What if Bernie Sanders were really talking about socialism?

Socialism has re-entered the realm of popular political discussion in the United States, for the first time in decades. There are several reasons for this, the most important being that a quarter-century has passed since the fall of the Soviet Union and the force of the bogey it represented has little resonance for a younger generation; several years of ongoing economic turmoil has led to more people being willing to question capitalism; and the popularity of Bernie Sanders’ presidential campaign because of the Vermont senator’s willingness to challenge the status quo.

Senator Sanders routinely speaks in front of large, enthusiastic crowds and although it remains unlikely that he will win the Democratic Party nomination, his strong showing and common-sense demeanor has forced the corporate media to expand the ordinarily heavily constricted boundaries of political and economic discourse. He calls himself a “democratic socialist,” and the corporate media by and large seems content to use his label, often even dropping the “democratic” and simply referring to him, without the usual rancor, as a “socialist.”

So is it really true that socialism has become acceptable and mainstream? Or, to be more direct: Is Bernie Sanders really a socialist?

Bernie Sanders rally in Louisiana (photo by Bart Everson)

Bernie Sanders rally in Louisiana (photo by Bart Everson)

The answer to the first question remains to be answered, but the answer to the second is “no.” Senator Sanders offers reforms to the capitalist system. Significant reforms, ideas and platforms far beyond any other major-party candidate for president. These would certainly be welcome if they could be enacted. But they are still reforms, not real change. Reforms, unfortunately, can and are taken away — as the past three decades have vividly demonstrated. Just as Keynesianism is not going to save us, there is no going back to the past nor is it still possible to believe capitalism can be a progressive force.

In the first Democratic Party presidential primary debate, Senator Sanders offered Denmark and Sweden as examples of the democratic socialism he has in mind. The front-runner, Hillary Clinton, immediately parried with a claim that the United States dare not “turn our backs on what built the greatest middle class in the history of the world.” That more of those in the broad middle or with less are struggling just to keep a roof over their heads and keep from drowning in debt, that wages have been stagnant since the 1970s while the one percent grab all the gains, that prospects for students and recent graduates are more dismal than for their parents or grandparents, it would seem that Secretary Clinton’s middle class doesn’t have it so good.

Europe versus the United States

It tales no more than a cursory glance at Denmark, Sweden or many other countries to see the unreality of her claim. For one thing, health care is a right in most of the countries of the world, but in the United States health care is a privilege reserved for those with money or a full-time job (if it has reasonable benefits). In Denmark, all people who reach age 65 are entitled to a retirement pension, all residents have sickness benefits if they are unable to work, health care is a right, stays in public hospitals are free and paid parental leave is available up to 46 weeks. Danish workers are entitled to five weeks of vacation each year by law and many workers have a negotiated sixth week of vacation.

European countries require 20 to 30 day of vacation, and Australia and New Zealand require 20 days. The United States is the only advanced capitalist country that mandates none.

The idea that working people in the U.S. have it good is laughable. Secretary Clinton is no different than her Republican challengers in her ideological belief in “American exceptionalism,” the nationalist term used by United Statesians to claim theirs is the greatest country and a mandatory ideology for those seeking political office. However much better life may be there, however, it isn’t true that Denmark or Sweden are socialist countries. Those countries, and others applying versions of the Scandinavian welfare model, are capitalist countries that have laws and regulations to ameliorate the conditions of capitalism. So austerity is not an impossibility there; the relentless downward pressure applied to working people under capitalism is in force across Europe.

It is no accident that the European Union bureaucracy is unaccountable to any democratic vote; the E.U. is designed by central bankers to benefit European big business and financiers. European capitalists desire the ability to challenge the United States for economic supremacy, but cannot do so without the combined clout of a united continent. This wish underlies the anti-democratic push to steadily tighten the European Union, including mandatory national budget benchmarks that require cutting social safety nets and policies that are designed to break down solidarity among wage earners and different regions by imposing harsher competition through imposed austerity.

The European Union, in its current capitalist form, is a logical step for business leaders who desire greater commercial power on a global basis: It creates a “free trade” zone complete with suppression of social accountability while giving muscle to a currency that has the potential of challenging the U.S. dollar as the world’s pre-eminent currency. Europeans’ ability to keep the reforms they have won are dependent on their organizing and going into the streets, the same as in the U.S. or any other country.

A basic sketch of socialism

What would socialism look like? There is no specific set of formulae, but some basics are:

  • Everybody who contributes to production earns a share of the proceeds — in wages and whatever other form is appropriate — and everybody is entitled to have a say in what is produced, how it is produced and how it is distributed, and that these collective decisions are made in the context of the broader community and in quantities sufficient to meet needs, and that pricing and other decisions are not made outside the community or without input from suppliers, distributors and buyers.
  • Nobody is entitled to take disproportionately large shares off the top because they are in a power position.
  • Every person who reaches retirement age is entitled to a pension that can be lived on in dignity. Disabled people who are unable to work are treated with dignity and supported with state assistance; disabled people who are able to work can do so.
  • Quality health care, food, shelter and education are human rights.
  • Artistic expression and all other human endeavors are encouraged, and — because nobody will have to work excessive hours except those who freely volunteer for the extra pay — everybody will have sufficient time and rest to pursue their interests and hobbies.

In such a world, there would not be extreme wealth and the power that wealth concentrates; political opinion-making would not be dominated by a numerically tiny but powerful class perpetrating its rule. Without extreme wealth, there would be no widespread poverty; large groups of people would not have their living standard driven as low as possible to support the accumulation of a few.

In any country in which a model of worker cooperation or self-management (in which enterprises are run collectively and with an eye on benefitting the community) is the predominant model, there would need to be regulations to augment good will. Constitutional guarantees would be necessary as well. Some industries are simply much larger than others. In a complex, industrialized society, some enterprises are going to be much larger than others. Minimizing the problems that would derive from size imbalances would be a constant concern.

Furthermore, if enterprises are run on a cooperative basis, then it is only logical that relations among enterprises should also be run on a cooperative basis. 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. Prices would be negotiated, with all enterprises’ financial information publicly available so no unfair profiteering could take place.

