ employment, and therefore health and social expenditure and tax revenue. …

Employee control is thought to increase productivity, and in a labour-managed firm adjusting pay to preserve jobs makes sense for the employee-owners. Worker-members make the decision to adjust pay and they get the future profits (whereas it is more difficult for a conventional firm to elicit employees’ agreement for pay cuts in exchange for job preservation, since the firm’s owners have an incentive not to increase pay when business recovers).”

And certainly no cooperative is going to vote to ship itself thousands of miles away to a low-wage haven!

Interestingly, perhaps because the example of the factory takeovers in Argentina come readily to mind, cooperatives are more commonly formed from scratch, rather than as rescues of failing enterprises. In France, for example, 84 percent of worker cooperatives started from scratch with only seven percent a rescue of a failing conventional firm during the years 1997 to 2001, whereas in the same period, 64 percent of all firms started from scratch and 20 percent as a rescue of a failing conventional firm.

A significant reason for that is undoubtedly government support. The French and Italian governments provide support for cooperatives and this accounts for the relatively higher number of coops in those two countries. The Co-operatives UK report estimates Italy has at least 25,000 coops, France has 2,600 and Spain has 17,000, compared to only 500 to 600 in Britain.

Government support for coops in France and Italy

During the last years of the 2000s, about 200 new enterprises joined France’s national federation of cooperatives (Société coopérative et participative, or SCOP) annually, and the numbers continue to grow. According to Co-operative News, three-quarters of French coops remain in business after three years, while only two-thirds of French businesses overall last that long. The French government directly provides assistance:

“[W]orker co-operatives receive tax benefits from the French government. SCOPs do not have to pay the professional tax, which is 1.5% to 2.5% of revenues and income on worker shares is exempt from income taxes. There are also financial mechanisms for workers to use redundancy payments as part of wider financing package to buy-out and provide cash-flow for the business once they take it over.”

The federation also provides financing for capital needs through its own financial institution. Financing is also available for cooperatives in Italy.

The taken-over Zanón ceramics factory, now known as FaSinPat, or Factory Without a Boss (photo by Guglielmo Celata)

The formation and sustainability of cooperatives in Italy are facilitated by the country’s Marcora Law. One aspect of this law is that laid-off workers can elect to have their unemployment paid in a lump sum to be used toward the formation of a cooperative, in conjunction with a minimum number of similarly situated workers. Cooperative members have technical assistance and financing available to them through a mutual fund run by cooperatives, to which all coops in turn contribute 3 percent of their net income. There are also banks that specialize in servicing cooperatives on advantageous terms.

The stability of coops in turn provides stability to the communities in which they operate, notes Co-operative News in a report on Italy’s Marcora Law:

“But beyond the economic and employment policies, the social dimension should not be underestimated: co-operation, by nature, is inextricably linked to geographical territory and, therefore, the re-launch of a business is almost always the re-launch of an important contribution to the economic regeneration of the area in which the enterprise operates; the assets of the business continues to be indivisible and inter-generational, which helps link the co-operative with its social reality.”

Continued survival in Uruguay

In Uruguay, mutual aid cooperatives have a long history — housing cooperatives began to be formed in 1966, with a rapid increase in them after the passage of the National Housing Act in 1968. These were suppressed during the years of military dictatorship in the 1970s and 1980s.

Worker-run cooperative enterprises constitute a tiny percentage of the economy in Uruguay. There was, however, a significant expansion in their numbers following a deep economic downturn there in 2002 and they have since gained some government support from the Frente Amplio government. These are often successful. A study finds that cooperatives have survival rates one-third above other enterprises. The study’s author, Gabriel Burdín, writes:

“[S]urvey evidence … in Uruguay indicates that [worker-managed firms] employ less supervisors compared with [conventional firms], rely more on mutual monitoring among co-workers and are more likely to introduce organizational innovations such as team work, quality groups, job rotation and consultation mechanisms.”

In Argentina, workers’ cooperatives were formed as acts of survival.

An organizer at the Zanón factory that is often seen as an exemplary model, Raúl Godoy, speaking at a Left Forum panel organized by Left Voice, told the audience of the long years of organizing necessary to have made the takeover possible. Even after the fall of Argentina’s military dictatorship, blacklists were maintained by employers during the era of formal democracy, and the Zanón factory had a “very harsh regime” for workers. Mr. Godoy reported that organizing had to be done “in almost conspiratorial fashion” outside the factory.

The Zanón activists built relationships with workers fighting in other places; sought to defend the rights of workers; built relationships with “picateros” (organized unemployed people who frequently use direct-action tactics), Mapuches, women and other workers; and did “important militant work that involved building confidence.” Thus when the factory was to be closed and the workers had to occupy it, and physically defend themselves from expulsion, they were able to be cohesive and to count on the assistance of the surrounding community.

The limits of the possible in Argentina

Although forming a cooperative was not necessarily their desired outcome, it represented what was possible at the time. Mr. Godoy told the Left Voice panel:

“There is no individual escape from the capitalist situation. We did not have the power to go beyond the cooperative form. It was the way we could maintain what we had accomplished.”

Argentine authorities have never been supportive of the recovered factories, and the new neoliberal government of Mauricio Macri has quickly slowed itself openly hostile to them. Thus Argentina’s cooperatives face a challenging future. “There is no solution within the capitalist system,” Mr. Godoy said.

Nonetheless, Argentine cooperatives have provided a demonstration of worker-run enterprises forging strong links with their communities, with mutual benefit to the enterprise and the community that supports the enterprise. The employees doing so first had to overcome their own doubts about themselves, but were able to draw on the experience of those who went first and created national organizations to represent the cooperatives and enable coordination among them.

It is no so simple matter for working people to acquire the confidence to run businesses themselves; pervasive capitalist ideology insists the businesses can only be run by a small elite, who are therefore entitled to collect hundreds or even thousands of times more in compensation than their employees. Yet how could any business function without the know-how and cooperation of its workforce?

That the working conditions within cooperatives are superior to traditional top-down enterprises is simply common sense. But cooperatives are small islands in a vast sea of capitalism, and can’t escape the pull of capitalist markets, no matter how humane an internal culture might be. Cooperatives in themselves don’t necessarily herald a coming socialist dawn; they are quite compatible with capitalism.

Cooperating with cooperatives

Even if cooperatives were to become the dominant enterprise model, that by itself would not eliminate competition. To create a truly new, better system, in an economy based on cooperatives, the cooperatives would have to cooperate with each other in a system with democratic accountability. (This does not preclude that certain key industries, such as banking, would be in state hands under democratic control.)

An alternative to capitalist markets would have to be devised — such an alternative would have to be based on local input with all interested parties involved. Such an alternative would have to be able to determine demand, ensure sufficient supply, allow for fair pricing throughout the supply chain, and be flexible enough to enable changes in the conditions of any factor, or multiple factors, to be accounted for in a reasonably timely and appropriate fashion.

For now, however, cooperatives must compete with capitalist enterprises with all the rigors of capitalist markets. Not even the world’s most successful cooperative, Mondragon, is exempt from this. That cooperatives tend to cut wages rather or dip into reserves rather than lay off workers, with an eye toward future better times in which pay cuts can be made up, may be more humane, but it also reflects that a cooperative enterprise that must compete is eventually forced to treat its own wages as a commodity.

If an economy is based on cooperatives, but those cooperatives compete against each other, the cooperative members will become their own capitalists and be forced to cut their wages to survive competition.

The intention here isn’t to pour cold water on the idea of cooperatives — they have tremendous value in demonstrating that working people don’t need bosses and that it is not necessary to work long hours for little pay so that a few people at the top can amass fortunes. The profits divided between industrialists and financiers derive from the difference in the value of what you produce from what you are paid.

