Pray elucidate.
Agnostic Pagan: Thanks for that lenthy post. I think that’s a much more interesting topic to discuss. One can certainly argue that Silicon Valley was largely built on your proposed model-- workers getting paid in a mix of equity and salary. Still, it took a lot of outside capital to get many of the best businesses going here. So, you had traditional “passive” investors, very active investors (VCs), and employee/owners all thrown into the mix. Seems like the optimum model is to allow people the freedom to pick and choose which situation works best in which environment.
The problem you are going to have if you force this type of arragement on everyone is the simple fact that most small business fail, and millions of people are going to be left with absolutely nothing-- or worse yet, debt and bankruptcy. Plus, different people have different mindsets when it comes to the security/risk equation.
At any rate, I certainly support the idea that co-ops and partnerships should be legal and easily formed. I really know absolutely nothing about what laws are in place that put restrictions on those entities. I would also more readily support mandatory profit sharing for business than I would support a mandator Living Wage law (if I had to choose between only the two). However, profit sharing can also be loss sharing, and when you’re living at the margins (even if you nominally make a “Living Wage”), that might well be a trade-off you can’t afford to make.
As for the issue of corporations influencing government, that’s something you won’t be able to get rid of w/o changing the government itself. If we replaces all corporations with co-ops, we’d be complaining about the excessive influence that co-ops have on government. The basic problem is the amount of power and authority we allow the government to have-- tax breaks and special treatment are prizes too juicy to expect people not to lobby for.
That is a problem. Something that partnership law probably has experience with. We covered incorporation in business law, but I cant remember the dissolution process.
And some people do not want to be part-owners and are quite happy being just employees. So I dont want to force it on anyone. I would just prefer the corporation to be the uncommon model.
What’s the effect that the type of business would have on its interactions with the other parties? Something I hope to work on in the future. I’d make a decent thesis, I think. I’m sure its been done, I just need to dig through the journals.
Your point is a good field for the political scientists (another ‘science’ that wants to be harder than it is.) What the effect that the type of government has on its interactions? What level of interaction? Thats another thread though.
This is another one of my problems with the theory of the firm. It concentrates too much on how it interacts with the market, but not much on what the most effective type of firm is (as opposed to effective management.) Considering all the business models worldwide, it a pretty rich field for study, but most of the literature is based on the US corporate model. As new non-western multinationals rise out India, China and other countries, its going to be of even greater importance I think. Which models will they emulate? What hybrids and new models will arise? My organizational behaviour class just touched on the subject.
I intend to go into economic/business development, so I would like to develop a better business model that what I see currently.
And personally, I think only voters as voters should be able to lobby government. If an executive wants to change the law, let him spend his own dime as a citizen, not the company’s. Dont know how that would work in practice, or how many Supreme Court rulings would be affected, but I doubt it would be worse than the current system.
The point I was making was in response to Agnostic Pagan’s claim that government is preferable to the market, because government is more responsive. I pointed out that not only do people ‘vote’ with their dollars, but activists such as Nader can actually have a dramatic impact on a market. That’s all I was trying to say.
Of course, since you bring it up, I’ll have to say that I don’t believe the Corvair was particularly unsafe (as the NHTSA subsequently found). Its design was little different than the Porsche 911’s - swing axle, rear engine layout.
From this Wikipedia article:
The Corvair is now considered a classic car, prized by owners because of its excellent handling characteristics. Sure, it will swap ends if you push it hard - so will a 911. One of the claims I remember reading was that although the Corvair has a similar setup to a Porsche, the people who buy Porsche’s are more educated and typically better drivers who know how to drive them. Corvair buyers had no inkling of its particular handling characteristics, and therefore were more likely to get themselves into trouble. This is hardly the car’s fault.
As for sweatshops, we’ve done that thread before. I categorize them as sadly unfortunate but necessary parts of an emerging economy. Eliminate them, and the people who would otherwise choose to work in them will suffer.
Feel free to start a thread about either of these subjects if you’d like to continue the discussion.
