Economic Freedom

Economic Freedom
Democratizing Work In The 21st Century
by Robert Arnow; April 27, 2005

In the early 1500s, Nicolo Machiavelli penned the famous quotation:

“Power corrupts. Absolute power corrupts absolutely.”

Unfortunately, Machiavelli’s wisdom holds as true today as it did in 16th Century Italy. His statement, while probably a bit more black and white than reality, has the power to explain one of the cornerstone dynamics of politics throughout history. Based upon his principle, one could predict that the transition from monarchy to democracy would blunt the cruelty of those in power. By reducing the “absolute power” of the powerful, so then would their “absolute corruption” be reduced, by the power of the people to hold their leaders accountable. Our nation’s founders understood this crucial principle, and therefore realized that in addition to the right to vote, we also needed 3 branches of government to put checks upon each other. The less the centralization of power, the less chance despotism would have of tearing away consent from the governed.

Why then, do we still have so many problems with our political and economic system? One of the major causes is to be found in the workplace, the place where most people spend the majority of their waking hours. And the answer lies in the fact that most workplaces exist as dictatorships, not democracies.

The economy is a parallel system of power to that of the government. While technically subservient to the government and to the people, money is so powerful as to overwhelm the checks and balances of the political system. But, its not really money itself that is the culprit, it’s the concentration of the power that comes with it in so few hands. Ten percent of American families control two–thirds of the nation’s wealth. The top 1% of asset owners hold more assets than the bottom 90%. It’s no wonder that politics is controlled by and for the rich. If wealth weren’t so concentrated, neither would campaign contributions be, and the political influence that comes with them.

Fortunately, there is a solution that starts to move us closer to the ideals upon which our nation was founded: worker-owned democratically-run business. Worker-owned cooperatives, by spreading out profit among all the workers, rather than a small clique of owners, take a huge step towards a more equitable and fair distribution of wealth in society, and hence, remove much of the corrupting influence that money has on the political system.

Leland Stanford, founder of Stanford University, and the richest man in the Senate in the 1890s, had become an unlikely ally of the populist movement, and a major promoter of worker-owned cooperatives. In fact, one of the 3 purposes upon which he founded Stanford University, was to promote the principles of worker-owned cooperatives. He wrote:

“In a condition of society and under an industrial organization which places labor completely at the mercy of capital, the accumulations of capital will necessarily be rapid, and an unequal distribution of wealth is at once to be observed. This tendency would be carried to the utmost extreme, until eventually the largest accumulations of capital would not only subordinate labor but would override smaller aggregations.”

Stanford then describes his solution:

“What I believe is, the time has come when the laboring men can perform for themselves the office of becoming their own employers; that the employer class is less indispensable in the modern organization of industries because the laboring men themselves possess sufficient intelligence to organize into co-operative relation and enjoy the entire benefits of their own labor.

With a greater intelligence, and with a better understanding of the principles of cooperation, the adoption of them in practice will, in time I imagine, cause most of the industries of the country to be carried on by these cooperative associations.”

Fortunately, today we have models of workplace democracy which can help lead us towards the fulfillment of the democratic potential which Stanford dreamed of. In Spain, the 12th largest business in the country, the famous Mondragon Cooperative, is an over-68,000 member, worker-owned cooperative, than operates on the principle of 1 person, 1 vote. Unfortunately, only about half of the members are worker-owners, but many will become so after having been employeed there for a brief time. At Mondragon, while there is a difference in how much money people make, that decision is determined by a worker-elected council. The greatest difference in income, from the lowest paid worker to the highest, is 1-to-6, much lower than the 1-to-250 now enjoyed by many corporate CEOs. The low and mid-level workers make more in wages than the local going rate and are awarded a large share of the profits in addition to their wages. Mondragon started with 5 people in 1954 and has grown to one of the largest companies in the world. It continues to grow at a fast pace due to the fact that it has its own bank, insurance company, and university so that it has the resources and capital necessary to fuel its own growth. Cooperatives can compete with top down multinationals by using the same power of size and numbers.

