Socialism: spec the pilot in numbers, and guard it against gaming

Add "The Pilot, in Numbers": a one-time $350M, ~400-co-op pilot with
a power-calculated sample size, loan limits, a checked definition of
market rate, two pre-registered deciding measures (fair survival with
a pay and membership guardrail, and a Treasury-rate hurdle for the
loan book), a matched SBA comparison plus a lottery at the margin, a
year-12 review, a fast-track vote on success and a self-executing
wind-down on failure. Built around the FONDES and Venezuela failures.

Add "Guarding the Pilot": rules against hidden-boss shells, capital
claim drains, split borrowers, relabeled rescues, zombie survival,
sabotage, a rigged review, and political favoritism.

Link both from the index, bank, test, capital and lock pages, and add
the pilot's weak points and the federal-vs-state question to Open
Problems.

Co-Authored-By: Claude Opus 5.5 <[email protected]>
Claude-Session: https://claude.ai/code/session_01QWPs69B8nQZjtPEUXMKzZx

JoshHeaps.Net/Content/Socialism/capital.md

@@ -15,6 +15,8 @@ Today's equity is *perpetual*: an original investor's great-grandchildren collec
 
 The returns can be enormous. A profit-share loan into a risky seed-stage co-op might pay 10x or 30x. That's fine. The principle was never *no big payday*. It was **no perpetual claim and no control**.
 
+There is one limit, though. A claim that takes 90% of the profits for 40 years is "voteless and expiring" on paper, but it turns the co-op into a shell. So for co-ops borrowing from the bank, outside claims rank behind the bank's loan, last at most 15 years, and need the bank's approval. See [Guarding the Pilot](pilot-safeguards.md#draining-it-through-investors).
+
 **Be honest about what this is.** A profit-contingent return means the investor eats the loss when things go badly. That is residual risk, which is the economic job we call equity, whatever we print on the paper. Don't claim it "isn't a stake in the work." It is. Claim what's actually true and actually better: *finite, and voteless.*
 
 **The consequence, priced in.** Capital charges for risk. An instrument with equity-like downside and a terminating upside gets funded last, or demands a bigger profit share. Revenue-based financing already exists in today's market and stays niche for exactly this reason. It bites hardest on brand-new ventures and barely at all on mature, profitable firms.

JoshHeaps.Net/Content/Socialism/index.md

@@ -16,7 +16,7 @@ This model doesn't buy, seize or convert anyone's company. Instead it builds new
 - **Workers own their company.** Every member gets one vote. A share of the profits grows with tenure until long-time members split them equally. Salaries still exist, and hard jobs still pay more. [Worker Ownership](worker-ownership.md)
 - **A small public bank lends to worker co-ops.** It charges market rates, so it only succeeds if co-ops can really compete. Its whole job is to be willing to lend to a kind of company other banks won't. [The Bank](the-bank.md)
 - **Co-ops funded this way stay co-ops forever.** They can't be sold to conventional owners, and members can't vote to cash out what earlier members built. [The Lock](the-lock.md)
-- **It runs as an honest experiment.** The success measures are published before the first loan. If co-ops match conventional firms after about ten years, the bank grows. If they don't, it's wound down. [The Test](the-test.md)
+- **It runs as an honest experiment.** A one-time $350 million pilot aims to fund about 400 new co-ops. The success measures are published before the first loan. If, after twelve years, co-ops stay open about as well as similar conventional firms while paying their members fairly, and the bank earned at least what Treasury bonds would have, Congress votes on growing it. If not, it shuts down automatically. [The Test](the-test.md) and [The Pilot, in Numbers](pilot-spec.md)
 - **Co-ops back each other up.** They pool part of their profits into a shared fund. If one fails, its workers are moved into others instead of being left with nothing. [The Federation](federation.md)
 - **Nobody is left behind by low-margin work.** Owning a company doesn't help much when there's barely any profit to own, so a strong floor covers the rest. [Ownership and the Floor](the-floor.md)
 

JoshHeaps.Net/Content/Socialism/open-problems.md

@@ -13,7 +13,7 @@ An honest list of what the model hasn't solved yet, most dangerous first.
 
 2. **The horizon problem.** Members near retirement have little reason to vote for long-lived investments whose payoff arrives after they leave. Internal capital accounts that credit members for retained earnings are the standard answer. It needs to be designed carefully, not assumed.
 