Shouldn’t the people who do the work earn the benefits? Shouldn’t communities have stability instead of being subjected to the whims of far-off corporate bosses? In a better world, they would be.

New right-wing government cedes Argentina’s sovereignty to Wall Street

Argentina’s new right-wing president, Mauricio Macri, pledged to put an end to the country’s sovereignty, and on that he has been true to his word. The capitalist principal that windfall profits for speculators is the raison d’état for the world’s governments has been upheld.

Or, to put it in a different way, the government of Argentina will again be allowed to borrow on international financial markets — so that it can borrow money for the sole purpose of paying billions of dollars to speculators.

Argentina had been one of the few countries that refused to bleed its population to pay off odious debt under the 12-year husband and wife rule of Néstor Kirchner and Cristina Fernández. Their left-wing populism has been overstated — they left capitalist relations untouched and at best merely tolerated the movement of recovered factories — but they did consistently put the interests of Argentine working people ahead of international financiers. The election of the right-wing President Macri has put an end to that, along with his introducing the repression that austerity requires.

Entre Rios province, Argentina (photo by Felipe Gonzalez)

Argentina’s difficulties have a long history. The fascistic military dictatorship of 1976 to 1983 laid waste to the Argentine economy while unleashing horrific human rights abuses, and subsequent civilian governments sold off state enterprises at fire-sale prices while imposing austerity until the economy crashed at the end of 2001. Upon assuming office, President Kirchner suspended debt payments that would have impoverished the country. He offered to negotiate with bond holders, 93 percent of whom ultimately agreed to accept 30 percent of their bonds’ face value.

There were holdouts, most notably two hedge funds that waged a 15-year battle to extract the full value of the bonds, even though they bought them from the original holders for a fraction of the price. These two funds leading the holdouts were NML Capital, a subsidiary of Paul Singer’s Elliot Capital Management, and another hedge fund, Aurelius Capital Management. Mr. Singer, the type of character for which the term “vulture capitalist” was coined, is notorious for his scorched-earth tactics. At different points, he had an Argentine naval training ship seized in Ghana and attempted to seize Argentina’s presidential plane. His dedication to extracting every possible dollar regardless of cost to others was nicely summarized in 2011 by investigative journalist Greg Palast:

“Singer’s modus operandi is to find some forgotten tiny debt owed by a very poor nation (Peru and Congo were on his menu). He waits for the United States and European taxpayers to forgive the poor nations’ debts, then waits a bit longer for offers of food aid, medicine and investment loans. Then Singer pounces, legally grabbing at every resource and all the money going to the desperate country. Trade stops, funds freeze and an entire economy is effectively held hostage.

Singer then demands aid-giving nations pay monstrous ransoms to let trade resume. … Singer demanded $400 million from the Congo for a debt he picked up for less than $10 million. If he doesn’t get his 4,000 percent profit, he can effectively starve the nation. I don’t mean that figuratively — I mean starve as in no food. In Congo-Brazzaville last year, one-fourth of all deaths of children under five were caused by malnutrition.”

Buy low, demand very high

He’ll make a windfall profit off Argentina as well. The “special master” who presided over negotiations between the holdouts and the Argentine government — a veteran corporate lawyer who specializes in representing financiers and banks opposed to regulation — announced that NML Capital, Aurelius Capital and two other big hedge funds will receive 75 percent of the full principal and interest demanded by the holdouts. How big of a profit will this be? Only the funds themselves know for certain, but the lowest public estimate is a profit of nearly 400 percent.

Even that lowest estimate likely understates the profit. Bloomberg News reports that Mr. Singer will be paid $2.3 billion, or close to four times the $617 million in principal his firm holds. But as he likely paid only a small fraction of that principal, his profit is likely far greater. A Columbia University researcher estimates that NML Capital will receive $620 million for a portion of bonds for which it paid $48 million in 2008. That’s nearly a 13-fold profit in six years! As former President Fernández remarked when refusing to pay anything more than the 30 percent to which the other bondholders agreed, “I don’t even think that in organized crime there is a return rate of 1,608 per cent in such a short time,” adding that Argentina would not “submit to such extortion.”

President Fernández was referring to the profit Mr. Singer would have reaped had she given in to his full demands. She was speaking in a national address following two U.S. Supreme Court decisions in 2014 that upheld U.S. District Judge Thomas Griesa’s ruling that Argentina is not allowed to continue to pay the bondholders who agreed to accept 30 percent (or “haircuts” in financial parlance) until it reached an agreement with the holdouts. The Supreme Court also ruled that federal courts in the U.S. can order sovereign countries to hand over information on their assets to speculators. In other words, U.S. law, wielded to generate windfall profits for the most greedy, was decreed to apply to other countries, as if they are not sovereign.

The Kirchner-Fernández governments refused to yield their country’s sovereignty, but President Macri took office promising to pay off the vulture capitalists. Not only was Argentina’s ability to determine its own policy at risk, but the very concept of debt relief has been put in danger. The bondholders who agreed to take 30 percent made the calculation that something is better than nothing, and it enabled Argentina to recover from a severe economic crisis. The Kirchner-Fernández governments consistently offered the same deal to the holdouts. But now that the holdouts extracted so much more, will those who accepted the earlier deal now demand the same 75 percent given to the holdout funds? If they do, will they seek to enforce that after-the-fact better deal in the courtroom of Judge Griesa, who consistently showed himself biased in favor of the vulture capitalists?

Consider the assessment of two United Nations officials, Juan Pablo Bohoslavsky, the U.N. independent expert on the effects of foreign debt on human rights, and Alfred de Zayas, the the independent expert on the promotion of a democratic and equitable international order:

“A settlement would validate the type of predatory litigation that has been on the increase during the last decade. Such deals will make it more difficult to solve debt crises in a fair, timely and efficient manner by emboldening and rewarding the behavior of those who refuse to participate in debt restructuring efforts. These are no good news for attempts to solve debt crises in a timely and human rights sensitive manner.”

Paying debt through taking on more debt

The Macri government has now committed itself to paying $6.4 billion to the holdouts. How will it pay for that? By borrowing. Argentina had been blocked from borrowing in international credit markets, and as part of the deal will be allowed to borrow in those markets again. Judge Griesa’s injunction against resuming payments to the 93 percent of bondholders is also to be lifted. (That was enforceable because Argentina paid its debts to those bondholders through the Bank of New York, which was prohibited by the judge to pass through those payments under pain of legal penalties. Alternative routes through non-U.S. banks are difficult to use because of U.S. control over the global financial system.)

The deal also requires that the Argentine parliament reverse a law that blocks the country from offering any deal to holdouts better than terms agreed to by others. President Macri’s Let’s Change bloc does not hold a majority in the Chamber of Deputies, but picked up votes from the Peronist opposition to effect the necessary legal reversal this week. The Senate must still vote, but the expectation has been that the bill would have an easier time there.

The Puerto Madero district of Buenos Aires. (Photo by Juan Ignacio Iglesias)

Why is President Macri ceding his country’s sovereignty? Right-wing ideology of course plays a significant role here, but it is also self-interest. While the military dictatorship was conducting a reign of terror against Argentines that ultimately led to hundreds of thousands murdered, “disappeared,” tortured, kidnapped, arrested or forced to flee into exile, Mauricio Macri and his family were adding to their wealth. (Remember that this régime had the approval of Henry Kissinger and was blessed by David Rockefeller, whose loans financed it, with his infamous statement that “I have the impression that Argentina has a regime which understands the private enterprise system.”)