Investment would need to go to where it is needed, a determination made with as many inputs as possible, but because of its importance banking is one area that would have to be in state hands and not in collectives. Financial speculation must be definitively ended, with banking reduced to a public utility. Enterprises seeking loans to finance expansions or other projects will have to prove their case, but should have access to investment funds if a body of decision-makers, which like all other bodies would be as inclusive as possible, agrees that the project is socially useful or necessary. Energy, another critical industry, would also be nationalized and under democratic control.

Government infrastructure projects should be subject to the same parameters as enterprises, with the added proviso that the people in the affected area have the right to make their voices heard in meaningful ways on local political bodies and on any other appropriate public boards. No private developer wielding power through vast accumulations of money will be able to destroy forests or neighborhoods to build a project designed for the developer to reap profits while the community is degraded. Development would be controlled through democratic processes at local levels, and regional or national infrastructure projects should require input from local bodies representing all affected areas.

None of the foregoing is being talked about by Bernie Sanders, and certainly not any other candidate for the U.S. presidency. But such gains are unattainable under capitalism, no matter how many reforms are (temporarily) extracted from industrialists, financiers and the politicians who whistle their tune.

State banks would mean jobs, credit and investment: Why don’t we?

One of the many problems with the current banking system is that your tax money helps fuel speculation. Unless there is a public bank that your local government can place deposits into, revenues are the playthings of big banks.

Some of that money will go toward investment via loans — at a hefty profit to the bank, of course — but a significant portion will go toward risky, socially harmful speculation. What if these public funds were instead put in a professionally run public bank? There would be more funds available for investment, significant savings on interest costs and more jobs would be created. That is the conclusion of a series of studies examining the issue.

The latest of these studies advocates that a Vermont state-government agency be converted into a state bank, run along the lines of the Bank of North Dakota, the only state bank in the United States. This study, prepared by researchers at the universities of Vermont and Massachusetts for the coalition group Vermonters for a New Economy, concludes that a Vermont public state bank would lead to more than 2,000 new jobs, hundreds of millions of dollars in increased economic output and a significant increase in funds available for investment.

Vermont maple syrup (photo by Gerald Zojer)

Vermont maple syrup (photo by Gerald Zojer)

Earlier, separate studies concluded that state banks in Oregon and Washington state would lead to thousands of jobs and hundreds of millions of new revenue. Advocates of a state bank in California believe the creation of a public bank would lead to billions of dollars in benefits there. The Bank of North Dakota turns a profit on behalf of that state’s government while providing investments for local projects — an example that could be replicated elsewhere.

Vermont has a small population similar to North Dakota’s, and the researchers who prepared the Vermonters for a New Economy paper drew on North Dakota’s experience. The paper concludes that a Vermont state bank would result in:

  • 2,535 new jobs, including more than 1,000 in the first two years.
  • $192 million added to the state economy.
  • As much as $236 million in new money would be available for credit.
  • Savings of almost $100 million from reduced interest costs.

If it acts like a bank, why not make it a bank?

Such achievements would represent a considerable benefit for a small, rural state with 600,000 residents. The paper does not recommend that Vermont start a state bank from scratch, but rather convert an existing state agency, the Vermont Economic Development Authority, into one. The paper said the authority, in conjunction with two other state agencies that provide specialized loans, already carries out many of the functions of a bank. The authority is tasked with “providing loans and other financial support to eligible and qualified Vermont industrial, commercial and agricultural enterprises” by the state legislature, a mission similar to a state bank.

As of now, the Vermont state government deposits its revenues in two commercial banks, TD Bank (based in Toronto) and People’s United Bank (a regional bank based in Connecticut that swallowed a local bank previously used). Those two banks can, and do, use the money deposited by the Vermont government for any purpose its managers desire. Although the paper went out of its way to praise both for their willingness to lend locally, they have little obligation to do so. TD Bank, typical of large financial institutions, is heavily involved in speculation — it has a reported derivatives exposure of $3.8 trillion, a total more than four times more than its assets. There is risk here.

Were the state government to instead place its revenue in a state bank, all the funds (excepting those required to be held as reserves under applicable federal regulations) would be available for local investment, both as loans and for needed public infrastructure projects. Moreover, a state bank could borrow funds from the Federal Reserve at a much lower rate than by borrowing from a commercial bank and, by being able to use funds from its state bank, the government would float fewer bonds, saving on interest payments. The paper said:

“A public bank could direct as much credit as desired within fed reserve requirements, capital ratios, and prudent banking towards investment in-state lending agencies by partnering with them. A bank can also expand the amount of credit available through leveraging, which the [state] Treasurer and lending agencies cannot do.” [pages 10-11]

The paper calculates that, even with reserve requirements, there would be more than $200 million in new credit available, which could be directed toward useful investment rather than speculation. Because Vermont’s deposited revenue represents a minuscule percentage of TD and People’s United’s assets, and because a state bank would be much more focused on public needs, the proposed state bank’s credit would be in addition to, not a replacement for, commercial banking credit:

“[O]n the question of a public bank creating new credit or not, we find no evidence to support critics, and find that public bank lending will mostly add to existing credit within the state. Furthermore, even if public bank lending simply replaced existing lending by private banks, the results would still be highly beneficial.” [page 22]

What’s good for a small state is good for a bigger state

In addition to the other benefits, the profits from loans would be returned to the state. The Bank of North Dakota routinely produces profits for that state’s government while providing a reliable source of funding for local investment. There have been bills introduced into the Vermont Legislature to study the creation of a state bank, but so far have not advanced due to opposition by the Vermont Bankers Association.

Similar bills have been introduced in other states, which have also faced considerable headwinds, despite (or because of) similar conclusions.

A study by the Center for State Innovation found that a state bank in Oregon could help create or retain 6,900 to 8,800 additional small-business jobs, make $1.3 billion available in new credit and earn profits for the state after only three years. Another study by the same organization focusing on Washington state predicted that a state bank there would created as many as 10,000 small-business jobs, make $2.6 billion available in new credit and also begin turning a profit after three years.

