Socialism: rebuild on the v3 model (co-op bank and lock, no forced conversion)
Replaces the chapters with the v3 foundation: new chapters for the bank, the lock, the founder problem, the test and intellectual property; removes conversion, conversion-tax and valuation. Rewrites the overview to lead with "nobody is forced" and rewords draft-history references for first-time readers. Co-Authored-By: Claude Opus 5.5 <[email protected]>
This commit is contained in:
Claude Opus 5.5
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---
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title: Capital, After
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section: Capital and Growth
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order: 50
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summary: Outside investment still exists, but it's rented rather than owned: profit-sharing claims that expire and carry no vote.
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section: Growing the Sector
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order: 80
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summary: Outside investment in a co-op is rented, not owned: profit-sharing claims that expire and carry no vote.
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---
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# Capital, After
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Outside investment doesn't disappear. It changes shape.
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Outside investment into a locked co-op doesn't disappear. It changes shape.
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**Rented, not enthroned.** An investor funds the company and receives repayment plus a share of profits for the life of the loan. Then the claim **extinguishes**, and the workers hold 100%.
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This is the elegant part and it should be said plainly: today's equity is *perpetual* — an original investor's great-grandchildren collect forever off work they never did. This claim *expires*. That's the whole reform, in one word. Capital gets rented. (And note the symmetry: the conversion itself now runs on this same instrument. The model has exactly one kind of outside capital claim, whether it's a VC funding a startup or a founder being bought out. One rule, no exceptions.)
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Today's equity is *perpetual*: an original investor's great-grandchildren collect forever off work they never did. This claim *expires*. That's the whole reform, in one word. Capital gets rented.
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The returns can be enormous. A profit-share loan into a risky seed-stage company might pay 10x or 30x. That's fine. The principle was never *no big payday* — it was **no perpetual claim and no control**.
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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**.
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**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.*
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**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.*
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**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. This bites hardest where losses are likeliest — brand-new ventures with no track record and nothing to repossess. It barely bites at all on mature, profitable firms like Conservice.
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**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.
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**So the cost-of-capital problem is a startup problem, not a going-concern problem.** That narrows the open question from a vague abyss to a single well-defined one — and the [federation bank](federation.md) now stands inside the answer.
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This rule applies only to co-ops. Conventional firms keep conventional equity. That makes the cost-of-capital question an empirical one: [the test](the-test.md) will show whether co-ops can raise enough on these terms, alongside the bank, to grow.
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@@ -1,25 +1,27 @@
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---
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title: The Constitution
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section: Guardrails
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order: 90
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summary: The power this model needs must be constrained: money out of politics, counter-majoritarian rights, and overlapping checks.
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order: 130
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summary: The biggest risk is that the model gets repealed, not that the state overreaches. Plus money out of politics and rights the majority can't take away.
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---
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# The Constitution
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Because every mechanism in this model runs through a state powerful enough to trace ownership, tax at 1950s rates, void untraceable claims, and set lookback dates (see [The Conversion](conversion.md)). That is a lot of concentrated power, currently aimed at a good target. **The design question is what stops the next person from aiming it at a bad one.**
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This model asks little of the state: charter [a bank](the-bank.md), enforce [the lock](the-lock.md), run [the floor](the-floor.md). The concentration-of-power argument still applies to the floor (see [Open Problems](open-problems.md) on "essential" sectors), but it isn't the biggest risk.
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**Money out of politics.** Legislative work pays well enough that good people want the job — but any money, gift, or benefit from a non-government entity ends the salary and starts a prison sentence. Politicians should benefit only from serving their people.
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**The main risk is durability, not overreach.** A model that can be built gradually can be dismantled gradually. A future Congress can defund the bank, and a statutory lock can be repealed by the same kind of majority that passed it. Postwar social democracy got rolled back once the coalition that built it weakened; a voluntary co-op sector is exposed to the same thing. So the design question is: **what makes this hard to reverse?** Partial answers: the lock written into each co-op's own charter and into state co-op law, not just federal statute; a federation that becomes financially independent of the public bank; and, above all, a co-op sector large enough to have its own constituency.
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**Money out of politics.** Legislative work pays well enough that good people want the job, but any money, gift, or benefit from a non-government entity ends the salary and starts a prison sentence. Politicians should benefit only from serving their people.
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**But representation alone is not a guardrail.** This is the trapdoor, and it needs saying explicitly:
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> *A government that perfectly represents its people will target a group whenever the people want that group targeted.*
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Representation amplifies the majority; it does not restrain it. Jim Crow was representative — it represented its white voters faithfully, and that is exactly how it ground people down for a century. Internment was popular. Any mechanism that pays politicians based on how much their constituents liked their votes would have *paid a bonus* to the segregationist and docked the man who defended his Black constituents. Clean elections stop capture *by the rich*. They do nothing to stop the majority deciding a minority is the enemy.
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Representation amplifies the majority; it does not restrain it. Jim Crow was representative: it represented its white voters faithfully, and that is exactly how it ground people down for a century. Internment was popular. Clean elections stop capture *by the rich*. They do nothing to stop the majority deciding a minority is the enemy.
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**So: counter-majoritarian rights.** Things a person keeps *even when everyone around them votes to strip them away.* The whole point of a right is that it holds on the day the majority is wrong — and you cannot assume in advance that you'll always be the majority, or always be right. The guardrail is not there to protect the owning class from me. It's there to protect me from whoever inherits this machinery next.
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**So: counter-majoritarian rights.** Things a person keeps *even when everyone around them votes to strip them away.* The whole point of a right is that it holds on the day the majority is wrong, and you cannot assume in advance that you'll always be the majority, or always be right.
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- Keep the Bill of Rights. Make rights that protect individuals **extremely difficult to repeal.**
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- **Two tiers.** Speech, due process, equal protection, freedom from imprisonment without trial: near-absolute. Property: strong, but balanceable against the public interest with compensation — which is what the Takings Clause already says, and always has. Property was never on the sacred tier. *(And the conversion now actually complies with this: full compensation, then taxation — the same two steps any government action must survive. The model no longer asks for an exception to its own constitution.)*
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- **The Senate had the right idea, badly built.** Keep the cooling-saucer function — a second chamber that slows things down and forces broad coalitions instead of bare-51% steamrolls. Drop the geographic weighting. Land should not get votes. Equal state representation and the protection of slavery were the *same bargain* in 1787, and that structure later shielded Jim Crow. Over-weighting low-population states protects *whoever lives there* — an arbitrary category — not the vulnerable.
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- **No final guardrail exists.** Entrench rights and you've moved power to whoever *interprets* them. There's no rule so perfect it guards itself. The answer isn't a better final rule — it's **redundancy**: several overlapping checks, none supreme, so that capturing any one of them doesn't hand someone the whole apparatus.
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- **Two tiers.** Speech, due process, equal protection, freedom from imprisonment without trial: near-absolute. Property: strong, but balanceable against the public interest with compensation, which is what the Takings Clause already says. *(This model doesn't touch existing property at all. It asks nothing of the property tier.)*
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- **The Senate had the right idea, badly built.** Keep the cooling-saucer function: a second chamber that slows things down and forces broad coalitions instead of bare-51% steamrolls. Drop the geographic weighting. Land should not get votes. Equal state representation and the protection of slavery were the *same bargain* in 1787, and that structure later shielded Jim Crow.
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- **No final guardrail exists.** Entrench rights and you've moved power to whoever *interprets* them. There's no rule so perfect it guards itself. The answer isn't a better final rule; it's **redundancy**: several overlapping checks, none supreme, so that capturing any one of them doesn't hand someone the whole apparatus.
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---
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title: The Conversion Tax
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section: The Transition
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order: 42
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summary: How the steep tax on buyout proceeds is collected so that it's legally a tax, can't be waited out, and can't be dodged by splitting it up.
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---
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# The Conversion Tax
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The whole [conversion](conversion.md) stands on two steps. Pay the owner full price, which the Constitution requires. Then tax the proceeds steeply, which the Constitution allows. If the second step is badly built, one of two things happens. A court decides it was really part of the first step, a disguised cut to compensation. Or it quietly evaporates before the money arrives. This chapter is about building it so neither happens.
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## The problem: slow money and a changing Congress
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Owners aren't paid on conversion day. They're paid out of profits as profits arrive, often over ten or twenty years. So the tax has to survive that long, and history isn't encouraging:
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- **Top rates fall.** The 91% top income tax rate of the 1950s was cut to 70% by the [Revenue Act of 1964](https://en.wikipedia.org/wiki/Revenue_Act_of_1964), and kept falling after that.
