Merge pull request 'Socialism: capital accounts, the founder problem, and the horizon problem' (#124) from feature/socialism into master

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 ---
 title: Member Capital Accounts
 section: The Co-op
 order: 25
 summary: How a co-op member builds real savings from the firm's profits without the firm ever being sold, how those savings are protected, and what they add up to.
 ---
 # Member Capital Accounts
 In a conventional company, you build wealth from the business by owning shares and eventually selling them. In a locked co-op, nobody can sell the firm (see [The Lock](the-lock.md)). So there has to be another way for the value you help build to become *yours*. That's what a member capital account is for.
 The idea isn't new. The Mondragon co-ops in Spain have used it since the 1950s, and US worker co-ops use it under ordinary federal tax law. This page describes how it works in this model, and how members' savings are protected. Protection matters, because savings held inside your own employer are exactly the kind that can vanish along with your job.
 ## The basic idea
 Every member has a personal account on the co-op's books. It works like a savings account the business holds for you:
 - **Each year, part of your share of the profits goes into it** instead of being paid out as cash.
 - **It earns interest.**
 - **It's paid out to you**, when you leave or once it passes a set size, whichever comes first.
 Meanwhile, the co-op gets to use that money to grow. In effect it's a loan from the members to their own business. That's why Mondragon valued it: a firm that can't sell shares to outsiders can still keep its own earnings working ([Morris, *The Mondragón System*, 1992](https://www.ilsr.org/wp-content/uploads/2013/03/mondragon-3.pdf)).
 ## Where each year's profit goes
 When the co-op makes a profit, it gets split. These are the defaults. Each co-op can change them in its bylaws, as long as it stays within the minimums.
 | Share of profit | Where it goes | Why |
 | --- | --- | --- |
 | **At least 30%** | The co-op's permanent reserve | Nobody can ever withdraw it (see [indivisible reserves](the-lock.md)). It's the firm's cushion and its own source of investment money. |
 | **Up to 10%** | The federation's shared fund, if the co-op belongs to one | Pools risk between co-ops (see [The Federation](federation.md)). |
 | **The rest, about 60%** | Members, divided by each member's share weight | This is the "profit share" from [Worker Ownership](worker-ownership.md). It ramps up with tenure, then caps. |
 Mondragon's original split was similar: 10% to education and the community, at least 20% to reserves, and up to 70% to members. It later raised the reserve minimum to 50% (Morris, 1992).
 The members' share is then split again, between cash now and the account:
 - **At least 20% of it is paid in cash right away.** Members owe income tax on their whole allocation in the year it's made, including the part that goes into the account. The cash is there so they can pay that tax. This is how US co-op tax law works ([Democracy at Work Institute guide](https://institute.coop/sites/default/files/resources/Internal-Capital-Accounts.pdf)). The default is half in cash.
 - **Lower-income members can take it all in cash.** For a low-wage worker, being taxed on money they can't touch can cost them tax credits and health-care subsidies. So any member whose household income is under twice the poverty line can take their whole share in cash.
 - **The rest goes into each member's account.**
 Members can also raise their own salaries instead of taking profit, but that doesn't get around the reserve. It takes its share of pay above the going rate too (see [Investing for the Long Run](the-long-run.md#the-rules)).
 **A worked example.** A 40-person co-op makes $600,000 in profit after paying everyone's salaries. It puts $180,000 in its permanent reserve and $60,000 in the federation fund. The remaining $360,000 is divided among members by share weight. Say the members' share weights add up to 36. A member at full share then gets $10,000: $5,000 as a check and $5,000 added to their account.
 ## How the account grows
 - **Interest is set by formula, not by vote.** A current member's account earns the one-year Treasury rate plus two percentage points in years the co-op makes a profit, and the plain Treasury rate in loss years. Once a member leaves, their balance earns the plain Treasury rate. If current members voted on the rate, they could set it to zero on accounts that mostly belong to people who've left. Or senior members could set it high to pay themselves out of the firm. A formula stops both.
 - **Why the extra two points.** Money in a current member's account is at risk: it shares in losses and ranks behind lenders. If it only earned what a risk-free government bond pays, every member would take as much cash as they could, and the co-op would have less of its own money to invest. Once you leave, your balance stops sharing in losses, so it stops earning the premium. See [Investing for the Long Run](the-long-run.md#the-rules).
 - **Losses are shared.** In a year the co-op loses money, the loss is charged partly to the reserve and partly to members' accounts, in the same proportions as profits. Your account can go down, just like shares in any company.
 ## How it's paid out
 - **When you leave**, your balance stops sharing in future losses and becomes a fixed amount the co-op owes you, earning the plain Treasury rate until it's paid. It's paid in equal parts over up to five years, so one big departure can't drain the firm's cash. Balances under $10,000 are paid all at once.
 - **There's no penalty for leaving.** Mondragon used to cut the payout by up to 30% for people who quit. This model doesn't, because a core promise of [the tenure cap](worker-ownership.md) is that you can change jobs without losing what you've built.
 - **Accounts are capped at one year's pay.** Anything above that is paid out every year, in cash or into the member's own retirement account, where it can be invested in anything. Nobody should end up with most of their savings tied to the same company that pays their wages.
 - **On death, the account goes to your estate**, paid within two years. It's your property.
 - **In a divorce, a court can split the account.** The former spouse gets a separate account of their own, with no vote, paid out on the normal schedule.