Advocates of a California state bank believe that it would generate $133 billion in credit becoming available for the largest U.S. state. A bill to study this issue was passed by the state legislature, but was vetoed by Governor Jerry Brown. The Bank of North Dakota reported net income of $82 million in 2012 — what would such a bank return in bigger states?

Ultimately, however, the stranglehold of financiers can not be reformed away. It can only be eliminated by converting all banking into a public utility for the broad benefit of society with speculation firmly prohibited.

Getting to there from here is a long road, but successful public state, provincial and regional banks replicated around the world would set a good example, and demonstrate that the staggering cost of a financial industry that continues to run amok is not a burden that we are forced to live with. If we have no control over the economy and our working lives, democracy is an illusion.

Bankruptcy of Mondragon company demonstrates limits of cooperation under capitalism

The announcement that one of Mondragon’s companies is filing for bankruptcy isn’t a commentary on cooperatives, but it is a reminder that even the world’s largest cooperative enterprise is not immune to capitalist competition.

Cooperatives point toward a more humane way of organizing production, but in themselves don’t necessarily alter market relations. That is true not only because cooperatives are yet minuscule islands in a vast sea of capitalism, and thus must make decisions strongly impacted by a continual buffeting by market forces, but because a cooperative economy would require that cooperation, rather than competition, be the basis of relations.

The shuttering of Mondragon’s household-appliances company, Fagor Electrodomésticos, is also an opportunity to ask if there comes a point where a cooperative becomes too big. Mondragon has expanded steadily, through internal growth and creating new businesses but also through buying companies outside Spain. Although that expansion is not a factor in Fagor’s closing, Mondragon has had difficulty absorbing some of its acquisitions, with the result that at least 14,000 workers are actually employees of the cooperative.

Mondragon UniversityThus the cooperative members profit through extracting surplus value from these employees, who do not share in the decision-making. In fact, Fagor’s Polish factory (where the workers are employees, not members of the cooperative) was the subject of a slow-down strike in 2011. Fagor, reacting to capitalist competitive pressures, had moved some production there from France to take advantage of lower wages.

The failure of Fagor, unable to survive the drastic downturn in the Spanish economy, is also noteworthy because it is Mondragon’s original business, and one of the larger among Mondragon’s federation of 110 cooperatives. A manufacturer of washing machines, refrigerators, dishwashers and other “white goods,” Fagor’s revenues declined to €1.1 billion in 2012 from €1.8 billion in 2008, the year of the financial crash, and has not earned a profit since 2008. Revenue has been hurt by the intensity of the economic downturn in Spain, where unemployment is 27 percent amidst a collapse of the housing market.

Cooperative members better off than capitalist employees

Unlike at a capitalist corporation, where workers are routinely laid off merely because of a slight decline in profits, Mondragon strives to keep all its members employed. Decision-making is made by the workers themselves, in assemblies and through their elected, accountable managers, representatives and board members.

In the case of Fagor, its cooperative members had previously agreed to cut their pay by 20 percent. In addition, Mondragon had provided €300 million in financing in an effort to keep the appliance maker afloat. But Mondragon’s general council, which coordinates the policies of the various companies, decided it would provide no more funds, rejecting Fagor’s request for another €180 million that Fagor believed would finally stabilize itself.

A Mondragon press release issued on October 30 said:

“[T]he proposal submitted by Fagor Electrodomésticos is not viable, and [Mondragon’s general council] has unanimously agreed the company no longer responds to market needs, and the financial resources it requests would not ensure its business future.

“The [Mondragon] Corporation has analysed the situation following the financial assistance given to Fagor Electrodomésticos in recent years both by the cooperatives themselves and through sundry corporate instruments, and it has considered that the feasibility plan submitted by Fagor Electrodomésticos is not viable.”

Because each of Mondragon’s companies are autonomous, self-managed cooperatives (which assist each other through mutual support mechanisms), Fagor’s closing has no effect on the viability of other units. But because one of the mutual-support mechanisms is retraining workers in struggling companies and their transfer to stronger businesses, Mondragon may have difficulty absorbing a bankruptcy unprecedented in size.

On the other hand, the cooperative members of Fagor are not simply out in the street, as they would be at a top-down capitalist corporation. Mondragon’s press release went on to say that its general council pledges to:

“[C]ontinue to activate all the support mechanisms required to reduce to the furthest possible extent the impact on employment due to the circumstances of Fagor Electrodomésticos. These measures will range from reassignments to early retirements and the implementation of training schemes that will reinforce the employability of the worker-members of Fagor Electrodomésticos. … The diversity of sectors and markets in which our cooperatives operate is an assurance that leads us to believe they will continue to launch new activities in the short-to-medium term, with a positive knock-on effect on job creation. The fact our businesses are competitive in their respective markets is good news for the absorption of any redundancies forthcoming at Fagor Electrodomésticos.”

Given Mondragon’s history, that is not empty talk, although El País reports that Fagor’s employed workers, which would include those in its Polish factory, are not covered. There have been no layoffs in Mondragon despite the exploding Spanish unemployment rate; instead workers have agreed to reduce their wages by an average of five percent with a shifting of some to stronger from weaker companies. Fagor’s cooperative members will be paid 80 percent of their salaries for two years through Mondragon’s own insurance company.

Forced to ‘become their own capitalists’

Mondragon’s growth from a handful of people in the 1950s to its status as a major competitor in a range of industries rests on its ability to successfully compete against capitalist enterprises while riding the ups and downs of market competition. No article about Fagor’s closing — not even the sneering “I told you so” of The Economist’s report — so much as hints at any quality-control issues. Rather, Fagor went under due to slack demand in Spain and France, and stiff competition from low-wage Asian imports.

Therein lies a contradiction. Mondragon operates as a cooperative, fully under the control of its workers (at least those in Spain), in which all management and oversight posts are elected internally, wages are vastly more equal than in a capitalist enterprise, and it is owned exclusively by its workforce. In other words, the cooperative members share in the risks, gains and decision-making, with profits distributed to the workers themselves, to investment funds and to the overall organization’s internal support fund.

