Monday, April 18, 2016

Metamorphosis of Capitalism and Socialism: Part 2

Joaquín Sorolla, 1915

PART ONE of this series suggested that Rudolf Steiner's economic ideas have some key points in common with the ideas behind the remarkably successful Mondragon cooperatives based in Spain.  According to its website, the Mondragon business group has annual revenues close to 12 billion euros, which at the moment is the equivalent of something over 13 billion U.S. dollars.  In the United States, the Mondragon model is spreading as well, notably exemplified by the growth over the last three decades of Cooperative Home Care Associates, the largest worker-owned business in the U.S.  What do Steiner and Mondragon have in common?
They both propose a new kind of company with a new legal and economic structure that enables enterprises to better reflect the reality of who participates in the creation of value:  not just managers and providers of capital, as in traditional companies, or just workers, as in some kinds of cooperatives.  Mondragon and Steiner include the surrounding community as a stakeholder also.
Picasso, Sleeping Peasants, 1919

To see this, consider the diagram below, which comes from the non-profit ICA Group's guide to setting up internal capital accounts in cooperatives.  ICA is the organization that transplanted the Mondragon model successfully to the U.S.  What the diagram shows is not intended by ICA as a rigid form, but only as an example that may be adjusted according to specific circumstances.  The example shown below assumes for purposes of illustration that in a particular year a cooperative's net income before tax is $50,000.
Diagram adapted from the ICA Group's
guide to internal capital accounts.
How would a Mondragon cooperative handle that $50,000 in income?

So readers need not keep scrolling up and down, the same diagram appears several times in this post.

Notice that net income before taxes is split in half.  Fifty percent goes toward the collective company account shown on the right.  The other 50%, shown on the left as $25,000, is shared out to workers according to how many hours they worked.
Diagram adapted from the ICA Group's
guide to internal capital accounts.

The diagram shows workers receiving that $25,000 in company profits in two ways: one half of it is shared out among them as cash; the other half of the $25,000 is shared out among them as "written notices of allocation," which go into individual company accounts for each worker.  A worker is permitted to redeem those written notices for cash either after a set number of years, or when the worker retires, depending on how the particular cooperative was set up.

Until a worker redeems the notices, the company can use the funds, in effect borrowing them, for any legitimate corporate purpose.  Workers get their share of the company's net income in addition to whatever salaries and wages they receive.  
Diagram adapted from the ICA Group's
guide to internal capital accounts.
Perhaps the most interesting part of the above design is the collective account.  Worker-owners never get access to that during the life of the company, and ICA advises that companies from the very start should make the collective account legally "indivisible," meaning that if the company dissolves, the funds in the collective account are not distributed to past and present worker-owners, but rather are donated to a non-profit that makes loans to cooperative startups, or otherwise helps to create cooperative businesses.  Or the indivisible funds can be donated to a non-profit somehow related to the mission of the business.
Konstantin Gorbatov, Sailboats, 1929
Like Mondragon, Steiner proposes that workers should receive a share of profits, and that an enterprise should allocate a substantial part of capital accumulation to an internal account designated as collective and indivisible (Steiner did not use those expressions, but his concept was the same).  Since Steiner proposed indivisible collective capital, it is not surprising that, much like Mondragon, he concluded that if a company or its management was no longer in a position fruitfully to employ the indivisible capital at its disposal, the company would transfer that capital to other managers and other cooperatives' indivisible collective accounts, or to cultural institutions.  Thus in cooperatives as Steiner and Mondragon conceive them, some large percentage of capital accumulation is not anyone's property.  Such capital instead becomes a circulating public trust, and does so without coming under government control or direction.
Andreas Achenbach, Don Quixote and Sancho Panza, 1850

The designation of a legally indivisible collective capital account represents a significant transformation of traditional capitalism, and in essence is close to ideas Steiner proposed in 1919.  The indivisible capital account has several beneficial effects in terms of enabling the number, variety, and size of cooperative enterprises in the world to grow.

For example, the indivisible collective capital account eliminates the temptation of worker-owners to dissolve the company in order to take all the capital for themselves if the company prospers.  Thus successful cooperatives can endure and expand for each new generation of workers. In the past, making that happen has been a challenge.
Joaquín Sorolla, The Alcazar at Seville, 1908
Second, if a cooperative should fail and have to dissolve at some point -- though cooperatives fail less often than traditional capitalist companies --  then the requirement to donate the indivisible funds to a non-profit, particularly to one that helps with the formation of cooperatives, also keeps cooperative enterprise expanding for future generations.

Finally, it is no small thing that the collective indivisible account brings the company into accord with the reality that the business owes part of its success to its surroundings and to the community.  That is stakeholder capitalism.

Another key point in the Mondragon model should be mentioned.  While profit-sharing makes an individual worker's internal capital account grow, the worker's ownership share, purchased when the worker joined the company, keeps the same value over time.  By contrast, in the type of cooperative where the ownership share is permitted to appreciate in value as the company grows, a time comes when new workers can no longer afford to buy an ownership share, with the result that the company gradually ceases to be cooperatively owned.  Thus, using an ownership share that does not change in value and cannot be sold is another way that Mondragon's model makes the growth of cooperative enterprise sustainable.

Paul Signac, Sardine Fishing,
Concarneau, Opus 221 (Adagio),

Only a few aspects of the Mondragon/ICA model could be noted in this post.  For those interested in more details, here is ICA's guide, and an overview and short power point are here.

Part 3 of this series will look more specifically at how Steiner's proposals overlap with and also differ from the ideas embodied in Mondragon.

Take Action

One can help make economic life more cooperative (and by that very fact reduce the need for an ever-expanding ameliorative State) by donating to these non-profit organizations, educating oneself at their websites, or participating in their volunteer projects:

Associative Economics
Hawthorne Valley Center for Social Research
ICA Group
Rudolf Steiner Social Finance

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