 ## Protecting the co-op, and the people who stay
 A payout system can also be used to strip a failing firm. People who see trouble coming leave first and get paid in full, while everyone who stays absorbs the loss. So:
 - **Every payout must pass a solvency test.** No payment may push the co-op below its loan requirements or a minimum cash level set in its bylaws when it's founded.
 - **If a payout fails the test, it's paused for at most two years.** Interest keeps building, and nobody's account is cancelled. While any former member's payout is paused, **current members get no cash profit share and no bonuses.** Nobody gets paid ahead of the people who are waiting.
 - **Payouts rank behind the co-op's lenders.** In a bankruptcy, members' accounts are paid only after the co-op's creditors. That's the honest cost of being an owner, and it's the main reason for the one-year-of-pay cap.
 - **The co-op doesn't lend to members against their accounts.** That would just be an early withdrawal by another name. Members can use their account as collateral with an outside lender.
 - **Federations can insure balances.** A [federation](federation.md) can use its shared fund to guarantee members' balances up to a modest limit, the way deposit insurance protects bank savers.
 **Why this much caution.** Fagor, Mondragon's appliance maker and once the world's largest industrial co-op, went bankrupt in 2013 with about €1.1 billion of debt, putting 5,600 jobs at risk. Savers who had bought its subordinated co-op bonds, which had been sold as safe deposits, ended up suing ([Wikipedia summary of the Mondragon record](https://en.wikipedia.org/wiki/Mondragon_Corporation)). Shortly before Enron collapsed in 2001, about 63% of its workers' 401(k) retirement savings were in Enron's own stock ([GAO-02-480T](https://www.gao.gov/assets/gao-02-480t.pdf)). It's the same lesson: savings concentrated in the company you work for are the savings most likely to disappear with your job.
 ## What the account doesn't do
 This matters, because it's the core of [the founder problem](founder-problem.md).
 **The account holds the profits you earned. It doesn't hold the value of the firm's future profits.** When a conventional firm is sold, the buyer pays for years of its future earnings, and the seller keeps that money. A co-op member's account never includes that part. The future profits go to whoever works there in the future.
 That's intentional. It's what the lock is for. But it means a co-op member who helped build something valuable walks away with much less than a conventional owner would, and the model shouldn't pretend otherwise.
 ## What it adds up to
 Here's what a member who joined a successful co-op in its third year has received by year 15, on top of their salary, in four kinds of business. The numbers come from a simple model with these assumptions:
 - A one-year probation, then a profit share that grows from 20% to 100% over five years.
 - 60% of profit goes to members.
 - Money received later counts for less than money received now. It's discounted at 5% a year, the rate used in the founder study on the [next page](founder-problem.md).
 | Kind of business | Profit per worker (after salaries) | Size at year 15 | **What the member received** |
 | --- | --- | --- | --- |
 | Care work (home care, cleaning) | $3,000 | 40 people | about **$14,000** |
 | Main Street (trades, services) | $15,000 | 40 people | about **$68,000** |
 | Strong (skilled services, light manufacturing) | $40,000 | 80 people | about **$200,000** |
 | Very high margin (a firm like Conservice) | $150,000 | 200 people | about **$780,000** |
 In a conventional firm, all of that goes to the owners.
 **Be honest about the first row.** Home care runs on thin margins. For a care worker, a co-op offers a real say in how the work is done, and very little wealth. That's why the model has a separate answer for low-margin work: [the floor](the-floor.md).
 These are all success cases. A co-op that struggles pays little or nothing. One that fails pays out only what's left after its debts.
@@ -2,19 +2,83 @@
 title: The Founder Problem
 section: The Co-op
 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.
+summary: Without the chance to sell the company, why would a strong founder start a co-op? The numbers, the tools, and the honest answer.
 ---
 # The Founder Problem
-This is the hardest part of the new design, and it needs to be said plainly.
+This is the hardest part of the 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.
+**In a conventional business, a founder who succeeds gets paid in two ways: a share of the profits every year, and a big payday when the company is sold.** A co-op founder gets neither in full. The profits are shared with every member, and [the lock](the-lock.md) means the company can never be sold. So the obvious risk is *adverse selection*, meaning the pool you get is the one nobody else wanted: 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:
+This page runs the numbers, lays out the tools, and says honestly what they can and can't fix.
- **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*.
+## The numbers
 - **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.
+Take the same business, with five founders who all draw normal salaries, built two ways:
 - **As a conventional firm:** the five founders own it outright, financed by a bank loan. Each year they pay out 60% of profit to themselves and keep 40% in the business to fund growth. At year 15 they sell it for three to six years' profit.
 - **As a co-op:** the five founders are the first members. The profit split is the same (60% to members, 40% kept in the reserve and the federation fund), but it's shared by everyone who joins, and nobody sells. (See [Member Capital Accounts](capital-accounts.md) for how the money flows.)
 Here's what **one founder** has received by year 15 if the business succeeds, on top of salary. Money received later counts for less than money now. It's discounted at 5% a year, the rate used in the founder study below.
 | Kind of business | Profit per worker (after salaries) | Size at year 15 | **Co-op founder** | **Conventional founder** (one-fifth owner) |
 | --- | --- | --- | --- | --- |
 | Care work | $3,000 | 40 people | about $30,000 | $140,000 to $180,000 |
 | Main Street | $15,000 | 40 people | about $150,000 | $710,000 to $880,000 |
 | Strong | $40,000 | 80 people | about $450,000 | $3.2 million to $4.2 million |
 | Very high margin | $150,000 | 200 people | about $2 million | $29 million to $38 million |
 **In the success case, a co-op founder ends up with somewhere between a fifth and a twentieth of what the owner of the same firm would.** The bigger and more profitable the firm, the wider the gap. Nothing on this page makes it go away.