Despite that internal cooperation, Mondragon must operate like a traditional capitalist enterprise outside its gates. Forced to compete against capitalist corporations operating in capitalist market conditions, it can not do otherwise if it is to survive. This is the case for other cooperatives today. In essence, cooperative workers in a capitalist economy are, in the words of Karl Marx, forced to “become their own capitalists.”

Because of Mondragon’s size, Fagor’s workers may be able to secure work elsewhere in Mondragon. They didn’t face the prospect of their jobs being moved to a low-wage haven on the other side of the world, but they also could not stay in business in the face of capitalism’s worst slump since the Great Depression.

Moreover, Mondragon also acts like a capitalist corporation in that it acquires businesses and sometimes the employees of those acquired businesses, particularly those outside Spain, remain employees of the cooperative rather than become full members. Such a result flows from the need to expand to survive the rigors of capitalist competition. Any economy that operates on the basis of market competition — that is, in which markets are allowed to determine social outcomes — will lead to some form of “grow or die,” in which enterprises struggle to survive.

Cooperators’ own wages remain a commodity if everything else is a commodity priced by markets. In an economy dominated by cooperatives but with capitalist market relations intact, collective workers would face market pressure to reduce their own wages in order to compete better against their competitors. Some enterprises would become much bigger than others; smaller enterprises would be compelled to sell themselves to larger competitors, consolidating production until an oligarchy arose. Some industries would be much bigger than others. As market competition intensified, survival would require more ruthless behavior.

Democratic control as the basis for a new economy

A cooperative economy, therefore, has to not only be based on enterprises run on cooperative lines, but the cooperatives must cooperate with each other as well. The entire economy would have to be based on democratic control, with commodity prices negotiated in fair and open talks, and with a rational system of distribution that would be supple enough to respond to changes in consumer demand while not over-producing. Such an economy might largely be in the hands of cooperative enterprises, but with critical industries, such as banking and energy, in state hands, under democratic control.

Successful cooperative enterprises such as Mondragon provide glimpses of an economy organized for human need rather than uncontrolled private profit, but are insufficient by themselves. That is not a criticism of cooperatives; on the contrary, the growth of cooperatives should be encouraged as strongly as possible. In present circumstances, they exist on the margins, fully subject to the rigors of capitalist competition.

No cooperative today, no matter how successful, can operate outside the demand of the “market” — and the capitalist market is the aggregate interests of the world’s largest industrialists and financiers. As more industries follow the leads of textiles and electronic gadgets — that is, move production to places with ever lower wages and ever less regulations — the more pressure there will be to follow suit or go out of business. Fagor will not be the last cooperative to face this dilemma. It is inevitable as long as cooperatives remain small islands at the mercy of capitalist competition.

A better world, a rational economy geared to human need, requires a different system. As large as Mondragon is, it is has no ability to operate outside the logic of capitalism. Overall, it has thus far competed successfully, but at the price of becoming too large to integrate all its workers. The world would need many more Mondragons, cooperating and negotiating with one another, to even begin to crack the façade of capitalism, and capitalists are not likely to sit by idly while an alternative to their rule grows.

As worthy a model as cooperatives can be, they are not a substitute for working people around the world struggling collectively to create a better world. All the advances of the 20th century are the product of collective struggles, but because those movements settled for reforms while leaving the system in place, the gains have steadily been taken back.

If capitalism is to be transcended, the relations among enterprises, and between people and enterprises, have to be put on a new footing — one based on cooperation, not competition.

Those who do the work in the workplace should get the rewards

A cooperative enterprise rests on a basic concept — the people who do the work earn the money. Strange, isn’t it, that this straightforward idea is considered radical.

It shouldn’t. Yet it is. The modern capitalist system is advertised as a “meritocracy” — those who work the hardest earn the most. In reality, this is a fairy tale; those who accumulate the most are those who have the most capital, often inherited. The system is called “capitalism” for a reason.

Not even the hardest-working chief executive officer works 340 times harder than his or her average employee. The financier who manipulates numbers on a computer screen, indifferent to the humanity that produces those revenues and net incomes, surely does not work hundreds of times harder. Or, likely, even as hard, particularly if the corporate raider is looting a manufacturing company with a factory floor.

If the chief executive, or any manager, is elected from the ranks of the workforce by those same co-workers due to his or her meritorious effort and/or willingness to obtain a degree in management, then indeed an enterprise can be said to operate on a meritorious basis. Such enterprises already exist; some were created as cooperatives at the start and some were taken over by their workers to forestall closure or abandonment.

If you gave the average employee the choice of working in a cooperative, in which everybody shares in the rewards if the enterprise succeeds and everybody has a vote in strategic decisions in a democratic process, as opposed to being an exploited, powerless cog in the traditional authoritarian, top-down capitalist enterprise, there would be considerable support for the former option. If the person given this choice were to be told that wages, benefits and working conditions would be better in the cooperative (as in fact is the case), the decision becomes easier.

But what do we say to a small-business owner? Mom-and-pop businesses form part of the backbone of communities and, unlike a large corporation in which ownership shares are traded among speculators far removed from the actual underlying business, the small businessperson is present, often for long days. Here we have people who do put in more hours than others, and have put their limited capital at risk.

Why should anyone have to work 14 hours a day?

Two recent conversations have gotten me to think about this particular question. One was a debate conducted on another blog in direct response to a question from a small business owner who said he works 14 hours a day, six days a week. The other was a debate with a passerby I had last weekend while staffing an Occupy Wall Street literature table who insisted she was more deserving than others because she worked 12 or more hours a day when others weren’t willing to do so.

If someone chooses to work such hours and is personally fulfilled by doing so, that is that person’s business and not mine. But if you are at your job 14 hours a day, six days a week, your family is missing all the other things you have to offer them. And no matter how nice a house you may have, you’re not there to enjoy it.