Employees who are granted an ownership stake in a firm do so at a tradeoff. They are trading part of thier salary for stock. No such thing as a free lunch and all that. This might be a swell deal for an SAIC consultant, but perhaps not for a Wal Mart employee. An equity stake might help put junior through college, but its not going to put food on the table today. This is a real concern for a lot of folks.
Furthermore, people are much more risk adverse than one might think. For people living pay check to pay check, a bad month could spell ruin. That’s why running a business isn’t for everyone, or even most people.
Seriously, you should pay attention to your definitions.
This I would love to hear.
Despite what corporations might have been in the past, let’s discuss what they are now. I don’t necessarily disagree with what you have wrote, just that it doesn’t show the whole picture.
Corporations weren’t that favored as a business model until the taxes became relevant. What really drove corporations was the ability to shield the managers and stockholders from risk, and the ability to pool large amounts of capital.
It’s the pooling of large amounts of capital that creates equity. What does the common worker bring to the table? His labor. How is his labor different than the next person on the street? It really isn’t that much different. This point becomes especially true as more competition develops and the products/services produced become more commoditized. The common laborer can create value in his position, but there is no way business owners/managers are going to reward the worker for his labor with both wages AND equity. Perhaps, they could go to the Silicon Valley model that John Mace mentions, but I’ve been there before. While not terrible (because the stock options really paid off), it really is a gamble. I’ve seen start-ups at $10/hr + stock options. That is the price the worker pays for equity. However, corporations do offer ESOPs, profit-sharing, and stock options, and if a laborer’s company doesn’t offer that, then either his company isn’t competeing or the laborer’s skills aren’t that valued in the marketplace.
This point has nothing to do with how a company is formed – well, ok, it does, but that is a secondary point. The main point is that the laborer IS NOT bringing capital to the table, he is not sharing any risk in the corporation. This is especially relevant in the small corporation and medium size (though medium size nowadays are pretty large capital wise).
I don’t know what book you’re reading from, but this probably hasn’t been true since pre-Industrial England (I’ll have to check my econ history books). The defacto organization a business is under is a partnership. It can be Joe’s Garage, it can be a beauty shop, hell, it can even be a co-op (wait, until I address this “definition.”) Partnerships are not especially attractive because the liability shield isn’t as strong as the a corporations. Most corporate owners (i.e. stock holders) don’t mind being lazy, absentee owners. Partners cannot afford this luxury. Why would you want to expose a person’s liability, especially when all they did was throw in a few bucks to buy a couple shares of ownership?
What definition of co-op are you going by? This is very relevant to the discussion, especially since you touted it as a superior form of business. You do realize that your books probably (again, probably depends on your definition of “co-op”) don’t talk about co-ops is because they are an inherently inferior form of business organization; AND, whatever a co-op can do, a corporation can do as well.
This sentence is next to meaningless in this discussion. This is like saying, “Water is wet because of its fluid state.” I bring this up because your posts are rife with these “arguments.” I don’t mean to be belittling, but to be constructive. I believe Shodan was calling them non-sequitors. I’ll end this hijack here.
We do have both. We have a market for labor, which we call the labor market. We have a market for shares, which we call the stock market. I have no idea what this point is to demonstrate. Please elaborate if you wish.
There probably isn’t a real answer to this, but this structure could also come into existance because back in the day when not much capital was needed, the business owners supplied the capital and decided to manage it as well. They told people what to do, simply because it was “their money.” Regardless, try to get 10 people to agree on something, like go out and eat, or see a movie. Let me know how easy it goes. Now multiply that by a thousand for every 10 people you add to your group. That’s what happens when you don’t have corporate hierarcchy, or hierarchy in general. I’m pretty sure someone conveyed this point already.
The only thing to debate in this paragraph is the last sentence. This “mentality” is the fault of the individual, or society (depending on how one views this loosely caled “problem.” This is the same mentality that is concerned about inequitable distrubtion of wealth. I don’t know how to describe this, and is only tangential to your overall post, so I’ll stop there. Start a thread on the inequitable distribution of wealth, and I’ll probably expound further.
