The Cooperative Solution by E.G. Nadeau

This is a good primer on cooperatives, why we need them and where they are going. This book was written in 2012. I picked it up in 2015 and am writing this in 2017, so there have been some changes, at least in the overall economy and certainly in the politics. Richard Wolff’s Democracy at Work came out the same year, with Gar Alperovitz’s What Then Must We Do came out the following year. Both covered some of the same ground and were a bit more radical, with Gar being closer than Richard to E.G.’s book, although Gar covered more ground.

2012 was the International Year of the Cooperative. E.G. lists the seven principles of what a cooperative is, including voluntary and open membership, democratic member control, member economic participation, autonomy and independence, education, training and information, cooperation among cooperatives and concerns for the community. They have come a long way since my great-grandfather, Silas Locke Allen, helped organize a little farmer’s cooperative in southern Minnesota that has now set the standard in butter production. Of course, because it was a cooperative, I was born with zero Land O Lakes stock. Had I been, I would have expanded the cooperative to include the factory workers, local construction companies, gardeners, county road builders and local schools across the Midwest and probably part ownership in John Deere. More about that later.

E.G. highlights the problems of concentrated economic power in the U.S. It is incompatible with political and economic decision-making. We have had 237 years on an economic roller-coaster, largely because of capitalism and its boom-bust cycles. This gave us the Occupy Wall Street Movement (which commented on financial wealth issues well after it left the park, producing detained comments on Dodd-Frank reforms). Capitalist with political power give us cornered markets, insider trading, collusion, monopolies and oligopolies, misrepresenting the value of an investment or purchase, high-margin investing, unrealistic expectations and fraud. Five years after this book went to print, little has been done to bring individuals to justice who engaged in these activities most recently, save some obvious bad actors. Cooperatives don’t engage in such nonsense on a regular basis. Is big business a better innovator? E.G. sites examples where big firms held back innovations to avoid market disruption, and by disruption we mean their ability to control it.

E.G. focuses on the Great Recession and how it was caused by the financial sector demanding so many loans that bad ones were rated as AAA. I would add that NYMEX oil futures markets were artificially bid up (which Dodd-Frank now prevents, at least until Trump guts the implementing regulations) and when the Congress intervened, the prices crashed, leading traders to sell housing securities to cover their positions, which showed how bad those bonds really were, crashing the economy. The aftermath was high unemployment, loss of savings, loss of homes and underwater mortgages, and insecurity. In the five years since then, these conditions are no longer the case, although give Trump time to ruin things again.

We do know a bit more now about how tax and deficit policy is a causal factor than we did in 1789. If taxes are too low without a big deficit sucking up the excess saving, we get economic booms, low wages, accommodating monetary policy and recessions, according to my research. The passage of the American Tax Relief Act of 2013 made the tax cuts for the working and professional classes (called the middle class by those who believe in economic unicorns) enacted by George W. Bush permanent while increasing taxes on the top 2%, while at the same time imposing additional taxes on the same households as part of the Affordable Care Act (the latter being what the GOP most wanted to repeal). These cuts forced money out of savings and into government purchases and transfer payments, i.e. private consumption, which led to the current slow and steady growth. Without these tax increases, the stagnation E.G. reported would have likely continued to the present day. What does this have to do with cooperatives? In a cooperative economy, rich capitalists who seek low tax rates to enhance rent seeking at the expense of their employees and excess savings to invest in speculative crap simply won’t be a factor.

Wealth and inequality are out of control. E.G. lists data on who owns what, who gets what income, income decline and poverty. While some of these numbers have improved with recovery, wealth concentration is getting worse. It has been since the 1970s. Gold bugs will say that is because we went off the gold standard. It is more likely that this because we have been fighting to control inflation since then and workers have borne the brunt of it, from restrictive monetary policy to tax cuts that encouraged lower wages to union busting for the same reason. Cooperatives don’t generally bust unions and shame on those who do.

The current environmental crisis, where California is burning after drought and Puerto Rico, Houston, Texas, Central Florida and the U.S. Virgin Islands, among others, have been hit with the worst hurricane season in years, is particularly apparent as I write this. Coal barons Charles and David Koch have funded an industry of climate change deniers and, ironically, E.G. quotes then Exxon (now Exxon Mobil) CEO Rex Tillerson, now our Secretary of State (who recently called his boss a moron) denying the seriousness of climate change. (I am glad I waited to write the review on a book I finished two years ago). E.G. asks if we can trust these people to do the right thing on climate change? The answer is obvious.

E.G. calls for moving to a fairer, more secure economic system. We have done so before, moving from the days of the Trusts to the Sherman Act, the break-up of Standard Oil (which is partly back together, oops), the Federal Reserve Act (which the MMT folks don’t like) and the progressive Constitutional Amendments on Income Tax, Senatorial Selection, Prohibition (oops again) and women voting. We can do it again on economic democracy. Indeed, we already are.

Chapter 2 talks about the various types of cooperatives. There are consumer co-ops, producer co-ops, employee-owned co-ops, co-ops of businesses and other organizations and multi-stakeholder cooperatives (like a store owned by employees and shoppers). Cooperatives employ just under one million workers. That includes, however, one third of the agricultural sector (which is declining in labor), largely due to the Farm Bureau Federation and one of its founders, my great-grandfather). The bulk of the chapter, and the book, describes the various sectors where cooperatives currently operate, which does not say they cannot expand into other industries.

I will list them and you can buy the book for more information: mutual insurance, agriculture, cooperative finance (they literally lend to co-ops), credit unions, rural energy, cooperatives of small businesses (like farms and drug stores), social service organizations, housing cooperatives¬¬ (especially New York City), Grocery, food and other consumer goods like REI, and 300 or so worker cooperatives (as well as Mondragon, ESOPs). 