 Three caveats about these numbers:
 - **They assume the firm exists and works equally well either way.** That's the big assumption. If co-op ownership makes firms less productive, or if the firm would never have been founded as a co-op, the comparison is moot. The first is exactly what [the pilot](pilot-spec.md) measures. The second is the founder problem itself.
 - **They're a simple model, not a forecast.** New hires join as members after a year and ramp up to a full share over five. The workforce grows steadily to the size shown. Change the growth rate or the sale price and the ratios move, but the gap never comes close to closing.
 - **Taxes are left out on both sides.**
 ## Where the money went
 In the very-high-margin case, a worker who joined in year three has received about $780,000 by year 15 (see [Member Capital Accounts](capital-accounts.md#what-it-adds-up-to)). The people hired after them have less, because they've had fewer years at full share, but all 200 are building a share of what the business earns.
 **If the firm exists either way, the founder's "missing" money isn't lost. It went to the people who did the work.** That's the whole model. A version of the co-op that paid founders like owners would just be a conventional firm with extra steps.
 So the real question isn't "can a co-op match a conventional exit?" It can't. The question is: **are there enough good founders for whom the co-op deal is good enough?**
 ## Why it's less lopsided for most founders
 The table compares a co-op with a conventional firm *that succeeds*. Most don't. And for a founder without much money, a big risky payoff is worth far less than its average.
 - **Most venture-backed founders get nothing from the exit.** Robert Hall and Susan Woodward studied nearly every venture-capital-backed US startup from 1987 to 2008, about 22,000 companies. The average founder got $5.8 million at exit, but **almost three-quarters got nothing at all**. A few enormous wins drive the average. For a founder with $100,000 in savings and an ordinary aversion to risk, they calculated that the chance to found a venture-backed startup was worth *slightly less than nothing* compared with a salaried job ([Hall and Woodward, *American Economic Review*, 2010](https://web.stanford.edu/~rehall/HallWoodward6.pdf)). That study covers tech and biotech startups, not the small businesses the bank would fund, but the logic carries over. A long-shot payday is worth much less than its average to someone who can't afford to lose.
 - **Most small-business owners earn less than they would as employees.** Barton Hamilton found that after ten years in business, the median self-employed person earned 35% less than in a paid job. That counts the growth in value of their business ([Hamilton, *Journal of Political Economy*, 2000](https://www.journals.uchicago.edu/doi/abs/10.1086/262131)). The median small business that does sell goes for about $345,000 ([BizBuySell, 2024](https://smallbiztrends.com/bizbuysell-insights-report-q4-2024/)). Hamilton read the gap as people paying to be their own boss, and co-op founders give up some of that, since a co-op founder is one vote among many.
 - **The co-op's downside is smaller.** A co-op that fails costs its members their jobs and what's left in their accounts. Under [the pilot's loan terms](pilot-spec.md#loan-terms), members give no personal guarantees, while SBA loans require one from every owner of 20% or more. That's a feature of how the bank lends, not of co-ops as such. It still matters to the founder deciding which to start.
 So for a founder *without* family money, the co-op isn't simply a worse lottery ticket. It's a different bet: a much smaller top prize, a lower chance of losing everything, and a salary throughout.
 **Where the co-op really does lose is at the top:** the founder who is confident, wealthy enough to absorb a failure, and building something with very high profit per worker. That founder will usually go conventional, and the model should expect them to.
 ## The tools
 These are the ways a co-op can reward founders without selling the firm. Each is limited so it can't turn a founder back into an owner, or let founders pay themselves ahead of the bank.
 - **Member capital accounts.** A founder builds up an account like every other member, from year one. See [Member Capital Accounts](capital-accounts.md).
 - **A founding share.** For the first ten years, 10% of the members' profit pool is set aside for the founding members. It's split among everyone who was a member in the first three years, in proportion to how much of that time they were there. So the people who took the early risk get paid for it, including the first hires, not only the people named in the paperwork. And because it's a fixed slice of the pool, not extra votes or weight per head, founders gain nothing by keeping the co-op small.
 - **Back pay for unpaid early work.** If founders take reduced pay before the business has revenue, the difference is recorded as a debt the co-op owes them. The limits:
  - It's valued at no more than the pay the co-op sets for the same job once it has revenue.
  - It earns interest at the Treasury rate.
  - It ranks behind the bank, can't be repaid from the bank's loan money, and isn't repaid while any bank payment is late.
 - **Founder money.** Cash a founder puts in comes in one of two forms. It can be a loan at no more than the Treasury rate plus three points. Or it can be the same voteless, expiring investment any outside investor could make under [Capital, After](capital.md). Either way it ranks behind the bank. A founder who remortgaged their house to start the co-op can take the investor's terms, which reward that risk.
 - **Founder salary premiums.** A founder who is also the chief executive can be paid like one. The founding bylaws can set that pay for at most the first five years. After that, the members set it, like every other salary.
 - **No founder vetoes.** Founding bylaws can't give founders extra votes, vetoes, or rules requiring a supermajority to remove them. Founders write the first bylaws before any other worker exists, so this is the one place the model protects future members from them.
 **What's deliberately not here: a founder's tail.** One idea considered was letting founders keep a voteless share of profits for some years after they leave, as a stand-in for the sale price. It was left out. It would be a claim on the work of people the founder no longer works alongside, which is exactly what [the thesis](thesis.md) says this kind of firm exists to prevent. In the largest case it would also have paid each departed founder several times what a working member earns.