The quick and dirty message board response to this argument is to go ahead and run your own business, especially when you deal with price sensitive commodiitzed goods. To further reiterate this point, start with little to no capital. When you realize what is at risk, especially weighing your opportunity costs (i.e. going to work for the man), does it now seem fair that a shelf-stocker (replace this with just about any position you can think of) get as much equity and salary for all the risk you’re taking?
Perhaps education, experience, and leadership are but mere qualities that will also separate executives from laborers. The problem, i think you are seeing, is that there are positions which require a lot of skill, which is invaluable to a company. Kinda like a small little part, that if missing from a car, will not make the car run. While in a smaller company, this might garner the individual stock options, it might not so in a large company. A large company has enough resources that they can place wages towards that position, and the market is diverse enough that someone will take the position without stock options. The market is really what will decide what compensation is optimal.
[snip]
Really, this talk of professionals is almost as annoying as talk of political correctness. Do you know what a professional is? It is someone who belongs to an organization that has a body or set of rules that are set up for the public interest and in furtherance of the profession. Do we really need a profession of baggers, valet attendants, or house painters? Sure, they can organize, I have no problem with that, but there really isn’t a need is there? I think you mean that professional is someone who takes their work seriously. Of course all workers should. If they do not, they deserve to get fired. You want to further reward them by giving them stock ownership? For doing what they are paid to do? For commoditized labor? If you have money burning a whole in your pocket, I guess that’s your perogative. I suppose though, you want to make this mandatory, and for obvious reasons as well as the ones I stated above. I strongly object.
[snip]
How about “one does not get fired if he does his job, generally” as incentive to be professional? That last line in the quote is terrible mind-boggling. The market wants competition plain and simple. Cooperation stinks of the loosely defined oligarchies you so fear.
Short answer: risk and liability should be able to be determined at the individual level. See John Mace’s post.
Do you mean workers in a coop and/or partnership? Partners are cashed out based on the equitable distribution of the value of the partnership, pro rata divided amongst the remaining partners; also see dissolution of a Joint Tenancy in Common for real property.
Huh? 
Do you mean free education? This has nothing to do with market manipultaion or cororporate oligarchies.
If these workers increased their education level, more than likely, they can increase their earnings.
Monster good luck to you.
Seriously, start a business. Really. Try to get financing. Let me know what they want to collateralize the loan. You’re not going to get a revolver on new business with no business plan, no cash flow statements, no account receivables, etc. At the least, you’re going to have to put a house down, for a loan with principal and interest due in 5 years. I own a small business on the side which I hired my friend to run. I also own part of a small law firm, so I suppose you won’t need as much capital for that either. Ok, so, your business is going to have to be one where you sell your services. You might not need that much in capital investment, but you’re also not going to need as much in terms of labor either. Are you going to have your secreatary or personal assitant have equal ownership to your hard labor and work product?
To add to all the excellent points mazinger_z made, also consider that it’s generally a bad idea to tie up all your investments in the company that you also work for. This magnifies your risk substantially, because if your company goes under you lose your job AND the money you need to survive without one.
If all our businesses were worker owned, then every time one of them went under we’d find ourselves with a serious social problem. And if you try to shield the workers from that risk by bailing them out with social plans if their businesses fail, then you change the behaviour of the company. If the owners are protected from the consequences of failure by the government, they’ll engage in more risk-taking. Or they simply won’t care a whole lot about their company.
The thing you’re missing, Agnostic Pagan, is that your ideas have already been tried. The current corporate business model wasn’t handed down from on high as the way that businesses must organize. Co-ops have been tried. Various forms of employee ownership have been tried - some successful, some not.
If another form of business organization had clear advantages over the current one, you’d see a natural migration to it over time.
What people who want to meddle with the market don’t want to accept or realize is that the market is kind of like an ecosystem. It’s not a haphazard collection of arbitrary rules and rich guys making it up as they go along. It has evolved into a very sophisticated system that extracts information from every producer and consumer and distributes it through prices to all interested parties. Business organization of all sorts are tried out on a continual basis. Someone starts a co-op, and fails. This company over here is flattening its hierarchy. Yet another is implementing Six-Sigma quality throughout. All are trying to gain a competitive advantage by being leaner, more efficient, smarter, and by being capable of manufacturing higher quality products. We’ve got the system we have now because its the one that has shown itself to work best.