-3. **Is the lock too rigid?** A co-op that should be sold (a better operator exists, the members want out) can only go to another co-op. If the co-op sector is small, that buyer pool is tiny, and viable firms may be liquidated instead of rescued. The federation as buyer of last resort is a partial answer.
+3. **Is the lock too rigid?** A co-op that should be sold (a better operator exists, the members want out) can only go to another co-op. If the co-op sector is small, that buyer pool is tiny, and viable firms may be liquidated instead of rescued. The federation as buyer of last resort is a partial answer. Critics on the right add a sharper version: a lock that outlasts a repaid loan by generations is a permanent restriction on selling property, bought with one loan, and it binds members who never agreed to it.
 
 4. **Scale.** Even a total success at pilot scale leaves most workers in conventional firms. The labor-market effect needs a sector large enough to move wages, and nobody knows how long growth to that size takes, if it happens at all. That's the price of not forcing it.
 
@@ -25,6 +25,10 @@ An honest list of what the model hasn't solved yet, most dangerous first.
 
 8. **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.
 
-9. **Voluntary buyouts: in or out?** *(Open question.)* Should the bank also finance existing owners who *choose* to sell to their workers at market price, the way the UK's employee-ownership trusts work? It would grow the sector faster without forcing anyone. But it would mix two different experiments, and conversions carry different risks than startups.
+9. **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 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. **Federal or state?** A federal bank is the cleanest single experiment. But a few state-chartered lenders running one shared, pre-registered plan would fail smaller, fit the fact that co-op law is state law, and might be harder to repeal all at once. That trade-off hasn't been worked through.
+
+11. **Voluntary buyouts: in or out?** *(Open question.)* Should the bank also finance existing owners who *choose* to sell to their workers at market price, the way the UK's employee-ownership trusts work? It would grow the sector faster without forcing anyone. But it would mix two different experiments, and conversions carry different risks than startups.
 
 *Not problems here, because nobody's company is forcibly bought:* valuing every firm in the economy, owners stripping value before a takeover, foreign capital flight, and years of payouts to former owners. The contractor boundary isn't an economy-wide problem either. Its co-op version, hiring non-members to dodge membership, is handled by [the lock](the-lock.md)'s membership requirement.