Nobody should have to work such punishing hours. There are those who choose to do so out of personal conviction, but there are many millions of people in sweatshops working such hours, or still longer hours, who earn starvation wages — and they have no choice about it. The big capitalists of the world — people who have far more than any small-business owner — earn their fabulous wealth by exploiting such people, and by exploiting relatively more privileged people in advanced capitalist countries who work lesser hours but nonetheless work long, hard days.

Capitalists become rich by paying their employees less than the value of what they produce — usually far less. That doesn’t mean that there aren’t capitalists who don’t work, but a person who runs a small family business is not in the same category as a big capitalist. The passerby with whom I debated last weekend said if the people whom she claimed were jealous of her house were to run businesses like she does, and put in as many hours, they could have what she has.

But there is only so much space for such businesses; under capitalism, most people are going to have to work for somebody else. Moreover, opportunities are vastly unequal. I grew up in a middle class household where the expectation was always that I would go to college (which I did), and we lived in a town with an excellent public-school system, so I received a better education than most students. I had advantages that many people do not have, had I wished to pursue a business career.

Yes, some folks do climb out of disadvantageous situations, but only so many can do that in a (capitalist) system that puts tremendous roadblocks in front of people. Saving is difficult when mere survival is an increasingly difficult struggle.

A small-business owner may object that s/he puts in more hours than employees do (if they have any) and has capital at risk. That may be true, but having to do so is a requirement imposed by the capitalist system; it is not something ordained by some natural order. The capital put at risk was undoubtedly lent by a bank, which collects high interest — in other words, the bank is exploiting the small businessperson. The banker did nothing but sign a piece of paper while the owner works 14 hours a day. Why should the banker earn such big money? Quite likely, the banker, who repeats this exploitative operation with others, earns far more money and works far fewer hours.

The small businessperson is exploited by capitalists, too, just in a different way than an employee is.

The proprietor works, the landlord takes

Let’s take a concrete example. For more than 30 years, including two decades at his last location, a vegan baker much loved by the community operated a bakery before being forced out of business by a landlord who continually jacked up his rent, at three times the rate of inflation. The baker always gave to the community, frequently donating goodies at public events; I was far from the only person routinely greeted with a hug and often offered a free tea when I stopped in. During those years, the Lower East Side neighborhood of New York City changed from a unique enclave of Puerto Ricans, Ukrainians, Poles, artists, squatters, community gardeners, anarchists, communists and beatniks to its present-day state of gentrification run amok.

[Credit: VegGuide.org at http://www.vegguide.org/entry/436]

[Credit: VegGuide.org]

The baker worked from early afternoon to midnight six, and usually seven, days a week, just so all of his money could go to the landlord, who merely needs to sit in his comfortable office many miles away and let the money roll in. For landlords, the neighborhood is nothing but a cash cow to exploit, cynically taking advantage of the cachet created by the residents they are squeezing out by their exorbitant rents. The baker’s fate has been the fate of countless small businesses; only faceless chain stores are able to afford the rents. This corporatization has been replicated in countless other neighborhoods.

The free-lance worker gets the short end as well. For years, I was self-employed, and had to, for tax purposes, operate as my own small business and fill out tax forms the same way an actual small business would. But I was no businessperson — I was a worker who didn’t have a regular job. I was exploited; in fact I was more exploited than I now am with a regular job because I had no health insurance and I had to pay double the usual Social Security taxes (my half and the employers’ half).

People are taught to have a 19th century, romantic notion of capitalism — a myriad of small enterprises competing in a free market. But a “free market” has never existed. Capitalism was built on pushing people off their farms and passing draconian laws to force them into the new factories; markets are expanded through force both military (World War I is one particularly bloody example) and financial (such as International Monetary Fund diktats); and the largest competitors become a handful of oligarchs whose wealth enables them to get governments to give them yet more advantages and who compete by cutting wages rather than through competition that exists only in textbooks.

Employees are exploited through this system, regardless of collar color, by being paid only a small fraction of what they produce and forced to compete for a dwindling number of jobs, but also because they, as consumers, have to pay the high prices that result when competition reduces an industry to a small number of oligopolistic behemoths who dominate a market. Small businesses are also at the mercy of larger corporate entities, including rapacious bankers, and are hurt when their customers have less money.

In a cooperative economy, no individual must assume all the risk. The cooperative can do so, taking loans at reasonable rates by making a good case to a publicly accountable bank operated as a public utility. Enterprises would relate to other enterprises in a cooperative, not competitive manner, eliminating much of the anxiety inherent in a capitalist system in which humans serve markets instead of the other way around.

Hard workers such as the small businesspeople under discussion would be valuable to a cooperative enterprise. Someone possessing such drive would likely wind up being elected to an administrative or management post by their collective. Talents and hard work would still be recognized; such a driven person would still have the personal satisfaction of a job well done; and s/he could work fewer hours, allowing more time to be spent with family and friends.

Others, too, will contribute talent and work to the cooperative enterprise while sharing the burden. Everybody who works should have a say in what is produced, how it is produced and how it is distributed, with community input — after all, it is the community that would be supporting the enterprise, and the enterprise in turn would be operated by people from the community. Production should be for human need, not for a minuscule elite’s private profit with no regard to the greater good. Benefiting the community and earning a comfortable living while working a humanistic workday shouldn’t be oxymoronic.

Self-directed workers as a “cure for capitalism”

The economy of the future will not be a tabula rasa. Today’s bricks will form part of tomorrow’s edifice and, assuming that humanity’s zig-zagging and often circular course toward greater freedom continues, pieces of a better world exist scattered around us.

Cooperative enterprises are surely part of that (hoped for) better tomorrow. If tomorrow’s better world is one of economic democracy, environmental sensitivity, rationality in production and distribution, equality and meaningful community involvement, than cooperatives will form some of the backbone. Some of these bricks are already here: Successful cooperatives exist today, although they are as yet small islands of democracy in the vast sea of authoritarian capitalist enterprises.

