Co-ops change the game

[00:00:01] [SPEAKER_00]: The most consistent finding in terms of benefits is that both ESOPs as well as co-ops provide better job security. So they hire less when times are good, but they also fire less when times are bad, including during economic downturns such as the recent Great Recession.

[00:00:19] [SPEAKER_01]: This is the Debunking Economics podcast with Steve Keen and Phil Dobbie.

[00:00:25] [SPEAKER_02]: Well, that's Sanjay Pinto from the Workers' Institute at Cornell talking about one of the benefits of a workers' cooperative.

[00:00:32] [SPEAKER_02]: And there are many more to that, many, many more. So many, in fact, you wonder why there aren't more of them around the place.

[00:00:40] [SPEAKER_02]: Does this structure make them less efficient, for example? Are they less innovative?

[00:00:44] [SPEAKER_02]: Well, if not, what's stopping more companies being set up and run as cooperatives?

[00:00:50] [SPEAKER_02]: We'll look at that this week on the Debunking Economics podcast.

[00:01:00] [SPEAKER_02]: So, Steve, I want to look at the role of cooperatives this week and whether they can, if we had more of them,

[00:01:07] [SPEAKER_02]: actually whether they are the answer to a new form of capitalism without throwing capitalism away totally.

[00:01:14] [SPEAKER_02]: I mean, they exist, you know, and have existed for a long time.

[00:01:18] [SPEAKER_02]: But why isn't there more of them? And the reason I want to look at this is because it feels like it changes the motivations for various people.

[00:01:27] [SPEAKER_02]: So maybe we should start by looking at when we talked about this a few weeks ago about the roles of various actors.

[00:01:34] [SPEAKER_02]: So you have models where you say there are distinctive roles for capitalists, workers and investors.

[00:01:40] [SPEAKER_02]: And if you remember, I said, well, what about workers who are also investors?

[00:01:45] [SPEAKER_02]: You know, aren't these all getting a bit muddy these days?

[00:01:48] [SPEAKER_02]: And it feels like, you know, if we started to have cooperatives, they'd be even more muddled up a little bit.

[00:01:53] [SPEAKER_02]: But capitalists want to make a profit. Investors want to get their money back.

[00:01:57] [SPEAKER_02]: And workers want to, you know, earn this at least the subsistence wage.

[00:02:02] [SPEAKER_02]: Let's look at the motivation, though, for each of these.

[00:02:04] [SPEAKER_02]: I mean, is that about right? If you were to say, well, OK, give me the motivation for a worker.

[00:02:09] [SPEAKER_02]: Give me the motivation for a capitalist and give me the motivation for an investor.

[00:02:15] [SPEAKER_02]: What are they in each case?

[00:02:16] [SPEAKER_03]: Yeah. Well, I mean, capitalists, if you've got an investment, their motivation is a rate of profit and wages are a cost.

[00:02:23] [SPEAKER_03]: So they want to have wages as low as possible for workers.

[00:02:26] [SPEAKER_03]: Their motivation is, you know, wages.

[00:02:28] [SPEAKER_03]: They want wages to be as high as possible.

[00:02:31] [SPEAKER_03]: And financiers, they want to have as much debt as possible around there.

[00:02:35] [SPEAKER_03]: And when you have them in totally separate social roles, they're going to end up in conflict.

[00:02:40] [SPEAKER_03]: And that conflict is going to be one of the causes of the cyclical behavior of the economy.

[00:02:44] [SPEAKER_02]: They want to have as much debt as possible.

[00:02:46] [SPEAKER_02]: Well, they want to have. Yeah. Right.

[00:02:47] [SPEAKER_02]: Oh, they want people to have as much debt as possible because they're borrowing from them.

[00:02:50] [SPEAKER_03]: Yeah. Oh, yeah.

[00:02:51] [SPEAKER_03]: Yeah. They create the debt.

[00:02:53] [SPEAKER_03]: So, you know, bankers, I mean, this is actually one remarkable.

[00:02:56] [SPEAKER_03]: I remember this when I was first analyzing the cyclical nature of capitalism using Minsky's way of thinking.

[00:03:03] [SPEAKER_03]: I was writing my, I started working on Minsky's work in 1987.

[00:03:08] [SPEAKER_03]: And then when you remember back in Australia with what Paul Kidding called the recession we had to have.

[00:03:13] [SPEAKER_03]: Yeah.

[00:03:13] [SPEAKER_03]: And okay.

[00:03:14] [SPEAKER_03]: And looking at it, I thought in the after that was a boom driven by lending to people like Alan Bond, you know, the Australia's classic Ponzi schema and Christopher's case and so on.

[00:03:23] [SPEAKER_03]: And that was an enormous amount of money giving to businesses who then went belly up as interest rates rose around the world and went bankrupt.

[00:03:31] [SPEAKER_03]: And then at that stage, the level of household debt was actually quite small.

[00:03:36] [SPEAKER_03]: And looking back at it, I thought that I would find is that in the aftermath of the collapse of all the capitalists who borrowed too much money, bankers in general would be quite, you know, chastened and wouldn't want to lend to anybody.

[00:03:49] [SPEAKER_03]: But then what I found was the point in time at which the lending by the Australian financial sector to households to buy mortgages was precisely the moment they could no longer lend to Ponzi scheming businessmen like Case and Bond.

[00:04:07] [SPEAKER_03]: So the increase in household debt as a percentage of GDP took off as the boom caused by the, the collapse of the boom caused by lending too much money to businessmen came to an end.

[00:04:19] [SPEAKER_03]: So right from that point on, banks were in there.

[00:04:21] [SPEAKER_03]: How do we create more debt?