JoshHeaps.Net/Content/Socialism/pilot-safeguards.md

@@ -0,0 +1,95 @@
+---
+title: Guarding the Pilot
+section: Growing the Sector
+order: 66
+summary: The rules that stop people from gaming the pilot with sham co-ops, hidden owners, split-up borrowers, zombie firms, or a rigged review.
+---
+
+# Guarding the Pilot
+
+Any program that hands out money gets gamed. Venezuela's co-op boom produced tens of thousands of co-ops that existed mainly on paper ([YES! Magazine, 2007](https://www.yesmagazine.org/issue/latin-america/2007/05/12/venezuelas-co-op-boom)). Uruguay's FONDES sent nearly half its money to three politically connected firms ([El Observador, 2015](https://www.elobservador.com.uy/nota/mitad-de-dinero-del-fondes-fue-para-empresas-companeras--201572500)).
+
+This page lists the ways someone could cheat [the pilot](pilot-spec.md), or sabotage it, and the rule that blocks each one. Most of these tricks don't require breaking any law. They only need a loophole, which makes them the likeliest threats. So the rules are written to close the loopholes.
+
+## The hidden boss
+
+**The trick.** A founder keeps the building, equipment, brand and software in a separate company he owns. He signs up three friendly "members" and gives the co-op a management contract or franchise deal with his company. The co-op borrows $3 million, and the money flows back to him as rent, fees and royalties. On paper it's a co-op. In practice it's his business, funded by the public.
+
+**The rules:**
+
+- **Every deal with an insider is disclosed.** Any contract with a founder, manager, member's family, or a company they own is reported to the bank and checked each year to confirm it's priced like a deal between strangers. Overpayments are treated as a breach of the loan.
+- **Members can fire management.** Any management or franchise contract can be ended by a members' vote on short notice. A contract the members can't get out of is a boss.
+- **The business owns what it needs to operate, or can buy it.** If key assets are leased from an insider, the bank gets a claim on them or the co-op gets an option to buy them at a fair price. That way the co-op can't be held hostage, and the bank's collateral is real.
+- **Membership is real.** Probation lasts at most 12 months. At least three-quarters of the work hours must be done by members. Both are checked every year. A co-op that falls short counts as failed in the [pilot's survival measure](pilot-spec.md#what-gets-measured).
+- **Lying costs something.** False statements on a loan application mean immediate repayment, and the people who made them are personally liable.
+
+## Draining it through "investors"
+
+**The trick.** [Outside investors in a co-op](capital.md) get no vote and a claim that expires. But nothing so far limits how big or long that claim can be. A friendly investor could take 90% of the profits for 40 years, and the co-op would be a shell.
+
+**The rules, for pilot borrowers:**
+
+- **The bank gets paid first.** Any outside profit-sharing claim ranks behind the bank's loan.
+- **The bank must approve new claims.** Claims last at most 15 years.
+- **Insiders' claims count as insider deals.** An investment by a founder or their family is checked the same way as any other insider contract.
+
+## Splitting one borrower into many
+
+**The trick.** The limit is $3 million per co-op. So a promoter, franchisor or landlord sets up 30 "separate" co-ops, each run by a relative or employee, and collects $90 million: a quarter of the fund, controlled by one person.
+
+**The rules:**
+
+- **"Related" means economically tied, not just sharing names.** Co-ops count as related, and share one $3 million limit, if they share a founder or manager, a franchisor, a landlord, a major supplier, an outside investor, or a paid promoter. Family members count as the same person, following the same kind of rules the tax code already uses for family ownership.
+- **Caps on middlemen.** No single promoter, consultant or referral source can bring in loans totalling more than 3% of the fund.
+- **Money arrives in stages**, as the business hits milestones, so a sham can't take the full amount and disappear.
+
+## Relabeling an old business as "new"
+
+**The trick.** A failing conventional business re-registers as a co-op to get a loan. That brings back the FONDES rescue problem through the side door. It would also flatter the survival numbers, because the business has already made it through its riskiest early years.
+
+**The rule.** "New" describes the business, not the paperwork. If a co-op takes over an existing firm's assets, customers, location or most of its staff, it isn't new. It's either refused as a rescue or scored with the existing co-ops.
+
+## Keeping zombies alive
+
+**The trick.** If the test fails, the bank shuts down. So the bank's own staff have the strongest reason of anyone to make the numbers look good. They can stretch out loans, let unpaid interest pile up, and keep dead firms technically open. A healthy co-op can also absorb a dying one, so the closure never shows up.
+
+**The rules:**
+
+- **"Open" means actually operating:** at least three members and sales above a minimum level. An empty shell counts as closed.
+- **Loans are valued honestly.** At review, outstanding loans are valued at what a buyer would pay. A loan whose terms were eased to avoid default is marked down. Unpaid interest added to the balance doesn't count as income.
+- **Mergers are treated the same on both sides.** A co-op absorbed by another co-op, and a conventional firm bought by another firm, are both counted as neither success nor failure. A second analysis counts them both ways.
+
+## Sabotage
+
+**The trick.** An opponent recruits 25 or 30 plausible applicants, has them draw down their loans, strip the money and default. That pushes losses past the emergency stop and freezes the pilot before it reaches a verdict.
+
+**The rules:**
+
+- **Fraud doesn't end the experiment.** Under the [emergency stop](pilot-spec.md#the-decision-rule), lending restarts once the reviewers confirm the specific gaps are closed. Losses that are later recovered are credited back.
+- **The staged payouts and middleman caps above** limit how much any ring can take before it's noticed.
+
+## Rigging the review
+
+**The trick.** The headline thresholds are fixed, but a lot of smaller choices aren't: which firms count as matches, how closures are detected in the data, which years are included. Lobbyists on both sides would fight over each one, and whoever picks the reviewers picks the answer.
+
+**The rules:**
+
+- **The analysis code is filed in advance**, not just the plan, along with a digital fingerprint that shows it hasn't changed.
+- **The academic reviewers are nominated by the National Academies of Sciences**, and nobody with ties to the bank or to co-op advocacy groups can serve.
+- **Any change from the filed plan must be signed, explained and published**, and the result under the original plan is always reported next to it.
+
+## Rigging the price
+
+**The trick.** A friendly bank chief could quietly undercharge co-ops, which is a hidden subsidy. A hostile one could overcharge them into failure.
+
+**The rule.** The [annual rate audit](pilot-spec.md#what-market-rate-means) works in both directions. Undercharging is counted as a loss against the bank's results. Overcharging gets the affected loans repriced.
+
+## Political favoritism
+
+**The trick.** This is what FONDES actually did: politicians steer loans to allies.
+
+**The rules:**
+
+- **Every loan is public:** the borrower, the amount, the rate and the terms.
+- **Every contact from an elected official or their staff about a specific loan is logged and published.**
+- **The board answers to elected officials. Individual loans don't.** Officials can appoint and remove the bank's board. But no official can direct a decision on a particular loan, and loan officers are bankers, not appointees.

