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]

Eminent domain to save homeowners a nice reform but falls well short

“Reverse eminent domain” — the seizure of mortgages by municipal governments to keep people in their homes — has yet to be put to the test, but the strong opposition mounted by Wall Street is perhaps negative proof that it is a good idea.

Financial industry opposition has so far cowed any government from actually implementing such a plan, even though one suit filed in California was thrown out as premature. That suit was aimed at Richmond, California, where the city government in July 2013 declared its intent to use eminent domain — U.S. laws ordinarily used to seize properties to clear land for construction projects — to buy mortgages and refinance them.

Cold feet on the part of some city council members has prevented Richmond from actually implementing its plan. But a second city on the other side of the country — Irvington, New Jersey — has voted to carry out a similar program. Fear of being the first has been a factor in the lack of action and if others announce similar intentions, perhaps an interesting experiment will yet be conducted.

Rosie the Riveter monument, Richmond, California

The basic idea is this: A local government would buy the mortgage of a home at 80 percent of “fair market value,” which in these cases would be far less than what is owed on the mortgage, and then allow the homeowner to refinance at the new, lower amount. The new loan would be refinanced through a private company contracting with the local government.

This would not be an act of charity. The local government and the private finance company would split the profit that would result from the difference between what the homeowner would owe after the refinancing forced by the use of eminent domain (the property’s assessed “fair market value”) and the lower price at which the private finance company would buy the mortgage (80 percent of “fair market value”). The private company could not do this without a government using its power of eminent domain, which is the power to seize property for a public purpose.

The city council of Richmond, a poor city northeast of San Francisco, voted 4-3 in favor of this plan in July. Under California law, however, it can’t actually implement its plan unless the council has a “super-majority” of five votes, and that fifth vote has proved illusive. Opposed council members variously cite that no other city has stepped forward and a fear that the city would be too exposed to possible liability.

A small reform, not an overturning of economic relations

Although the banks and speculators who have profited enormously from the housing bubble would have you believe that refinancing mortgages proffered by predatory lenders is some sort of socialist outrage, the idea is in actuality a capitalist reform. The person most credited with conceptualizing the idea is a Cornell University professor, Robert Hockett, and he published a paper promoting it on the web site of the Federal Reserve’s New York branch.

The Federal Reserve? The part of the government that exists to see to the expensive needs of financiers hasn’t become a socialist bastion, has it? No, it surely hasn’t. Professor Hockett’s paper can’t be taken as, and isn’t, the policy of the New York Fed. But the mere fact of the Fed publishing it demonstrates that we are not discussing anything remotely resembling a threat to the capitalist order.

The paper simply acknowledges that providing assistance to “underwater” homeowners is the “best way” to assist them. Most mortgages have been bundled into pools of “mortgage-backed securities” nearly impossible to unravel; attempting to make a deal with the holders of these securitized mortgages, assuming they could even be determined, can be avoided by instead using local governments as the dealmakers. Professor Hockett advocates this in the context of refusing to blame homeowners for a bubble not of their making:

“[O]wing to asset-price bubbles’ status as collective action problems, it is doubtful that many homebuyers during the bubble years had much choice when it came to buying overvalued homes. That most homes were overvalued is what rendered the bubble a bubble. It therefore seems mistaken to blame homeowners as a class, or to characterize write-downs as per se unfair or morally hazardous.” [page 8]

Professor Hockett elsewhere argues that the plan would actually increase the value of the targeted loans. Writing on the Web of Debt Blog, he argues that the very fact that it is the loans “most deeply underwater” that are targeted is what makes the plan beneficial:

“[D]eeply underwater loans are subject to enormous default risk (just look at Fannie [Mae]’s and Freddie [Mac]’s [Securities and Exchange Commission] filings for a hint as to how high that risk is — nearly 70% for non-prime and 40% even for prime loans), such that one actually RAISES the actuarial value of the targeted loans by purchasing them and writing down principal so long as one targets the RIGHT loans. … The whole POINT of the plan is to target ONLY deeply underwater loans and associated securities that will be POSITIVELY affected. Those are EXACTLY the loans Richmond and other cities are looking at.” [emphases in original]

Predators profit, prices plunge

Cities like Richmond, with a large minority population, were particularly targeted by predatory lenders. Housing values in Contra Costa County, which includes Richmond, fell 47 percent in 2008 and another 24 percent in 2009. Prices have not recovered. The Richmond plan targets more than 600 mortgages, although that represents only a fraction of the city’s foreclosure-threatened houses.

The private company working with the city is Mortgage Resolution Partners, which refers to itself as a “community advisory firm” and says on its web site that it “will earn a government approved flat fee per mortgage — the same fee that any major bank earns today if it successfully modifies a loan under the federal government’s Home Affordable Modification Program.” (That fee is in addition to the expected profits to be shared with local governments.) The company’s head has worked as an asset manager for several financial companies.

Mortgage Resolution Partners pitched the plan to Richmond, whose Green Party mayor, Gayle McLaughlin, continues to support it. She led a community delegation across the bay to Wells Fargo to negotiate, only to have the bank lock its doors and refuse to negotiate. Wells Fargo and Deutsche Bank were the two banks that sued the city last summer after its vote in favor of the reverse eminent domain plan.

A federal judge threw out the suit because no mortgages had yet been seized, but it is likely new suits would swiftly follow should Richmond or any other city begin to implement such a program. Moreover, the Obama administration’s Federal Housing Finance Agency has threatened sanctions against any jurisdiction that seizes mortgages. An additional threat, that of a capital strike against Richmond, seems to have dissipated, at least for now. A bond offering by Richmond in August 2013 was snubbed, but the city successfully sold $28 million worth of bonds last month.

Perhaps the most likely factor to make reverse eminent domain work would be for it to be widely adopted. Irvington, New Jersey, a poor city bordering Newark, on March 25 became the second U.S. municipality to approve such a plan. Irvington has already been threatened with refusals to issue loans to the city’s government or to any of its residents — an illegal “red-lining” of an entire municipality. Several other cities, including Newark, have discussed reverse eminent domain plans, although San Bernardino County in California dropped its plans in the face of threatened court challenges.

These plans are not without legitimate controversy. Public pension funds are invested in all sorts of financial products, and widespread reductions in mortgages could affect others than banks and speculators. The California Public Employees Retirement System, which holds about $11 billion of mortgage-backed securities, has expressed concern about the Richmond plan, although it has not opposed it. Plan proponents, however, argue that value will be added because the mortgages most at risk of default will be the targets, avoiding default and allowing homeowners to remain in their homes.

There are no magic elixirs here. The voracious growth of financialization has ensnared retirement funds, meaning that write-downs of debt are not simple matters. There has been much swooning at first sight of the reverse eminent domain idea, and it certainly does have appeal because it would undoubtedly help victims of predatory lenders. Yet plans such as Richmond’s can be no more than temporary fixes helping small numbers of people; expecting the same economic system that has created such a colossal mess to clean up its mess will end in disappointment.

As long as financiers and landlords are allowed to haul in massive profits without constraint, struggling homeowners and renters alike will continue to having their homes subject to being taken away when a larger pot of profit beckons.

In the short term, creative solutions to ameliorate the predatory behavior of financial elites and provide some measure of stability to embattled communities should be welcomed. Nonetheless, it is tinkering at the margins. Lasting solutions, rooted in community control, will require dramatic structural changes far beyond what so far is contemplated.