[00:04:23] [SPEAKER_03]: Oh, we can't lend into the corporate sector anymore.

[00:04:25] [SPEAKER_02]: How about households?

[00:04:26] [SPEAKER_02]: Kind of is the corporate sector because they can't be trusted.

[00:04:28] [SPEAKER_02]: It's what they're saying, wasn't it really?

[00:04:30] [SPEAKER_02]: Yeah.

[00:04:31] [SPEAKER_02]: So what about then when workers are given a share in the company, which we're seeing more and more of, you know, a lot in mid to senior roles, but it's broadening.

[00:04:43] [SPEAKER_02]: So does that change the role of being a worker?

[00:04:47] [SPEAKER_02]: And the argument is for doing it from the, you know, from the capitalists point of view is that it means people have got a share in the company, which, you know, arguably is going to motivate them to work harder.

[00:04:58] [SPEAKER_02]: They're going to stay longer.

[00:04:59] [SPEAKER_02]: They're going to become more efficient.

[00:05:01] [SPEAKER_02]: They're going to do what they can.

[00:05:02] [SPEAKER_02]: So there is a motivation there to make them better workers.

[00:05:06] [SPEAKER_02]: But they're also becoming capitalists in a way as well, because they want to see the company profit because they're all of a sudden holding shares in it.

[00:05:14] [SPEAKER_03]: Yeah.

[00:05:14] [SPEAKER_03]: And like this, the classic example.

[00:05:16] [SPEAKER_03]: Have you ever heard of Mondragon?

[00:05:18] [SPEAKER_03]: I have, but I don't know why.

[00:05:20] [SPEAKER_03]: Okay.

[00:05:21] [SPEAKER_03]: Because it's a perfect example of what you're talking about.

[00:05:23] [SPEAKER_03]: And that is a cooperative in Spain, which was formed by a Catholic priest.

[00:05:29] [SPEAKER_03]: That's about the only flavor you get in Spain.

[00:05:31] [SPEAKER_03]: But a Catholic priest who settled in the region during the aftermath of the Spanish Civil War and established a technical college as a training to give people their training, as well as his religious responsibilities, which led to a bunch of cooperatives being formed.

[00:05:49] [SPEAKER_03]: That he designed the system behind them, which was small scale.

[00:05:56] [SPEAKER_03]: But basically, the workers owned the factories.

[00:06:00] [SPEAKER_03]: And that is still regarded, I think, as the fastest growing region of the global economy today.

[00:06:05] [SPEAKER_03]: So there's someone who has actually tried to go, so let's actually get cooperatively.

[00:06:10] [SPEAKER_03]: Let's get it cooperatively, and let's eliminate some of the social conflicts that exist over workers versus capitalists, even versus bankers.

[00:06:20] [SPEAKER_03]: And it has still been quite successful.

[00:06:22] [SPEAKER_03]: So it is a possibility.

[00:06:27] [SPEAKER_03]: But there's no way that Rupert Murdoch wants to know about it.

[00:06:31] [SPEAKER_02]: Well, yeah.

[00:06:33] [SPEAKER_02]: And there's no way.

[00:06:34] [SPEAKER_02]: Yeah.

[00:06:34] [SPEAKER_02]: News Limited is going to become a cooperative.

[00:06:36] [SPEAKER_02]: Can you imagine?

[00:06:39] [SPEAKER_02]: The best example in the UK, I think, is John Lewis.

[00:06:43] [SPEAKER_02]: You know, the John Lewis partnership, which is one of the big retail businesses.

[00:06:48] [SPEAKER_02]: And they own 174 Waitrose supermarkets.

[00:06:51] [SPEAKER_02]: They are the biggest cooperative employees.

[00:06:55] [SPEAKER_02]: So 64,000 people in the UK.

[00:06:58] [SPEAKER_02]: And they say, you know, the partnership aims to ensure that everyone who works for it enjoys the experience of ownership by sharing in the profits, by having access to information, and by sharing in decision making.

[00:07:09] [SPEAKER_02]: So all good.

[00:07:10] [SPEAKER_02]: You know, they've got people sitting on boards.

[00:07:13] [SPEAKER_02]: They pay.

[00:07:13] [SPEAKER_02]: If they're making a profit, that money gets plowed back into employee bonuses, which historically have gone from between 5% to 20%.

[00:07:21] [SPEAKER_02]: They donate money to local causes as well.

[00:07:24] [SPEAKER_02]: These decisions being made by a group of people who work within the business.

[00:07:28] [SPEAKER_02]: They also have a CEO who's earning 1.1 million pounds a year.

[00:07:32] [SPEAKER_02]: But the CEO of Asda earns 10 million a year.

[00:07:37] [SPEAKER_02]: So, you know, so you can't say that the CEO is raking it in and, you know, taking advantage of the cooperative situation.

[00:07:46] [SPEAKER_02]: So, I mean, that seems just like a really good way of running a business.

[00:07:50] [SPEAKER_02]: I can see the downside might be, though, do you lose innovation if you're in that situation?

[00:07:55] [SPEAKER_02]: Because it is sort of all about protecting the status quo, isn't it?

[00:07:59] [SPEAKER_02]: It depends.

[00:08:00] [SPEAKER_03]: I mean, innovation is an essential point.

[00:08:02] [SPEAKER_03]: There's actually another company.

[00:08:05] [SPEAKER_03]: Because Britain used to produce aircraft.

[00:08:07] [SPEAKER_03]: Do you remember those days?

[00:08:08] [SPEAKER_03]: Yes.

[00:08:09] [SPEAKER_03]: Yeah.

[00:08:09] [SPEAKER_02]: Well, I think we said the other week they still do.