The Macri Society, or Socma, the family business, had close ties to the dictatorship. TeleSUR English reports that Socma “directly benefited” from the dictatorship:

“In 1973, prior to the 1976 military coup that ousted the civilian Peronist government of President Maria Estela de Peron and installed a dictatorship, Socma owned seven companies. When the dictatorship ended 10 years later, in 1983, the Socma corporate empire had expanded to 46 companies. Among Socma’s dozens of companies were various businesses that benefited the Macri family economically by providing services to the dictatorship regime.”

The new president, a director of the family conglomerate from a young age, is opposed to an Argentine parliamentary decision to launch an investigation of people and businesses that participated in the military dictatorship’s crimes, TeleSUR reports. La Nacion, a conservative Buenos Aires newspaper that backed President Macri, the day after the election published an editorial calling for an end of efforts to seek justice for the dictatorship’s victims, denouncing the quest for justice as a “culture of revenge.” Perhaps to emphasize this, the president has appointed as the new secretary for religious affairs Santiago Manuel de Estrada, who served as secretary for social security during the military dictatorship, which presided over severe reductions in wages and living conditions to go along with its death squads and torture facilities.

A monopoly for press backers, repression for opponents

Argentina’s biggest media conglomerate, Clarín, also backs President Macri, and no wonder: He has already moved to eliminate Argentina’s anti-monopoly law, which restricts the number of TV, cable and radio licenses a company can hold at one time, so that a handful of corporations can completely control the mass media. Such laws have precedent; for example, U.S. communications law long restricted anyone from owning more than 14 radio stations and seven television stations until overturned during the Reagan era. The Macri government is moving swiftly to silence opposition — it has forced a popular radio broadcaster, Victor Morales, off the air. According to the Buenos Aires Herald:

“ ‘I’m being kicked out because this company needs government advertising … No radio in Argentina can survive without government ads. They can’t mess with Macri,’ said the journalist.”

Demonstrations against these developments have already taken place, as have a public-sector strike against massive layoffs, demonstrations against the new government’s anti-protest law and protests against the imprisonment of Indigenous leader Milagro Sala. A total of 25,000 public workers have been dismissed as part of the Macri government’s austerity policies, and a new “security protocol” enables indiscriminate arrests and restricts the press’ ability to cover such events, opponents say. A coalition organizing against these new repressive policies states:

“The new protocol implies that every protest is now a criminal offense, and empowers the Security Forces — the same forces that played an active role in Argentina’s last military dictatorship — to allow or forbid any protests. The criminalization of protests violates several judicial decisions that state the right to demonstrate supersedes any occasional traffic problems that may be caused.

This year, on the 40th anniversary of the military coup in Argentina, the Mauricio Macri government has begun a campaign to eliminate an essential human right — the fundamental right to protest and demonstrate. With this new protocol, the government will try to prevent workers from protesting against redundancies or demanding salary increases, or mobilize against power outages and mining projects. This protocol openly defies the constitutional rights of the Argentine people as well as international treaties on human rights.”

Ms. Sala, imprisoned for the past two months, was arrested after protesting the policies of a provincial governor aligned with the president. She was acting in support of an organization she heads that provides social services. Parliamentarians, civil organizations and human rights campaigners across South America have denounced her arrest as political, and the United Nations has called for an explanation of her continued detention. The Buenos Aires Provincial Commission for Memory has issued this statement:

“Organizing collective action does not mean ‘inciting crimes,’ a massive demonstration is not ‘public disturbance’ and to oppose a government decision is not ‘an act of sedition.’ They are all democratic freedoms.”

They should be. But not when a right-wing government is determined to impose the rule of capital, or, in the case of the Macri government, to be a willing subaltern of international capital. The logic of the rule of financiers can only lead to not only intensified austerity, but increased repression.

High court rules that financiers are more sovereign than Argentina

The victory handed to speculators by the United States Supreme Court over one of the world’s larger countries provides a lesson in where power actually lies. It is not in a government building.

Two June 16 decisions by the U.S. Supreme Court elevates the “right” of hedge-fund speculators to massive windfall profits above all other human considerations. That ruling is consistent with rulings handed down by the secret tribunals used to arbitrate disputes between corporations and national governments that arise under “free trade” agreements that elevate “investors’ rights” above environmental and labor laws.

Between these Supreme Court decisions, most of the attention has focused on the ruling that federal courts in the U.S. can order sovereign countries to hand over information on their assets to speculators. In other words, the U.S. legal system has formally declared it has jurisdiction over other countries. Arrogant as that ruling is, the more dramatic development was the court refusing to hear an appeal of lower-court rulings directing Argentina to pay $1.3 billion to holdout speculators that refused to accept terms agreed to by a large majority of bond holders.

Simply put, the U.S. legal system not only declares U.S. law applies around the world, but that it will be applied to benefit the most aggressively greedy.

The Puerto Madero district of Buenos Aires. (Photo by Juan Ignacio Iglesias)

Much of the commentary on this case has attempted to reduce it to a simple morality tale of a debtor being obligated to pay back its creditors. The lead speculator in this affair, hedge-funder Paul Singer, who is trying to be paid the full value of bonds on which he paid pennies on the dollar, has tried to paint it that way.

Reality, of course, is far more complex. So first it is useful to understand the odious nature of Argentina’s debt.

Military junta uses dirty war to impose austerity

Prior to the 1976 military seizure of power, Argentina was an industrialized country with active union and left-wing movements, a sizable middle class and large tracts of arable land. But the Argentine economic elite and the multinational corporations that operated there wanted Argentina turned into a low-wage haven. Only extreme violence would be able to achieve that goal.

Upon seizing power, the military handed over economic policy to a well-connected industrialist, José Alfredo Martínez de Hoz, who ruthlessly implemented a severe neoliberal program of shock therapy, backed by a savage campaign of torture, “disappearances” and killings waged by the military and two allied fascist groups. The CGT union federation was abolished, strikes outlawed, prices raised, wages tightly controlled and social programs cut. As a result, real wages fell by 50 percent within a year. Because of the collapse of internal consumption caused by this austerity, ten percent of Argentina’s workforce was laid off in 1976 alone.

Tariffs were reduced deeply, leaving the country wide open to imports and foreign speculation, causing considerable local industry to shut. High interest rates led to more foreign speculation and an overvalued currency, further hurting national production. Against this backdrop, the dirty war was intensified — initially targeting leftists, the régime quickly began to eliminate students, lawyers, journalists and trade unionists.

This was the régime of which David Rockefeller, whose loans helped finance it, famously said, “I have the impression that Argentina has a regime which understands the private enterprise system.” Further economic contraction occurred, and for the last five years of the military junta, 1978 to 1983, Argentina’s foreign debt increased to US$43 billion from $8 billion, while the share of wages in national income fell to 22 percent from 43 percent.

Civilian control and formal democracy was re-established following the collapse of the junta, but the debt did not go away.

A civilian president, Carlos Menem, imposed an austerity program in the early 1990s in conjunction with selling off state enterprises at below-market prices. This fire sale yielded $23 billion, but the proceeds went to pay foreign debt mostly accumulated by the military dictatorship — after completing these sales, Argentina’s foreign debt had actually grown. The newly privatized companies then imposed massive layoffs and raised consumer prices.

By 1997, about 85 percent of Argentines were unable to meet their basic needs with their income. During this period, Argentina’s debt steadily mounted, leading to a scheme under which the debt would be refinanced. A brief pause in the payment schedule was granted in exchange for higher interest payments — Argentina’s debt increased under the deal, but the investment bank that arranged this restructuring racked up a fee of $100 million, the latest in a series of financial maneuvers that shipped a billion dollars to investment banks in ten years.

It all finally imploded at the end of 2001, when the government froze bank accounts and the country experienced so much unrest that it had five presidents in two weeks. The last of these presidents, Néstor Kirchner, suspended debt payments. Had Argentina resumed scheduled payments in 2005, interest payment alone on the debt would have consumed 35 percent of total government spending. Kirchner announced that Argentina intended to pay only 25 percent of what was owed and any group that refused negotiations would get nothing; in the end, Argentina paid 30 percent to bondholders who agreed to talk.