 ## The honest bottom line
 None of this replaces a large exit. The model is betting on three kinds of founders:
 1. **People without wealth** who would never risk a conventional startup. For them, a salaried, lower-risk path to building something may be the best deal available.
 2. **Groups of workers founding together.** When the "founders" are the first ten employees, the gap between founder and worker mostly disappears.
 3. **People who value what the co-op offers**: control, stability, and a firm that can't be sold out from under them.
 Whether there are enough of them is an empirical question. [The pilot](pilot-spec.md) publishes the founders' backgrounds, including their previous earnings where the data allows, so that if the strongest founders stay away, it shows. If the portfolio fails, the first question will be "was it co-ops, or was it who applied?", and the data should be able to answer it.
@@ -13,8 +13,8 @@ summary: A working model for building an economy where the people who do the wor
 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)
+- **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. Part of each year's profit builds up in a personal account that's paid out when you leave, and part goes into a permanent reserve that keeps the business investing. [Worker Ownership](worker-ownership.md), [Member Capital Accounts](capital-accounts.md) and [Investing for the Long Run](the-long-run.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)
+- **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. Spain, Italy and the US have all tried versions of this, and the pilot is built around what went right and wrong. [The Bank](the-bank.md) and [Has This Been Tried?](precedents.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.** A one-time $350 million pilot aims to fund about 400 new co-ops. The success measures are published before the first loan. If, after twelve years, co-ops stay open about as well as similar conventional firms while paying their members fairly, and the bank earned at least what Treasury bonds would have, Congress votes on growing it. If not, it shuts down automatically. [The Test](the-test.md) and [The Pilot, in Numbers](pilot-spec.md)
 - **Co-ops back each other up.** They pool part of their profits into a shared fund. If one fails, its workers are moved into others instead of being left with nothing. [The Federation](federation.md)
@@ -36,4 +36,4 @@ This isn't mainly about money. **People deserve a say in governing the place whe
 ## Honest about what's unsolved
-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)
+This is a working model, not a finished one. The biggest open question is whether strong founders will start companies they can never sell. In the success case, a co-op founder ends up with a fraction of what a conventional owner would, because the rest goes to the people who work there ([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)
@@ -9,26 +9,28 @@ summary: An honest list of what isn't solved yet.
 An honest list of what the model hasn't solved yet, most dangerous first.
-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.
+1. **Adverse selection on founders.** *(The most dangerous.)* The lock removes the exit, and profits are shared with every member. In the success case a co-op founder ends up with somewhere between a fifth and a twentieth of what a conventional owner of the same firm would ([The Founder Problem](founder-problem.md)). For founders without wealth the gap in what the bet is *worth* is smaller, but at the top it's decisive. 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. The pilot publishes founders' backgrounds so this can at least be seen.
-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.
+2. **The horizon problem.** *(Mostly answered.)* Members near retirement have little reason to vote for investments whose payoff arrives after they leave. The evidence from France and Italy finds no underinvestment where co-ops must keep a reserve, and [Investing for the Long Run](the-long-run.md) closes the main routes around this model's reserve: pay above the going rate, sales of assets, and development spending. Still open: nothing forces a co-op to maintain its equipment once its loan is repaid, reserve money could be wasted on bad expansion, and it's unsettled whether 30% is enough and whether the account rate is right. Letting members sell their places to incoming workers was rejected, because that is how the plywood co-ops ended up sold.
-3. **Is the lock too rigid?** A co-op that should be sold (a better operator exists, the members want out) can only go to another co-op. If the co-op sector is small, that buyer pool is tiny, and viable firms may be liquidated instead of rescued. The federation as buyer of last resort is a partial answer. Critics on the right add a sharper version: a lock that outlasts a repaid loan by generations is a permanent restriction on selling property, bought with one loan, and it binds members who never agreed to it.
+3. **Members' savings sit inside their employer.** [Member capital accounts](capital-accounts.md) are capped at a year's pay and protected by a solvency test, but they rank behind the co-op's creditors. Fagor's 2013 bankruptcy shows what that can mean. Federation-backed insurance is an option, not yet a design.
-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.
+4. **Is the lock too rigid?** A co-op that should be sold (a better operator exists, the members want out) can only go to another co-op. If the co-op sector is small, that buyer pool is tiny, and viable firms may be liquidated instead of rescued. The federation as buyer of last resort is a partial answer. Critics on the right add a sharper version: a lock that outlasts a repaid loan by generations is a permanent restriction on selling property, bought with one loan, and it binds members who never agreed to it. Italy offers a softer model: a co-op there can convert into an ordinary company, but its accumulated reserves go to the co-op development fund, not to the members ([Has This Been Tried?](precedents.md#italys-co-op-funds-coopfond-and-the-marcora-law)). That would keep the part of the lock that stops members cashing out what earlier generations built, and drop the part that stops a firm from ever changing hands.
-5. **Political durability.** See [The Constitution](constitution.md). Gradual construction invites gradual repeal.
+5. **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.
-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.
+6. **Political durability.** See [The Constitution](constitution.md). Gradual construction invites gradual repeal.
-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.
+7. **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.
-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.
+8. **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.
-9. **The pilot's own weak points.** [The pilot](pilot-spec.md) puts the burden of proof on the co-ops, which means roughly a 1-in-10 chance of shutting down a pilot that was actually working. It tests individual co-ops, not the [federation](federation.md) support network Mondragon relied on. Its comparison group (small businesses with government-backed loans) is biased in directions that partly cancel out, by amounts nobody knows. And market-rate lending based on collateral may mostly reach founders who already have some wealth. Approval rates by race, gender and wealth are published so that shows up, but publishing a gap doesn't close it.
