Socialism: set the cost ceiling for help before the first loan, and count every cost against it

Co-Authored-By: Claude Opus 5.5 <[email protected]> Claude-Session: https://claude.ai/code/session_01QWPs69B8nQZjtPEUXMKzZx
2026-09-25 22:41:44 -06:00
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@@ -32,7 +32,7 @@ So light help is cheap and fades, and heavier help might work but hasn't been te
 ### The draw
-The reviewers, not the bank, draw half the groups by lottery, using a method filed in advance. The draw is balanced by industry, region, and the founders' gender, race and wealth. As with the support lottery, groups agree to the lottery when they apply, and an independent research ethics board approves the design. Groups that weren't drawn are offered the same help once the two-year comparison window ends.
+The reviewers, not the bank, draw half the groups by lottery, using a method filed in advance. The draw is balanced by industry, region, and the founders' gender, race and wealth. As with the support lottery, groups agree to the lottery when they apply, and an independent research ethics board approves the design. Groups that weren't drawn can apply for a loan at any time, and are offered the same help after the year-four measurement if the pilot's help budget has money left. Offering it sooner would give the comparison half help before year four and blur the result the [cost ceiling](#the-cost-ceiling) depends on.
 ### What the helped groups get, for up to a year
@@ -60,10 +60,29 @@ About 250 groups in each half, so $10 million for the help. With groups that siz
 - **Are they running a co-op?** The main result: the share of all groups in each half that have a co-op operating two years after the draw, with at least three members and a minimum level of sales, however it was financed. It's measured from government business records by the reviewers, not decided by the bank. So the result can't come from helped groups simply being coached to pass the bank's own underwriting.
 - **Are they still running at year four?** The share of all groups in each half with a co-op still open and paying fairly four years after the draw. That counts every group, so help that pushes weak groups into launching and failing shows up as a cost, not a benefit.
- **What did it cost?** The public cost for each extra co-op the help created, and for each extra co-op still open at year four. At the smallest effect the lottery can detect, about 30 extra co-ops for $10 million, that's roughly $330,000 each. A ceiling is filed in advance. Above it, the help isn't recommended for any larger program, however many co-ops it creates.
+- **What did it cost?** The public cost for each extra co-op the help created, and for each extra co-op still open at year four. At the smallest effect the lottery can detect, about 30 extra co-ops for $10 million, that's roughly $330,000 each. A ceiling is set in advance, [below](#the-cost-ceiling). Above it, the help isn't recommended for any larger program, however many co-ops it creates.
 - **Who did it reach?** Founders' prior earnings, wealth, gender, race, immigration status and language, in each half.
 - **Where else did groups get help?** Groups report other help and funding they used, so any effect from help found elsewhere, or co-ops simply moving from other lenders to this one, can be estimated.
 ### The cost ceiling
 **What counts as the cost.** Everything the public spends in the helped half beyond what it spends in the other half, by year four: the help itself, running the draw and the specialist panel, the help co-ops get after their first loan, and the bank's net result on their loans, losses minus interest earned above the Treasury rate. That's divided by how many more co-ops the helped half has still open and paying fairly ([as the pilot defines it](pilot-spec.md#what-gets-measured)) at year four. Comparing whole halves means nobody has to guess which co-ops were the "extra" ones. The minimum level of sales a co-op needs to count is filed before the draw.
 **The ceiling: $400,000 per extra co-op still open at year four,** in today's dollars, rising with inflation. There's no good benchmark, so here is what the number rests on:
 - **New York City's program** spent about $280,000 for each co-op launched in 2021 ([above](#what-we-know)). That figure is rough both ways. Some of the money went to existing co-ops, which makes it too high. But it counts co-ops at launch, not still open four years later, and it can't tell which would have started anyway, which makes it far too low as a cost per extra co-op. It shows the scale of what a city has spent, not what the help is worth.
 - **Business tax breaks.** The economist Timothy Bartik finds that state and local tax breaks typically cost about $200,000 for each job that wouldn't have come to the area without them. He puts infrastructure and services in struggling places, counting jobs at local suppliers and shops, at $30,000 to $100,000 a job ([Bartik, 2024](https://eig.org/wp-content/uploads/2024/07/TAWP-Bartik.pdf)). A co-op needs at least three members to count, so $400,000 is about $133,000 per member in the smallest one. That's between his two figures. It isn't a like-for-like comparison: most members would have worked somewhere else, and co-ops' main benefit is ownership and a say, not jobs.