Vulture capitalist seeks extortionist gains

Approximately 93 percent of bondholders agreed to accept 30 percent of the face value — 30 percent is better than zero. Argentina has repaid these on a steady schedule and Argentine law forbids giving the holdouts a better deal. Some of the bonds held by the original holdouts were bought by NML Capital, a subsidiary of Paul Singer’s Elliot Capital Management, and another hedge fund, Aurelius Capital Management. These were the two whose lawsuits reached the U.S. Supreme Court.

Including interest, the holdouts would walk off with $1.5 billion if paid in full. NML Capital, Argentine President Cristina Fernández said, would see a gain of 1,600 percent for bonds it bought for $48.7 million. “I don’t even think that in organized crime there is a return rate of 1,608 per cent in such a short time,” she said in a national address following the U.S. Supreme Court decisions, in which she said Argentina would not “submit to such extortion.”

Mr. Singer, the type of character for which the term “vulture capitalist” was coined, certainly has been persistent in attempting to collect the full face value of bonds for which he paid a small fraction of that value. In November 2012, he had an Argentine naval ship impounded in Ghana after earlier plotting to seize the presidential plane and artworks that were to have been shown at a Frankfurt book fair.

Among other exploits, he has demanded $400 million from the Republic of the Congo for bonds he bought for less than $10 million and compelled the government of Peru to pay him a 400 percent profit on the debt of two Peruvian banks he bought four years earlier. His specialty is buying debt at a small fraction of the face value and demanding full payment, regardless of the cost to others, and has become a billionaire through doing so.

In the imperialist crosshairs

A series of one-sided rulings in a federal trial court, upheld by the U.S. Court of Appeals for the Second Circuit, favored the hedge funds over Argentina. When the appeals reached the Supreme Court, the bond holders who agreed to accept 30 percent (a “haircut” in financial parlance) backed Argentina, fearing that there would be no money for them should Argentina be forced to pay off the holdouts at full face value. The U.S. government also sided with Argentina, fearing a precedent that could be used to enable it to be sued.

The Foreign Sovereign Immunities Act of 1976 is supposed to bar lawsuits in U.S. courts against non-U.S. governments, but a 7-1 bipartisan majority of the Supreme Court decided that the law is malleable when not convenient. The Argentine bonds were sold with a provision that New York law would be used to settle disputes related to them, which gave U.S. courts the excuse needed to extend U.S. law to Argentina.

Under New York law, investors must be treated equally. That provision could have been interpreted to mean the holdouts would get the same 30 percent payment in installments — which the Argentine government would have agreed to had they been willing to negotiate — but instead it was used as an opportunity to give more rights to speculators.

The practical effect of these rulings is that “investors” — hedge funds with the well-earned sobriquet of “vultures” — have been elevated above a national government. This is perfectly consistent with the decisions handed down by secret tribunals like the World Bank-affiliated International Centre for Settlement of Investment Disputes when “investors” sue governments under “free-trade” agreements such as the North American Free Trade Agreement.

The hedge funds can leverage the U.S. legal system to enforce their will over Argentina in this case because the U.S. financial system is used to make payments to the bondholders who negotiated the 30 percent agreement with the South American country. Argentina could only continue to make those payments, while simultaneously refusing to pay anything to the holdouts, by doing so completely outside the U.S. financial system, which is possible but very difficult due to the system’s global reach. Moreover, those payees within the reach of the U.S. legal system would be susceptible to being sued by the holdouts.

Argentina has consistently said it has does not have the money to pay the holdouts and continue to meet its continuing obligations to the bondholders it has been paying, another reason for those bondholders to side with Argentina against the holdouts. The next payment is due June 30 — on that date, Argentina would be in defiance of the U.S. Supreme Court should it not pay the full face value of the holdouts’ bonds. But if it does so, or simply agrees to pay more than 30 percent, the holdouts would likely demand to re-negotiate to get the same deal.

Immediate conflict doesn’t negate larger interests

What to do? One possibility is to up the ante. That is the recommendation of Argentina’s counsel at the New York corporate law firm Cleary Gottlieb Steen & Hamilton in a memorandum dated May 2, 2014:

“[T]he best option for the Republic could be to permit the Supreme Court to force a default and then immediately restructure all of the external bonds so that the payment mechanism and the other related elements are outside of the reach of American courts. Argentina wants to continue paying its restructured debt. The Courts, nevertheless, have placed it in a terrible position.”

Courts do not act in a vacuum, but ultimately express the interests of the most powerful industrialists and financiers similar to any other component of a government in the capitalist system. It is certainly true that those interests are in conflict in this matter. Such a conflict is not unusual. The victory for one particular set of speculators here, however, serves to tighten the screws of austerity by further codifying the dominance of the most ruthless capitalists within the capitalist legal system.

Should the end result of this case be that all parties agree to a payment level higher than 30 percent, would the speculators on the losing side be crestfallen? Regardless of the outcome, the precedent set here provides additional leverage for speculators in future financial deals. Not even the opinion of the U.S. government, the ultimate protector of corporate interests through its intelligence and military apparatuses and “free trade” agreements, was allowed to interfere with a bid to further tighten corporate power. That is what was at stake here, not the short-term interests of this or that speculator.

For Argentina, or any other subaltern country, to rid itself of odious debt and re-orient itself toward the greater good of its citizenry rather than the profiteering of speculators, will require entirely new structures in a different economic system.

In show of power, financiers impose will on Argentina’s Navy

We know that finance capital is powerful, but that a hedge fund can impound the navy of the world’s eighth largest country is nonetheless startling.

Financiers the world over have fumed over Argentina escaping their clutches a decade ago — the example of a country refusing to acknowledge the maximization of bank profits as the central organizing principle of civilization is too scary to contemplate — but most have made their peace. Accepting that something is better than nothing, at least for now, almost all of Argentina’s creditors accepted 30 percent of the face value of the country’s sovereign debt.

Much of that debt is odious, accumulated by Argentina’s military dictatorship as it killed, tortured, “disappeared” or forced into exile Argentines by the hundreds of thousands as it imposed the Pinochet/Chicago School economic model. The rest of the debt came courtesy of the the country’s neoliberal rulers following the end of military rule, as it followed International Monetary Fund instructions into a crisis that culminated with economic crisis at the end of 2001. When Néstor Kirchner became Argentina’s fifth president in two weeks, he put an end to austerity and defaulted on the debt, ultimately agreeing to pay 30 percent to those willing to negotiate a settlement but refusing to pay anything to holdouts.

Many of Argentina’s creditors are not the financial institutions that originally made the loans; much of the debt was sold to speculators. Two of those speculators, the hedge funds Elliott Capital Management and Aurelius Capital Management, are among the seven percent of creditors who refused to agree, instead demanding full payment of the face value of the debt that they bought for pennies on the dollar. The key speculator here is Paul Singer, the type of character for which the term “vulture capitalist” was coined. Mr. Singer’s hedge fund is Elliott Capital and one of the fund’s subsidiaries is NML Capital.

The eyes of a billionaire

To all appearances, the billionaire Mr. Singer is determined to squeeze every dollar out of every “investment,” and he has the means at his disposal to bring this about. Using the Internet, his NML Capital tracked a ship used as a training vessel for the Argentine Navy. Calculating its chances, NML Capital waited for the ship to dock in Ghana, then quickly went to a local court, where it successfully obtained an order impounding the ship. The ship remains stranded in Ghana’s main port, and the Argentine government had to resort to chartering a flight to bring most of the crew home; it couldn’t use an Argentine airplane under fear that the plane, too, would be impounded.