No one model could ever be universal. Differentiated internal operations and cultures are bound to develop. But certain bedrock principals can, and should, be in place for cooperative enterprises operating in an economy that increasingly includes them. The economist Richard Wolff, in his latest book, Democracy at Work: A Cure for Capitalism,* argues that the ability of the workers of an enterprise to be involved in all its strategic decisions is the most important principal to bring about economic democracy, without which political democracy is a formal, empty shell. He introduces the term “workers’ self-directed enterprises” to encompass such enterprises.

During the last structural crisis of capitalism, the Great Depression of the 1930s, massive movements from the Left, including unions, socialist parties and communist parties, forced widespread reforms to be instituted. Eventually, however, Keynesianism and social democratic programs developed new sets of instability and capitalists were able to at first slowly and then more vigorously roll back one reform after another. Professor Wolff argues that even if a suite of reforms could be enacted, the fix would be temporary — capitalists would intervene to take back the reforms, plunging us back into crisis.

But the problem is not simply that the wealthy, through their concentration of accumulated capital, can so readily bend political systems to their ends. The problem is the instability of capitalism itself — capitalists are induced to do everything they can to increase profits due to the relentless nature of competition. That can be achieved through taking a larger share of a market or through cutting costs — the latter can include the introduction of machinery or moving facilities to somewhere else where the workers can be paid far less. These decisions are made by a small number of people at the top of the company, ultimately by the board of directors, a body that almost always includes top executives.

A similar process of alienation happened in countries that used the system of the former Soviet Union, in which the government owned all enterprises. Professor Wolff uses the term “state capitalism” to describe that model because, in place of a private board of directors, state officials made all the decisions, again excluding workers. Those officials controlled all the production of the workers, appropriating the surplus by paying the workers a small fraction of the value of what they produced, the same as in a traditional private capitalist enterprise. A many-sided argument among Bolsheviks and others on how to organize production raged after the October Revolution, but, within a year of assuming power, the Bolsheviks nationalized large enterprises under the impact of the multiple deep crises of World War I and the threat of the advancing German army.

Such a system became synonymous with “socialism.” Along with many others, Professor Wolff argues that “socialism” has to be a much different system, one in which the workers themselves make the decisions of their enterprises, in conjunction with the community of which they are a part. A central part of the ongoing furious campaign against “socialism” is the supposed efficiency of capitalism in comparison to anything else. The inherent instability of capitalism (euphemistically called “business cycles” in orthodox economics) is itself inefficient, nor is it possible to measure all the wins and losses across a society.

“In short, the notion of measuring the efficiency of economic events or processes or of an economic system is a mirage. It is not possible to identify or measure all of the effects of any social factor, nor is it possible to separate and weigh all the influences that combine to produce each effect. The very concept of efficiency would have been banished from discourse, let alone science, long ago had it not proven so ideologically useful. Efficiency discourses resemble capitalist notions of efficiency, which in turn resemble the medieval doctrines and debates concerning how many angels can dance on the head of a pin: they too will one day strike people looking back as bizarre and absurd.” [pages 29-30]

Moreover, Professor Wolff continues:

“The efficiency argument for capitalism rings hollow in the face of high and enduring unemployment affecting jobless millions and their relatives, friends, and neighbors. Watching the growing absurdity of foreclosures creating both homeless people and empty homes throws into serious question the standard defense of capitalist efficiency. … Socialists and communists during the Cold War often simply inverted the standard argument by insisting that is was [their version of] socialism or communism that was efficient (or more efficient than capitalism) and thus represented progress. They, too, often ignored the impossibilities of identifying and measuring all costs and benefits and of separating and evaluating each of the myriad influences that produced them.” [pages 30-31]

Having set the stage, Democracy at Work provides a concise summary of the lead-up to the present crisis, from the Great Depression through the explosion of debt incurred as a result of stagnant or declining wages, and summarizes in clear, accessible language the basic problems of advanced capitalist and Soviet-style systems. The book then gets to its heart, sketching out the concept of “workers’ self-directed enterprises.” WSDEs are a distinct form of cooperative enterprise — this is an enterprise in which the workers themselves are the directors, making all decisions on what to produce, where to produce, how to distribute, determining wages and other compensation, and hiring management.

The surpluses produced would never be appropriated and distributed by anybody else. In a capitalist corporation, the board of directors are legally required to maximize the profits of the corporation going to the shareholders, regardless of the cost to the workers or the local community, and only the shareholders vote on who the directors are. The profits of the company, the bloated pay of the top executives and the huge piles of cash diverted into speculation are the product of the surpluses produced by the workers — and the competitive pressures of capitalism ensure that this process continually deepens.

WSDEs would operate in a far more humane manner. The workers themselves will make the decisions on technological innovation, which is only proper since they, and the surrounding community of which they are a part, will have to live with such decisions. (This is unlike a capitalist enterprise, in which those who bear the cost have no say in the decision.) The self-directed workers can consider a far wider set of issues and concerns about adopting new technology, or any other strategic decision, thereby fully weighing the effects on themselves, their families and their communities.

Professor Wolff proposes that a specialized agency be created that would monitor technological innovations, what enterprises need more workers, which enterprises have registered a desire to commence new production, and other social needs, to be funded with enterprise profits.

“Rather like a matchmaking service, this agency’s task would be to match employees willing to change jobs with job availability and to arrange for appropriate training and inducements to facilitate the reallocation of personnel. No loss of income would attend the transition period for workers who left one job for another. To run this agency would cost a small portion of all the surpluses distributed by WSDEs to sustain its staff and activities. This agency’s reports and services would form one basis for the decision by all workers about whether to make the technical change in question.” [page 132]

Jobs can be rotated (easing boredom), pay differentials minimized (drastically reducing inequality), environmental concerns would be taken seriously (otherwise you’d be polluting your own home) and communities would be stabilized (who would move their jobs to another country for a cut in pay?). And by being involved in your workplace’s decisions — and rewarded for your efforts in making the enterprise a success — alienation is drastically reduced. Without the need to work a crushing number of hours to compensate for low pay, you would have the time to be more of a participant in your community.