I remember reading a few years back about some computer engineers who decided to solve a bandwidth allocation problem in a novel way - realizing that markets are all about managing scarcity, they figured if they could set up a ‘market’ for bandwidth in software, maybe all the devices that needed it could negotiate through ‘prices’. So they set up pricing algorithms based on desired traffic, and let the devices bid. Along the way, they discovered they needed a ‘futures’ market to anticipate bandwidth needs. Then they discovered that they needed ‘brokers’ to manage transactions. By the time they were done, they had replicated a lot of structure that the current market has. It turns out that these things exist because they are needed, and that they function as they do because that’s the best way for them to function.
But there are always people who think they are smarter than the last guys who tried to control the market and failed. So we get the same old laws under new names, the same results happen, and by golly it’s a mystery. When the government put price caps on gasoline, every economist worth his salt could have told them that the result would be gas shortages. And so there was. But that didn’t stop New York from instituting rent controls. Also a gigantic failure. The Smoot-Hawley tariff is widely credited with helping to turn a recession into a depression in the 1930’s, but we still get people on this board thinking that one solution to an economic downturn is to put tariffs in place to protect the workers and ‘create jobs’ by forcing imported goods to be made domestically. They never learn.
And this is just more of the same. Another person with a magic recipe for better organization that every smart businessman for the past 300 years missed. All we need is a little more government, a few more laws, and we can fine-tune the machinery of capitalism and make it do our bidding.
From the Rural Development Agency.
"A better business model
[National Co-operative Business Association President Paul Hazen kicked off the Summit by proclaiming that U.S. co-ops “aren’t simply an alternative business model; they are a better business model.” He offered reasons why:
* Cooperatives distribute capital widely among average Americans, while stock companies make the rich richer.
* Cooperatives keep capital in the community, while stock companies export it elsewhere.
* Cooperatives exemplify the “ownership society,” while stock companies concentrate ownership among the investor class.
* Cooperative governance is open and democratic, while stock company governance is closed and easily manipulated.
* Cooperatives have both economic and social goals, while stock companies are motivated solely to make money for shareholders.
Cooperatives largely police themselves while government must provide extensive oversight and control over stock companies, Hazen said. “As long as the newspapers are full of scandals involving investor-owned companies, as long as a greedy few seek to convert coops for personal gain and as long as economic forces keep widening the gap between rich and poor, I’ll keep saying it. Co-ops are a better business model.”
Other good stuff on that page too.
A major industrial economy has businesses based on the above criteria? Scandinavia comes the closet, but I dont know of anywhere else. Please enlighten me.
I recommend The Gangs of America as good description of how the corporate model became dominant. It was not through a democratic, market-oriented process. And the operative word in the title is America. Every nation has their own process of business development, but the textbooks act like that the American model is the gold standard. Fifty years ago when someone could expect to spend their entire career only working for US firms, it made sense to ignore non-domestic models. I dont believe that is the case any longer. A paragraph or two at the end of a chapter doesn’t really do the topic, or the student, justice.
Natural migration is not possible when artificial barriers have been constructed. And to create an equal playing field for other forms of businesses would likely need the repeal of many laws favoring the corporation more than new laws to increase the incentives for co-ops or partnerships.
I use the standards set by the industry.
But the reverse in not true.
[/QUOTE]
‘One factor that affects an automobile is its engine and the nature of its components.’ Please describe how that sentence and my previous statement are non-sequitors? The attempt to describe it as a tautology does not make it so. Please tell me how my statement is not relevant to a discussion on the operations of businesses and markets. Its worth the hijack at the moment.
Way to promote the fight of ignorance there. Business and commerce have not evolved over the last 300 years? Everything was self-evident and the ‘evil’ government obscured the ‘truth’ from the poor abused capitalist? All research regarding business models, market structure, business development, etc are just looking for ‘magic recipes’? Nice open mind there.