[00:08:11] [SPEAKER_02]: It's just that these were bombing people.

[00:08:12] [SPEAKER_02]: That's right.

[00:08:13] [SPEAKER_03]: Yeah.

[00:08:14] [SPEAKER_03]: So I've forgotten the actual company that was involved in this.

[00:08:17] [SPEAKER_03]: But the workers came up with a whole series of ways in which they could use their technology in different means.

[00:08:23] [SPEAKER_03]: So one was to have an engine, which was a hybrid.

[00:08:25] [SPEAKER_03]: The very first idea of a hybrid came out of a group of workers trying to stop the private corporation they work for being shut down.

[00:08:32] [SPEAKER_03]: But the innovation is one of these, you know, where does innovation come from?

[00:08:37] [SPEAKER_03]: Is it the lone entrepreneur comes up with a brilliant idea and puts it into practice?

[00:08:41] [SPEAKER_03]: Or is it a bunch of people working together in a factory?

[00:08:44] [SPEAKER_03]: It's often both.

[00:08:45] [SPEAKER_03]: Okay.

[00:08:46] [SPEAKER_03]: But you bet you were – it's like so much of the just-in-time scheme.

[00:08:52] [SPEAKER_03]: And just-in-time came out of the idea of one American industrial specialist.

[00:08:59] [SPEAKER_03]: I can't think of his first name right now, but Deming.

[00:09:02] [SPEAKER_03]: And Deming said that there's a huge amount of waste in standard production systems.

[00:09:08] [SPEAKER_03]: And the whole focus of the production line under Ford was the line never stops.

[00:09:13] [SPEAKER_03]: You know, he said, well, if that happens and there are defects, you have to rework the defects and bring them back to the beginning again.

[00:09:19] [SPEAKER_03]: And this is forever cycle of parts going through too quickly, not being properly installed.

[00:09:25] [SPEAKER_03]: They've got to come off the line.

[00:09:26] [SPEAKER_03]: They're put as defects.

[00:09:27] [SPEAKER_03]: They go back again and so on.

[00:09:28] [SPEAKER_03]: And Deming said, what if we let the workers stop the line so they can point out where these breakdowns are occurring?

[00:09:34] [SPEAKER_03]: And then over time, you will improve the manufacturing process so the defects don't get created in the first place.

[00:09:41] [SPEAKER_03]: Now, that can see as one idea of one person.

[00:09:45] [SPEAKER_03]: But what it meant was all the ideas of all the workers in the factory also get implemented together.

[00:09:50] [SPEAKER_03]: So there are – you know, both extremes do exist.

[00:09:53] [SPEAKER_03]: But it is feasible if you had a successful system where both – if you were somebody who came up with good ideas like that,

[00:10:01] [SPEAKER_03]: you were more likely to go towards the top of the management.

[00:10:04] [SPEAKER_03]: And therefore, you benefit from those ideas.

[00:10:06] [SPEAKER_03]: While the workers also benefit if they do process improvement within the existing manufacturing system,

[00:10:13] [SPEAKER_03]: then you get the best of both worlds.

[00:10:15] [SPEAKER_02]: Yeah, and the more incentive to do that, it's a cooperative where you know that you're going to be rewarded by –

[00:10:20] [SPEAKER_02]: because, you know, because you're going to get a pay increase through the efficiency that you create

[00:10:24] [SPEAKER_02]: rather than it going to shareholders in the form of dividends.

[00:10:28] [SPEAKER_03]: And this is actually – just to give you the Mondragon example, I remain fascinated by this.

[00:10:35] [SPEAKER_03]: I've never actually been to that region of Spain, but I remain fascinated by the fact that it is so successful

[00:10:39] [SPEAKER_03]: and B, you never hear about it.

[00:10:41] [SPEAKER_03]: But in the New Yorker, I wrote a piece on it in 2022.

[00:10:44] [SPEAKER_03]: And this is just a quote from – to give you an idea of its nature.

[00:10:47] [SPEAKER_03]: The Mondragon Corporation is a voluntary association of 95 autonomous cooperatives.

[00:10:52] [SPEAKER_03]: Each co-op's highest paid executive makes, at most, six times the salary of its lowest paid employee.

[00:11:00] [SPEAKER_03]: There are no outside shareholders.

[00:11:02] [SPEAKER_03]: And workers who have proven themselves can become member owners of their own co-ops.

[00:11:07] [SPEAKER_03]: An imagining director acts as a side of CEO within each co-op, but the members vote on all the vital decisions.

[00:11:13] [SPEAKER_03]: So it is the classic combination of capitalism with the workers.

[00:11:18] [SPEAKER_03]: And there's also an American guy called Louis Kelso.

[00:11:21] [SPEAKER_03]: He came up with an idea called the Capitalist Manifesto.

[00:11:24] [SPEAKER_03]: And that was, again, based on the idea of profit sharing.

[00:11:28] [SPEAKER_03]: And these adventures do exist.

[00:11:30] [SPEAKER_03]: The ideas have existed for – in some cases, if you go back to the Cadbury's company,

[00:11:35] [SPEAKER_03]: that was originally a workers' cooperative as well.

[00:11:38] [SPEAKER_03]: So you get these elements.

[00:11:40] [SPEAKER_03]: But they never seem to take over the whole system,

[00:11:43] [SPEAKER_03]: even though in the case of Mondragon, it's still the fastest-growing region of Spain.

[00:11:47] [SPEAKER_02]: Yeah, well, I mean, you know, John Lewis and Waitrose aren't the – you know, by far – aren't the dominant retail chain.