But the benefits of worker-owned cooperatives are not limited to distribution of wealth. The are many other advantages to cooperative business:

* Cooperatives, like Mondragon, at 10%, give a much higher percentage of their profits towards community service. And they tend to be much more environmentally conscious. Why? Because the people who work at the cooperative live in the community that will benefit or suffer the consequences. Unlike the CEOs who rise to the top in traditional businesses, the businesses tend to reflect the values and interests of all the workers, rather than the few who rise to the top.
* Worker-owned cooperatives eliminate the traditional union-management conflict and replace it with a cooperative ethic. This means that workers-owners get healthcare, pensions, and other things without having to struggle against management. Workplace safety standards can be created by the workers themselves. If workers want to give themselves six weeks of vacation, or on-site childcare, that’s their prerogative. Management are chosen by the workers so strikes are a thing of the past.
* Worker-owned cooperatives don’t close plants and move them to India or China. Not unless everyone who owns the company decides to move and work there too. This is good both for workers and for localities that no longer have to compete with other localities to retain business, a trend that results in lax environmental regulations, corporate welfare, and a general subservience to the owners of capital.
* Worker-owned cooperatives can co-exist with the current market system. While the top-down control of communist economies results in the danger of despotism, much as the concentration of wealth in capitalist economies does, cooperative business distributes both wealth and power fairly. It acknowledges the danger of both oppressive corporations and oppressive government.
* Worker-owned cooperatives are training grounds for democracy. They teach their workers how to participate as an empowered citizen, rather than just a cog in a machine. Worker-owned cooperatives also offer their workers the ability to take time off in exchange for pay, longer paid vacations, and other things which give the workers more personal time to participate in community, travel, or spend time with their families.
* Worker-owned cooperatives are competitive with traditional-models. The attention paid to worker-related issues, and the decreased profits associated with those expenses are offset by high morale, low-turnover rates, and more participatory and informed decision-making. Also, by building consciousness about the importance of buying “worker-owned” it can gain a market amongst the same people who would buy “fair-trade.”
* Worker-owned cooperatives can be an appealing concept for both liberals and conservatives: for liberals, because of the care and equality it provides, and for conservatives because of the self-determination and responsibility that it entails. Workers take responsibility both for profits and losses.
* Worker-owned cooperatives will tend do everything in their power to avoid lay-offs. In small cooperatives, this means that during recessions everyone gets a pay reduction and/or shorter working hours, while everyone keeps their job. An equally powerful dynamic is seen in large cooperatives like Mondragon, which have many businesses under the umbrella of a single cooperative corporation. What happened at Mondragon during the recession of the early 1980s was that the workers of businesses that were failing were retrained by the cooperative for other jobs in different parts of the company. In this way, there were no lay-offs during the recession. In fact, coming out of the recession, Mondragon did particularly well, as it was fully-staffed, unlike the private businesses that had to rehire new staff and had low morale in comparison.
* Worker-owned cooperatives help stabilize the economy and reduce recessions. Recessions are caused by a cycle of slumping employment figures and lack of investment which cause a vicious downward spiral. By seeing lay-offs as a last resort, and only making them under when absolutely forced to, worker-owned cooperatives put a check upon this spiral.
* Worker-owned cooperatives don’t get sold off as easily to large corporations, in the manner that many successful traditional businesses do. This helps maintain the ethic of innovation and social consciousness that made businesses, like the pioneers in organic foods, or locally-owned newspapers, successful. When these businesses get turned over to large corporations, they often end up using the name and resources of these companies to subvert the ideals that they were originally founded on.

Worker-owned cooperatives show the potential for exponential growth as a movement. Cooperatives who see it as their mission to advance the movement can band together for mutual financial support and infrastructure. They can create supply chains with worker-owned cooperatives both supplying, distributing, and retailing goods. They can fund the political work necessary to fend off attacks by traditional top-down businesses. They can create institutional support for traditionally under funded progressive causes. In short, they can achieve incredible political and economic ends without relying on the government’s benevolence.

But at the same time, the cooperative movement should also look to local governments for support: for preferential investment opportunities, for start-up loans or grants, and to support in creating cooperative business structures. A balanced approach that would quickly and easily lead to cooperative creation would be to give assistance, and possibly matching funds or loans, to employees who want to buy a business from an employer who is selling it, under the condition that it be run on a cooperative model. Any profits from these loans could be used to fund assistance to other cooperatives.

Stanford writes further:

“…laws should be formed to protect and develop co-operative associations. Laws with this object in view will furnish to the poor man complete protection against the monopoly of the rich, and such laws properly administered and availed of, will insure to the workers of the country the full fruits of their industry and enterprise.”

Cooperatives operate under very diverse structures. They share power and profits in very different ways from each other. Some of these methods work, and some have been shown to fail, or to sell-out, over the long term. For those who are interested in learning about cooperatives Google is a great place to start. Just type in “Mondragon” to get started.

“Capital appears to have an ascendancy over labor, and so long as our industries are organized upon the divisions of employer and employee, so long will capital retain that relation, but associated labor would at once become its own master.”
-Leland Stanford