+9. **The 1/N problem.** *(Mostly answered.)* Peer monitoring works at 30 people; at 10,000 your extra effort raises the pool by a rounding error. The answer is culture and structure: co-ops really do push out free riders, and the federation model keeps units small enough for monitoring to bite while pooling risk above them.
-10. **Federal or state?** A federal bank is the cleanest single experiment. But a few state-chartered lenders running one shared, pre-registered plan would fail smaller, fit the fact that co-op law is state law, and might be harder to repeal all at once. That trade-off hasn't been worked through.
+10. **The pilot's own weak points.** [The pilot](pilot-spec.md) puts the burden of proof on the co-ops, which means roughly a 1-in-10 chance of shutting down a pilot that was actually working. It tests individual co-ops, not the [federation](federation.md) support network Mondragon relied on. Its [support lottery](pilot-spec.md#the-support-lottery) tests hands-on help after the loan, but not help *before* a co-op exists, which is where Mondragon started and which might matter most for getting enough good co-ops founded. And unlike Mondragon and Italy's Marcora Law, it doesn't require members to put in money of their own. That's a real trade-off: a stake from members screens out people who only want the loan, but it also shuts out workers with no savings. Its comparison group (small businesses with government-backed loans) is biased in directions that partly cancel out, by amounts nobody knows. And market-rate lending based on collateral may mostly reach founders who already have some wealth. Approval rates by race, gender and wealth are published so that shows up, but publishing a gap doesn't close it.
-11. **Voluntary buyouts: in or out?** *(Open question.)* Should the bank also finance existing owners who *choose* to sell to their workers at market price, the way the UK's employee-ownership trusts work? It would grow the sector faster without forcing anyone. But it would mix two different experiments, and conversions carry different risks than startups.
+11. **Federal or state?** A federal bank is the cleanest single experiment. But a few state-chartered lenders running one shared, pre-registered plan would fail smaller, fit the fact that co-op law is state law, and might be harder to repeal all at once. That trade-off hasn't been worked through.
 12. **Voluntary buyouts: in or out?** *(Open question.)* Should the bank also finance existing owners who *choose* to sell to their workers at market price, the way the UK's employee-ownership trusts work? It would grow the sector faster without forcing anyone. But it would mix two different experiments, and conversions carry different risks than startups.
 *Not problems here, because nobody's company is forcibly bought:* valuing every firm in the economy, owners stripping value before a takeover, foreign capital flight, and years of payouts to former owners. The contractor boundary isn't an economy-wide problem either. Its co-op version, hiring non-members to dodge membership, is handled by [the lock](the-lock.md)'s membership requirement.
@@ -13,7 +13,7 @@ This page lists the ways someone could cheat [the pilot](pilot-spec.md), or sabo
 ## The hidden boss
-**The trick.** A founder keeps the building, equipment, brand and software in a separate company he owns. He signs up three friendly "members" and gives the co-op a management contract or franchise deal with his company. The co-op borrows $3 million, and the money flows back to him as rent, fees and royalties. On paper it's a co-op. In practice it's his business, funded by the public.
+**The trick.** A founder keeps the building, equipment, brand and software in a separate company they own. They sign up three friendly "members" and give the co-op a management contract or franchise deal with that company. The co-op borrows $3 million, and the money flows back to the founder as rent, fees and royalties. On paper it's a co-op. In practice it's the founder's business, funded by the public.
 **The rules:**
@@ -43,6 +43,17 @@ This page lists the ways someone could cheat [the pilot](pilot-spec.md), or sabo
 - **Caps on middlemen.** No single promoter, consultant or referral source can bring in loans totalling more than 3% of the fund.
 - **Money arrives in stages**, as the business hits milestones, so a sham can't take the full amount and disappear.
 ## Founders paying themselves first
 **The trick.** A founder puts in $300,000 as a "loan" and books two years of "unpaid work" at an inflated salary. When the bank's loan arrives, the co-op pays the founder back first, with generous interest. The founder's money is out and safe, and public money has replaced it.
 **The rules** (details in [The Founder Problem](founder-problem.md#the-tools)):
 - **Founders' loans and back pay rank behind the bank.** They can't be repaid from the bank's loan money, or while any payment to the bank is late.
 - **Back pay is valued at no more than the co-op's own pay for that job** once it has revenue. Founder loans earn at most the Treasury rate plus three points.
 - **Salaries can't be used to skip the profit split.** Founders can set their own pay in the founding bylaws for at most five years. After that, the members set all salaries. Pay for every role is disclosed to the bank each year, and the gap between the highest and lowest pay is published.
 - **Payouts from members' accounts pass a solvency test**, so insiders who see trouble coming can't cash out first (see [Member Capital Accounts](capital-accounts.md#protecting-the-co-op-and-the-people-who-stay)).
 ## Relabeling an old business as "new"
 **The trick.** A failing conventional business re-registers as a co-op to get a loan. That brings back the FONDES rescue problem through the side door. It would also flatter the survival numbers, because the business has already made it through its riskiest early years.
@@ -58,6 +69,7 @@ This page lists the ways someone could cheat [the pilot](pilot-spec.md), or sabo
 - **"Open" means actually operating:** at least three members and sales above a minimum level. An empty shell counts as closed.
 - **Loans are valued honestly.** At review, outstanding loans are valued at what a buyer would pay. A loan whose terms were eased to avoid default is marked down. Unpaid interest added to the balance doesn't count as income.