JoshHeaps.Net/Content/Socialism/pilot-spec.md

@@ -0,0 +1,174 @@
+---
+title: The Pilot, in Numbers
+section: Growing the Sector
+order: 65
+summary: The concrete pilot: how much money, how many co-ops, what gets measured, against whom, and the exact results that grow the bank or shut it down.
+---
+
+# The Pilot, in Numbers
+
+[The Test](the-test.md) says the bank runs as an experiment. You can't fault an experiment that has no numbers, so this page supplies them. Every number here is a first draft and open to argument. What matters is that they're written down *before* the first loan, so nobody (me included) can pick them after seeing the results.
+
+The rules that stop people from gaming the pilot (sham co-ops, hidden owners, rigged comparisons) have their own page: [Guarding the Pilot](pilot-safeguards.md).
+
+## The short version
+
+| | |
+| --- | --- |
+| **Money** | $350 million, once. |
+| **Lending window** | Years 1–5 (up to year 8 if good applicants are scarce). |
+| **Target** | About 400 new worker co-ops. |
+| **Loan size** | Up to $3 million per co-op, including all later loans. |
+| **Price** | Market rate: what a similar conventional business would pay. No personal guarantees from members. |
+| **Compared against** | Similar new conventional firms that got similar-sized loans, plus a lottery among borderline applicants. |
+| **Final review** | Year 12, by an independent reviewer. |
+| **Passes if** | Co-ops stay open about as well as the comparison firms *while paying their members fairly*, and the bank earns at least what the money would have earned in Treasury bonds. |
+| **Shuts down if** | Either of those fails. |
+
+The rest of this page explains each line.
+
+## Two warnings from real life
+
+Two public efforts to fund co-ops went badly. The pilot is built to avoid repeating them.
+
+**Uruguay's FONDES.** In 2011 Uruguay set up a public development fund to lend to worker-run firms. By 2016 it had funded 22 firms, and almost 90% of its loans (US$63 million of US$69 million) had been written down as uncollectable. Eight firms got 93% of the money. Three with close ties to the governing party got nearly half. The biggest single loan, US$15 million, went to Alas Uruguay, an airline formed by the workers of the failed state airline. It stopped flying ten months after launch. The original bill capped any one firm at 3% of the fund, but lawmakers raised the cap to 15% before passing it. ([El Observador, 2017](https://www.elobservador.com.uy/nota/-en-que-estan-los-principales-emprendimientos-financiados-por-el-fondes--20176201600); [El Observador, 2015](https://www.elobservador.com.uy/nota/mitad-de-dinero-del-fondes-fue-para-empresas-companeras--201572500))
+
+What went wrong: most of the money went to *rescuing firms that had already failed* under other owners, a few borrowers got most of it, and politics chose them. Uruguay reformed the fund in 2015. It added a 10% cap per business group and a limit of two loans per firm in five years ([la diaria, 2016](https://ladiaria.com.uy/articulo/2016/6/arrancando-de-cero/)).
+
+**Venezuela's co-op boom.** After 2001, Venezuela gave co-ops cheap state loans, first pick of government contracts, and tax breaks. Registered co-ops went from under 800 to over 100,000 in a few years. A 2006 government census found only about 50,000 actually operating. Many had been set up to collect the benefits, not to run a business ([YES! Magazine, 2007](https://www.yesmagazine.org/issue/latin-america/2007/05/12/venezuelas-co-op-boom); [Grassroots Economic Organizing](https://geo.coop/blog/some-counter-intuitive-effects-government-support-co-ops-venezuela)).
+
+What went wrong: cheap money attracts people who want the money, not the co-op. That's the main reason [the bank](the-bank.md) charges market rates.
+
+## Why a new bank, not existing programs
+
+Fair question. Congress already made co-ops eligible for the Small Business Administration's (SBA's) main loan program in 2018, through the Main Street Employee Ownership Act. It has barely been used. The SBA kept requiring personal guarantees on those loans, meaning individual members pledge their own homes and savings if the business fails. That doesn't work for a firm owned by dozens of workers ([House Committee report, 2018](https://www.congress.gov/committee-report/115th-congress/house-report/645/1); [NCEO, 2022](https://www.nceo.org/employee-ownership-blog/house-committee-urges-sba-fully-implement-main-street-eo-act)).
+
+Private co-op lenders exist and do good work, but they're small. Shared Capital Cooperative, lending to co-ops since 1978, had about $20 million in assets in 2021 ([offering statement](https://www.sec.gov/Archives/edgar/data/1722839/000121390021050617/ea148092-1a_sharedcapital.htm)). The pilot's question is what happens when financing on normal commercial terms is available at real scale. The existing channels can't answer that.
+
+## How much money, and why
+
+**$350 million, one time.** In the pilot, the bank lends only its own capital. It doesn't borrow on top of it. That makes the worst case easy to state: taxpayers can lose at most $350 million, minus whatever is repaid.
+
+It breaks down like this:
+