Professor Wolff’s concept of WSDEs rests on the workers being their own directors; that is, making all the strategic business decisions themselves. He stresses this aspect, and sees ownership of the enterprise as less important, arguing that different ownership models can co-exist with WSDEs. Local, regional and national governments could own them but allow them to be run by the workers; the workers themselves could own the enterprise individually or collectively; or ownership could take the form of shares traded on a market. The author also prefers not to pre-judge whether a system based on WSDEs would take place under market conditions or in which planning predominates; he believes that they can be compatible with either.

“How WSDEs will come to exist with private versus socialized productive property and to coexist with markets versus planning will not be determined by spurious claims about their comparative efficiencies. It will be determined through the construction of particular, specific postcapitalist economic systems as they emerge in transitions from both private and state capitalist systems.” [page 144]

Fair enough. But here I believe caution is warranted. Leaving a full market system in place would inevitably re-introduce some of the problems of capitalism, albeit in different and milder forms. As I have previously discussed, if collective enterprises, no matter how democratically they are run internally, compete with each other in unfettered markets, market forces would require the collectives to ruthlessly reduce costs (including their own wages) and aggressively expand the market for their products. Failure to do so would mean not surviving in competition with the enterprises who do adapt themselves to market conditions. Because all materials and finished products would remain commodities subject to price volatility in this scenario, the cooperative workers’ own labor would also become a commodity — in essence, they would “become their own capitalists.”

Some amount of planning — democratic, bottom-up planning based on aggregate demand as a guide and not top-down planning imposed as an order — would seem to have a significant role in an economy dominated by cooperatives; moreover, the cooperatives would have to have some cooperation with each other, particularly in negotiating prices up and down the supply chain. Ultimately, these are questions that won’t begin to be solved until there is more practice, although a “matchmaking” agency of the type proposed above implies some amount of planning.

Much more immediate is the question of how WSDEs would co-exist with capitalist enterprises. WSDEs would handle competitive problems and grapple with issues of size and other issues differently than a capitalist enterprise. For instance, Professor Wolff argues, if WSDEs organized mutual support and pooled political strength, or prove to be more productive, they could prevail against capitalist enterprises. Not extracting large amounts of money for bloated executive pay could free extra funds for developing innovations, or differentiating their products as made under democratic conditions could be a marketing advantage.

Early on, WSDEs would need state assistance. Professor Wolff advocates adapting the model of Italy’s “Marcora Law,” which enabled workers to take over troubled enterprises. The author suggests offering the unemployed a choice: Either the traditional weekly benefits, or taking it as a lump sum, pooling their resources with others taking the lump sum, and forming a WSDE. These new enterprises would likely need to rely on technical assistance, subsidized credit, tax breaks and other assistance; such aid can be looked upon as an extension of existing programs to assist small businesses or for women- or minority-owned businesses.

Social solidarity with and by existing cooperatives, unions and activist groups would be another form of support. A strong cooperative movement would provide an alternative to traditional authoritarian capitalist employment, eroding capitalists’ ability to impose harsher working conditions.

Democracy at Work does formulate one difference from traditional concepts of cooperative enterprises that will likely be seen as controversial: A differentiation between “surplus-producing” workers and “enabling” workers. The first group are those who directly produce the outputs that are sold. The second group include accountants, managers, secretaries, clerks and many other job functions that provide the conditions that enable the “surplus-producing” workers to do their work. Professor Wolff is careful to stress that both categories are equally crucial to the success of an enterprise.

Nonetheless, he advocates that only the “surplus producers” be allowed to make the decisions regarding the appropriation and distribution of the surplus. All other decisions would be voted on collectively by all workers. The rationale is that such an arrangement “secures the absence of any exploitation within the WSDE” [page 166]. But leaving such major decisions to only a portion of the workforce risks engendering a division within the workforce, the opposite of the goal, and arguably applies too narrowly the laudable goal of ending exploitation.

Moreover, this formulation presupposes that management will form a group distinct from line workers. But there should not be such a distinction: Managers should be elected by the workers a whole, to specific terms and be recallable. There is no reason why management and supervisory positions should not be rotated — workers can become managers, and then go back to being workers. More people would become familiar with more roles, be able to assume greater responsibility and be better equipped to participate in strategic decision-making.

Nor is there any reason why people can’t change roles from a direct production job to a support job, which, to be fair, is tacitly acknowledged in the author’s stress on the ability of workers to change job functions within WSDEs. Having two categories of jobs with a crucial decision-making function reserved for one category would seem to defeat the purpose of cooperation — equality. If everybody is necessary to the enterprise, then everybody should be eligible to vote on everything.

Decision-making, however, will not be confined to the walls of the enterprise. Residents and workers should participate in each other’s decisions to the extent that they are affected, Professor Wolff writes. Community representatives should participate in WSDE decision-making, and vice versa, as WSDE members are part of the community.

“In societies where WSDEs are the prevailing organization of production, capitalists will no longer occupy a crucial political position. Capitalists’ use of the surpluses they appropriate will no longer dominate politics. We will no longer have capitalists making political use of the resources typically at their disposal — the surpluses they appropriate. Instead, the community of workers who direct WSDEs will be the prevailing political partner of residence-based governing bodies. …They might finally realize democracy, which under capitalism was never allowed to go beyond very limited electoral functions.” [pages 167-168]

A much higher level of democracy does not mean that a society with an economy based on WSDEs would be a utopia. Professor Wolff is forthright in noting that there will be new problems and contradictions. But with vastly less inequality distorting all areas of society, problems would be more easily tackled. And just as the transcending of earlier systems eliminated many but not all social ills, transcending capitalism will put many problems behind us.