 - **Mergers are treated the same on both sides.** A co-op absorbed by another co-op, and a conventional firm bought by another firm, are both counted as neither success nor failure. A second analysis counts them both ways.
 - **A merger that hides a failure counts as a failure.** If a co-op was behind on its loan payments, or below the minimum sales level, at any point in the year before it merged, the merger counts as a closure. Nobody working for the bank, including [the advisers](pilot-spec.md#the-support-lottery), may arrange or suggest a merger.
 ## Sabotage
@@ -52,7 +52,7 @@ Private co-op lenders exist and do good work, but they're small. Shared Capital
 It breaks down like this:
 - **About $300 million for loans.** Around 400 co-ops with a typical first loan of about $500,000 is roughly $200 million. The rest is for follow-on loans to co-ops that grow. For comparison, Shared Capital's average loan is about $230,000. The pilot's loans are larger because it's meant to fund real businesses with real payrolls, not only very small ones.
- **$20 million, capped, for business help:** bookkeeping, governance training, legal setup. Venezuela's census blamed many of its failures on the lack of exactly this. This money is a public cost, stated openly and capped, and it's counted in the pilot's total cost to taxpayers. It isn't allowed to hide inside loan pricing.
+- **$20 million, capped, for business help:** bookkeeping, governance training, legal setup, and more intensive help for half the co-ops, chosen by lottery (see [the support lottery](#the-support-lottery)). Venezuela's census blamed many of its failures on the lack of exactly this. This money is a public cost, stated openly and capped, and it's counted in the pilot's total cost to taxpayers. It isn't allowed to hide inside loan pricing.
 - **The remainder** is a cash cushion and running costs.
 ## Why about 400 co-ops
@@ -110,13 +110,16 @@ All of this is written down and filed in a public study registry before the firs
   - it stops being a real co-op: fewer than three-quarters of its work hours are done by members, or its workers are kept on probation past the limit.
   The pay rule matters. Co-ops can survive a bad stretch by cutting their own pay instead of cutting jobs, and the best existing study couldn't rule that out. A co-op that survives by paying its people far less than the business down the street hasn't passed.
-2. **The bank's money.** At the end, after every loss, write-off and running cost, has the loan book earned at least what the same money would have earned in Treasury bonds over the same years? Anything less means taxpayers lost money compared with just holding bonds. Loans still outstanding are valued at what a buyer would pay for them. Loans that were restructured to avoid default are marked down, so going easy on struggling borrowers can't hide losses.
+2. **The bank's money.** At the end, after every loss, write-off and running cost, and every dollar spent on business help, has the loan book earned at least what the same money would have earned in Treasury bonds over the same years? Anything less means taxpayers lost money compared with just holding bonds. Loans still outstanding are valued at what a buyer would pay for them. Loans that were restructured to avoid default are marked down, so going easy on struggling borrowers can't hide losses.
 A useful yardstick: among the SBA's mature loan groups from 1992 to 2004, loans making up about 6% to 10% of the money lent eventually defaulted, and about 37% of the defaulted amount was later recovered ([GAO-20-618](https://www.gao.gov/products/gao-20-618)). A lender charging market rates with losses in that range covers them from interest.
 **Measures that are published but don't decide:** jobs created, wages at the bottom and top and the gap between them, revenue per worker (a rough measure of productivity), how long members stay, injury rates, and the bank's default and recovery rates. Also:
 - **Who got loans.** Approval rates and loan terms by the founders' race, gender and personal wealth. If collateral-based lending quietly shuts out the people co-ops mostly serve, it should show.
 - **Who gets the profits inside each co-op.** Profit shares, founding shares and membership approvals by race and gender, so that an in-group of early members can't quietly take most of the pool.
 - **Who founded them.** Founders' previous earnings and work histories, using linked government records where they're available, compared with the founders of the matched firms. If the strongest founders stay away ([The Founder Problem](founder-problem.md)), this is where it shows.
 - **Investment.** Spending on equipment, buildings and development per worker, how much of each year's profit is kept in the business, and the return those investments earn, compared with the matched firms. If co-ops starve themselves of capital, as economists have long predicted ([Investing for the Long Run](the-long-run.md)), this is where it shows.
 - **Local effects.** Business openings and closures in the counties where co-ops were funded, so any damage to existing local businesses is visible.
 - **Results by industry**, including care work like home health and cleaning, where most US co-op members work today.
@@ -136,6 +139,38 @@ This is the hardest part of any test like this. Co-ops that got a loan aren't li
 **What existing evidence predicts.** The strongest study so far followed every firm in Uruguay from 1997 to 2009: about 29,000 firms, 223 of them worker-run. After leaving out very small businesses and adjusting for tax differences, worker-run firms were about 29% *less* likely to close in any given period than conventional ones ([Burdín, *ILR Review*, 2014](https://journals.sagepub.com/doi/10.1177/001979391406700108)). The advantage was clearest in services. In manufacturing and transport there was no clear difference. That's encouraging, but it's one country, and it's why pay is built into the survival measure above.
 ## The support lottery
 Mondragon's bank gave its co-ops far more than loans. It gave them a salaried manager while they planned, specialist departments for marketing and production, a staff member who sat in on board meetings for the first year, and monthly check-ins on the numbers ([Has This Been Tried?](precedents.md#mondragons-bank-caja-laboral)). Nobody knows whether the loans or the help did the work. The pilot can test part of that cheaply, so it does.