+- **About $300 million for loans.** Around 400 co-ops with a typical first loan of about $500,000 is roughly $200 million. The rest is for follow-on loans to co-ops that grow. For comparison, Shared Capital's average loan is about $230,000. The pilot's loans are larger because it's meant to fund real businesses with real payrolls, not only very small ones.
+- **$20 million, capped, for business help:** bookkeeping, governance training, legal setup. Venezuela's census blamed many of its failures on the lack of exactly this. This money is a public cost, stated openly and capped, and it's counted in the pilot's total cost to taxpayers. It isn't allowed to hide inside loan pricing.
+- **The remainder** is a cash cushion and running costs.
+
+## Why about 400 co-ops
+
+This is the number that lets the test tell a real answer apart from luck.
+
+New businesses close a lot. Of all US business locations opened in 2013, only about 35% were still open ten years later ([Bureau of Labor Statistics](https://www.bls.gov/bdm/us_age_naics_00_table7.txt)). With closures that common, a small pilot is noise: 30 co-ops could look great or terrible by chance.
+
+To be confident that co-ops do "at least about as well" as conventional firms, you need to see several hundred closures across both groups. Standard survival statistics say that about 400 co-ops, each compared with five similar conventional firms, give roughly a 90% chance of a clear verdict if co-ops really are exactly as durable. If they're *more* durable, as the best existing study suggests (below), a clear verdict is easier to reach.
+
+That also means a roughly 10% chance of shutting down a pilot that was actually working. That's the cost of putting the burden of proof on the co-ops, and it's stated openly.
+
+**The honest problem with 400.** The whole US worker co-op sector was about 751 firms in 2023, roughly triple what it was a decade earlier ([NCEO summary of the Democracy at Work Institute census](https://www.nceo.org/employee-ownership-blog/democracy-at-work-institute-releases-its-2023-worker-cooperative-state-of-the-sector-report)). That's about 50 new co-ops a year. Reaching 400 in five years means roughly doubling the rate at which co-ops get founded.
+
+That creates exactly the pressure that sank Venezuela: an institution with a target lowers its standards to hit it. So:
+
+- **No lending targets.** Nobody is paid, promoted or judged on loan volume.
+- **If good applications fall short, the lending window stretches** (up to year 8) instead of standards dropping. The final review moves back by the same amount. That rule is fixed now.
+- **A shortfall is itself a result.** If good co-op applicants don't show up even when financing is available, that's evidence for the "co-ops are rare because they're hard, not because they're unfunded" explanation, and it gets reported that way.
+
+## Who can borrow
+
+- **New worker co-ops only, for the main test.** "New" means the *business* is new, not just the legal paperwork. A conventional firm that reincorporates as a co-op isn't new (see [Guarding the Pilot](pilot-safeguards.md)).
+- **Existing co-ops may borrow too, but they're scored separately.** Firms that have already survived for years would make the results look better than they are.
+- **No rescues of failed conventional firms.** That's where FONDES lost its money, and it's a different experiment (see *Voluntary buyouts* in [Open Problems](open-problems.md)).
+- **At least three worker-members at the first loan**, meeting the [co-op definition](worker-ownership.md) and accepting [the lock](the-lock.md).
+- **Members are on the payroll as employees.** That gives them minimum wage, unemployment insurance and workers' compensation like any other worker. It also means the co-op shows up in the government business records the test relies on.
+- **Any legal industry.** Loan officers judge business plans, not industries. But no single industry may take more than 25% of the money lent, and no single county more than 10%, so one bad sector or one local market can't sink the whole test.
+
+## Loan terms
+
+- **$3 million per co-op, lifetime.** That's under 1% of the fund. FONDES let one airline take over a fifth of its money. That can't happen here. Related co-ops share one limit (see [Guarding the Pilot](pilot-safeguards.md)).
+- **Paid out in stages** as the business hits agreed milestones, not in one lump.
+- **No personal guarantees from members.** The risk that the business fails is exactly the risk the bank exists to price and carry. Loans can be secured by the business's own assets, like any business loan.
+- **Underwriting can rely on cash flow**, not only on collateral. Collateral-heavy lending mostly measures how much wealth the founders already had, which shuts out the workers co-ops tend to serve.
+
+## What "market rate" means
+
+The bank prices each loan the way a normal lender would price a conventional business with the same numbers: same revenue, same industry, same track record, same collateral. Because there are no personal guarantees, the rate is higher than it would be with them. That's the honest price of the risk.
+
+Two checks keep the price honest:
+
+- **An annual audit**, in both directions. Each year an outside auditor compares a sample of the bank's loans with rates on comparable conventional small-business loans. It also checks the things that don't show up in the rate: who gets approved, how much collateral is required, and how often troubled loans get softer terms. If loans are systematically too cheap, the shortfall is counted as a loss against the bank's results. If they're too expensive, the affected loans are repriced.