[00:11:55] [SPEAKER_02]: You know, they dominate a space, which is the, you know, top end.

[00:11:59] [SPEAKER_02]: But interestingly, they – yeah, but I mean, you know, they've not taken over the space.

[00:12:03] [SPEAKER_02]: It's – you know, it very much is a cutthroat world in the retail sector, that's for sure.

[00:12:08] [SPEAKER_02]: But interestingly, just on this innovation thing, so John Lewis – and I think it's – I do like the idea that, you know,

[00:12:13] [SPEAKER_02]: these ideas are coming actually from the shop floor, literally.

[00:12:17] [SPEAKER_02]: They plan to have 40% of profits coming from new areas of business by 2030.

[00:12:23] [SPEAKER_02]: So in other words, if you've got that as an aim within a cooperative and everyone's thinking about it,

[00:12:29] [SPEAKER_02]: I mean, what's more satisfying?

[00:12:31] [SPEAKER_02]: If you're working on – you know, working on a checkout – well, actually, they've got rid of a lot of the checkouts.

[00:12:36] [SPEAKER_02]: So, you know – but I mean, if you are working for the company, you know, with what could be seen as being a mundane job,

[00:12:44] [SPEAKER_02]: if you're working for other people, it's a lot more interesting, isn't it?

[00:12:47] [SPEAKER_02]: If in the meantime you're doing – you're looking around thinking, well, maybe we could do this better,

[00:12:51] [SPEAKER_02]: maybe we could do that better, and why aren't we selling this?

[00:12:54] [SPEAKER_02]: So that we, you know, we're all working towards that target by 2030.

[00:12:59] [SPEAKER_02]: I mean, that's a much more interesting, much more job-satisfying job than just working for someone else

[00:13:04] [SPEAKER_02]: with a mundane routine job for which you have no ability to change anything.

[00:13:10] [SPEAKER_03]: And that was, again, with the experience with the Japanese just-in-time system.

[00:13:14] [SPEAKER_03]: So, like, it's Japanese only because Americans were so arrogant after the Second World War.

[00:13:18] [SPEAKER_03]: Strange thing, America being arrogant, isn't it?

[00:13:20] [SPEAKER_03]: But it did happen then, yeah.

[00:13:21] [SPEAKER_03]: That's never happened before.

[00:13:23] [SPEAKER_03]: Anyway, so they basically told Deming when you get off because we managed to – we won the Second World War,

[00:13:28] [SPEAKER_03]: so we don't need your advice.

[00:13:30] [SPEAKER_03]: And Deming was then invited by MITI, or the Ministry of Industry and Technology in Japan,

[00:13:37] [SPEAKER_03]: to come and give his ideas to Japanese corporations.

[00:13:41] [SPEAKER_03]: And his original point was that when you start selling goods into the American market,

[00:13:45] [SPEAKER_03]: you will be laughed at.

[00:13:46] [SPEAKER_03]: And after a couple of decades, they won't be laughing anymore because you'll be so much more efficient than they are.

[00:13:53] [SPEAKER_03]: And a large part of it was the whole idea that on a production line, which in the Fordist case,

[00:13:58] [SPEAKER_03]: the production line went at a constant speed no matter what,

[00:14:01] [SPEAKER_03]: and the only way to go the speed of change is going to be up.

[00:14:05] [SPEAKER_03]: Instead, any worker had a button that could stop the entire production line

[00:14:09] [SPEAKER_03]: when they found a defect in the manufacturing process.

[00:14:12] [SPEAKER_03]: And then there would be a case of, okay, why has the line stopped?

[00:14:15] [SPEAKER_03]: And the engineers come down and see what's going on.

[00:14:18] [SPEAKER_03]: The worker explains what's failing.

[00:14:19] [SPEAKER_03]: There may be some particular rotor that has too much of a degree of freedom that's tightened it up,

[00:14:26] [SPEAKER_03]: or here's a way to put the glass into a car more effectively than this current machine does.

[00:14:31] [SPEAKER_03]: And then the idea gets implemented.

[00:14:33] [SPEAKER_03]: The worker gets a bonus out of it.

[00:14:35] [SPEAKER_03]: And even people working in a production line found their jobs interesting.

[00:14:39] [SPEAKER_03]: So it is possible that if you're sharing in the benefits of innovation,

[00:14:44] [SPEAKER_03]: you're going to contribute to them rather than laugh about the garbage you have to put up with them.

[00:14:49] [SPEAKER_03]: You know how you can make the firm better, but you're not going to tell those bastards.

[00:14:52] [SPEAKER_02]: Yeah, exactly.

[00:14:53] [SPEAKER_02]: Well, when we come back then, I want to talk about why we're not seeing more of it

[00:14:57] [SPEAKER_02]: and what it does to your modelling where you have these very distinct roles

[00:15:00] [SPEAKER_02]: because it is starting to blur those functions a little bit more.

[00:15:04] [SPEAKER_02]: So we'll look at all of that when we come back.

[00:15:06] [SPEAKER_01]: This is the Debunking Economics Podcast with Steve Keane and Phil Dobby.

[00:15:12] [SPEAKER_02]: So we are talking about cooperatives this week on the podcast.

[00:15:17] [SPEAKER_02]: So there is the Rochdale Principles for Cooperatives set up in 1844

[00:15:22] [SPEAKER_02]: by the Rochdale Society of Equitable Pioneers.

[00:15:26] [SPEAKER_02]: So I think there was a Rochdale Building Society.

[00:15:28] [SPEAKER_02]: I wonder whether this was – because a lot of building societies were set up as cooperatives.

[00:15:32] [SPEAKER_02]: And anyway, their whole approach is to be a true cooperative.