 **How it works:**
 - **Every co-op gets standard help:** setting up the books, legal setup, and training in how to run a co-op meeting and a co-op budget. That's about $15,000 per co-op, around $6 million in all.
 - **Half also get intensive help for two years, chosen by lottery.** That means an experienced adviser who attends board meetings without a vote, a monthly review of the numbers, and access to specialists in marketing, operations and pricing. It costs about $70,000 more per co-op, around $14 million in all.
 - **The draw is made by the reviewers, not the bank**, after each co-op's first loan payment, using a random method filed in advance. It's balanced by industry and by the founders' wealth. Every co-op is analyzed in the group it was drawn into, whether or not it uses the help, so a co-op can't improve the numbers by opting in or out.
 - **Each co-op's help budget is set aside when it's drawn.** If money runs short, the intensive group gets smaller, but no co-op's help gets thinner.
 - **Co-ops agree to the lottery when they apply**, and the design is approved by an independent research ethics board. Co-ops in the standard group can ask for intensive help after year four, once the main comparison has been measured.
 **Advisers are walled off from the bank's interests.**
 - **They're hired through outside nonprofit providers on fixed fees.** They aren't bank staff, and nothing they're paid depends on whether their co-ops survive.
 - **They advise; they don't run anything.** All advice is written and non-binding. They can't vote, sign anything, or take part in hiring or firing, and the members can replace their adviser at any time.
 - **They can't arrange rescues.** Advisers can't arrange or suggest mergers, loan changes or sales of the business. A co-op's merger counts as a closure if it was behind on payments or below the minimum sales level in the year before (see [Keeping zombies alive](pilot-safeguards.md#keeping-zombies-alive)). Merger and restructuring counts are published for each group.
 - **They're treated as insiders.** An adviser and their firm can't sell paid services to a co-op they advised for three years afterward. Someone who referred a co-op for a loan can't be its adviser.
 - **Their one reporting duty is fraud.** They report suspected fraud to the reviewers, and nothing about business performance goes to the lending side.
 **The help is a subsidy, and it's counted as one.** Intensive help is worth something like a sixth of a typical first loan. So:
 - **Every dollar of business help counts against the bank** in the [money test](#the-decision-rule), just like a bad loan.
 - **The survival result for the standard-help group alone is published next to the main result.** If co-ops only hold their own with intensive help, readers will see that.
 - **Comparison firms' use of free government business counseling**, such as the SBA's Small Business Development Centers, is recorded where the data allows.
 **What it can and can't show.** Assume about 200 co-ops in each group and closures in line with new businesses generally. Then the pilot can reliably detect only a large effect, something like 30 to 40% fewer closures in the intensive group. So its main outcome is survival and fair pay at year four, when the help's effect should be clearest, with year twelve reported as well. The result is reported as a range, with a cost per closure avoided, and it counts as exploratory. **A result that isn't statistically significant doesn't prove the help is useless.** It means only that a large effect has been ruled out.
 **What it doesn't test.** Mondragon's help started *before* a co-op existed: studying the idea, paying the manager, covering early losses. This lottery starts after the loan, so it can't say whether help before launch creates more good co-ops. That's logged as an open question.
 **If intensive help works,** that's an argument for building it into [the federation](federation.md), paid for by the co-ops out of their shared fund the way Italy's Coopfond is, not for a permanent federal advisory office.
 ## The timeline
 - **Year 0.** Charter the bank. File the full analysis plan, code, benchmarks and thresholds. Name the reviewers.
@@ -152,7 +187,7 @@ At year 12, both measures must pass:
 1. **Fair survival.** We can be 95% confident that co-ops' chance of failing in a given year, as defined above, is no more than 25% higher than the comparison group's. If co-ops are exactly as durable or more, this should pass. If they're clearly worse, it fails.
   Why allow up to 25% rather than demanding exact equality? No test can prove two things are *exactly* equal. You can only rule out differences bigger than some margin, and a tighter margin takes more co-ops. Ruling out a 10% gap would take somewhere around 1,500 to 2,000 co-ops, more than twice the entire US co-op sector. The 25% margin is also a value judgment, stated openly: a society might reasonably accept firms that are a little less durable in exchange for workplaces people govern themselves. Readers who think that price is too high should say so. Burdín's result suggests the margin won't matter, because co-ops may well come out ahead.
-2. **The bank's money** earned at least the Treasury rate.
+2. **The bank's money** earned at least the Treasury rate, counting every loss, every running cost, and every dollar of business help.
 **If both pass:** the charter triggers a fast-track, up-or-down vote in Congress on a second capitalization, with no amendments and no committee bottleneck. It can't be automatic, because no Congress can bind a later one's spending. A fast-track vote is the most that can honestly be promised. If the bank is later allowed to borrow, its debts carry **no federal guarantee**, written into the charter. Fannie Mae and Freddie Mac needed a taxpayer rescue in 2008 partly because markets had always assumed the government stood behind them. This bank shouldn't be able to create that assumption.
@@ -170,5 +205,5 @@ At year 12, both measures must pass:
 - **Whether the labor market changes.** 400 co-ops won't move anyone's wages. See [The Test](the-test.md).
 - **Whether the best founders come.** The test measures the co-ops that *did* apply. If strong founders stay away ([The Founder Problem](founder-problem.md)), a pass means "the co-ops that exist can compete," not "co-ops would win with everyone's best people."
- **Whether co-ops do better with a full support network.** The pilot funds individual co-ops. It doesn't build [the federation](federation.md) that Mondragon relied on, so co-ops that join a federation are reported separately.