Mr. Singer has long used such tactics, according to a report in Forbes magazine, and he purposely waited for the ship to dock in Ghana because he believed it was the country among the ship’s ports of call that would most likely grant his wishes. Forbes reports that Elliott Capital had sought in 2007 to seize the Argentine presidential plane when it was scheduled for maintenance in the United States (the plan was foiled when Argentina was tipped off) and two years later plotted to seize Argentine assets at the Frankfurt Book Fair, forcing the government to withhold showing works of art.

That having the ship stranded in port might have negative effects on Ghana, a poor country, does not seem to have been of concern. The ship’s presence has greatly slowed down the ability of cargo ships to use the port, causing dozens of vessels to wait offshore in a lengthening queue, according to The Financial Times. Such delays are also costing the shipping companies and others considerable money.

But what could be more important than a speculator trading on other people’s misfortune scooping up windfall profits?

Buying (very) low, demanding (very) high

There is nothing out of character for Mr. Singer to be using such hardball tactics. In fact, his hedge fund’s strategy is to buy outstanding debt at a tiny fraction of its value and then demand to be paid in full. A report on him and the other billionaires with whom he plays, including David and Charles Koch, on the ThinkProgress blog reports:

“Singer, manager of a $17 billion hedge fund, earned the moniker ‘vulture capitalist’ for buying the debt of Third World countries for pennies on the dollar, then using his political and legal connections to extract massive judgements to force collection — even from nations suffering from starvation and violent conflicts. Singer and his partners have used such tactics in Panama, Ecuador, Poland, Cote d’Ivoire, Turkmenistan, and the Democratic Republic of Congo. In addition to squeezing impoverished countries with sovereign debt schemes, Singer speculates in the oil markets, a practice which can lead to gasoline price hikes.”

Among his other exploits, Mr. Singer is the chairman of the Manhattan Institute, an extreme Right “think tank” that specializes in promoting neoliberal ideology.

That affiliation is evidentially not a coincidence. Investigative journalist Greg Palast, writing for Truthout, provides some of the details of the speculator’s previous efforts to “collect” his debts:

“Singer’s modus operandi is to find some forgotten tiny debt owed by a very poor nation (Peru and Congo were on his menu). He waits for the United States and European taxpayers to forgive the poor nations’ debts, then waits a bit longer for offers of food aid, medicine and investment loans. Then Singer pounces, legally grabbing at every resource and all the money going to the desperate country. Trade stops, funds freeze and an entire economy is effectively held hostage.

Singer then demands aid-giving nations pay monstrous ransoms to let trade resume. … Singer demanded $400 million from the Congo for a debt he picked up for less than $10 million. If he doesn’t get his 4,000 percent profit, he can effectively starve the nation. I don’t mean that figuratively — I mean starve as in no food. In Congo-Brazzaville last year, one-fourth of all deaths of children under five were caused by malnutrition.”

The financier war on Argentina

The billionaire speculator has also been attempting to get many pounds of flesh out of Argentina courtesy of the U.S. federal court system. The latest in a series of thundering rulings by a senior U.S. district judge, Thomas Griesa, earlier this month ordered Argentina to pay US$1.3 billion to Elliott Capital Management and Aurelius Capital Management, the two main holdouts who refused to agree to the 30 percent deal with Argentina.

The Argentine government appealed to a higher court on November 25. That is a routine the government is already familiar with, after the same judge last year issued a ruling that the two hedge funds could seize Argentina’s deposits with the Federal Reserve. Yes, it has come to the point where even the world’s most powerful central bank can be seen as a mere piggy bank to be raided at will by financiers. Well, almost, because that ruling was too much even for the U.S. government — it joined an appeal to a higher court, which threw out the ruling on the basis of sovereign immunity.

The Federal Reserve holds money and gold owned by many of the world’s governments, and has an interest in maintaining a shield that protects those holdings from private seizure.

This was a matter of the principal of sovereignty — the U.S. doesn’t want its overseas assets seized, either — so let us hold off from celebrating the appeals court reversal too joyously. The various bilateral and multilateral “free trade” agreements that elevate corporate profit above all other human considerations, and the arbitration bodies such as the International Centre for Settlement of Investment Disputes that improvise ever harsher rulings that become precedents for future cases, quietly lurk in the background. Not that long ago the idea that a regulation against pollution that threatens human health would be illegal because it hurts profits would have been bizarre. Yet it is now routine international trade law.

A billionaire speculator seizing a military vessel is bizarre; the billionaire’s tactics are sufficiently outlandish that, in this case, other financiers oppose his insistence on being paid in full if only because they are afraid they would not receive their own payments if Argentina has to pay him. President Cristina Fernández has repeatedly said there will be insufficient money available to continue to pay back the creditors who accepted the 30 percent deal nor for domestic social programs if full payments are made to the holdouts Elliott Capital and Aurelius Capital.

But if the holdout hedge funds’ tactics ultimately work, what is outlandish will become accepted. What will be seized next? A country’s food supply?

Financiers love to portray themselves as the lubricants of the modern economy, enabling capital to be distributed to where investment is needed. They can believe that if they wish, but there is no reason for the rest of us not to see financiers as what they are: parasites.

Cooperation is not only a good idea, it already works in practice

Cooperation is a fundamental human trait. You may find it bizarre to read a post that begins with such a sentence, but sometimes we do have to point out the obvious.

Competition, we are continually lectured, is the primary driving force animating human beings. It is rarely, if ever, put quite so explicitly, but the prevailing ideology does tell us exactly that. Competition is the fuel of economic growth and progress in a system based on never-ending life-and-death fights to gain dominance at pain of going out of business — so we are told. Competition, conveniently, can be won by only a few heroic figures, who must be given control over other peoples’ lives and rewarded with stratospheric pay.

We lowly employees, who can not comprehend the divine will of the market (which is governed by an invisible hand that only the chosen few of the business elite can see because they possess the magic glasses that see what is otherwise invisible), must sit in awe and gratitude of our capitalist masters. In fact, we should turn over the workings of our entire government to them, and be grateful for their selfless attitude in leaving the business world behind so that they can change the laws to benefit the businesses to which they will return.

Yes, I am going to commit sacrilege here. The world of the preceding two paragraphs, despite their continual propagation, does not have to be so. Places where they aren’t so already exist. Human beings can cooperate with one another (and routinely do — how would a product or service exist if employees did not work together?). The following is by no means a comprehensive list of successful cooperative enterprises, but represent building blocks toward a different way of organization.

Cooperative enterprises, in which all employees share in all the decision-making and manage themselves, are not pie in the sky. They already exist. Cooperatives are distinguished by higher pay than received by employees in traditional businesses, and studies have shown greater levels of job satisfaction — neither is a surprise when large sums of money are not funneled upward and workers have control and decision-making power over their jobs.

The recovered factories of Argentina

Practical experience in Argentina, where cooperatives have existed in a variety of industries since 2001, has provided a demonstration of worker-run enterprises forging strong links with their communities, with mutual benefit to the enterprise and the community that supports the enterprise.*

Solidarity and community instincts have not disappeared under the stress of competition from the capitalism surrounding Argentine cooperatives. A high level of idealism was necessary to initiate the process and in turn the experience has raised consciousness to new levels. After an upsurge in new occupations in 2009 (the latest year for which I can find a reliable figure), the Argentine movement of worker recovery of factories encompassed about 250 enterprises with more than 13,000 workers. The factory takeovers came in the wake of economic collapse a decade ago.