[00:15:36] [SPEAKER_02]: It's got to be anti-discriminatory.

[00:15:38] [SPEAKER_02]: There's got to be democratic member control.

[00:15:41] [SPEAKER_02]: You've got to provide motivation and rewards, which might not just be financial.

[00:15:44] [SPEAKER_02]: It could be quality of life.

[00:15:46] [SPEAKER_02]: It could be – yeah, I mean, that is stuffing up capitalism, isn't it?

[00:15:50] [SPEAKER_02]: When people start talking about quality of life over having more money.

[00:15:54] [SPEAKER_02]: I mean, seriously.

[00:15:56] [SPEAKER_02]: Or giving back to the community.

[00:15:58] [SPEAKER_02]: What?

[00:15:59] [SPEAKER_02]: Who are these people?

[00:16:00] [SPEAKER_02]: Or career experience.

[00:16:02] [SPEAKER_02]: All non-money motivations.

[00:16:04] [SPEAKER_02]: And that's the interesting thing, isn't it?

[00:16:05] [SPEAKER_02]: The cooperatives are not there necessarily to make the biggest profit.

[00:16:10] [SPEAKER_02]: There might be other motivations that all the members share in.

[00:16:14] [SPEAKER_03]: Yeah.

[00:16:14] [SPEAKER_03]: That stuffs up capitalism.

[00:16:16] [SPEAKER_03]: Well, it shouldn't, but it does.

[00:16:18] [SPEAKER_03]: And like one of the most intriguing ones recently – have you seen that show The Bank of Dave?

[00:16:23] [SPEAKER_03]: No, I know what you're talking about.

[00:16:24] [SPEAKER_02]: I haven't actually seen the show.

[00:16:25] [SPEAKER_02]: But yeah, it's an interesting example, isn't it?

[00:16:27] [SPEAKER_03]: It's worth watching.

[00:16:28] [SPEAKER_03]: The Bank of Dave was a bloke who was a real member of the community.

[00:16:33] [SPEAKER_03]: I think it was actually a used car salesman.

[00:16:35] [SPEAKER_02]: Yeah, and he set up a local bank.

[00:16:36] [SPEAKER_03]: He set up a local bank.

[00:16:38] [SPEAKER_03]: And it was basically financing out of his excess profits from the various businesses he ran.

[00:16:45] [SPEAKER_03]: But a decent human being was very much part of the community and then finally got a bank license.

[00:16:51] [SPEAKER_03]: And then – because he doesn't realize that he's now creating money in that system, but the same cooperative attitude.

[00:16:56] [SPEAKER_03]: And the idea that you're part of a community is more than just making profit out of the firm and who cares about anything else in society.

[00:17:04] [SPEAKER_03]: Which, of course, the opposite extreme you can find expressed by one Milton Friedman.

[00:17:09] [SPEAKER_03]: And, you know, Milton, what a useful name.

[00:17:11] [SPEAKER_03]: I think I might name a hurricane after that.

[00:17:14] [SPEAKER_03]: It's not a good name for a hurricane.

[00:17:16] [SPEAKER_03]: Causing as much devastation, but in a shorter period of time.

[00:17:19] [SPEAKER_03]: Yeah.

[00:17:19] [SPEAKER_03]: That's right.

[00:17:20] [SPEAKER_03]: Yeah.

[00:17:20] [SPEAKER_03]: And what single-minded intent.

[00:17:22] [SPEAKER_03]: So the single-mindedness of the American attitude versus this multifaceted attitude you get out of the Bank of Dave and you got out of the original cooperatives and so on.

[00:17:32] [SPEAKER_03]: And seeing you – even the Germans used to have something like this.

[00:17:36] [SPEAKER_03]: The German corporations have a parallel board called – I think it's called the Ulfershrut.

[00:17:42] [SPEAKER_03]: And that has people who are from the local community, the workers themselves and so on, tempering the decisions made by the let's make a profit and who gives a brass razoo about the rest of society board at the top.

[00:17:56] [SPEAKER_03]: Whereas the Americans say they want to brass razoo.

[00:17:58] [SPEAKER_03]: So they're not just doing it.

[00:17:59] [SPEAKER_02]: They have to do it.

[00:17:59] [SPEAKER_02]: It's by law they have to do this.

[00:18:01] [SPEAKER_02]: Yeah, that's right.

[00:18:01] [SPEAKER_02]: They're saying in Austria as well.

[00:18:02] [SPEAKER_02]: Yeah.

[00:18:02] [SPEAKER_03]: Yeah.

[00:18:03] [SPEAKER_03]: So having a broader conception can give you a more – not just a more stable system, it can give you a more creative one.

[00:18:12] [SPEAKER_03]: Because the people who – in the American system who are happy to do sabotage if they can get away with it rather than putting up with the monetary and the dominance behavior.

[00:18:25] [SPEAKER_03]: And I can actually give personal experience there, by the way.

[00:18:28] [SPEAKER_03]: If you're part of a cooperative, everybody is putting it in together and you reduce some of the conflict that causes the extreme cyclicality of capitalism.

[00:18:37] [SPEAKER_02]: In what way?

[00:18:38] [SPEAKER_02]: Give me the example.

[00:18:39] [SPEAKER_03]: Well, one of the easiest ways is because you're not worried about – you're not going to be going for large wage demands because you're also conscious that cuts into the profit.

[00:18:48] [SPEAKER_03]: So there's a way in which you – we were talking about this in a previous podcast.

[00:18:53] [SPEAKER_03]: You're talking about combining and fighting some of those tensions that can lead to – the cycles are fine.

[00:19:01] [SPEAKER_03]: When the cycles cause a breakdown, you want to avoid those outcomes.