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- **Windfall taxes shrink and vanish.** Congress expected the [Crude Oil Windfall Profit Tax of 1980](https://en.wikipedia.org/wiki/Crude_Oil_Windfall_Profit_Tax_Act_of_1980) to raise $393 billion over its first decade. It raised about $80 billion, partly because oil prices fell, and it was repealed in 1988.
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- **Even the estate tax disappeared for a year.** A 2001 law phased it down to zero for anyone who died in 2010 ([Estate tax in the United States](https://en.wikipedia.org/wiki/Estate_tax_in_the_United_States)).
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An owner facing a 90% tax that's collected slowly has every reason to hire lobbyists and wait.
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## The tempting fix, and why it's rejected
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The obvious move is to take the tax on day one in kind. The state would simply keep its share of the buyout claim, so there'd be nothing left to collect and nothing for a future Congress to cut. That was proposed, and every critic from every direction tore it apart, for good reason:
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- **It's the compensation cap wearing a disguise.** The owner is forced to sell, and in the same act the state keeps 90% of the payment. A court looks at what the owner actually walks away with, not the paperwork. The Supreme Court has said plainly that "taxes and user fees ... are not takings" ([*Koontz*, 2013](https://www.law.cornell.edu/supremecourt/text/11-1447)). But it has also warned that the government can't dodge the Takings Clause by relabeling a demand for specific property as something else.
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- **Taking a share of the property itself is a taking.** When the government made raisin farmers hand over part of their crop, the Court called it a "physical appropriation" and a taking, full stop ([*Horne v. Department of Agriculture*](https://en.wikipedia.org/wiki/Horne_v._Department_of_Agriculture), 2015).
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- **The government can't keep more than it's owed.** When a county sold a woman's condo to collect a $15,000 tax bill and kept all $40,000, a unanimous Court said that was a taking too ([*Tyler v. Hennepin County*](https://en.wikipedia.org/wiki/Tyler_v._Hennepin_County), 2023).
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So the tax stays a tax: collected in cash, on money the owner has actually received.
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## How it's actually collected
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**1. Withheld at the source.** The converted firm withholds the tax from each buyout payment before it goes out, the same way an employer withholds income tax from a paycheck. There's a close precedent: when a foreign owner sells American real estate, the buyer must hold back 15% of the price and send it to the IRS ([FIRPTA](https://www.irs.gov/individuals/international-taxpayers/firpta-withholding)). Withholding at the source means an owner who moves abroad after conversion, or sells or borrows against the claim, still has the tax taken before the money leaves.
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**2. The rate schedule is locked on conversion day.** Each owner's brackets are the ones in force the day their firm converts, and they apply to every payment for the life of the claim. This removes the reason to wait: payments arrive on the firm's schedule, not the owner's, and there's no election to put them off.
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Be honest about what this can and can't do. **No Congress can bind the next one.** A future majority could pass a law cutting the rate on future payments. The lock stops owners from gaming the timing. It doesn't make the tax permanent. The real protection is political, the same protection Social Security has: the money is visibly tied to things people depend on, like their own firm's debt getting paid down, the retirement bridge, and the floor. Cutting the tax means taking those away from someone.
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**3. Brackets run on what's actually received.** The brackets apply to a person's lifetime total of cash actually received, not to the claim's face value. If a firm has three bad years and the claim pays out 40% of its price, the owner is taxed on the 40% they got, not on a number that never arrived. For almost a century, tax law has let sellers wait and be taxed as payments come in when those payments are too uncertain to value up front ([*Burnet v. Logan*](https://en.wikipedia.org/wiki/Burnet_v._Logan), 1931). This rule doesn't need to value them. It waits and counts.
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**4. The brackets can't be split up.** Progressive brackets only work if a fortune can't be divided into a hundred small ones:
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- Money routed through a foundation, trust, holding company or relative the owner controls counts as the owner's.
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- **Gifts count.** Stakes given away in the five years before the bill is introduced are added back to the giver's lifetime total. The estate and gift tax already works this way, by keeping a single lifetime ledger for both.
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**5. Profits can't be drained out the side door.** During the payout, an owner could try to get paid another way: a fat consulting fee from the firm, or rent on a building he kept, taxed at ordinary rates instead of the conversion rate. So any above-market payment from a converted firm to a former owner, or to anyone connected to them, counts as buyout proceeds and is taxed the same. This extends the [locked box](open-problems.md) rule from before conversion to the whole payout.
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## What's still unsettled
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- **Proceeds or gains?** The model taxes sale *proceeds*. Take a private equity firm that paid $5 billion for a company and converts it at $5 billion. It has made no profit at all, yet a 90% tax on proceeds takes most of its own money back. Critics from every direction call that the "seizure with paperwork" this model says it rejected, and it's the likeliest point for a court to strike. Taxing only the *gain* (price minus what the owner paid) fixes it. Founders who started from nothing still pay nearly the full rate, and recent buyers who paid full price pay little. This is under consideration. See [Open Problems](open-problems.md).
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- **Should it apply beyond conversions?** A tax aimed only at conversion proceeds looks more like part of the taking than a tax that applies to every large sale of business ownership. The Supreme Court gives Congress "wide latitude in deciding what to tax" ([*United States v. Ptasynski*](https://www.law.cornell.edu/supremecourt/text/462/74), 1983). A general tax only makes sense on gains, though. On proceeds it would hit a retiree who rebalances an index fund every year. So it waits on the question above.
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- **Foreign owners.** Tax treaties usually leave gains on shares to be taxed by the country where the owner lives. Withholding at the source catches the money, but taxing a Monaco resident at American rates means overriding treaties by statute, a diplomatic fight the model has to be ready for.
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- **Recessions.** Tax receipts follow profits, so they fall exactly when the floor is needed most. The floor needs a steadier source than the conversion tax alone.
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---
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title: The Conversion
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section: The Transition
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order: 40
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summary: How today's companies become worker-owned: a full-price buyout paid from future profits, with a steeply progressive tax on the proceeds.
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---
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# The Conversion
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**A mandatory, one-time, full-price buyout — paid for by the whales themselves.**
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The first draft capped compensation at a 1% stake and called it financing. Be honest: striking 99% of the debt is a seizure with paperwork, and it contradicted this document's own constitution, which keeps the Takings Clause — property balanceable against the public interest *with compensation*. You don't get to write "with compensation" in one section and delete it in another. So the cap is gone. Here is what replaces it, and it is stronger:
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## The buyout, step by step
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**1. Workers buy the firm at full fair value, financed out of its own future profits.** This is a leveraged buyout where the workers are the sponsor — the exact machine private equity used to buy Conservice, pointed the other way. Workers own and govern from day one; the purchase debt is serviced from the surplus that was leaving anyway.
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**2. The buyout instrument is the same instrument investors get** (see [Capital, After](capital.md)): an expiring, profit-contingent, voteless claim. The exiting owner is paid from profits as profits arrive. No fixed debt schedule, so a recession mid-payback flexes the payments instead of bankrupting the firm. The owner bears residual risk during the payout — which is symmetric, principled, and exactly the deal every other capital provider gets under this model.
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**3. A steeply progressive tax on the proceeds, traced to ultimate individuals.** This is where the moral weight lands, and it lands legally. A compensation cap on a forced sale dies in court as a taking. A tax on capital-sale proceeds is just a tax — the United States ran 91% top marginal income tax rates in the 1950s and the sky held. (Be precise about that precedent: the 91% applied to the very top incomes, and long-term capital gains were capped at 25%. A tax this steep on sale proceeds would be new, not a return to the past, and it has to stand on its own argument.) The founder is paid the full number on paper; most of it, above the top brackets, comes home through a channel courts have blessed for a century.
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The tax is withheld from each payment as it arrives, at a rate schedule locked in on conversion day, and the brackets run on a person's **lifetime total**. Money routed through foundations, trusts, relatives or gifts made shortly before the bill counts as the owner's. The details, and why the tax is taken in cash instead of by the state keeping a slice of the claim, are in [The Conversion Tax](conversion-tax.md).
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**4. The tax proceeds buy down conversion debt across the economy.** The revenue doesn't vanish into the general fund — it is recycled as debt relief for converting firms, funds the [retirement bridge](#the-retirement-bridge), and funds [the floor](the-floor.md). **The whales at the top of the ownership chain finance everyone else's freedom.** Be clear about the mechanics, because it's easy to get wrong: the workers' payments to the old owner still come out of the firm's profits. What the tax changes is where that money ends up. Every dollar of the tax that is recycled into paying down conversion debt comes back to workers. So workers as a whole pay much closer to what the old owners get to *keep* than to the full price on paper. How close depends on how much of the revenue goes to debt relief rather than to the bridge and the floor.