Néstor Kirchner, upon taking office as president early in 2002, suspended Argentina’s foreign-debt payments before agreeing to pay only 30 percent of the crippling debt, an unusual example of a country standing up to the capitalist world’s multi-national financial institutions. But Kirchner and his wife and successor as president, Cristina Fernández, did almost nothing internally to disturb the workings of capitalism — Argentina’s worker-run factories have contended with hostility from domestic political authorities and from corporate power inside and outside the country.

Most of the cooperatives formed in the worker-run factories began with similar stories — owners failing to pay employees, owners stripping the enterprises of assets, owners shutting down plants with no notice and of police using force to expel workers who had occupied plants for the purpose of getting some of the back pay owed to them after production was halted. The cooperatives were formed when workers maintaining their occupations realized that their factory owner did not intend to restart production, and decided to restart production themselves. The employees doing so first had to overcome their own doubts about themselves, but were able to draw on the experience of those who went first and created national organizations to represent the cooperatives and enable coordination among them.

The president of the national coordinating body National Movement of Reclaimed Companies, Eduardo Murúa, explained this process in an interview published in the book Sin Patrón:

“Since the restoration of democracy [after the 1976-1983 military dictatorship], all the laws that have been passed are against workers’ rights. The laws, enacted first by the dictatorship and then by the formal democracy, served to consolidate a global economic model organized according to the [existing capitalist] international division of labor. The changes to the bankruptcy law, for example, had left us without the possibility of severance pay. The reformed law also requires the judge to liquidate a bankrupt company’s assets in 120 days. The only way to reclaim the company is to occupy it and show, first the judge, and then the political class, that we’re not going to leave the factory. … Certainly, if there weren’t so many doubts and fears among the entire working class, there would be many more reclaimed factories. Because of these uncertainties, this process only works in places where there is some level of organization and capable leadership.” [pages 214-215]

The largest of these reclaimed factories is the Zanón factory producing ceramic tiles, which is now known as FaSinPat, a contraction of the Spanish-language words meaning “Factory Without a Boss.” The process started when the original owner, Luis Zanón, stopped paying his employees, who went on strike in response. Zanón received loans from the provincial government to pay back wages, but pocketed the money instead. Finally, the employees went back in, occupied the silent factory, sought and received community support, and decided to restart production themselves in March 2002.

Despite legal obstacles and police harassment, the collective works. In the first four years of worker self-management, the number of employees increased from 300 to 470, wages and factory output increased, and without the speedups and insensitivity to safety imposed by bosses, accident rates were reduced 90 percent. New workers are not hired hands, but become part of the collective. The collective allies itself with the struggle of local Indigenous peoples, who have donated clay from their lands to the factory. The collective also donates tiles to community centers and hospitals and, in return, the nurses’ union donates the services of a nurse during each shift.

The path of the FaSinPat collective was not an easy one — the workers had to physically defend their occupation, with community assistance, more than once and they had to wait eight years before the provincial government passed a law granting the collective legal control of the factory in August 2009. The government also paid off part of the debt incurred by Luis Zanón — much of it owed to the World Bank, which gave a loan of 20 million dollars to Zanón for the construction of the plant, a loan he never paid back. Zanón’s creditors had pushed for the eviction of the collective and foreclosure of the plant during the months leading up to the legislative vote.

The cooperatives operate in a myriad of Argentine industries, including “white collar” businesses. One example is a speciality newspaper covering economic and judicial issues in Córdoba. The newspaper, Comercio y Justcia, was sold by its long-time family owners to a conglomerate during the 1990s wave of corporate consolidation of Argentine media. The new corporate owners hired managers at enormous salaries, stopped paying employee salaries and staged a fake robbery that emptied the office of most of its equipment. The workers brought in their own computers so the newspaper could continue to publish, then went on strike when the new owners failed to pay them for five months.

Finally, the workers went back in to restart the newspaper themselves, making it a going concern after a great struggle. In contrast to other media outlets cutting staff and quality, the Comercio y Justcia collective maintained the size of its staff and its quality, more than doubling circulation in its first year.

In almost all of the Argentine cooperatives everybody earns the same amount, and none hires outside managers — the cooperatives are governed by assemblies of the entire workforce with their decisions carried out by managers who are elected from their own ranks and who serve limited, specified terms. In a separate interview in Sin Patrón, one of the Comercio y Justcia collective members said of the new way of working:

“Inside, we have a setup that goes against the logic of capitalism. A humanized work régime, a production arrangement decided by workers themselves. In relationships outside the institution, we can’t detach ourselves from the economy’s logic, but we give ourselves the luxury of doing work for free and doing what we decide as workers. On the inside the revolution has already happened. And looking externally, our biggest contribution is demonstrating that workers can efficiently run an enterprise.” [page 208]

Not all the Argentines who recovered their abandoned companies initially wanted to form cooperatives — there were those who wished for nationalization. There was no interest on the part of the federal or provincial governments to take over factories, so those workforces that initially sought nationalization had no choice but to adopt the cooperative form. Proponents of nationalization argued that cooperatives would be at the mercy of an intact capitalist system and that the cooperatives would eventually be forced to pay the old owner for the recovered factory, an expense they would be unable to meet. Proponents of cooperatives argued that direct worker takeovers would be faster and more practical — the jobs would be saved faster this way, the aim of the takeovers.

The cooperatives — although many successfully bought their factories from the old owners at discounted prices thanks to strong community support and their perseverance through long legal battles and repeated attempts at physical expulsion — remain small islands in a vast sea of capitalism. They are merely tolerated by an Argentine establishment loath to appear too openly to challenge continuing community support, and they represent an example that capitalists everywhere wish to stamp out. These cooperatives must survive in an economic environment that operates on a very different basis than they do and are at the mercy of the powerful forces unleashed by that environment, including boom/bust economic cycles. But they have survived.

Mondragon, the world’s biggest cooperative

Based in the Basque Country of northern Spain, Mondragon has more than 83,000 jobs among its many businesses. Mondragon produces industrial components and consumer goods, provides construction services, and operates a supermarket chain, a bank and a university. These are not small operations — the cooperative reports annual revenue of nearly 15 billion euros.

New workers become full members after a trial period of six to twelve months. All ownership is in the hands of Mondragon workers; each buys one non-transferable share upon become a member and sells it back to the collective upon leaving or retiring. In addition to the regular wage, members also share in the profits, with a dividend being paid to each out of the surplus the members’ business earns. Thirty to seventy percent of the profits are distributed as dividends, depending on the health of a given business. Profits are also distributed among the individual businesses, set aside for investment and to replenish reserves, and distributed into the overall organization’s internal support fund.

Mondragon’s English-language web site explains the basis of its workers’ renumeration, which are on a very different principle than a capitalist corporation:

“Labour is granted full sovereignty in the organisation of the co-operative enterprise, the wealth created is distributed in terms of the labour provided and there is a firm commitment to the creation of new jobs. As far as the wealth generated by the co-operative is concerned, this is distributed among the members in proportion to their labour and not on the basis of their holding in Share Capital. The pay policy of Mondragon’s co-operatives takes its inspiration from principles of Solidarity, which are expressed through sufficient remuneration for labour on the basis of solidarity.”

All decisions on working hours, pay, allowable pay differentials, strategic decisions and management are made by a collective vote off all members. The supreme body of Mondragon is the general assembly, in which all members participate and vote on the basis of “one member, one vote.” The general assembly elects the governing council, which represents and governs the cooperative — and is accountable to the general assembly. The governing council in turn appoints the executive management team. Management does not act independently, however — a separate cooperative congress, consisting of 650 members delegated by individual businesses, is tasked with “establish[ing] the strategic criteria by which the Corporation is to be administered.”

Members are also represented in all internal bodies by the social council, and an elected monitoring commission ensures compliance with accounting principles.