+- **A private market check.** Every loan is offered to private and community lenders, who can buy up to 20% of it on the same terms. How often they say yes is published. If nobody ever wants a piece, that suggests the price is too low for the risk.
+
+## What gets measured
+
+All of this is written down and filed in a public study registry before the first loan, the way serious medical trials and a few careful social-policy studies already do. One example is the [Oregon Health Insurance Experiment](https://www.nber.org/programs-projects/projects-and-centers/oregon-health-insurance-experiment/oregon-health-insurance-experiment-background). The actual analysis code is filed too, so the method can't quietly change later.
+
+**The two measures that decide the outcome:**
+
+1. **Fair survival.** Does the co-op stay open and keep treating its members fairly? A co-op counts as *failed* if any of these happens:
+   - it closes, or falls below three members or a minimum level of sales;
+   - for two years running, its members' median pay per hour (wages plus profit share) falls below 85% of the matched conventional firms' median;
+   - it stops being a real co-op: fewer than three-quarters of its work hours are done by members, or its workers are kept on probation past the limit.
+
+   The pay rule matters. Co-ops can survive a bad stretch by cutting their own pay instead of cutting jobs, and the best existing study couldn't rule that out. A co-op that survives by paying its people far less than the business down the street hasn't passed.
+2. **The bank's money.** At the end, after every loss, write-off and running cost, has the loan book earned at least what the same money would have earned in Treasury bonds over the same years? Anything less means taxpayers lost money compared with just holding bonds. Loans still outstanding are valued at what a buyer would pay for them. Loans that were restructured to avoid default are marked down, so going easy on struggling borrowers can't hide losses.
+
+A useful yardstick: among the SBA's mature loan groups from 1992 to 2004, loans making up about 6% to 10% of the money lent eventually defaulted, and about 37% of the defaulted amount was later recovered ([GAO-20-618](https://www.gao.gov/products/gao-20-618)). A lender charging market rates with losses in that range covers them from interest.
+
+**Measures that are published but don't decide:** jobs created, wages at the bottom and top and the gap between them, revenue per worker (a rough measure of productivity), how long members stay, injury rates, and the bank's default and recovery rates. Also:
+
+- **Who got loans.** Approval rates and loan terms by the founders' race, gender and personal wealth. If collateral-based lending quietly shuts out the people co-ops mostly serve, it should show.
+- **Local effects.** Business openings and closures in the counties where co-ops were funded, so any damage to existing local businesses is visible.
+- **Results by industry**, including care work like home health and cleaning, where most US co-op members work today.
+
+Why only two deciding measures: the more measures you allow to count, the easier it is to find *one* that looks good. Two, fixed in advance, can't be gamed that way.
+
+## Who co-ops are compared against
+
+This is the hardest part of any test like this. Co-ops that got a loan aren't like the average new business. They had a plan good enough to get a loan. Comparing them with *all* new businesses would flatter them.
+
+**Main comparison: new conventional firms that got a similar-sized loan through the SBA's main program.** They're matched on industry, region, start year, starting size, legal form, and the number of founders. Businesses with more founders tend to survive longer, and co-ops always have at least three. This group is imperfect in both directions. SBA borrowers had to show they couldn't get credit elsewhere, which makes them a weaker comparison. But their loans carry a government guarantee that makes credit cheaper for them, which makes them a stronger one. The reviewer reports both biases openly. Researchers have already matched SBA borrowers with similar firms in government business records ([Brown and Earle, *Journal of Finance*, 2017](https://papers.ssrn.com/abstract=2641184)), so the data work is feasible.
+
+**Second check: a lottery at the margin.** Among applicants whose scores land just around the approval line, the bank decides by lottery who gets a loan. Then it follows both groups. This is the cleanest test of the core claim: *does access to financing make co-ops that would otherwise not exist, or not survive?* The lottery group will be small, so it supports the main result rather than replacing it.
+
+**Third check:** co-ops against *all* similar new firms.
+
+**Sales count the same way on both sides.** A conventional firm that gets bought hasn't necessarily failed, and a co-op can't be bought at all because of [the lock](the-lock.md). So acquisitions and mergers, on either side, are counted as neither success nor failure in the main analysis, with a second analysis counting them both ways.
+