[00:19:05] [SPEAKER_03]: And the cooperative is still going to be caught up in the whole overall cyclicality of capitalism.

[00:19:10] [SPEAKER_03]: But they're not going to go to the stage where you have excessive demands from the banking system or excessive demands from the workers for wage rises.

[00:19:18] [SPEAKER_03]: And you'll get less extreme cycles coming out of that.

[00:19:21] [SPEAKER_02]: So the situation in Germany, and I think it's a bit the same in Japan as well, they are consultative boards, though, aren't they?

[00:19:28] [SPEAKER_02]: They're not the main board.

[00:19:30] [SPEAKER_02]: No, there's the main board.

[00:19:31] [SPEAKER_02]: I wonder – sorry?

[00:19:32] [SPEAKER_02]: There is a main board.

[00:19:34] [SPEAKER_03]: Yeah, they make the final decision.

[00:19:35] [SPEAKER_02]: And I wonder how different it would be if the main board was told, well, okay, you can be, I don't know, 70% shareholders, 30% employees.

[00:19:44] [SPEAKER_02]: And so all of a sudden – because the consultative board can be listened to, and you might say, well, okay, that's great because they're there.

[00:19:51] [SPEAKER_02]: They can help with how we develop things from the coalface, how we can make the company run more efficiently.

[00:19:57] [SPEAKER_02]: They're still doing it for the shareholders.

[00:19:58] [SPEAKER_02]: If the decision was made by the board – you know, the big decisions are made by the board with 30% employees, then things like, for example, well, no, we're not going to pay our CEO $10 million.

[00:20:13] [SPEAKER_02]: Or we're not going to invest money in this area because we think we could make more money out of investing somewhere else because we know – because we're closer to the coalface.

[00:20:21] [SPEAKER_03]: I mean, it would be a much more interesting outcome, wouldn't it?

[00:20:24] [SPEAKER_03]: Well, what you also wouldn't get is what happened with America and China.

[00:20:28] [SPEAKER_03]: And I – again, one of my pivotal experiences in my life was being in China in 81, 82 and seeing the formation of the free trade zone that was the Shenzhen free trade zone that was the basis of China's subsequent incredibly successful industrialization.

[00:20:43] [SPEAKER_03]: And one element of the way that they industrialized was to exploit a loophole in the American trade law that let any goods which were reworked in a third world country and imported back into America did not have to pay tariffs on the rework.

[00:20:58] [SPEAKER_03]: That was the major loophole government that were trying to exploit.

[00:21:01] [SPEAKER_03]: But one of the requirements of the free trade zone – and this is 91, 92, I think it was, so well before you started worrying about China as an industrial threat – was that any American corporation that wanted to set up on the free trade zone had to have a Chinese partner.

[00:21:20] [SPEAKER_03]: And regardless of whether the Chinese partner put in zero money or not, within five years, the Chinese partner had to own half the business.

[00:21:31] [SPEAKER_03]: Now, American capitals leapt at that because they were getting – being able to go from somewhere they had to pay workers $15 an hour to $15 a month.

[00:21:41] [SPEAKER_03]: The increase in their share of profit from screwing their own workers was so great that they were very happy to jump overseas and exploit China's workers instead.

[00:21:53] [SPEAKER_03]: But China was very cleverly setting up its own capitalist class out of that.

[00:21:58] [SPEAKER_03]: And 30, 40 years later, look what's happened.

[00:22:00] [SPEAKER_03]: And it's an incredible effect.

[00:22:03] [SPEAKER_03]: But I don't think any American corporation with worker representatives on the boards would have agreed to shutting down the business and relocating to China to exploit cheaper wages.

[00:22:14] [SPEAKER_03]: So I think this is part of – this rapaciousness of capitalists wanting to get all the – particularly American where they – you're taught not to take anything into account except maximum profit for shareholders.

[00:22:28] [SPEAKER_03]: That's actually led to the collapse of American industry and the growth of China.

[00:22:32] [SPEAKER_02]: Well, if you've got, I don't know, 30 percent – why not call it 51 percent or 49 percent?

[00:22:38] [SPEAKER_02]: Maybe we couldn't get away with 51 shareholders.

[00:22:40] [SPEAKER_02]: Just wouldn't buy into that company, would they?

[00:22:41] [SPEAKER_02]: But maybe 49 percent are employees making – influencing decisions.

[00:22:48] [SPEAKER_02]: Their motivation is to, you know, have a wage which is enough for them to live off for as long as possible, as you say, which would eradicate all of that sort of like short-term-ism, which is to do with profit.

[00:23:03] [SPEAKER_02]: And it would be like a happy balance, wouldn't it?

[00:23:05] [SPEAKER_02]: It would change things a bit.

[00:23:06] [SPEAKER_03]: I think it has.

[00:23:07] [SPEAKER_03]: And this is one reason people keep on coming back to it.

[00:23:09] [SPEAKER_03]: So you have the Mondragon experience in Spain.

[00:23:13] [SPEAKER_03]: You've got John Lewis.

[00:23:14] [SPEAKER_03]: You have the Cadbury's originally.

[00:23:15] [SPEAKER_03]: You've got Louis Kelso with his idea of the Capitalist Manifesto.

[00:23:19] [SPEAKER_03]: It's something which appeals to people.

[00:23:20] [SPEAKER_03]: And in practice, it seems to work fairly effectively.

[00:23:23] [SPEAKER_02]: But does it help create new things?

[00:23:26] [SPEAKER_02]: So there's – when you look at the examples – so let me give you another example which I quite like.