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The result: the exiting owner walks away rich — rich in *consumption*, not in structural power over ten thousand people. Which was always the actual principle. This model never promised the founder no payday. It promised **no perpetual claim and no control**, and now it applies that rule to everyone who holds capital, including the people cashing out on day one.
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## The machinery
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The machinery survives from the first draft, repurposed:
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- **Ownership is traced through to ultimate individuals.** TPG is owned by someone; those owners are owned by someone. The circular ownership is solvable with matrix algebra, and it has already been done — a 2011 ETH Zurich study traced 43,000 companies through exactly this tangle. Tracing now serves the tax brackets instead of a cap.
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- **This is why pensions survive.** Look *through* the index fund and the retiree holds a millionth of a percent — her proceeds land in the bottom bracket and she keeps nearly all of them. The firefighter keeps his retirement; the founder pays 1950s rates. Same rule.
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- **Cracking the shells.** Any ownership claim that cannot be traced to a named human is **legally unenforceable in US courts**. Hidden owners can't collect, can't sue, can't foreclose. Transparency becomes the profitable choice. Precedent: FATCA told foreign banks "report your American account holders or eat a punishing tax," and they complied.
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- **Killing the fire-sale window.** A lookback date — ownership as of the day the bill is introduced is what counts. Transfers, restructurings, and paper losses after that date don't dodge the brackets.
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## Valuation: settled by rule, not by litigation
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Full-price conversion makes the price the thing everyone will fight over, so it is set by a ladder of rules. The short version:
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- **Public firms:** the market price around the lookback date. The market already voted.
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- **Recently sold private firms:** the price an unrelated buyer actually paid for control. Conservice converts at the $5 billion TPG actually paid. There is a special justice in the owner being held to the number they chose.
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- **Everything else:** a formula. The typical price-to-profit ratio for that industry, calculated from real sales rather than set by an official, times the firm's cleaned-up average profit.
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- **Disputes go to court, but each side has to commit to one final number first.** Whoever was unreasonable pays the costs, an owner who wildly inflates their claim pays a penalty, and the workers get an independent public lawyer. The goal is that appraisal is the exception, not the economy.
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The full machinery, the precedents behind it, and what it still can't handle are in [Valuation](valuation.md).
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## The retirement bridge
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Conversion is unjust to whoever happens to be 63 when it lands — they lose the windfall the 30-year-old will ride for decades. So: supplemental retirement funding for 15–20 years, tapering as profit-sharing income accumulates — now with a named funding source: the conversion tax.
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---
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title: The Federation
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section: The Firm
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order: 30
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summary: Firms pool risk through a shared solidarity fund and internal bank, so one company failing doesn't mean your life failing.
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section: Growing the Sector
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order: 70
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summary: Co-ops pool risk through a shared fund that absorbs shocks, moves workers when a firm fails, and becomes a lender in its own right.
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---
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# The Federation
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This section exists because of a problem the first draft never named: **concentration.**
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Worker ownership has a risk problem that's easy to miss: **concentration.** It matters even more in a young, voluntary co-op sector.
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A worker-owner holds their salary, their profit share, and their skills all inside one firm. That is exactly the risk a shareholder diversifies away and a worker cannot. And it is the real source of risk-aversion — if one bad bet can kill the company that is also your paycheck and your equity, you take the safe option every time, and an economy of safe options stops producing breakthroughs.
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A worker-owner holds their salary, their profit share, and their skills all inside one firm. That is exactly the risk a shareholder diversifies away and a worker cannot. It is the real source of risk-aversion: if one bad bet can kill the company that is also your paycheck and your equity, you take the safe option every time, and an economy of safe options stops producing breakthroughs.
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The fix is not a rule inside the firm. It is a structure between firms, and Mondragon already built it:
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The fix is a structure between firms, and Mondragon already built it:
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- **Firms pool a slice of profits into a mutual solidarity fund.** The fund absorbs shocks — a firm having a bad year draws support instead of dying.
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- **When a firm does die, the federation redeploys its workers into member firms.** Your company failing stops meaning your life failing. *This* is what licenses healthy risk-taking — not lower stakes on paper, but a floor under the fall.
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- **The fund doubles as an internal bank** (Mondragon's Caja Laboral is the working precedent), lending to member firms and seeding new ones on the [expiring profit-share terms](capital.md). The federation becomes a native source of the patient capital the model otherwise struggles to attract.
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- **Firms pool a slice of profits into a mutual solidarity fund.** The fund absorbs shocks. A firm having a bad year draws support instead of dying.
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- **When a firm does die, the federation redeploys its workers into member firms.** Your company failing stops meaning your life failing. *This* is what licenses healthy risk-taking: not lower stakes on paper, but a floor under the fall.
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- **The fund becomes a second lender.** Over time, the federation (financed by its members and by the indivisible reserves of dissolved co-ops) becomes a source of patient capital that doesn't depend on the public bank at all. That is the path to the co-op sector outliving the political coalition that started it.
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Membership is voluntary but the incentives all point in: unfederated firms face the concentration problem alone.
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Membership is voluntary, but the incentives all point in: unfederated co-ops face the concentration problem alone.
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@@ -0,0 +1,20 @@
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---
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title: The Founder Problem
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section: The Co-op
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order: 40
|
||||
summary: Without the chance to sell the company, why would a strong founder start a co-op? The hardest part of the design.
|
||||
---
|
||||
|
||||
# The Founder Problem
|
||||
|
||||
This is the hardest part of the new design, and it needs to be said plainly.
|
||||
|
||||
**Most of a founder's payoff in a conventional startup comes from the exit: selling the company.** The lock removes the exit permanently. So the obvious risk is adverse selection: the best entrepreneurs go conventional, and the bank's applicants are the people who couldn't raise money anywhere else. If that happens, the experiment is rigged to fail before it starts.
|
||||
|
||||
The model needs a reason to found a co-op that doesn't depend on selling it. Tools that exist:
|
||||
|
||||
- **Internal capital accounts.** Each member has an individual account that accumulates their share of retained profits and pays out when they leave or retire. Mondragon built these precisely so that membership builds real wealth without making the firm tradeable. It is a way to cash out your *stake* without selling the *firm*.
|
||||
- **Founder salary premiums**, set in the founding bylaws and voted on by members as the firm grows.
|
||||
- **Patronage dividends:** profit distributed in proportion to contribution, not just headcount, during the founding years.
|
||||
|
||||
None of these fully replace a nine-figure exit. That's honest. The model is betting that enough people value what the co-op offers (control, stability, a firm they can't be sold out of) to make up the difference. That bet is part of what's being tested.
|
||||
@@ -1,36 +1,39 @@
|
||||
---
|
||||
title: Free-Market Democratic Socialism
|
||||
summary: A working model for an economy where the people who do the work own and govern the companies they work for, while markets, wages, investment and personal property all stay.
|
||||
summary: A working model for building an economy where the people who do the work own and govern the companies they work for. Nobody's company gets taken, and markets, wages, investment and personal property all stay.
|
||||
---
|
||||
|
||||
# Free-Market Democratic Socialism
|
||||
|
||||
## The idea in one sentence
|
||||
|
||||
**Your house, car, savings and tools are yours, and nobody touches them. But a permanent, tradeable claim on the work of thousands of strangers is a different kind of thing, and it shouldn't be treated as the same "property."** Everything else in this model follows from that line. [Read the thesis](thesis.md).
|
||||
**Your house, car, savings and tools are yours, and nobody touches them. But a permanent, tradeable claim on the work of thousands of strangers is a different kind of thing, so there should be companies where that claim never forms, and nothing in law or finance should stop people from building them.** [Read the thesis](thesis.md).
|
||||
|
||||
## What changes
|
||||
## Nobody is forced
|
||||
|
||||
- **Workers own their company.** Every employee gets one vote from day one. A share of the profits grows with tenure until everyone who's been there long enough splits them equally. [Worker Ownership](worker-ownership.md)
|
||||
- **Companies back each other up.** Worker-owned firms pool part of their profits into a shared fund and bank. If one firm fails, its workers are moved into others instead of being left with nothing. [The Federation](federation.md)
|
||||
- **Existing companies are bought, not seized.** Workers buy their company at full price and pay for it out of its future profits. A steeply progressive tax on the sale proceeds then funds the transition for everyone else. The price is set by clear rules, like the market price or what the last buyer actually paid, rather than by dueling experts. [The Conversion](conversion.md) · [Valuation](valuation.md) · [The Conversion Tax](conversion-tax.md)
|
||||
- **Investment is rented, not owned forever.** Investors still fund companies and can still earn huge returns, but their claim runs out and comes with no vote. [Capital, After](capital.md)
|
||||
- **Nobody is left behind by low-margin work.** Ownership 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)
|
||||
This model doesn't buy, seize or convert anyone's company. Instead it builds new worker-owned companies alongside existing ones, then lets customers and workers choose between them.
