Transitioning from Capitalism to a Cooperative Economy

Editor’s introduction: In the early 1990s, immediately after the collapse of communism in the Soviet Union, I was part of a delegation from the PROUT Institute that worked in a joint venture with the Russian Far East Public Academy of Sciences to plan a transition to a Prout economy in the Russian state of Khabarovsk Krai.

In our plan, we recommended that the state-owned enterprises should be converted to worker-owned cooperatives. This recommendation was well received. However, it couldn’t be implemented as we’d failed to provide a practical strategy for workers to out-compete the global corporations and powerful Russians that were grabbing control of the state-owned factories and businesses. Today, in Khabarovsk, as elsewhere in Russia, wealthy oligarchs have firm control of major economic enterprises.

Capitalism, like communism, has inherent contradictions, and this will create a severe crisis in the economic realm. This day is not far off. When capitalism goes into crisis, there will be an opportunity to transition to economic democracy. For this transition to be successful, there will again be a need for a practical pathway to convert capitalist firms to cooperative enterprises.

This week’s article, by guest writer Marc Nevas, provides the outlines of such a pathway. Russia is a cautionary tale of a squandered opportunity for systems change. History must not repeat. Marc’s article is an important read. — Ronald Logan

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Capitalizing on Bankruptcy

When a business goes bankrupt it no longer has a positive capital account. Either the liabilities are greater than the assets or the liabilities — such as loans or accounts payable — are greater than the cash on hand, the accounts receivable, or the possibility of meeting those obligations in the future. So, the investors either lose their investment or, through a court-ordered settlement, get back a small percentage of their investment from the residual value of the business or its assets.

But bankruptcy can also mean that a new ownership entity can purchase the whole enterprise cheaply and make a go of it because there are now no debts to pay other than the loan taken out to purchase the residual real assets at the price it is worth at auction.

This creates an opportunity for the workers of the bankrupt enterprise to pool their resources to purchase the company. If their pooled resources are not enough, they can take a reasonable loan from a cooperative bank or credit union to fill the gap.

If the workers acquire the business, they will have a great stake in its success for their own savings are tied up in it, and they may have had to personally guarantee the loan taken to purchase it. But the business is now free of the major debt load that caused its bankruptcy in the first place.

Outcompeting Capitalist Bargain Seekers

The first businesses and industries that will go bankrupt are those with unsustainable debt loads. With the onset of an economic depression, many will be in this situation due to the current reckless practice of purchasing businesses by taking out greater and greater loans that can only succeed while the economy is growing. The ability to service the debt will not be sustainable in hard times when consumer demand falls. This is what will cause the capitalists to lose their grip on the businesses. Bankruptcy means the common shareholder and the lending entities lose out. Those few capitalists who have large amounts of money saved away will attempt to repurchase these industries and businesses at bargain rates, but now there can be competition from the worker’s cooperatives.

The businesses will not be given to them, they will have to invest their own savings and be ready to guarantee the loans, but they may have further leverage by making it known that they will not work for a new capitalistic owner. Because many enterprises will be running into difficulty simultaneously, workers from two competing companies can combine their assets and borrowing abilities to purchase one company and make it a shining success ensuring the downfall of the competing company.

These businesses will not be handed to them. They will have to fight for the opportunity to outbid the remaining capitalists and will likely have to resort to aggressive tactics to win ownership. But this will make the victory of ownership all the more precious.

Leveraging the Competitive Advantages of Cooperatives

A marginal capitalistic owned enterprise attempting to come out of bankruptcy with a dispirited workforce cannot compete with the shining success of a worker owned coop. And skilled, motivated workers will naturally be attracted to the benefits of cooperative ownership where they get to share in the financial rewards of success rather than being limited to wages set by the profit-motivated shareholders.

At first the conversion to cooperative ownership may be slow, but as the benefits of investing in and working within a cooperative become apparent the other capitalistic enterprises will see mass defections of their skilled workers to these coops, and other capitalistic owned businesses may begin to fail. This would provide even more opportunities for an aggressive cooperative movement to gobble up the failing or weak businesses.

Banking will follow suit, for banks want to loan to businesses that have a track record of success and maintain responsibility to pay back their loans.

Snowballing Effect of Cooperative Success

So, in this way, coop ownership could snowball — slowly and painfully at first, but then it will gather momentum. Workers want to own their own businesses and will work twice as hard to make cooperative owned businesses successful. They can provide apprenticeship programs for those who have no capital to invest so that new worker owners can be trained and build up their own investment purchasing power.

Once the ball is rolling this model will start to be widely copied. But it will most likely start in the West where the spirit of innovation is ingrained into the culture and adaptation to new models is part and parcel of the business culture. Innovation is at the very heart of the most successful business models.

Facing Opposition to Cooperative Conversion

The transition to a cooperative dominant enterprise system will not necessarily occur in an orderly and sanctioned way. It will be quite rough and tumble at first, for the capitalists will see the existentialist threat to capitalism and will fight it tooth and nail. The cooperative movement may of necessity have to utilize forceful tactics such as strikes and work stoppages to force the conversion from capitalism to cooperatives.

It will take wily and forceful leaders to invent and promote tactics to speed up the process. Laws may be passed to block this type of conversion, so unjust laws will have to be forcefully challenged or disobeyed to go forward in a timely way. Popular support and voter initiatives will be faster than drawn out court battles. We see how Amazon forcefully opposes union organizing among its workers. This is the type of opposition that will have to be confronted to move cooperative conversion forward in a timely manner.

Other Forces Disrupting Capitalist Control

But there are other forces at play that will bring the capitalist power brokers to their knees. Climate caused disruptions and ongoing health crises are disruptors that are not under their control. Just look at what one tiny virus did to globalized corporations. They couldn’t even transport their goods in a rational and timely manner.

Additionally, the rush to manufacture electric cars for profit only prolongs the dependency on fossil fuels for electricity. Without investment in solar and wind, where will the electricity come from? Many electric cars will be running on electricity from burning coal and gas. Energy use is not decreasing, and there is inadequate emphasis on conserving energy. Also, the materials to manufacture batteries are mined in only a few places, where harmful mining practices are escalating in the race to gather and process the materials to make the batteries. This destruction of the earth will cause further disruption to the capitalists’ consumption focused model.

A Forceful Approach Will Lessen the Suffering

So, the forces are there to weaken and undermine the capitalistic consumption-based system. But the cooperative model, the economic democracy model, must quickly develop to take up the challenge in an aggressive fashion. If this is done, much suffering can be alleviated. But it will take a forceful approach to speed up the transition. We cannot just wait for the capitalists to hold up their hands in despair and say, “We give up.”

They will not give up, but some that are more wise will see what is coming and willingly join forces with the cooperatives when they understand the benefits and see the strength of the will of their opponents. Many in their hearts want to do good for the society, but they are locked into the capitalistic way.

We must show them a brighter path and convince them to leave the sinking ship and jump onto the rising ship. They are trained to see opportunities, so many of the best and brightest will jump when there is a promising rising boat to jump to.