[00:23:32] [SPEAKER_02]: There was a co-op phone company that managed to get 30,000 customers, and they were providing phone services, internet access, and mobile access.

[00:23:43] [SPEAKER_02]: But the internet – I mean, I could do this.

[00:23:45] [SPEAKER_02]: If I was thinking – and I've thought about this, actually.

[00:23:47] [SPEAKER_02]: You know, if I wanted to stop doing what I'm doing now and just retire or semi-retire, I'd set up a cooperative for my town providing phone services because, actually, the technicals are quite easy because you just buy from OpenReach.

[00:24:02] [SPEAKER_02]: And you could set yourself up as a mobile network virtual provider using EE, for example.

[00:24:08] [SPEAKER_02]: All you are, in effect, is a marketing arm using the technology that already exists.

[00:24:14] [SPEAKER_02]: So there have been cooperatives where they've said, well, okay, well, let's do that.

[00:24:17] [SPEAKER_02]: Let's, you know, let's charge people so we cover our costs.

[00:24:21] [SPEAKER_02]: But the more you use, the more you get back in dividends.

[00:24:23] [SPEAKER_02]: So dividends paid back to the customers based on their spend, in other words.

[00:24:27] [SPEAKER_02]: And then you get a sort of like an affinity marketing approach.

[00:24:30] [SPEAKER_02]: So you get paid for bringing on new customers.

[00:24:33] [SPEAKER_02]: And it's quite an easy sell, really, because you say, well, join.

[00:24:37] [SPEAKER_02]: I get some money for helping you join.

[00:24:39] [SPEAKER_02]: But once you're in, you'll get paid.

[00:24:41] [SPEAKER_02]: You can do the same to get other people, which you could say is a bit of a Ponzi scheme.

[00:24:44] [SPEAKER_02]: But it's not really because everyone's winning.

[00:24:47] [SPEAKER_02]: And then you, you know, and the more you spend, the more money you get back.

[00:24:52] [SPEAKER_02]: That's, you know, that model could keep on growing, couldn't it?

[00:24:56] [SPEAKER_02]: But it's hard to compete against that because the economics, it's an economic model which is pushing costs down.

[00:25:04] [SPEAKER_02]: I think it's brilliant.

[00:25:06] [SPEAKER_03]: But the other, I mean, the other point, you had mentioned this in passing a moment ago, and it's worth coming back to.

[00:25:10] [SPEAKER_03]: What about the really big innovations?

[00:25:12] [SPEAKER_03]: How do they come about?

[00:25:13] [SPEAKER_02]: Can they come from a cooperative?

[00:25:15] [SPEAKER_03]: Probably not.

[00:25:17] [SPEAKER_03]: They could.

[00:25:18] [SPEAKER_03]: They could.

[00:25:19] [SPEAKER_03]: But they haven't in practice.

[00:25:20] [SPEAKER_03]: But let's take the most, probably the most, one of the most significant innovations in human, in the history of industrial capitalism was the development of the integrated circuit going from, you know, valves and, you know, the old form of valves and resistors to the first integrated circuits, which was done under, I think it was done by engineers at the Hewlett-Packard Corporation from memory.

[00:25:45] [SPEAKER_03]: And they were just, they were employees.

[00:25:47] [SPEAKER_03]: So they could have been members of a cooperative, but they weren't.

[00:25:51] [SPEAKER_03]: And then once those innovations developed, you started getting integrated circuits.

[00:25:55] [SPEAKER_03]: That just dramatically changed the nature of capitalism.

[00:25:59] [SPEAKER_03]: And, you know, the technologically, everything we use now relies upon integrated circuits.

[00:26:04] [SPEAKER_03]: So if that had happened in a cooperative, then the cooperative itself would have been the beast that grew, you know, faster than anybody else.

[00:26:11] [SPEAKER_03]: So you can get happenstance coming out of it.

[00:26:13] [SPEAKER_03]: But these innovations occur, even though the cooperative thing works in general in terms of process innovation, and you'd expect it to outcompete the remainder of the system.

[00:26:22] [SPEAKER_03]: Because you can have these transformative innovations like the integrated circuit, if they occur in a standard corporation, then, bang, that standard corporation is going to grow.

[00:26:33] [SPEAKER_03]: And anybody using it will grow more rapidly as well.

[00:26:36] [SPEAKER_03]: And then that wipes out the advantage in process innovation of the cooperatives.

[00:26:40] [SPEAKER_02]: But if someone with a cooperative finds this, makes this innovation, then everyone in the cooperative benefits, which actually would then go, well, okay, is that fair?

[00:26:50] [SPEAKER_02]: You know, one person did this.

[00:26:51] [SPEAKER_02]: And that is why I think you don't have a lot of new businesses that are set up as cooperatives, because there's people who think they've got, I've got the bright idea.

[00:27:00] [SPEAKER_02]: This is going to make a mozza.

[00:27:01] [SPEAKER_02]: So I'm going to make a lot of money out of this, and I'm going to sell it, and I'm set up for life.

[00:27:07] [SPEAKER_02]: You know, so that's the incentive, that cash incentive, which is very different to, I've got a fantastic idea.

[00:27:13] [SPEAKER_02]: What I'm going to do is I'm going to share it with a whole load of people and set up a cooperative, and it's all going to be come by R.

[00:27:17] [SPEAKER_03]: So you can see why it doesn't happen.

[00:27:19] [SPEAKER_03]: Yeah, that's right.

[00:27:20] [SPEAKER_03]: And look, I mean, frankly, I'm a member of personal.

[00:27:22] [SPEAKER_03]: I came up with the idea of Ravel 40 years ago.

[00:27:25] [SPEAKER_03]: Fortunately, I'm working with somebody who can turn it into a real idea.