Why have these cooperatives succeeded? The same reason other businesses do: market niche (unmet demand), champions of the model, funding, good management, appropriate business model and committed members. Cooperatives exist because people use them. I suspect I have either shopped at, banked or been employed by almost every type of cooperative on the list above or have relatives who have been. E.G. thinks that regulation of wealth and industry in this century may make cooperatives more likely. Not with this President. Of course, such movements have always been a bit insurgent. We like it that way.

Chapter 3 looks at growth opportunities for cooperatives in 2012 and beyond. E.G. makes some very specific suggestions. On credit unions, he would expand membership of consumers and small businesses, expand small business lending take on the payday lending industry, and let the world know that credit unions are full-service financial institutions. 

I go the opposite direction. I would not only more closely link credit unions to sponsoring organizations, I would absorb them into governmental or employee-owned organizations. In other words, instead of getting a loan from the credit union, the loan is with the ESOP or worker cooperative, both for home and consumer credit. Of course, you could have customer credit unions for food co-ops or car manufacturing and sales, but they must not be instruments of peonage. I would not let capitalists use them as a profit center. Just the opposite. I favor home loans from ESOPs and fully realized employee-owned firms at zero interest. They would also build the homes, which might grow food hydroponically with flicker lights and waste water conversion and storage. Indeed, to build such homes, zero interest rates and cooperative building are essential.

Building such homes would be a huge environmental break-through, although climate change involves alternative energy sources. While homes could make alcohol to fuel cars or have solar panels or windmills to make hydrogen, I am personally betting on fusion. E.G. suggests a few items: mobilizing rural energy cooperatives, sustainable family farm and family forest management (I caution about respecting indigenous people, who deserve their forests back from government mismanagement), increasing energy efficiency in homes and distance from market to table (home grown food is the shortest of all) and renewable energy (burn your own paper, plastic and waste gases for energy).

E.G. suggests revolutionizing social services through co-ops. I would go one further. I would have employee-owned firms pay a subtraction Value-added Tax and be able to take a deduction for providing social and educational services themselves or through a secondary provider, like Catholic Schools and Hospitals. This even includes finding the less than educated and paying them to go to school from literacy to advanced literacy in lieu of taxes for adult education, welfare, food stamps, Medicaid and the like. Firms would also take care of their own retirees, the disabled and addicts and alcoholics who are members or who are related to a member (and no more adopting away kids, whole families should be fostered with pay). Health cooperatives might even have on-site sick and well child day care so that people can come to work more easily, and on-site doctors so you can’t call in sick without being seen.

Cooperatives from farm to table are suggested. Even if people grow some of their own food, they might want to buy lunch or get free breakfast and lunch at work. Employee-owned firms could have their own farms as cooperative or ESOP members, rather than simply cooperating with them. Until Mars mission tech develops home food growing to where it needs to be (a good reason for an aerospace cooperative or ESOP to get funded to do this), the same growers that produce food for the employee-owned or sponsored school and the employee cafeteria might provide it to an employee food cooperative store. The driving force behind such a decision has to be democratic, not just for the food growers but for the customers. No Soviet style shortages or food lines. Workers and members must control the means of consumption, not just production. If someone wants a steak, either get it from a non-cooperative farm or make sure you have adequate steers in the pipeline.

Stressing the mutual in mutual insurance through more democracy is important, with real voting by members rather than proxy voting. This is another case where members control the means of consumption. I would go further. Employee-owned and cooperative firms would provide employees free insurance, some through their own underwriting, others in cooperation with similar smaller companies through a mutual insurance company that might even hold some of their stocks. 

E.G. writes about expanding and diversifying housing, including considering Condo and HOA boards part of the movement. Expanding to more disabled and senior housing is proposed. While disability housing requires a housing council, this is for input, not tenant governance. I would have both employee-owned and traditional firms provide housing for younger employees, for example buying condos near a movie theater or mall for young adults and apartments in office parks for recent graduates and interns, which they could keep until they are ready to buy housing through the firm, although I would reserve the latter for employee-owned firms to guard against peonage.

Taking this out of order:  small businesses could join into cooperatives to market their products and to consume services. Some such businesses are really employees of a larger franchiser or firm that forces them into 1099 status when they would rather be and really are statutory employees. Both employee ownership, pulling back franchises and tax changes could eliminate this exploitation. I am no Distributist.

E.G. favors making employee ownership a significant part of the US economy, including changing the rules to expand democracy in ESOP decision-making. I am all about that. There are also laws that limit union investment in employee-ownership. He concludes the chapter by stating that we can do anything cooperatively with a shared interest and that some activities are best suited to meet common needs that others are not. He is correct. He concludes the book by saying we must take back our democracy from the wealthy, both through legislation and attitude and to begin to work on expanding cooperation.,

We have a lot to do, but we must get existing ESOP workers excited about doing it. To do so, we must do much of the above so that workers control the means of consumption. Cash and prizes like this (including education funding as well) will turn employee ownership into more than an additional chore at work. A key to doing this is to end stove pipe cooperativism in much the way I would expand Land O Lakes if still a member. Credit Unions, housing, food cooperatives et al must be components of the same organization. It is not enough for them to just associate with each other. If we want to make legal changes, including shifting part of employer payroll or value-added taxes to buying employer voting and preferred stock (and edging out the capitalists), we must show a working model and expand it. We must Occupy Capitalism! Until we do so, I do not believe the political option is at all possible.