|
||||
|
||||
- **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)
|
||||
- **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)
|
||||
|
||||
## What stays the same
|
||||
|
||||
| Stays | Why |
|
||||
| --- | --- |
|
||||
| Markets and competition | Companies still compete, set prices and win or lose customers. |
|
||||
| Existing companies | Nobody's company is bought or taken. Conventional firms keep conventional ownership. |
|
||||
| Markets and competition | Co-ops and conventional firms compete for the same customers and workers. |
|
||||
| Salaries | Hard and in-demand jobs still pay more. A surgeon still earns a surgeon's salary. |
|
||||
| Personal property | Homes, cars, savings and tools are untouchable. |
|
||||
| Investment and big returns | Investors can still make 10x or 30x. They just can't own a company forever. |
|
||||
| Rights and due process | The model makes individual rights harder to repeal. [The Constitution](constitution.md) |
|
||||
| Investment and big returns | Investors can still fund co-ops and make 10x or 30x. Their claim just runs out and carries no vote. [Capital, After](capital.md) |
|
||||
|
||||
## Why it matters
|
||||
|
||||
This isn't mainly about money. **People deserve a say in governing the place where they spend most of their waking lives.** Today most workers are ruled by distant owners who answer to nobody who works there. The model ends that rule without taking anyone's personal wealth. [Making the Case](the-argument.md)
|
||||
This isn't mainly about money. **People deserve a say in governing the place where they spend most of their waking lives.** Today most workers are ruled by distant owners who answer to nobody who works there. Co-ops are rare, and one likely reason is that nobody will lend to them. This model fixes the financing and lets people choose. [Making the Case](the-argument.md)
|
||||
|
||||
## Honest about what's unsolved
|
||||
|
||||
This is a working model, not a finished one. It is being stress-tested against critics from across the political spectrum, and the hard problems it hasn't cracked yet are listed in the open. [Open Problems](open-problems.md)
|
||||
This is a working model, not a finished one. The biggest open question is whether strong founders will start companies they can never sell ([The Founder Problem](founder-problem.md)). The full list of what isn't solved yet is kept in the open. [Open Problems](open-problems.md)
|
||||
|
||||
@@ -0,0 +1,15 @@
|
||||
---
|
||||
title: Intellectual Property
|
||||
section: Beyond Co-ops
|
||||
order: 100
|
||||
summary: Targeted patent reform would help new firms, but it's kept separate from the bank so the achievable part doesn't wait on the hard part.
|
||||
---
|
||||
|
||||
# Intellectual Property
|
||||
|
||||
Patent terms are too long for how fast many industries move, and some patents should never have been granted. Loosening IP would lower the barrier for any new firm, co-ops included. It belongs in the model, but it is **decoupled from the bank** for two reasons:
|
||||
|
||||
- **It's sector-dependent.** In software, patents mostly protect incumbents and trolls against entrants; weakening them helps new firms. In pharma and hardware, a patent is often the *only* thing keeping a small entrant from being copied to death by a competitor with better manufacturing and distribution. Blanket loosening can hand the advantage to scale, which is the opposite of the goal.
|
||||
- **It's politically far heavier.** A small bank is achievable. Patent reform means fighting every industry that lives on patents. Coupling them means the achievable thing waits on the hard thing.
|
||||
|
||||
So the IP reform is targeted: shorter terms where innovation cycles are short, a much stricter bar for software and business-method patents, and aggressive action against patent trolls. Where patents genuinely protect small inventors, leave them alone.
|
||||
@@ -1,35 +1,30 @@
|
||||
---
|
||||
title: Open Problems
|
||||
section: Guardrails
|
||||
order: 100
|
||||
order: 140
|
||||
summary: An honest list of what isn't solved yet.
|
||||
---
|
||||
|
||||
# Open Problems
|
||||
|
||||
Honest list, updated. Several first-draft holes are patched above; here is what remains, and what's new.
|
||||
An honest list of what the model hasn't solved yet, most dangerous first.
|
||||
|
||||
1. **Valuation at scale.** *(Narrowed.)* [Valuation](valuation.md) now sets prices with a ladder of rules: market price, then a real control sale, then a formula whose ratios come from actual sales and whose profit figures are cleaned of related-party games. Disputes go to court, but each side has to file one final number, costs follow whoever was unreasonable, inflated claims draw a penalty, and the workers have an independent public lawyer. Two things remain. First, **the market already knows the bill is coming.** By the lookback date, prices reflect the expected conversion, and takings law ([*United States v. Miller*](https://www.law.cornell.edu/supremecourt/text/317/369)) normally won't let the government profit from a drop its own project caused. Correcting for it is under consideration. Second, **the truly one-of-a-kind firms** with no comparables will still end up in expert-versus-expert fights. There are far fewer of them, but they aren't easy.
|
||||
1. **Adverse selection on founders.** *(The most dangerous.)* The lock removes the exit. If the strongest founders go conventional, the bank's portfolio is the rejected pool, and the test fails for reasons that say nothing about co-ops. Internal capital accounts and founder premiums help; whether they're enough is unknown.
|
||||
|
||||
2. **The anticipation window.** *(Mostly patched — one true residual.)* The lookback closes almost everything: ownership and price are fixed as of the day the bill is introduced, so post-introduction transfers, restructurings, and paper losses change nothing. Value-stripping between introduction and closing — the owner paying himself a giant special dividend while still nominally in charge — is closed with a mechanism private equity already uses in its own deals: the **locked box**. Price is set at the lookback date, and any leakage after it (extraordinary dividends, above-market salary, related-party debt) is deducted straight from the purchase price. What remains is the one thing no law can pre-date: extraction and emigration *before the bill is introduced*, while the movement is visibly gaining steam. Expatriation-triggered mark-to-market tax (§877A, already in US law) catches part of that; a well-advised owner with a two-year head start still finds seams. That window is the honest residual — and it shrinks the faster the bill moves from idea to introduction.
|
||||
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. **Foreign capital.** Softened but not solved. Norway's sovereign wealth fund and Japanese pensions now get *paid in full* and taxed like everyone else, which is a much easier diplomatic sell than a 99% haircut. But the flows question remains: does new foreign money keep arriving in an economy where equity expires? "We have enough resources" doesn't answer it. The honest answer is that expiring capital pays a premium, and the premium is the price of the structure.
|
||||
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.
|
||||
|
||||
4. **The payout decade.** Full price means large firms spend years paying out their former owners. The profit-contingent instrument removes the bankruptcy risk, but for that period a big slice of the surplus still flows to the old owner — workers govern immediately but get rich slowly. The conversion-tax recycling shortens this; it doesn't erase it. Anyone promised otherwise was promised a seizure.
|
||||
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.
|
||||
|
||||
5. **Growth and dilution.** Softened by the tenure ramp, not eliminated. In steady state, an equal split per head still means a marginal hire must generate the average surplus to break even for incumbents. Capital-intensive expansion into lower-margin lines will face internal resistance conventional firms don't have.
|
||||
5. **Political durability.** See [The Constitution](constitution.md). Gradual construction invites gradual repeal.
|
||||
|
||||
6. **Who decides which sectors are "essential"?** Subsidy authority is price-setting power over a large chunk of the labor market, and every low-margin industry will suddenly discover it is Essential. Same concentration-of-power problem as the conversion apparatus, wearing an apron.
|
||||
6. **Growth and dilution.** Softened by the tenure ramp, not eliminated. In steady state, an equal split per head still means a marginal hire must generate the average surplus to break even for incumbents. Capital-intensive expansion into lower-margin lines will face internal resistance conventional firms don't have.
|
||||
|
||||
7. **The contractor boundary.** *(Partially solved.)* The fix: a cleaning company's workers own the cleaning company — no unowned underclass, just a chain of owned firms selling services to each other. Independent contracting is heavily restricted; companies cannot spin up a captive contractor firm to hire from. Worker-owned staffing agencies double as de facto unions. **But read California's AB5 first** — it tried nearly this bright-line test in 2019, some firms reclassified, some cut workers loose, unrelated freelancers got crushed, and Uber and Lyft spent $200M on Prop 22 to carve themselves out and won. That's the case study for where the pressure lands and who fights back.
|
||||
7. **Who decides which sectors are "essential"?** Subsidy authority is price-setting power over a large chunk of the labor market, and every low-margin industry will suddenly discover it is Essential.
|
||||
|
||||
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 — coops really do push out free riders, and the federation model keeps units small enough for monitoring to bite while pooling risk above them.