Decision-making power, however, resides with the full membership. According to Mondragon:

“The first and foremost body of participation is the General Assembly, in which rests the full sovereignty of the co-operative. Its most important powers include: appointing and revoking members of the Governing Council and Accounts Auditors by means of a secret vote; examining company management, approving the annual accounts and the distribution of surplus and apportioning of losses; approving the general policies and strategies of the co-operative; approving increases in share capital, the rate of interest to be accrued by capital contributions and the joining fees for new members; modifying the Company Statutes and approving everything implied by a substantial modification in the economic, organisational or functional structure of the co-operative.”

Management comes from within; it is not hired from outside. And there are no layoffs — if a business experiences a slowdown, some of its members are transferred to another business that has need of more workers. Mondragon, however egalitarian its internal structure, does have to compete in a capitalist environment against capitalist enterprises, and so continues to expand into new ventures and to, outside of Spain, buy companies. The latter are bought with an eye toward converting them into cooperatives and making the bought companies’ personnel worker/owners equal to those in established businesses, but has not succeeded in converting all.

Nonetheless, Mondragon’s workers don’t face the continual prospect of being laid off every time there is a slight dip in profits. Georgia Kelly and Shaula Massena, writing in Yes magazine, reported on what happened when one of the Mondragon businesses experienced difficult times:

“The worker/owners and the managers met to review their options. After three days of meetings, the worker/owners agreed that 20 percent of the workforce would leave their jobs for a year, during which they would continue to receive 80 percent of their pay and, if they wished, free training for other work. This group would be chosen by lottery, and if the company was still in trouble a year later, the first group would return to work and a second would take a year off. The result? The solution worked and the company thrives to this day.”

Nobody votes to send their jobs to a low-wage haven in another country.

The “Cleveland model” starts with anchors

The Evergreen Cooperative Initiative — often referred to as the “Cleveland model” — seeks to strengthen a local community from the ground up through the creation of cooperative enterprises anchored to large institutions. Based on the east side of Cleveland, Ohio – a city that has lost half of its population since 1960 — Evergreen creates worker-owned small businesses that provide products and services to established “anchor” institutions in the immediate area (such as hospitals and universities) and other customers.

The Evergreen Cooperative Corporation, which describes itself as a holding company “leading this initiative,” says on its web site:

“The Evergreen Cooperative Initiative is based on a vision of ‘community wealth building.’ Community wealth strategies aim at improving the ability of communities and individuals to increase asset ownership, anchor jobs locally, strengthen the municipal tax base, prevent financial resources from ‘leaking out’ of the area, and ensure local economic stability.

The strategic pillars on which the Initiative is built are: (1) leveraging a portion of the multi-billion dollar annual business expenditures of anchor institutions into the surrounding neighborhoods; (2) establishing a robust network of Evergreen Cooperative enterprises based on community wealth building and ownership models designed to service these institutional needs; (3) building on the growing momentum to create environmentally sustainable energy and green collar jobs (and, concurrently, support area anchor institutions in achieving their own environmental goals to shrink their carbon footprints); (4) linking the entire effort to expanding sectors of the economy (e.g., health care, our aging population, local food, and sustainable energy), many of which are recipients of large-scale public investment; and (5) developing the financing and management capacities that can take this effort to scale (that is, to move beyond a few boutique projects or models to have significant municipal impact).”

Evergreen hopes to create as many as ten more cooperatives in the next three to five years, and ultimately create 5,000 cooperative jobs during the next decade. In a city the size of Cleveland, that is a small number, but it represents a model that others can replicate. Success in this initiative would also demonstrate a different, more humane model than that of modern-day capitalism, with its authoritarian top-down structures and vastly unequal levels of compensation and power.

Successful local businesses such as these would also stabilize neighborhoods that suffer when jobs in manufacturing and older industries are moved away.

Cooperative businesses include Evergreen Laundry, which provides industrial-scale laundry services; Evergreen Energy Solutions, which designs and installs solar panels and provides energy-efficiency services; and Green City Growers Cooperative, which operates a hydroponic food-producing greenhouse covering more than three acres (more than one hectare). Local institutions that contract for services from the cooperatives include Case Western Reserve University, the University Hospitals system and the Cleveland Clinic (a local medical center and research facility).

By using local institutions that will not be moving as anchors, the Cleveland model seeks to create worker-owned enterprises that will also stay in the community:

“Rather than a trickle down strategy, it focuses on economic inclusion and building a local economy from the ground up; rather than offering public subsidy to induce corporations to bring what are often low-wage jobs into the city, the Evergreen strategy is catalyzing new businesses that are owned by their employees; rather than concentrate on workforce training for employment opportunities that are largely unavailable to low-skill and low-income workers, the Evergreen Initiative first creates the jobs, and then recruits and trains local residents to take them.”

The Cleveland Foundation, a local funding organization, provided capital, guaranteed a bank loan and conducted talks with executives of the anchor institutions to start the initiative. Each individual business received a loan that was subsidized with federal tax credits, and low-interest funding was also provided by the U.S. Department of Housing and Urban Development. Using its seed capital, Evergreen provides long-term financing to start cooperative businesses and to provide them with technical support and training.

Similar to Mondragon, on which Evergreen is modeled, employees work a six-month probationary period, then begin to buy into the company through payroll deductions over three years. Evergreen estimates that its worker-owners will build an equity stake of $65,000 after eight years of working at an Evergreen cooperative in a section of Cleveland in which the median annual income is $18,500. When worker-owners retire or leave the company, they relinquish their ownership share and the value of their capital account is returned to them, as their equity stake in the company. Workers also share in the profits generated.

Cooperatives as yet are too small to represent anything other than the smallest crack in the edifice of capitalism. But the bricks of today will be used to build the world of tomorrow. These models could spark similar enterprises or cooperatives on different models — and demonstrate that cooperation can become the standard in a better world.

* This discussion of Argentina is based on an excerpt It’s Not Over: Learning from the Socialist Experiment (Zero Books). Among the sources used here are lavaca collective, Sin Patrón [Haymarket, 2007]; Peter Elliot, “Zanon Workers in Argentina Still Waiting for Security,” posted June 27, 2006, on the Upside Down World web site, upsidedownworld.org; Ginger S. Gentile, “Argentine Lessons,” posted March 8, 2004, on the ZNet web site, http://www.zmag.org; Marie Trigona, “Argentine Factory Wins Legal Battle: FaSinPat Zanon Belongs to the People,” posted August 14, 2009, on the Upside Down World web site

The country that said no: Argentina’s path out of austerity

By Pete Dolack

On a daily basis, we are bombarded with messages in the corporate media that any European Union country defaulting on its debt would constitute armageddon. Greece/Ireland/Spain/choose your country must pay back the banks in full, no matter the social cost, we are told ad infinitum.

I would ask readers to contemplate the unthinkable, except for the fact that not sacrificing entire countries for the sake of investment bankers’ bonuses, speculators’ profits and corporate windfalls is not really unthinkable. Countries have done it. One that did, a decade ago, was Argentina. I hope I will not induce any sudden heart attacks, but armageddon was not the result. No fire fell from the sky.

Quite the contrary, Argentines soon were far better off by saying no to the pitiless austerity that had been imposed on them.

There are lessons to be learned, with the usual caveats that every country is different. Other countries might not do as well as did Argentina, and Argentines did suffer considerable short-term pain. But, as people in other countries today ask: Could anything have been worse than endless austerity?

As with the current economic crisis that has reached dramatic points, Argentina’s crisis had a long buildup. The military dictatorship of 1976 to 1983 laid waste to the Argentine economy while killing, torturing, “disappearing” or forcing into exile hundreds of thousands. The military had been given a free hand to launch its “dirty war,” a campaign of terror against opponents of neoliberalism augmented by two fascist groups that operated with impunity. Upon seizing power, the military handed control of the economy to a prominent industrialist and landowner, who heavily favored the largest enterprises, outlawed strikes and banned the union federation. Real wages fell by 50 percent and gross domestic product fell by double digits. The result was a dramatic increase in income inequality and a fivefold increase in foreign debt. The restoration of civilian rule and nominal democracy put an end to government terror, but not to economic policy.