Well, that’s fine. All that remains is for Mr. Hazen to found a co-op and out-compete all the corporations. Once he gains market share, I am sure others will follow. If he doesn’t, however…
Not quite a good example - a better one would be “one factor that affects an automobile is its structure and components”. What else is there?
Regards,
Shodan
As I have stated before, do not conflate politics with economics. Econ is hard enough as it is. Likewise, do not conflate sociology with economics for the same reasons. I will try to illustrate this point further along your post – oh, and keep in mind that the real reason behind business is to make money, plain and simple:
[It’s all about the Benjamins, baby!]
Coops, like Corps, don’t distribute capital. They concentrate it into an organization. Watch your defnitions. However, this isn’t your definition, so I disagree with this premise right away. Does Paul Hazen even own a business?
Does it matter? So what. We’re in a global economy now. Unless you or Paul thinks that’s a bad thing. Please start a thread on that. I suppose I could talk about how this smacks of protectonism and nationalism, but that would be overstating my argument. Oh, and keeping capital in a community doesn’t matter. Capital creates production. If your labor is so closely tied to production mechanism, then yes, money/profit/capital expenditure will go to that location first. However, profit will go to where the owners are. That could be anywhere. Likewise, finished goods and services can be sold anywhere (except for government intervention).
Wtf is the “ownership society?” Is this a society based on property ownership rules? Does he mean like capitalism? Or, is this where society owns everything, like say, I don’t know, communism? If it is the former, many types of corp orgs cover this.
I’m at a loss as with other posters as how a bus org governs itself. A coop, like a corp, can create a board. The coop, like the corp, doesn’t have to allow equal ownership, or it can, it depends on what type of shares are given.
While profit is the underlying factor, corps can have economic and social goals, too. I’m surprised Paul hasn’t mentioned non-profitability (probably because coops can be profitable). When a new business forms and claims green Earth, equal opportunity, central planning, we call that entity a coop. When a previous long-time standing company adopts this stance, we call this appealing to a market niche. Like quantum mechanics, it largely depends on the perception of the observer.
[/quote]
Cooperatives largely police themselves while government must provide extensive oversight and control over stock companies, Hazen said. “As long as the newspapers are full of scandals involving investor-owned companies, as long as a greedy few seek to convert coops for personal gain and as long as economic forces keep widening the gap between rich and poor, I’ll keep saying it. Co-ops are a better business model.”
[/quote]
This paragraph undoes its own argument. The reason why corps need government laws is because it’s way too easy to rip off the public, which is providing a huge amount of money. However, the same can be said of a coop, just that it’s on a smaller scale. The corp can hide behind liability shielding, the coop can’t (ok, maybe it can, it depends on how it’s set up, it can be a LLC, for instance – oh look, another form of corporation, fancy that?)
As you can see, there really is no dfference between a coop and a corp. I can also turn this around to show you that there is no difference between a coop and a partnership. It really depends on how the business is organized. Btw, your definition of a coop is still lackng. If you want to advocate non-profit tax advantages for the coop, while still making a profit, that will fail. Otherwise, it would be a non-profit organization.
A member can be an investor. This seems to say that a coop requires its “shareholders” to also work there. What if my work consists of reading e-mails from my house? A corp can do this.
A board can make this stipulation as well. Likewise, a coop can search for members of the board and have it become the new board, and pay for those new members’ membership fees.
A corp can probably do this (I’m not sure why it couldn’t). But, then, who would invest in it? If a corp were to do this, they would probably create votng shares, or a different type of equity share, or they would simply just give more shares to certain people to account for the surplus revenue (i.e. profit).
Meaningless statement. For kicks, maybe I’ll let you all read the board minutes of my company, which state the purpose for my corp. It’s equally as meaningless.
Are it’s members not also shareholders? Don’t they also provide goods or sevices to the communty? I guess the coop exists to do other things, too.