|
||||
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. **The conversion tax.** *(Partly solved.)* [The Conversion Tax](conversion-tax.md) now withholds the tax in cash from each payment, locks each owner's rate schedule on conversion day, runs the brackets on cash actually received, adds back gifts made in the five years before the bill, and taxes above-market side payments to former owners as proceeds. Taking the tax in kind, with the state keeping a slice of the claim, was considered and rejected because courts would treat it as part of the taking. What remains:
|
||||
- **Proceeds or gains.** A 90% tax on *proceeds* takes back the purchase price from anyone who bought in recently, and it's the likeliest part of the conversion to fall in court. Taxing *gains* fixes that but raises less. Under consideration.
|
||||
- **A general tax or a conversion tax.** A tax that applies to every large sale of business ownership is safer in court than one aimed at conversions, but that only works if it taxes gains.
|
||||
- **No Congress can bind the next one.** The lock stops owners from timing the tax. It doesn't stop a future majority from cutting it.
|
||||
- **Foreign owners** may need treaty overrides.
|
||||
- **Recessions.** Receipts fall exactly when the floor is needed.
|
||||
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.
|
||||
|
||||
*Patched since the first draft:* the taking (full price + progressive tax), "nobody sells again" (conversion is mandatory and universal, not sale-triggered — there is no dodge-by-holding), the fire-sale window (lookback), risk concentration ([the federation](federation.md)), the hiring disincentive ([the tenure ramp](worker-ownership.md)), and subsidy capture on the worker floor (pay workers directly).
|
||||
*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.
|
||||
|
||||
@@ -1,7 +1,7 @@
|
||||
---
|
||||
title: Prison Labor
|
||||
section: Society
|
||||
order: 80
|
||||
section: Beyond Co-ops
|
||||
order: 120
|
||||
summary: Only with full pay parity, and only if no budget ever benefits from more people being locked up.
|
||||
---
|
||||
|
||||
@@ -9,7 +9,7 @@ summary: Only with full pay parity, and only if no budget ever benefits from mor
|
||||
|
||||
Incarcerated people work **the same jobs, at the same pay, side by side with free temps.**
|
||||
|
||||
Pay parity is not a detail. It is the entire moral load-bearing wall, and it is the first thing a critic will assume was left out — so it goes in the first sentence, always.
|
||||
Pay parity is not a detail. It is the entire moral load-bearing wall, and it is the first thing a critic will assume was left out, so it goes in the first sentence, always.
|
||||
|
||||
Pay parity is what separates this from convict leasing. The historical horror ran on a *cost advantage*: after the Civil War, Southern prisons became labor suppliers and arrests rose to meet demand. The Thirteenth Amendment abolished slavery *"except as a punishment for crime,"* and that clause is why it worked, and it is still in the Constitution. Remove the cost advantage and the state gains nothing by locking more people up.
|
||||
|
||||
|
||||
@@ -1,19 +1,18 @@
|
||||
---
|
||||
title: Startups
|
||||
section: Capital and Growth
|
||||
order: 60
|
||||
summary: Fund the science, backstop the boring, seed the funders, and don't let government pick the startups.
|
||||
section: Growing the Sector
|
||||
order: 90
|
||||
summary: Fund the science, back the boring, make the co-op a real option for founders, and don't let government pick the startups.
|
||||
---
|
||||
|
||||
# Startups
|
||||
|
||||
**One line: fund the science, backstop the boring, seed the funders — don't pick the startups.**
|
||||
**One line: fund the science, backstop the boring, give founders a real co-op option. Don't pick the startups.**
|
||||
|
||||
Government should not be a venture capitalist. VC works by being wrong 70% of the time and letting two freak winners pay for everything. No public agency survives that headline rate — it would get cautious, fund safe bets and well-connected people, and safe bets don't produce breakthroughs. The failure mode isn't corruption; it's risk-aversion under political accountability. A central allocator also has *one* thesis and one set of blind spots, and when it's wrong it's wrong across the whole portfolio at once.
|
||||
Government should not be a venture capitalist. VC works by being wrong 70% of the time and letting two freak winners pay for everything. No public agency survives that headline rate. It would get cautious, fund safe bets and well-connected people, and safe bets don't produce breakthroughs. The failure mode isn't corruption; it's risk-aversion under political accountability.
|
||||
|
||||
Four moves instead:
|
||||
So:
|
||||
|
||||
1. **Fund the science, not the companies.** DARPA and NIH gave us the internet, GPS, touchscreens, mRNA. The state buys the ingredients; a thousand private actors race to cook.
|
||||
2. **Seed the funders, not the founders.** Don't build one federal VC. Put public money into many independent funds with different theses and let them compete. Israel's Yozma program did this and bootstrapped one of the densest startup ecosystems on earth.
|
||||
3. **Startups start worker-owned by default.** A garage company is founders and early employees — almost no separation between labor and ownership. Let them own it outright and let outside money in on expiring profit-share loans. Be honest about the cost: this is exactly where the expiring instrument prices worst, so early-stage capital will be more expensive than the perpetual-equity world it replaces. The Yozma-style funds and the federation bank exist to close that gap on purpose, with public and mutual money that accepts a thinner return for the structure.
|
||||
4. **Backstop the boring.** Rural grocery store, local clinic, unglamorous manufacturer. That's development banking, not venture, and government is genuinely good at it. Loan guarantees, SBA-style.
|
||||
2. **Make the co-op a real option for founders.** A garage company is founders and early employees, with almost no separation between labor and ownership. The bank, internal capital accounts, and the federation exist so that choosing co-op form isn't choosing to be underfunded. Early-stage co-op capital will still cost more than conventional VC. That's [the founder problem](founder-problem.md), and [the test](the-test.md) will show how much it matters.
|
||||
3. **Backstop the boring.** Rural grocery store, local clinic, unglamorous manufacturer. That's development banking, not venture, and government is genuinely good at it. Loan guarantees, SBA-style. These are also the sectors where co-ops have historically done best.
|
||||
|
||||
@@ -1,28 +1,24 @@
|
||||
---
|
||||
title: Making the Case
|
||||
section: Making the Case
|
||||
order: 110
|
||||
summary: Lead with Germany and the leveraged buyout, and argue from freedom, not dollars.
|
||||
order: 150
|
||||
summary: Lead with "nobody is forced," point to the co-op banks that already exist, argue from freedom rather than dollars, and don't overclaim.
|
||||
---
|
||||
|
||||
# Making the Case
|
||||
|
||||
**Lead with Germany, not OSHA.** Co-determination puts workers on up to half the supervisory board of large firms, by law, non-optionally — and Germany is still a capitalist market economy with a stock exchange. "You can't force ownership changes and stay a free market" is empirically false and has been for fifty years.
|
||||
**Lead with "nobody is forced."** The model takes nothing from anyone. It charters a bank, asks it to lend at market rates to a kind of firm other banks won't touch, and publishes the results. If co-ops can't compete, the experiment says so and it gets wound down. That is the most market-friendly proposal on the left, and it should be argued that way.
|
||||
|
||||
**But know the difference.** German co-determination reallocates *governance* (board seats) while leaving *cash-flow ownership* untouched. Investors kept every euro. That's why capital tolerated it — it was cheap to concede because it didn't touch the money. This model *does* touch the money. It is not a slight tweak on the German model; it is the German model with a different engine.
|
||||
**The second line: "we already did this."** Congress chartered a cooperative bank in 1978. Mondragon built one in the 1950s. Italy has run a co-op development fund on member profits for decades. This is an old, tested idea aimed at a new target.
|
||||
|
||||
**And now the second precedent: the leveraged buyout.** Workers buying their firm at full price out of its own cash flows is not exotic finance — it is the exact transaction private equity performs thousands of times a year. The model doesn't abolish the LBO. It changes who the sponsor is. That framing is legible to every finance professional in the country, and it is true.
|
||||
**Germany is now a supporting point, not the lead.** Co-determination puts workers on up to half the supervisory board of large firms, by law, and Germany is still a capitalist market economy. It shows ownership and governance rules are choices societies make, not laws of nature. But it's no longer needed to defend a mandate, because there isn't one.
|
||||
|
||||
**Don't lead with "they extract while workers starve."** It's the weakest version of the case, and it invites "the return is compensation for capital and risk," which wins the exchange. The strong version:
|
||||
|
||||
> *Bargaining power is lopsided. Workers have no realistic path to a claim on the enterprise they build. The return to capital is wildly disproportionate to actual risk once a firm is mature. And the market for corporate ownership is rigged to keep it that way.*
|
||||
> *Bargaining power is lopsided. Workers have no realistic path to a claim on the enterprise they build. Capital markets don't fund firms that workers own. Fix the financing and let people choose.*
|
||||
|
||||
That's a fight worth having and it can be won.