+**What existing evidence predicts.** The strongest study so far followed every firm in Uruguay from 1997 to 2009: about 29,000 firms, 223 of them worker-run. After leaving out very small businesses and adjusting for tax differences, worker-run firms were about 29% *less* likely to close in any given period than conventional ones ([Burdín, *ILR Review*, 2014](https://journals.sagepub.com/doi/10.1177/001979391406700108)). The advantage was clearest in services. In manufacturing and transport there was no clear difference. That's encouraging, but it's one country, and it's why pay is built into the survival measure above.
+
+## The timeline
+
+- **Year 0.** Charter the bank. File the full analysis plan, code, benchmarks and thresholds. Name the reviewers.
+- **Years 1–5.** Lending window, stretching to year 8 if applications fall short.
+- **Year 6.** Public interim report. It can't trigger growth. It can only trigger the emergency stop.
+- **Year 12.** Final review. Every co-op funded has been open for at least seven years. That covers most of the danger period for new businesses and, almost certainly, at least one recession.
+
+**The reviewers:** the Government Accountability Office (GAO), Congress's own auditor, which already reviews SBA lending, working with academic economists nominated by the National Academies of Sciences. They must have no ties to the bank or to co-op advocacy groups. The bank's staff don't grade their own work. The reviewers can depart from the filed plan only in a signed, published explanation, and the filed plan's result is always reported alongside.
+
+## The decision rule
+
+At year 12, both measures must pass:
+
+1. **Fair survival.** We can be 95% confident that co-ops' chance of failing in a given year, as defined above, is no more than 25% higher than the comparison group's. If co-ops are exactly as durable or more, this should pass. If they're clearly worse, it fails.
+
+   Why allow up to 25% rather than demanding exact equality? No test can prove two things are *exactly* equal. You can only rule out differences bigger than some margin, and a tighter margin takes more co-ops. Ruling out a 10% gap would take somewhere around 1,500 to 2,000 co-ops, more than twice the entire US co-op sector. The 25% margin is also a value judgment, stated openly: a society might reasonably accept firms that are a little less durable in exchange for workplaces people govern themselves. Readers who think that price is too high should say so. Burdín's result suggests the margin won't matter, because co-ops may well come out ahead.
+2. **The bank's money** earned at least the Treasury rate.
+
+**If both pass:** the charter triggers a fast-track, up-or-down vote in Congress on a second capitalization, with no amendments and no committee bottleneck. It can't be automatic, because no Congress can bind a later one's spending. A fast-track vote is the most that can honestly be promised. If the bank is later allowed to borrow, its debts carry **no federal guarantee**, written into the charter. Fannie Mae and Freddie Mac needed a taxpayer rescue in 2008 partly because markets had always assumed the government stood behind them. This bank shouldn't be able to create that assumption.
+
+**If either fails, the shutdown happens by itself, with no further vote needed.** No new loans. The remaining loans are offered at fair value to co-op and community lenders, who keep the same repayment terms. Whatever they don't buy is collected by the Treasury on the original terms until paid off. None of it goes to distressed-debt buyers. The money goes back to the Treasury. The co-ops stay co-ops, because [the lock](the-lock.md) is in their own charters, but they're on their own.
+
+**There is no "inconclusive, keep going" option.** If the evidence doesn't clearly show co-ops holding their own, that counts as a fail. The burden of proof is on the co-ops, which is where a skeptic would put it.
+
+**The emergency stop.** If net losses ever pass 20% of the capital ($70 million), new lending freezes, and the reviewers report within six months on the cause:
+
+- **A recession:** lending restarts only if the SBA's own loans from the same years lost money at a similar rate. That's a fixed comparison, not a judgment call.
+- **Fraud:** lending restarts once the reviewers certify the specific gaps are closed and recovery has been pursued. Otherwise one organized fraud ring could end the experiment on purpose (see [Guarding the Pilot](pilot-safeguards.md)).
+- **Bad lending decisions:** no restart. That's a result.
+
+## What this pilot can't tell you
+
+- **Whether the labor market changes.** 400 co-ops won't move anyone's wages. See [The Test](the-test.md).
+- **Whether the best founders come.** The test measures the co-ops that *did* apply. If strong founders stay away ([The Founder Problem](founder-problem.md)), a pass means "the co-ops that exist can compete," not "co-ops would win with everyone's best people."
+- **Whether co-ops do better with a full support network.** The pilot funds individual co-ops. It doesn't build [the federation](federation.md) that Mondragon relied on, so co-ops that join a federation are reported separately.
+- **Whether it survives politics.** Congress can refuse the second capitalization, or repeal the whole thing. See [The Constitution](constitution.md).