Banks underwriting Argentine government bonds earned an estimated US$1 billion in fees between 1991 and 2001, profiting from public debt.* During the same years, foreign debt continued to grow, speculators inflated a stock-market bubble, social benefits were reduced, and credit cut for small and midsize businesses. Wages were cut further, first by inflation and then by a wage freeze. Argentine exports steadily became less competitive because the peso was fixed at a one-to-one rate with the U.S. dollar; Argentina could not give a boost to its exports because the fixed exchanged rate did not allow the devaluation that capitalist competition had demanded.

In conjunction with the austerity programs, Carlos Menem, who was president for most of the 1990s, sold off state enterprises at below-market prices. This fire sale yielded US$23 billion, but the proceeds went to pay foreign debt mostly accumulated by the military dictatorship — after completing these sales, Argentina’s foreign debt had actually grown. The newly privatized companies then imposed massive layoffs and raised consumer prices.

By 1997, about 85 percent of Argentines were unable to meet their basic needs with their income; the average income was less than one-half of what was necessary to meet basic needs for a family of four and the percentage of workers who were unemployed or underemployed was about 30 percent.** Because these austerity programs were implemented by a Peronist president — traditionally seen as protectors of labor and social services —  working people became ideologically confused and therefore were slow to fight back or coalesce behind anti-austerity political movements. The military junta had also physically wiped out a generation of experienced activists.

An upsurge of unrest finally brought an end to the punishment of Argentines. In December 2001, the government ordered bank accounts frozen and limited the payment of wages and pensions so that the money could be diverted to making interest payments on foreign debt; the government would have defaulted otherwise. A ferocious and broad protest movement mushroomed as Argentines refused to cooperate, and the country went through five presidents in two weeks.

The people had no choice but to find solutions themselves, and did: They set up barter clubs and created a system of popular assemblies, creating dual government structures at the local level. Workers in factories that had been shut down simply took them over, restarting production and converting them into cooperatives. A new president, Néstor Kirchner, suspended debt payments.

These developments soon reduced unemployment from 50 percent to 17 percent and created a budget surplus. The outstanding debt, however, remained — had Argentina resumed scheduled payments in 2005, interest payment alone on the debt would have consumed 35 percent of total government spending, according to an analysis by Alan Cibils published in Z Magazine. Kirchner announced that Argentina intended to pay only 25 percent of what was owed and any group that refused negotiations would get nothing; in the end, Argentina paid 30 percent.

Those moves did not constitute a magic wand, and recovery was slow for many. But over the longer term, Argentina has done well — its gross domestic product nearly doubled from 2002 to 2011, representing the fastest growth in the Western Hemisphere, according to a report published in October 2011 by the Center for Economic and Policy Research.

The Center reports that:

• Poverty has fallen from almost half of the population in 2001 to approximately one-seventh of the population in early 2010.
• Income inequality significantly declined. In 2001, those in the 95th percentile had 32 times the income of those in the fifth percentile. By early 2010, that figure fell by nearly half, to 17.
• Unemployment has fallen by over half from its peak, to eight percent.
• Social spending rose from 10.3 to 14.2 percent of gross domestic product.
• In 2009, the government expanded the reach of its social programs, launching the “Universal Allocation per Child,” which resulted in significant reductions in infant and child mortality from 2001 to 2010, somewhat more than in similarly situated countries.

The Center’s report notes that “Argentina’s rapid growth has often been dismissed as a ‘commodity boom’ driven by high prices for its agricultural exports such as soybeans, but the data show that this is not true.” The value of Argentina’s manufacturing exports accounted for more than triple the value of its agricultural and forestry exports. Moreover, exports of agriculture, hunting, fishing and forestry products accounted for a steadily smaller percentage of Argentina’s economy during the past decade — those exports accounted for 5.0 percent of overall gross domestic product in 2002 as compared to 3.7 percent in 2010.

“The recovery is driven by consumption and investment (fixed capital formation),” which together accounted for more than 70 percent of Argentina’s growth during the past decade, the report states.

That success came despite Argentina still being shut out of international lending markets, having little direct foreign investment and continuing to be subject to hostility from the United States and the European Union. The E.U. this week filed suit in the World Trade Organization against Argentina over import restrictions, encouraged by the U.S. An arbitration board based in Washington has repeatedly awarded energy companies hundreds of millions of dollars because the enterprises suffered losses when the peso was devalued in 2002 and regulators refused them steep rate increases. Never mind that market forces were at work — it was the very same markets that these companies swear to live by that caused the fall in value of the peso while it was government intervention that had artificially propped up the peso’s value previously.

Economist Joseph Stiglitz, in a 2007 lecture, said of the arbitration rulings:

“It is clear that maintaining utility prices in dollars — while the rest of the economy was undergoing pesoification — would have been a huge windfall for the utilities. It would have represented a vast redistribution of wealth from the rest of the economy to the utilities — resulting in an unfair and inequitable outcome. It would have harmed the economy, depressing output even further.”

Critical for Argentina’s turnaround was defaulting on its debt, freeing money for investment and social services. Also a factor was eliminating the peso’s peg to the U.S. dollar. Valuing one peso as equal to one dollar was exactly as if Argentina used a common currency like the euro; Argentina’s currency was overvalued and all adjustments imposed by capitalist competition therefore had to be made internally — in other words, harsh austerity.

Once Argentina allowed the value of its peso to be set by market forces, the country not only saved the money that had been spent in foreign exchange markets to prop up the peso’s value (expensive market interventions maintain currency pegs, not government fiats), but the strong decline in the value of the peso made Argentina’s exports cheaper. It also made imports into the country much more expensive. From a consumer perspective that is a harsh burden but within the logic of capitalism in which Argentina had to operate it acted as a spur to internal production. If it is too expensive to buy from another country, the alternative is to make it yourself.

The need to restart production and put themselves back to work also induced workers in plants that had been shut down or were being asset-stripped to take them over. Community support enabled these workers to maintain their operations in the face of government hostility. The recovered enterprises became cooperatives that in turn were managed with community benefit in mind.

Argentina’s industry became more competitive and because many more Argentines were back to work, there was more domestic demand. Consumer demand is ultimately the driving force in a mature capitalist economy. According to the World Bank, household consumption accounted for 60 percent of Argentina’s gross domestic product, a typical figure. Under austerity, when unemployment sharply rises and those who retain their jobs are paid a lower wage,  the economy contracts because people don’t have money to spend.

Working people also don’t pay as much taxes when their wages decline. Corporations and the rich are paying less taxes, too — because they refuse to pay them, much preferring to lend money at interest rather than shoulder responsibility for the society that enables them to accumulate vast wealth — so governments are forced to borrow. But as less revenue comes in, more must be borrowed, and the price extracted by the corporations and the wealthy who lend is to demand more austerity to ensure they will be repaid in full, with interest. Unemployment rises more, more debt is accumulated, the economy contracts further, and round and round it goes until working people rise up to force their government to stop.

That is what happened in Argentina in 2002. That is what is needed to happen in many more countries today.

* This and the following paragraph based on Pablo Pozzi, “Popular Upheaval and Capitalist Transformation in Argentina,” Latin American Perspectives, September 2000, pages 65-70; Colin M. MacLachlan, Argentina: What Went Wrong, pages 169-171 [Praeger, 2006]
** This paragraph based on Pozzi, “Popular Upheaval,” pages 75-80