|
||||
**Don't argue it in dollars.** The dollars framing ($150k/head, hungry kids) is exactly what leaves the model vulnerable to *"then just give them cash; a big enough UBI is simpler."* If ownership is only an *instrument* for moving money, a UBI substitutes for it.
|
||||
|
||||
**Don't argue it in dollars.** The dollars framing ($150k/head, hungry kids) is exactly what leaves the model vulnerable to *"then just give them cash — a big enough UBI is simpler."* If ownership is only an *instrument* for moving money, a UBI substitutes for it.
|
||||
It isn't. It's the goal. **People deserve to govern the thing they spend their life inside.** The objection is *domination*, not just poverty. That claim is about human freedom, it survives the UBI, and no amount of cash dissolves it.
|
||||
|
||||
It isn't. It's the goal. **People deserve to govern the thing they spend their life inside.** The objection is *domination*, not just poverty — being ruled by a distant firm that answers to nobody who works there. That claim is about human freedom, and it survives the UBI, and no amount of cash dissolves it.
|
||||
|
||||
And notice the conversion redesign makes this cleaner, not muddier: the founder still gets paid, still gets rich, and the workers *still* need the model — because the model was never about taking his money. It was about ending his rule.
|
||||
|
||||
Say that, loudly, and the model can't be argued away.
|
||||
**And don't overclaim.** The pilot proves business viability or it doesn't. Don't promise that it will reshape the labor market. Say that's what success at scale would do, and let the data earn the rest.
|
||||
|
||||
@@ -0,0 +1,24 @@
|
||||
---
|
||||
title: The Bank
|
||||
section: Growing the Sector
|
||||
order: 50
|
||||
summary: A small public bank that lends only to worker co-ops, at market rates, with professional underwriting and published results.
|
||||
---
|
||||
|
||||
# The Bank
|
||||
|
||||
**A small public investment bank that lends only to worker cooperatives.**
|
||||
|
||||
Why a bank and not a mandate: co-ops are rare, and there are two competing explanations. One says they're rare because capital markets won't fund firms whose owners can't sell equity to outsiders. The other says they're rare because they're genuinely harder to run. A bank that removes the financing barrier is the experiment that tells those apart. If co-ops were starved of capital, they'll grow. If they're hard to run, the portfolio will fail, and we'll have learned that honestly and cheaply.
|
||||
|
||||
Mondragon already proved the first half of the premise: it had to build its own bank, Caja Laboral, because ordinary banks wouldn't lend to it.
|
||||
|
||||
**Design:**
|
||||
|
||||
- **Charter:** lends only to firms that meet the [co-op definition](worker-ownership.md) and accept [the lock](the-lock.md).
|
||||
- **Priced at market rates.** This is deliberate. The bank's edge must be *willingness* to underwrite a firm structure other lenders refuse, not *cheap money*. If it lends below market, every result is unfalsifiable: success gets dismissed as "free state money," failure gets dismissed as "hobbled by the lock." At market rates, survival and returns mean something.
|
||||
- **Professional, insulated underwriting.** Loan officers are bankers, not appointees. Lending decisions are walled off from legislators the way monetary policy is walled off from Congress. A bank that funds whichever co-op has the best-connected sponsor fails the experiment and deserves to.
|
||||
- **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.
|
||||
|
||||
**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.
|
||||
@@ -1,8 +1,8 @@
|
||||
---
|
||||
title: Ownership and the Floor
|
||||
section: Society
|
||||
order: 70
|
||||
summary: Ownership ends the skim, but a floor ends the hunger. Low-margin work needs both.
|
||||
section: Beyond Co-ops
|
||||
order: 110
|
||||
summary: Ownership ends the skim, but a floor ends the hunger. Low-margin work needs both, and the floor can't wait for the co-op sector to grow.
|
||||
---
|
||||
|
||||
# Ownership and the Floor
|
||||
@@ -11,22 +11,22 @@ This is the correction that matters most, and it took the longest to see.
|
||||
|
||||
**Equal ownership within firms does not produce equal outcomes across them.**
|
||||
|
||||
A worker-owned cleaning company still operates on cleaning-company margins — maybe $8k of profit per head. A worker-owned software firm throws off $150k per head. Both workers are owners. One of them still can't feed their kids.
|
||||
A worker-owned cleaning company still operates on cleaning-company margins, maybe $8k of profit per head. A worker-owned software firm throws off $150k per head. Both workers are owners. One of them still can't feed their kids.
|
||||
|
||||
Profit-per-head is set by technology and demand elasticity — forces ownership rules don't reach. Cleaning productivity has barely moved in forty years: one person, one mop. Ownership of the surplus doesn't change how much surplus *exists*.
|
||||
Profit-per-head is set by technology and demand elasticity, forces ownership rules don't reach. Cleaning productivity has barely moved in forty years: one person, one mop. Ownership of the surplus doesn't change how much surplus *exists*.
|
||||
|
||||
So:
|
||||
|
||||
- **Ownership ends the skim.** It is the right answer to *extraction* — a large surplus flowing to people who didn't make it. It fixes the Conservice case completely.
|
||||
- **A floor ends the hunger.** The home health aide, the childcare worker, the line cook — their problem was never that private equity was skimming their $150k. Their problem is there is no $150k.
|
||||
- **Ownership ends the skim.** It is the right answer to *extraction*: a large surplus flowing to people who didn't make it.
|
||||
- **A floor ends the hunger.** The home health aide, the childcare worker, the line cook: their problem was never that private equity was skimming their $150k. Their problem is there is no $150k.
|
||||
|
||||
You need both. They do different jobs. **One in six Utah kids goes hungry, and a lot of their parents work in sectors where there is barely any surplus to own.**
|
||||
You need both. They do different jobs. And because the model doesn't force anyone to convert, this section matters *more*, not less: the co-op sector will grow slowly, if it grows at all, and the floor doesn't wait for it. **One in six Utah kids goes hungry, and a lot of their parents work in sectors where there is barely any surplus to own.**
|
||||
|
||||
The floor, in pieces:
|
||||
|
||||
- A strong minimum wage.
|
||||
- **Targeted subsidy for essential low-margin work — paid to workers, not firms.** Somebody has to clean the nursing home for the poor. If the sector can't pay, the public does, directly, so the buyer can't absorb the subsidy by bidding less.
|
||||
- **Funded automation research aimed at exactly those sectors.** If productivity can't rise on its own, raise it. This is explicitly a *transition* strategy — support the workers until the technology lands. Say that out loud, or you end up permanently subsidizing a job you're simultaneously trying to eliminate, and the subsidized workers start lobbying against the automation. (This is what happened with coal.)
|
||||
- **A transitional public temp corps.** Companies apply for subsidized labor. The state supplies temps and funds the automation in parallel. Everyone knows going in that the job has a sunset. Voluntary, real wages, open to anyone who wants a bridge — which costs almost nothing on the margin, since these people are already covered by the floor.
|
||||
- **Targeted subsidy for essential low-margin work, paid to workers, not firms.** Somebody has to clean the nursing home for the poor. If the sector can't pay, the public does, directly, so the buyer can't absorb the subsidy by bidding less.
|
||||
- **Funded automation research aimed at exactly those sectors.** If productivity can't rise on its own, raise it. This is explicitly a *transition* strategy: support the workers until the technology lands. Say that out loud, or you end up permanently subsidizing a job you're simultaneously trying to eliminate, and the subsidized workers start lobbying against the automation. (This is what happened with coal.)
|
||||
- **A transitional public temp corps.** Companies apply for subsidized labor. The state supplies temps and funds the automation in parallel. Everyone knows going in that the job has a sunset. Voluntary, real wages, open to anyone who wants a bridge.
|
||||
|
||||
**The endpoint:** a society where work is not the price of being allowed to eat. Where people who don't work are taken care of, and people who work are people who want *more* — the finer things, a bigger share, the reward for doing what's hard or what nobody else will do.
|
||||
**The endpoint:** a society where work is not the price of being allowed to eat. Where people who don't work are taken care of, and people who work are people who want *more*: the finer things, a bigger share, the reward for doing what's hard or what nobody else will do.
|
||||
|
||||
@@ -0,0 +1,22 @@
|
||||
---
|
||||
title: The Lock
|
||||
section: The Co-op
|
||||
order: 30
|
||||
summary: Any co-op funded by the bank stays a co-op forever. It can't be sold to conventional owners or cashed out by its members.
|
||||
---
|
||||
|
||||
# The Lock
|
||||
|
||||
**Any firm funded by the bank stays a worker co-op forever. It can never be bought, sold, or converted into anything else.**
|
||||
|
||||
The lock is what keeps a successful experiment from being quietly bought back. Without it, the best-performing co-ops are the likeliest takeover targets, and every success becomes an acquisition. The lock exists so that wins accumulate instead of being harvested.