[00:27:27] [SPEAKER_03]: We're definitely doing it in a cooperative way.

[00:27:29] [SPEAKER_03]: But, yeah, a major motivation was if we succeed, then we can knock over an enormous market and become extremely wealthy out of the process.

[00:27:38] [SPEAKER_03]: And if that wasn't the thought, we wouldn't have knocked it up.

[00:27:40] [SPEAKER_03]: We wouldn't have developed it in our spare time over the last decade.

[00:27:44] [SPEAKER_03]: So you do have this tension between the cooperative when you've got the standard stuff running on and then when individual transformative ideas come along.

[00:27:53] [SPEAKER_03]: Then, first of all, they can occur anywhere in society.

[00:27:58] [SPEAKER_03]: And secondly, if they really can be seen as transformative, the gains are so great that you're like, I don't intend sharing this.

[00:28:05] [SPEAKER_02]: So I wonder, though, whether it could be tempered with this idea that the government does say, you know, you've got to have employee representation as a chunk of your board.

[00:28:18] [SPEAKER_02]: If you, you know, for all private companies, there's got to be never mind.

[00:28:22] [SPEAKER_02]: I mean, a start would be on a consultative board, which the UK could just introduce tomorrow, couldn't they?

[00:28:27] [SPEAKER_02]: But, I mean, the big step forward.

[00:28:30] [SPEAKER_03]: A UK government?

[00:28:32] [SPEAKER_03]: Sorry, pardon me.

[00:28:33] [SPEAKER_02]: Well, you mean they could if they wanted to, if the motivation was there.

[00:28:36] [SPEAKER_02]: But, OK, so if we got into a situation where there was more of that influence, this is just a final question, which actually was the point I really wanted to try and lead to at the beginning.

[00:28:45] [SPEAKER_02]: But we've had an interesting discussion.

[00:28:47] [SPEAKER_02]: But in your model where you've got those various actors, if you've got the situation where the worker is now also the capitalist in a way and, you know, to an extent the financier as well because there's less debt required perhaps because they might be driving more of this development through spent profits.

[00:29:10] [SPEAKER_02]: How does that change your model?

[00:29:12] [SPEAKER_03]: Well, it reduces the extent to which you're going to get social conflict leading to cycles and terminating an investment boom.

[00:29:21] [SPEAKER_03]: That's a major change.

[00:29:23] [SPEAKER_03]: And ironically enough, this is what I find quite funny when you look at neoclassical economists.

[00:29:28] [SPEAKER_03]: The model they came up with that's the basis of all their business cycle models now is one in which there's a worker, capitalist who owns the firm, earns wages, competes with himself in other industries.

[00:29:40] [SPEAKER_03]: They've actually modeled the dam system as a cooperative to begin with, which is quite crazy.

[00:29:46] [SPEAKER_03]: But if you did have that cooperative element, then you'd remove one of the major forces of conflict-based booms and busts and levels of inflation and deflation as well.

[00:29:57] [SPEAKER_03]: So it is something which I think would change the extent to which I see cycles as inevitable.

[00:30:03] [SPEAKER_03]: The cycles would still be there because of the multi-commodity nature of production, because of innovations coming out of nowhere, which suddenly changed the competitiveness of your economy, your industry.

[00:30:17] [SPEAKER_03]: So you're still going to have cyclical behaviour.

[00:30:20] [SPEAKER_03]: It's still going to be endogenous, but it would reduce that particular social conflict source of cycles.

[00:30:26] [SPEAKER_02]: And if you were to say, well, this kicks in, you know, if the government was to say, well, this is a requirement now.

[00:30:32] [SPEAKER_02]: As we say, it's been done in Germany and Austria and Japan, but in every case just for consultative boards, not for the main board.

[00:30:39] [SPEAKER_02]: But if a government was to say, right, for any company over a certain size, you have to allow 30% of the representation on your board has to be, or whatever percentage it is, a significant percentage, has to be the workforce, a representative of the workforce.

[00:30:56] [SPEAKER_02]: Then you get the benefit of that, don't you?

[00:30:58] [SPEAKER_02]: It's not necessarily a cooperative.

[00:30:59] [SPEAKER_02]: You're not going the whole hog, but you are saying, in a way, we are following the spirit of a cooperative in that those decisions being made are being made with that influence.

[00:31:10] [SPEAKER_02]: Now, if you said that that's got to be beyond a certain size, then you still allow for companies, innovators like Revell, for example.

[00:31:17] [SPEAKER_02]: If you got to a certain stage and suddenly became a multi-billion pound business, I don't think you'd be too upset if 30% of the board was represented by the people maintaining that business.

[00:31:26] [SPEAKER_02]: You'd probably quite enjoy that.

[00:31:28] [SPEAKER_03]: Yeah, you'd get feedback about how the system is working.

[00:31:31] [SPEAKER_03]: Yeah, or not working.

[00:31:32] [SPEAKER_02]: Yeah, well, there's our answer then.

[00:31:33] [SPEAKER_02]: There's another problem solved.

[00:31:34] [SPEAKER_02]: I love it when we find very simple solutions to complex problems.

[00:31:39] [SPEAKER_02]: Good to talk, Steve.

[00:31:40] [SPEAKER_02]: I enjoyed our chat today.

[00:31:41] [SPEAKER_02]: Thank you.

[00:31:42] [SPEAKER_02]: Bye.

[00:31:42] [SPEAKER_01]: The Debunking Economics Podcast.

[00:31:49] [SPEAKER_02]: If you've enjoyed listening to Debunking Economics, even if you haven't, you might also enjoy The Y Curve.

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