“The slave and feudal systems that proceeded capitalism fostered forms of crime rooted in their mixes of economic risks and rewards. But those systems never displayed the recurring boom-and-bust cycles common to all forms of capitalism. These cycles are the products of capitalism — not of this or that group (the state, criminals, others) functioning within that system and in response to its upswings and downswings. … Overcoming the systemic roots and nature of capitalist crises requires a change in the economic system.” [pages 51-52]

Professor Wolff’s Democracy at Work offers us a well-written practical guide to alternatives to capitalism, one that we can begin to build today with the tools at our disposal. Whatever disagreements a reader may have with this or that detail, Democracy at Work is recommended to anyone seeking a concise study of why we need to bring a better world into being and how we might get there.

* Richard Wolff, Democracy at Work: A Cure for Capitalism [Haymarket Books, Chicago, 2012]

The formation of cooperatives doesn’t by itself eliminate competition

More people are becoming interested in cooperative enterprises as an alternative to the capitalist top-down corporation. In reading about and discussing the topic, I have found an interesting pattern: An assumption that competition will continue but that it will become benign.

It would be unrealistic to forecast that a cooperative economy would be without competition. But competition in what, and in what form? When we think of competition, often the visualization is of two or more companies competing to make a better consumer product. That is visible — the company that produces a shoddy product when another company produces a quality product puts itself at risk of going out of business (at least in theory).

Less visible, because it is abstract unless it is your job that is shipped overseas or eliminated, are the marco-economic results of competition. Among these are increasing downward pressure on wages; the creation of rust belts as industrialists move production to locations with ever cheaper wages; the relentless pressure (most often applied by the financial industry) to reduce costs, often by workforce reductions; the drive to produce ever higher profits, regardless of human cost; and environmental destruction. All these developments arise not because of this or that greedy banker or the personality of this or that industrialist. They arise because they are the inevitable product of market forces.

Market forces are not a “natural” phenomenon, they are the aggregate interests of the most powerful capitalists. The concentration of production in most industries into a handful of giant corporations — an oligopoly — is also the result of capitalist competition. Expand or die is the inexorable law a capitalist lives by: If you don’t get bigger and stronger, your competitor will and put you out of business. As the winners from this ruthless competition grow bigger and more powerful, they have more weight to throw around the political arena, and can (and do) exert decisive influence over the political process. It is in their interest for them to do so — and we shouldn’t expect them to act otherwise.

I have often been struck by a belief I often encounter that presumes that we need only convert business enterprises into cooperatives and capitalist competition will cease. Underlying that assumption, in my opinion, is locating the cause of greed, injustice, inequality and other social ills in the authoritarian, hierarchical structure of the capitalist enterprise. That structure is surely a significant contributing factor. But that shouldn’t obscure the cut-throat nature of unfettered, market-driven competition: The relentless pressure to increase profits, maximize market shares and eliminate competition — on pain of enterprise death for those who don’t do this sufficiently — makes unethical or anti-social business decisions inevitable.

It is not only the direct competition that compels such behavior, it is also the financial industry: Billionaire speculators, institutional investors, hedge funds, investment banks and other financiers are ever ready to apply the whip if profits falter — and can move gigantic sums of money through stock, bond and foreign-exchange markets at the click of a button to punish those who don’t deliver. During periods of economic upswing, wages may rise for a time as unemployment falls. But wage increases eventually eat into profits; falling profits are intolerable and will be punished by financiers. Cuts to wages, whether in givebacks or in the form of layoffs, and the destruction of productive capacity ensues.

Wages — and thus the human beings who work for the wages — are commodities in capitalism, or any system in which distribution is monopolized or largely controlled by capitalist-style market relations. If all enterprises were converted into cooperatives, collectively owned and managed by the full workforce, but capitalist market relations were left intact, the same competitive pressures would exist. There would be much less inequality because, presumably, all workers within a given enterprise would receive the same wage or would have small differentials, and the workers would be sharing in the profits they create rather than have them confiscated by top executives and financiers.

But their own wages would remain a commodity if everything else is a commodity priced by markets. The collective workers would face market pressure to reduce their own wages in order to compete better against their competitors. Some enterprises would become much bigger than others; smaller enterprises would be compelled to sell themselves to larger competitors, consolidating production until an oligarchal situation arose. Some industries would be much bigger than others. As market competition intensified, survival would require more ruthless behavior. In somewhat different form and with somewhat less intensity, the instability and social ills of capitalism would be reproduced.

A cooperative economy, therefore, has to not only be based on enterprises run on cooperative lines, but the cooperatives must cooperate with each other as well. An economy would have to be based on democratic control, with commodity prices negotiated in fair and open talks, and with a rational system of distribution that would be supple enough to respond to changes in consumer demand while not over-producing.

Part of the waste of capitalist production lies in its chaotic, unplanned nature: Production is increased until too much product is produced that can’t be sold; productive capacity is then destroyed (such as shuttering factories) until a shortage arises and a new cycle begins. This is done through uncoordinated, individual decisions based on guesswork. The pressure of competition compels decision-making to be done in secrecy and, additionally, no mechanism exists to judge composite demand. The result is alternating booms and busts, with accompanying human costs.

Democratic planning, from the bottom up, would be necessary to determine need and enable proper distribution. Ideally, there would be many enterprises for most products. Enterprises might work best as small or midsized production units. Here is where competition would still exist and provide a positive, rather than a destructive, role. If there are dozens of cooperatives producing shoes, the consumer would have many choices, and the enterprise that made a poor-quality shoe would have to do better — a producer that makes a product that people don’t want to buy won’t stay in business.

If one cooperative makes an innovation that gives it a higher-quality product, then other cooperatives would naturally copy the innovation. If democratic planning, to throw out a hypothetical example, determines that 1.2 million shoes need to be made because 1.1 million shoes were produced last year and the supply fell a bit short, and there are several shoe makers who make a quality shoe, that increased target can be distributed among them. If limits to capacity are being approached, one or more cooperatives can go to the local community-run and -controlled bank for a loan to expand capacity by making a case that more shoes should be made.

Production in unfettered markets will become production for private profit, not social need, even if that private profit is collective rather than concentrated at the top. Production needs to be oriented toward human need — that is the other half of the equation of cooperative enterprises.

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 from my forthcoming book It’s Not Over: Learning from the Socialist Experiment (Zero Books, February 2016). 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