|
||||
|
||||
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.
|
||||
- **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.
|
||||
@@ -0,0 +1,16 @@
|
||||
---
|
||||
title: The Test
|
||||
section: Growing the Sector
|
||||
order: 60
|
||||
summary: The bank runs as an experiment: metrics set in advance, a fixed review date, and a scale-up or wind-down rule nobody can change after seeing the data.
|
||||
---
|
||||
|
||||
# The Test
|
||||
|
||||
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.
|
||||
- **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.
|
||||
|
||||
**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.
|
||||
@@ -2,17 +2,17 @@
|
||||
title: The Thesis
|
||||
section: Foundations
|
||||
order: 10
|
||||
summary: Personal property is untouchable. Productive capital, a perpetual claim on other people's labor, is a different thing.
|
||||
summary: Personal property is untouchable. Productive capital, a permanent claim on other people's work, is a different thing, and there should be firms where that claim never forms.
|
||||
---
|
||||
|
||||
# The Thesis
|
||||
|
||||
**The word "property" protects two very different things, and only one of them deserves that protection.**
|
||||
|
||||
There is *personal property* — your house, your car, your savings, your tools. The things you live in and use. These are untouchable. Nobody is collectivizing your couch.
|
||||
There is *personal property*: your house, your car, your savings, your tools. The things you live in and use. These are untouchable. Nobody is collectivizing your couch.
|
||||
|
||||
Then there is *productive capital* — a perpetual, tradeable claim on the output of a thousand people you will never meet. This is not the same kind of right. It has been wearing the same word by accident, and the accident does political work for the people who benefit from it.
|
||||
Then there is *productive capital*: a perpetual, tradeable claim on the output of a thousand people you will never meet. This is not the same kind of right. It has been wearing the same word by accident, and the accident does political work for the people who benefit from it.
|
||||
|
||||
The dividing line: **it stops being a tool and becomes capital when it earns you a claim on other people's labor that you don't work alongside.** The plumber's van is not extracting from anyone. TPG's stake in Conservice is.
|
||||
|
||||
Everything below follows from that sentence. If it holds, the rest holds. If it doesn't, none of it does.
|
||||
What follows from the thesis is not "therefore the state may take that capital." It is something narrower and harder to argue with: **therefore there should be firms where that claim never forms in the first place, and nothing in law or finance should stop people from building them.**
|
||||
|
||||
@@ -1,99 +0,0 @@
|
||||
---
|
||||
title: Valuation
|
||||
section: The Transition
|
||||
order: 45
|
||||
summary: How the conversion price is set by rule instead of by dueling experts, and where courts still get the last word.
|
||||
---
|
||||
|
||||
# Valuation
|
||||
|
||||
[The Conversion](conversion.md) promises every owner full price. That promise is only as good as the answer to one question: *full price of what number?*
|
||||
|
||||
For most firms, the answer is easy. For a small number of giant firms that have never been bought or sold, it is the hardest problem in the whole transition, because those are the fights with the most money and the best lawyers. This chapter explains how the price is set, why it is set by rule instead of by expert opinion, and what is still unsolved.
|
||||
|
||||
## Why not just ask the experts?
|
||||
|
||||
Because experts disagree by amounts that would be funny if they weren't so expensive.
|
||||
|
||||
- **Dell (2016).** When Michael Dell took his company private, shareholders sued over the price. Two respected valuation professors, using similar methods, valued the same company at $12.68 and $28.61 per share. The judge noted the two opinions "differed by 126%, or approximately $28 billion." He then ran his own numbers, landed at $17.62, and was reversed on appeal for ignoring what the market had said. ([Potter Anderson summary](https://www.potteranderson.com/insights/cases/In-re-Appraisal-of-Dell-May-31-2016); [Harvard Law School Forum](http://corpgov.law.harvard.edu/2019/05/06/delaware-ma-appraisal-after-dcf-dell-and-aruba/))
|
||||
- **Michael Jackson's estate (2021).** The estate's appraiser valued the rights to Jackson's image and likeness at $2,105. The IRS's first demand said more than $434 million, and its trial expert said $161 million. The Tax Court settled on about $4.1 million, twelve years after he died. ([GMA CPAs](https://www.gma-cpa.com/blog/king-of-pops-estate-prevails-against-irs); [Washington Valuation](https://www.washingtonvaluation.com/post/how-much-is-michael-jackson-s-estate-worth-read-the-tax-court-s-decision))
|
||||
|
||||
The lesson isn't that experts are dishonest. It's that the value of a business nobody is buying depends on guesses about the future, and a guess can be pushed wherever the person paying for it needs it to go. An economy-wide conversion can't run on thousands of those fights.
|
||||
|
||||
Delaware learned the same lesson. After Dell and two similar cases, its courts started giving heavy weight to real market prices over hired forecasts, and the number of appraisal lawsuits fell from 76 in 2016 to 26 in 2018. ([Harvard Law School Forum on Corporate Governance](http://corpgov.law.harvard.edu/2019/05/06/delaware-ma-appraisal-after-dcf-dell-and-aruba/)) **Real prices beat forecasts.** The whole design below follows from that.
|
||||
|
||||
## The price ladder
|
||||
|
||||
Every firm is priced by the first rule on this list that applies to it. Most firms stop at the first or second step and never see a courtroom.
|
||||
|
||||
### 1. Public companies: the market price
|
||||
|
||||
If the company's shares trade on a stock exchange, the price is what the market says it is, averaged over the trading days leading up to the lookback date (the day the bill is introduced). Averaging over a stretch of time, instead of using a single day, means nobody can spike the price with a burst of trading.
|
||||
|
||||
### 2. Recently sold companies: the price someone actually paid
|
||||
|
||||
If the whole company, or a controlling stake in it, was sold to an unrelated buyer within the past five years, that sale price is the price. Conservice converts at the $5 billion TPG actually paid. There is a special justice in the owner being held to the number they chose.
|
||||
|
||||
"Arm's-length" (a real deal between unrelated parties) has to mean it:
|
||||
|
||||
- **Control-size only.** Selling a 3% sliver to a friend at a sky-high price doesn't set the value of the other 97%.
|
||||
- **Side deals count.** If the buyer was secretly promised their money back, the price is what they really paid, not the headline.
|
||||
- **Buyers tied to the seller don't count.** A sale to your brother-in-law's fund is not a market.
|
||||
|
||||
### 3. Everyone else: the formula
|
||||
|
||||
For a firm with no market price and no recent sale, the price is a formula: **typical price-to-profit ratio for that kind of business, times the firm's average profit over the past several years.**
|
||||
|
||||
A price-to-profit ratio (economists call it a *multiple*) is just how many years of profit buyers pay for a business. The ratios differ a lot by industry. Recent market data puts trucking around 10 times yearly operating profit and software around 24 times ([Damodaran, NYU Stern](https://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/vebitda.html)). So the formula's two inputs are where the gaming happens, and each needs a guard.
|
||||
|
||||
**Guarding the ratio:**
|
||||
|
||||
- **It comes from real sales, not from an official.** The ratio for each industry is calculated automatically from actual purchases of whole companies, which large buyers already report to antitrust regulators before a merger. Nobody sets it by hand, so nobody can be lobbied to set it.
|
||||
- **This matters because it has gone wrong before.** Taiwan built its land tax on Sun Yat-sen's idea of taxing land at a declared value. Over time the declared values became numbers set by local officials, which ran at roughly half of market value, and a tax nominally charged at 40 to 60% ended up capturing less than 20% of the gains. ([Lincoln Institute of Land Policy, 1998](https://www.lincolninst.edu/app/uploads/legacy-files/pubfiles/144_lamtsui98.pdf)) Any number officials set by hand drifts toward whatever is politically comfortable.
|
||||
- **Industries are assigned by a published list, by business line.** A conglomerate is priced piece by piece, with each division using its own industry's ratio. The list is published before anyone knows which firm it will apply to, so a trucking company can't rebrand as "logistics software" to claim a software ratio.
|
||||
|
||||
**Guarding the profit:**
|
||||
|
||||
- **Related-party deals are repriced to market.** If a firm has been buying from or selling to other companies its owner controls, those deals are recalculated at the prices unrelated companies would have used. The IRS already does exactly this under its transfer-pricing rule, [26 U.S.C. §482](https://www.law.cornell.edu/uscode/text/26/482).
|
||||
- **Owner pay is set to market.** An owner who pays himself a token salary and takes the real money as profit (or the reverse) gets a market salary substituted in.