So, then like a partnership? Otherwise, if the organzation experiences the double taxation problem, it is most likely a corp.l
Are you serious? I guess you are. Ok, let’s start with the first sentence.
First off, you mention two factors: 1) structure; and, 2) players. This is like saying, “The sky is blue.” (a simplified version of my “The water is wet” comment). Of course a market is affected by its structure (which isn’t very descriptive, btw). I am forced to assume that a free market is different from a command economy which is different from a socialist one (and by this I mean, high taxes). Of course they’re all different, that’s why we have different names for them.
“Players” will also affect the market because, guess what, the market is made up of players. Each player’s action will affect the market. The market is us, we are the market. Is that a good enough tautology for you?
When you string enough of these together, they make the argument even more useless. The same effect happens when you pepper these statements throughout your post. Let Shodan break down the analysis in the other thread. He is quite adept at point them out. Anyway, your next line in the paragrapn is:
While a somewhat rhetorical question, it does not follow from the statement before it.
It seems to me that the big difference between a co-op and a standard business is not its governing structure, but the fact that the people who own it and work in it are also the people that consume the products it makes. That’s the only way a co-op can “exist solely to serve its members”. Otherwise, you need outside customers, and then you had better exist to serve them, even if it means firing some of your members or promoting people who make better decisions.
But if a Co-op is designed to serve the people who work in it (like a collective farm), then it’s going to be an economic disaster. One of the most important factors in the efficiency of the market is specialization and comparative advantage. If you let businesses locate where they are most efficient, regardless of where their customers are, you reap great rewards. Labor-intensive businesses go where labor is cheap. Energy-intensive businesses locate where there is cheap energy. High-tech businesses locate near education centers where there is an abundance of educated workers.
There’s no guarantee that the best place to locate a business will also be a place where the output of that business is consumed, or whethe the local population can even afford to invest in that business. So you’ll still need a way to provide the capital needed to start the business, and you’ll still have outside customers to please.
I think you’ll find that once you have those two requirements, your utopian model of a business where the employees work for themselves and make their own decisions will go right out the window. You’ll have your lunch eaten by businesses that operate smarter.
These co-ops have been tried before. I remember they were all the rage in the 70’s - usually run by luddites or hippies who wanted to produce all their own foods, make their own clothing, and stick it to ‘the man’. They had the best kind of work force - highly motivated, idealistic, often well educated. And they failed miserably. They worked their asses off for shoddy homemade clothing and low crop yields. A dude with a tractor and a book on organic farming just can’t compete with a modern agribusiness.
I should add that there are still co-op business models around - some insurance companies, for example. But you’ll find that the co-op businesses that survive look surprisingly like any other company when it comes to organizational structure.
Because a mother of two, making just enough money for them to get by, has a very low tolerance for risk. What’s so great about equity anyway? You assume that equity means riches or something, I guess. But businesses fail all the time. Stocks can stay flat or recede at any time.
Or let me ask you - would you rather earn $10/hr, or $5/hr plus an additional $5 in company stock? Why would you assume that the latter is a benefit for the average worker? Or are you assuming that you’d get equity without any other reduction in pay? If so, what you’re really looking for is a way to back-door pay increases for everyone.
You never answered the question of what happens if your workers savings are all tied up in the company they work for, and that company goes under. Now the worker is out a job AND all their savings.
I’m in a stock plan at work. Every once in a while, the company allows us to withdraw a certain amount of our stock without penalty. I ALWAYS take out the maximum I can and invest it elsewhere. Even if the company doesn’t go under, it could always find itself in a downturn, and see its stock hammered. That could lead to layoffs, including me. So then I’d be laid off at a time when my stock is at its lowest, and I’d have to cash it in to survive. Not smart.
Tying workers’ savings to their employment as a matter of public policy is just a really bad idea.
Sam Stone: I’ll give you the Corvair, partly because my standard for safety in cars is slightly off from the mainstream, as I drive around in a 1990 Ford Crown Vic LTD Station Wagon, otherwise known as my “Land Yacht”. I don’t have a seaworthy yacht yet, but I’m working on it.