JoshHeaps.Net/Content/Socialism/the-bank.md

@@ -21,4 +21,8 @@ Mondragon already proved the first half of the premise: it had to build its own
 - **Self-sustaining by design.** One-time capitalization, then it lives on its loan book. Losses are public and published. A permanent appropriation would turn it into a subsidy line, and subsidy lines get captured.
 - **Full transparency.** Portfolio data (default rates, survival, wages, productivity, member retention) published annually, so anyone can check the result, including critics.
 
+The actual numbers (how much money, how many co-ops, loan limits, and how "market rate" is checked) are in [The Pilot, in Numbers](pilot-spec.md). The rules against sham co-ops and political favoritism are in [Guarding the Pilot](pilot-safeguards.md).
+
 **Precedent:** the United States already has one. Congress created the National Consumer Cooperative Bank in 1978. It was never scaled or aimed at worker co-ops specifically, but "a federally chartered bank for cooperatives" is not a new idea. Italy's Coopfond, financed by a mandated slice of member co-op profits and used to seed new ones, has decades of data on exactly this kind of lending.
+
+**And a warning:** Uruguay's public fund for worker-run firms, FONDES, lost almost 90% of its loan book within five years, mostly on rescues of already-failed firms with political connections. [The pilot](pilot-spec.md#two-warnings-from-real-life) is designed around that failure.

JoshHeaps.Net/Content/Socialism/the-lock.md

@@ -16,7 +16,7 @@ What it covers:
 - **No sale to a non-co-op.** A co-op may merge with or be absorbed by another locked co-op. It may never be sold to conventional owners.
 - **No demutualization.** Members cannot vote to dissolve the co-op and split the value. (This is the failure mode that ended many US mutual savings banks and UK building societies: a generation of members cashed out what earlier generations built.)
 - **No outside voting equity.** Outside money comes in only as voteless, expiring claims (see [Capital, After](capital.md)).
-- **Membership requirement.** A locked co-op cannot run on hired non-member labor. Workers become members after a defined probationary period. This blocks the "degeneration" pattern, where a co-op becomes a small ownership club employing a large wage-labor underclass. Mondragon's non-member foreign subsidiaries are the warning case.
+- **Membership requirement.** A locked co-op cannot run on hired non-member labor. Workers become members after a defined probationary period (the pilot caps it at 12 months). This blocks the "degeneration" pattern, where a co-op becomes a small ownership club employing a large wage-labor underclass. Mondragon's non-member foreign subsidiaries are the warning case.
 - **Indivisible reserves.** A slice of every year's profit goes to a collective reserve no member can ever withdraw. On dissolution, after debts are paid, remaining assets go to the federation fund, not to the members. Italian co-op law already works this way. It removes the incentive to kill the co-op for its assets.
 
 What the lock does *not* do: keep failing firms alive. A locked co-op can still go bankrupt, and its assets can still be sold in liquidation. It just can't be sold as a going concern to anyone but another co-op.

JoshHeaps.Net/Content/Socialism/the-test.md

@@ -10,7 +10,9 @@ summary: The bank runs as an experiment: metrics set in advance, a fixed review
 The bank is an experiment, so it runs like one.
 
 - **Pre-register the metrics before the first loan:** survival rates, productivity, wages, member retention, and loan performance, measured against matched conventional firms in the same sectors and regions.
-- **Fixed review point.** After a set period (long enough to see business cycles; ten years is a reasonable floor), an independent review publishes the results.
+- **Fixed review point.** After a set period (long enough to see business cycles), an independent review publishes the results. The pilot sets it at year 12.
 - **Scale-up or wind-down, decided in advance.** If co-ops match or beat conventional firms at market-rate lending, the bank's capital is expanded. If they don't, it's wound down and the loan book is sold. Both outcomes are written into the charter from day one, so nobody can move the goalposts after seeing the data. That includes me.
 
+[The Pilot, in Numbers](pilot-spec.md) spells all of this out: the exact measures, the comparison group, the pass and fail thresholds, and an emergency stop.
+
 **What the test can prove, and what it can't.** At pilot scale, this tests *business viability*: can co-ops compete, survive, and repay market-rate debt? It does **not** test the labor-market effect, meaning the idea that as co-ops grow, conventional firms have to treat workers better or lose them. That effect is real in principle, but it needs a co-op sector big enough to move wages at the margin. Mondragon employs tens of thousands of people and hasn't reshaped Spanish employment practice. The labor-market effect is the long-run payoff of success, not something the pilot can claim.