|
||||
- **Cuts that fake profit come back out.** An owner who stops maintaining equipment or slashes research in the years before conversion makes profit look bigger while the business gets weaker. Skipped upkeep found after conversion is deducted from the price, extending the [locked box](open-problems.md) backward.
|
||||
|
||||
## When someone disagrees
|
||||
|
||||
Rules can be wrong about a particular firm. A company might hold a patent that hasn't started earning yet, or land worth far more than its profits suggest. So there has to be a way to challenge the ladder's number. The design question is how to keep that door open without letting the whole economy walk through it.
|
||||
|
||||
### Courts keep the last word
|
||||
|
||||
The Supreme Court held in 1893 that deciding just compensation "is a judicial, and not a legislative, question." ([*Monongahela Navigation Co. v. United States*](https://www.law.cornell.edu/supremecourt/text/148/312)) Congress can't write a formula and forbid any appeal. The model accepts that. An owner who thinks the ladder shortchanged them can go to court. The ladder's number is the starting point, and the owner has to show what specifically it gets wrong.
|
||||
|
||||
### Each side names one number, and the costs follow the numbers
|
||||
|
||||
Before trial, each side files one final number. After trial, whoever was unreasonable pays. This is borrowed from California's eminent-domain law, where the government has to file a final offer and the owner a final demand, and the owner recovers their legal and appraisal costs if the court finds the government's offer unreasonable and the owner's demand reasonable ([Cal. Code Civ. Proc. §1250.410](https://codes.findlaw.com/ca/code-of-civil-procedure/ccp-sect-1250-410/)). Here the rule runs both ways: an owner whose demand turns out to be wildly inflated pays the costs.
|
||||
|
||||
Committing to a single number in advance changes behavior. In Major League Baseball's salary arbitration, each side submits one figure and the arbitrator has to pick one of them, no splitting the difference. Most cases settle before a hearing, and the bigger the gap between the two figures, the more likely they settle. ([SABR](https://sabr.org/journal/article/file-and-trial-examining-valuation-and-hearings-in-mlb-arbitration/)) When you can't count on a judge meeting you in the middle, asking for the moon stops being free.
|
||||
|
||||
### An inflated claim costs something
|
||||
|
||||
An owner's final demand is a sworn valuation. If the court's final number comes in far below it, the owner pays a penalty on the difference. Tax law already works this way: claim a value 150% or more of the correct figure and you owe a 20% penalty, and at 200% or more it rises to 40% ([26 U.S.C. §6662](https://www.law.cornell.edu/uscode/text/26/6662)).
|
||||
|
||||
Owners' own past numbers are fair evidence too. Many owners have valued their businesses before, under legal liability: in estate and gift tax filings, in reports to their fund's investors, in statements to lenders. Those figures are restated to the value of the whole company (estate appraisals, for instance, usually apply discounts for owning only a minority slice, which have to be added back). Then they go in front of the court. An owner who told the IRS the firm was worth $2 billion and now tells the court it's worth $6 billion has some explaining to do.
|
||||
|
||||
### The workers get their own lawyer
|
||||
|
||||
In a valuation fight, the workers are the ones paying the price. But before conversion, the people who speak for "the company" are the owner's own managers. They're the least likely to argue for a lower number, especially if a retention bonus is on the table.
|
||||
|
||||
So every contested valuation has a **public valuation counsel** on the workers' side. It is independent of management, funded from the conversion tax, and able to demand documents. Its job is an accurate price, not a low one and not a high one. That matters because the government collects more tax when the price is higher, so the tax authority can't be trusted to push back on an inflated number. Any bonus management receives for going along with a conversion counts as leakage under the [locked box](open-problems.md) and comes out of the price.
|
||||
|
||||
## Why not an earnout?
|
||||
|
||||
An *earnout* is a common M&A deal term: the seller gets a base price now and more later if the business performs. It looks like a perfect fit, since the conversion already pays owners out of future profits. It was considered and rejected.
|
||||
|
||||
After the sale, the buyer controls the business and the books, and the seller can only watch. Earnouts pay out about 21 cents on the dollar and end up contested at least 28% of the time ([SRS Acquiom](https://www.srsacquiom.com/our-insights/ma-earnouts-overview/)). In a conversion, "the buyer" is the workers. They could quietly shrink the profits the owner is waiting on, or the owner's lawyers could claim they did. An earnout would also pay the old owner for gains the workers create after they own the place. It swaps one fight about the past for years of fights about the present.
|
||||
|
||||
The payout already carries the part of an earnout that's worth having. Because the owner is paid only as profits arrive, over a fixed term, a firm that was priced too high simply pays out less than its price. The owner, not the workers, carries that risk.
|
||||
|
||||
## What's still unsolved
|
||||
|
||||
- **The market already knows the bill is coming.** By the lookback date, share prices will reflect the expected conversion, which pulls the "market price" down. Takings law usually refuses to let the government benefit from a drop its own project caused. This is the "scope of the project" rule from [*United States v. Miller*](https://www.law.cornell.edu/supremecourt/text/317/369) (1943). A correction for this is under consideration; see [Open Problems](open-problems.md).
|
||||
- **Truly one-of-a-kind firms.** A company with no comparable sales, an unusual mix of businesses, or value locked in things that don't yet earn profit will still end up in court, facing Dell-style battles between experts. The ladder shrinks the number of these cases. It doesn't make the last few easy.
|
||||
- **The tax only lowers the stakes if it actually lands.** At a 90% top rate, an owner who wins an extra $1 billion keeps about $100 million, which is still plenty to hire lawyers with. And it only works if the brackets apply to the owner's total conversion proceeds rather than one year's payment at a time, and if money routed through foundations and trusts counts as the controlling person's. [The Conversion](conversion.md) now says so.
|
||||
@@ -1,23 +1,23 @@
|
||||
---
|
||||
title: Worker Ownership
|
||||
section: The Firm
|
||||
section: The Co-op
|
||||
order: 20
|
||||
summary: Every employee owns their company: one worker, one vote from day one, and a profit share that grows with tenure and then caps.
|
||||
summary: What a worker co-op means here: one member, one vote from day one, and a profit share that grows with tenure and then caps.
|
||||
---
|
||||
|
||||
# Worker Ownership
|
||||
|
||||
Every employee is an owner of the company they work for. That means two things, and they are not the same thing:
|
||||
A worker co-op under this model means two things, and they are not the same thing:
|
||||
|
||||
**One worker, one vote. Unconditional, from day one.** This is the moral core and it does not ramp, vest, or vary. The objection to the current system is *domination* — being ruled by a distant firm that answers to nobody who works there. The cure for domination is the vote, and you don't earn your way into not being dominated.
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**One worker, one vote. Unconditional, from membership.** This is the moral core and it does not ramp, vest, or vary. The objection to the current system is *domination*: being ruled by a distant firm that answers to nobody who works there. The cure for domination is the vote, and you don't earn your way into not being dominated.
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**Profit share ramps with tenure, then caps.** A new hire starts at a partial share and grows to a full, equal share over roughly five to ten years. After the cap, everyone's share is identical — the thirty-year lifer and the eight-year veteran split profit the same.
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**Profit share ramps with tenure, then caps.** A new member starts at a partial share and grows to a full, equal share over roughly five to ten years. After the cap, everyone's share is identical. The thirty-year lifer and the eight-year veteran split profit the same.
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Why the ramp: it kills the dilution panic. Under flat equal shares, every new hire immediately eats everyone's slice, and cooperatives empirically under-hire for exactly that reason. With a ramp, hiring decisions move toward "does this person grow the pie" during precisely the window when their value is most uncertain.
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Why the cap: uncapped tenure weighting builds a gerontocracy of shares and chains people to their first employer. Capped at a career-fraction, people can change companies, move cities, start over — and still reach a full share with plenty of career left.
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Why the cap: uncapped tenure weighting builds a gerontocracy of shares and chains people to their first employer. Capped at a career-fraction, people can change companies, move cities, start over, and still reach a full share with plenty of career left.
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- **Base salaries still exist**, set by the company. A brain surgeon won't work somewhere without a high salary, and shouldn't have to. Hard jobs and in-demand jobs still pay more. The incentive to do difficult work survives intact.
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- **Governance is up to each company.** Workers pass bylaws deciding what requires a vote and what doesn't. Some will use direct democracy, some representative systems, some will delegate almost everything to management they hire and can fire. "Workers vote on every decision" is a strawman and always was.
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The concrete case: the average employee where I work generates roughly $150,000/year in profit after all costs. That money currently flows upward to private equity. Under this model it flows to the people who made it.
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The concrete case: the average employee where I work generates roughly $150,000/year in profit after all costs. That money currently flows upward to private equity. A firm with those economics, built as a co-op, sends it to the people who made it.
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Reference in New Issue
Block a user