As for sweatshops, well, in my experience people who try to justify sweatshops are usually - maybe not always, I’m willing to be disabused of this stereotype - extremely hostile to unions. I find this odd. If sweatshops are sad, how exactly are you supposed to get rid of them if the people who work in them aren’t allowed to collectively bargain for better pay and working conditions? Also, union organizing leads to political organization, which in a republican framework leads to a party of the left that will at minimum assure a level playing field for a certification election for some union or other.
In short, usually people who justify sweatshops don’t believe in the check on the absolute power of business that comes from unions. I’ll qualify that with usually. There’s always the glorious exceptions.
Its all about the Benjamins…that is the only reason people go into business…no one gives a rat’s ass about products or service. No one has any passion for a trade, for a profession. Doctors, lawyers, accountants only set up practices to make money…
Money is a tool. It is not an end in itself. Money as money is pretty, and that’s about it. But it’s nice to see your true colors.
I prefer ‘do what you love, and the money will follow.’ But thats just another one of my non-sequitors, all empirical evidence aside.
And I would love to separate economics from other disciplines, but they always seem to creep back in. PDF.
I dont know. WTF is it? Some strange philosophy about encouraging responsibility and enabling prosperity, I think.
From the site:
“Ownership makes markets possible, and markets make prosperity possible. The incentives created by property induce people to create value, precisely because ownership allows them to “capture” a portion of the additional value that they create. Furthermore, ownership makes markets possible and markets make prices possible, and prices make possible a higher degree of coordination of efforts than would be possible under any form of central direction. Without the prices made possible by the exchange of property rights in free markets, there are no signals to guide entrepreneurs to the best use of scarce resources or to coordinate the efforts of large numbers of persons and resources.”
Considering the current origins of the phrase, I am inclined to think that they used it deliberately.
Its part of an obscure branch of economics.
And that co-ops ‘exist solely to serve their members’ is reference to their capital structure and the returns on their investment, not the products or services that the capital is used to create. At least for producer co-ops. Buyer co-ops and housing co-ops serve different purposes.
Except that I havent advocated for such. I like how non-profits are organized to explicitly provide a service or product, with no desire for profit. Do they still need revenue? Yes, since money is the tool to achieve their ends. The same as any business.
Then that is your problem right there. You read far too much into a descriptive statement. The above, I believe, is called narrowing the scope. Its part of establishing the foundation of the argument, but not the argument itself. If someone’s debating about cars, or markets, there is so much to discuss. So doesnt it help to narrow the discussion a bit? ‘Other factors that affect automobiles are maintenance, its drivers, its primary use, traffic …’ Other factors that affect the market are the environment, fiscal and monetary policy, etc. I’m trying not to talk about those aspects.
I admit I do have a fondness for rhetoric, but that’s debate for ya. But going on to discuss the motivation of the players in the market and how that motivation affects the structure of the market is completely irrelevant to the discussion? I’ll try to be more explicit in the future.
That enough of this hijack for me.
Yep, there a few around.
And what organizational structure would that be? Command and control? A flat hierarchy? Self-directed work teams? Virtual teams? Worker councils? And ownership structure has no effect on the organizational structure? I’m missing your point here.
Nice strawman there. Where have I advocated that co-ops be mandated by government? I think they should have the same advantages and recognition as other business models. I want to see an equal playing field.
And where have I stated that workers can have equity or savings in only in their employment? Partners still diversify their risk through other assets and securities. Partners still receive an income to live on. The accounting varies, but the results are the same. People receive their money.
You’re not winning very many points here. Again, way to fight ignorance. CHS. Land O’ Lakes.But, oh yeah, that inc. behinds their names means they are corporations. Legal structure does not equal ownership structure. They define themselves as co-ops, good enough for me. It a failure of the law that they have to ‘incorporate’.
There is plenty of information out there regarding co-operatives and the distinctive differences between corporations. Please inform yourselves before making such statements. If I’m going to be called on it, its only polite that I should return the favor.