 **It's hard to meet, and that's said now.** With about $11 million spent before the first loan and roughly $50,000 of later help for each co-op, the helped half needs something like 32 or more extra co-ops still open at year four, out of about 250 groups. That's more than the smallest effect the lottery is built to detect, which is about 30 extra co-ops running at year two, before any have closed.
 **Three possible verdicts, set in advance.** With about 250 groups in each half, the estimate will be uncertain, so the report uses a range filed before the draw:
 - **Worth it:** even the high end of the range is under the ceiling. Only then is the help recommended for a larger program.
 - **Not worth it:** even the low end is over the ceiling.
 - **Not settled:** anything else. The report says so and gives the size of trial that could settle it, but it doesn't recommend the help.
 **Reported by group, judged as a whole.** The cost per extra co-op is also published by founders' wealth, race and immigration status, and for struggling areas against the rest. Help that works mainly for low-wealth founders may be worth more than a single national line admits. But the verdict uses the one ceiling, so a favorable slice can't be picked out afterward. The cost is reported again at year six, since the effects of help often fade.
 The co-ops from both halves count in the main test, and the main result is also reported without the helped half's extra co-ops. So help can't quietly change what the main test measures.
 ## Should founders put in money of their own?
@@ -27,7 +27,7 @@ An honest list of what the model hasn't solved yet, most dangerous first.
 9. **The 1/N problem.** *(Mostly answered.)* Peer monitoring works at 30 people; at 10,000 your extra effort raises the pool by a rounding error. The answer is culture and structure: co-ops really do push out free riders, and the federation model keeps units small enough for monitoring to bite while pooling risk above them. [Does Sharing the Profit Mean Less Effort?](free-riding.md) turns that into rules: small teams with their own numbers, team bonuses whose formula members set in advance, and a fair, fast dismissal process with protections against retaliation and discrimination. Still open: the evidence comes from conventional firms with profit sharing, not co-ops, and a small shared stake may even make people less willing to speak up; the pilot tracks value added per hour as co-ops grow to find out.
-10. **The pilot's own weak points.** [The pilot](pilot-spec.md) puts the burden of proof on the co-ops, which means roughly a 1-in-10 chance of shutting down a pilot that was actually working. It tests individual co-ops, not the [federation](federation.md) support network Mondragon relied on. Its lotteries test help after the loan and, since the pre-launch lottery was added, help before it ([Help Before the First Loan](before-launch.md)), but only among groups that come forward, not outreach to workers who never think of starting a co-op. Founders now put in a small stake they can pay in unpaid work, but founders who can't afford months of unpaid work still face a barrier. Its comparison group (small businesses with government-backed loans) is biased in directions that partly cancel out, by amounts nobody knows. And market-rate lending based on collateral may mostly reach founders who already have some wealth. Approval rates by race, gender and wealth are published so that shows up, but publishing a gap doesn't close it.
+10. **The pilot's own weak points.** [The pilot](pilot-spec.md) puts the burden of proof on the co-ops, which means roughly a 1-in-10 chance of shutting down a pilot that was actually working. It tests individual co-ops, not the [federation](federation.md) support network Mondragon relied on. Its lotteries test help after the loan and, since the pre-launch lottery was added, help before it ([Help Before the First Loan](before-launch.md)), but only among groups that come forward, not outreach to workers who never think of starting a co-op. The pre-launch help now has a cost ceiling set in advance, $400,000 of total public cost per extra co-op still open at year four, but there's no good benchmark for it, and the lottery is small enough that "not settled" is a likely verdict ([The cost ceiling](before-launch.md#the-cost-ceiling)). Founders now put in a small stake they can pay in unpaid work, but founders who can't afford months of unpaid work still face a barrier. Its comparison group (small businesses with government-backed loans) is biased in directions that partly cancel out, by amounts nobody knows. And market-rate lending based on collateral may mostly reach founders who already have some wealth. Approval rates by race, gender and wealth are published so that shows up, but publishing a gap doesn't close it.
 14. **Drift toward the safest co-ops.** *(Partly answered.)* A bank that lends only to co-ops can still lend mostly to the safe ones, like consultancies started by people with savings, as America's co-op bank did. [Who the Bank Lends To](who-gets-loans.md) sets aside $90 million of the loan money for co-ops in lower-paid work, which goes back to the general pool only if the reviewers certify the bank handled those applications fairly. Results are reported for that group and for first-time owners without much wealth, and the verdict has to say which kinds of co-ops it covers. Still open: the set-aside makes money available but can't make groups apply; it can be used mostly on work just under the average wage; first-time owners without wealth get reporting, not money; and in work whose prices are set by Medicaid or contractors, a failure may say more about the price than about co-ops.