And so I am having a very difficult time understanding the objections against co-ops and partnerships. Employee ownership is wrong how? Increasing the means and opportunities to increase equity and direct ownership for those that want to is wrong how? Allowing entrepreneurs, or even better, groups of entrepreneurs more choice in types of business structure is a bad thing?
I believe that co-ops and partnerships create greater opportunities for the average worker than corporations, which fosters divisions between labor and management and ownership that only exists for historical reasons, and are only recently beginning to be addressed. I would love to hear arguments otherwise.
I would love to hear why the ‘success’ of the corporate model trumps every other type of organization out there, especially considering how many countries are rushing to duplicate our success.
Well, so much for brevity…
I don’t think you know what a corporation is. The most common form of a corporation is one where individuals own shares of ownership in that corporation. The shareholders appoint a board of directors who appoints a CEO to run it. Anyone can generally buy shares in a public corporation - employees, non-employees, whoever.
Partnerships are also very common, especially in services firms like law or accounting firms. You work for one of those firms for a number of years until eventually you are eligable to buy into the partnership.
Corporations are successful because they are able to create a great deal of wealth, and not just for the owners. If a company is successful, everyone who ownes shares in that company also benefit.
My bad. They are corporations. For profit co-ops in their states, and most from reviewing the literature, are a subset of a corporation. So most for-profit co-ops are also corporations. Many states also have different criteria for non-profit co-ops, some of which are considered a corporation, some not.
And I got my argument backwards, ownership structure does not equal legal structure, but legal structure is the major determinant of ownership structure. Hence, the difference between sole proprietorships, partnerships, etc.
Corporations can establish whatever ownership structure they want under their by-laws, even converting to a co-op, either de facto or de jure depending on jurisdiction.
But there are two major distinctions between co-ops and corps as usually organized.
One, restriction on ownership. Outside investors generally cannot own voting shares of a co-op. If a member leaves, they are required to divest, usually selling back (cashing out) to the co-op or to a new member.
Two, shareholder votes are based on democratic principles. Each member/participant gets one vote regardless of the number of equity shares they own. Some states require that board members be members of the organization also. (I dont really agree with that point though. Better governance is provided by a mix of inside and independent directors.)
Why do I prefer that over corporate structure? The equity structure doesnt prevent the use of debt financing, but does prevent indirect ownership. So hostile takeovers are much more difficult. External pressure for growth is limited. Most importantly, I believe the users of capital, i.e. the employees of the organization, deserve the rewards from its use more than the providers of capital. Under debt financing, the providers receive interest, not dividends, which I prefer. Under the corporate model, most direct users of the capital receive only a wage and none of rewards which are usually distributed in the form of dividends to the ‘owners’ who may or may not, and often are not, be the users of the capital. I prefer that since I believe it encourages more responsible ownership and use of the capital which also increases productivity. That last point is debatable and is a key part of the research conducted by industrial and behavioural economists.
Capital defined as the physical resources of the corporation, including human capital, but excluding equity, i.e. the assets which financing is used to acquire.
Regarding the democratic principle, I prefer the one man = one vote rule over the one dollar = one vote rule.
Nonwithstanding your abuse of terminology, this is all this debate really comes down to. Aside from your preference, on what grounds do you believe changing this voting rule will drive pareto improvement to social welfare?
This is an interesting question, but I cannot convince myself that it is a valid question. I dont want to ignore it, but I dont trust the underlying assumption that a pareto improvement is the most important criteria for change. I am still digesting Amartya Sen’s criticisms of Pareto optimality, but I agree with Sen as far as I understand it. I also distrust Pareto efficiencies since they are based on states of equilibrium. I have not seen how they apply to a dynamic state which I believe is the one that deserves more consideration.
So I am not sure that I can answer the question. The goal is not to avoid making someone better off at the expense of someone else, but to allow both parties to be better off than at present.
And so my opinions are not so much for changing the rule, i.e. requiring corporations to implement such a rule, as for leveling the playing field for those that want to start new organizations that would implement it. And my reasons for doing so are as much political as economic. I dont believe that the two are inseparable as the theorists would like them to be.