+- **Whether co-ops do better with a full support network.** The pilot funds individual co-ops. It doesn't build [the federation](federation.md) that Mondragon relied on, so co-ops that join a federation are reported separately. The [support lottery](#the-support-lottery) tests one piece of that network, hands-on help, but not the rest: shared funds, moving workers between co-ops, joint buying and selling.
 - **Whether it survives politics.** Congress can refuse the second capitalization, or repeal the whole thing. See [The Constitution](constitution.md).
@@ -0,0 +1,88 @@
 ---
 title: Has This Been Tried?
 section: Growing the Sector
 order: 55
 summary: Three real institutions that financed co-ops (Mondragon's bank, America's co-op bank, and Italy's co-op funds), what they got right, how they went wrong, and what the pilot takes from each.
 ---
 # Has This Been Tried?
 A bank that lends to co-ops isn't a new idea. At least three serious versions exist, and each teaches something different. One built a whole economy of worker co-ops, and then quietly became an ordinary bank. One was created by Congress, and ended up lending to expensive New York apartment buildings. One is funded by co-ops themselves and still holds most of what it has collected over thirty years.
 This page goes through what each one actually did, with the failures left in, and what [the bank](the-bank.md) and [the pilot](pilot-spec.md) take from them.
 ## Mondragon's bank: Caja Laboral
 **What it was.** In 1959 the young Mondragon co-ops in Spain's Basque Country founded their own savings bank, the Caja Laboral Popular ("the Working People's Bank"). Local people deposited their savings there, and every member co-op was required to bank there too. Until the 1980s it lent almost only to co-ops. Apart from some government job-creation money, it was their only source of capital from outside their own members, and its loans made up about half of the co-ops' capital ([Morris, *The Mondragón System*, 1992](https://www.ilsr.org/wp-content/uploads/2013/03/mondragon-3.pdf)).
 **What made it unusual wasn't the money. It was the help.** In 1969 the bank set up a separate Entrepreneurial Division, which worked more like a business incubator than a loan desk (Morris, 1992):
 - When a group of workers came with an idea, the bank picked one of them to be manager, **paid them a salary**, and put them on a team that studied whether the business could work. That often meant visiting factories elsewhere in Europe to learn how the best ones did it.
 - The bank had departments for marketing, exports, production planning, factory design, legal setup and accounting, and the new co-op could use all of them.
 - The bank put up 60% of the start-up money. The government's job-creation program put up 20%, and the founders themselves 20%. The bank also covered the new co-op's operating losses for its first two years, as a loan to be repaid later.
 - One bank staff member was assigned to each new co-op as its "godfather" and sat in on its board meetings for the first year.
 - Every co-op sent the bank monthly financial reports and got a full audit every four years.
 **The famous number, and why it needs care.** Of the 103 co-ops created between 1956 and 1986, only three were shut down ([Whyte and Whyte, *Making Mondragon*, 1988, as summarized by Participedia](https://participedia.net/case/82)). That counts co-ops the bank rescued, restructured or merged as survivors, and five things sit behind it:
 - **The money was cheap.** One new co-op, a maker of seed drills, borrowed at 8% when the going market rate was 15%. The bank could do this partly because every co-op had to do its banking there, which kept its cost of money low, and partly because its managers were paid co-op wages (Morris, 1992).
 - **The help was subsidized.** The economist David Ellerman estimated in the early 1980s that what new co-ops repaid for their start-up support covered less than half of what it actually cost the bank (Morris, 1992).
 - **Survival often meant rescue.** In Spain's recession of the late 1970s and early 1980s, the bank's business division switched from starting co-ops to saving them. In 1983 alone, 34 of about 100 co-ops needed its intervention department. The bank replaced managers, changed product lines, merged co-ops, and moved workers between them, and it wrote off about $160 million in loans (Morris, 1992). Many of the co-ops that "survived" did so because the bank restructured them. That's a real achievement, but it isn't the same as surviving on their own.
 - **The market was protected.** Mondragon's biggest industry was household appliances. In 1980 Spain protected them from imports with a 35% tariff, and that protection only fell away (to 5% in 1991) as Spain joined the European market (Morris, 1992).
 - **Then the bank moved on.** Once a change in Basque co-op law allowed it, in the early 1980s, the bank started offering mortgages and car loans to the public, and its deposits grew far beyond what the co-ops needed. By the early 1990s only about 15% of its loans went to co-ops. In 1991 the Entrepreneurial Division was spun off into a separate consulting co-op, LKS (Morris, 1992).
 - **And the flagship later failed.** Fagor, the appliance maker at the heart of the group, expanded across Europe and China largely on borrowed money, lost its main market in Spain's housing crash, and went bankrupt in 2013 with €1.1 billion of debt ([Wikipedia](https://en.wikipedia.org/wiki/Fagor)). Full group support didn't save it.
 **What the pilot takes from it:**
 1. **Maybe the help mattered more than the money.** Mondragon combined cheap loans, a protected home market and intensive hands-on support, and nobody can tell which one did the work. The pilot tests one piece of that directly (see [the support lottery](pilot-spec.md#the-support-lottery)).
 2. **Count rescues honestly.** A bank that can quietly restructure its borrowers can make almost any survival rate look good. That's why the pilot counts a co-op that's been restructured to avoid default as a loss, not a survivor (see [Keeping zombies alive](pilot-safeguards.md#keeping-zombies-alive)).
 3. **A co-op bank drifts toward ordinary lending once co-op demand runs out.** The pilot's bank can lend only to worker co-ops, and the bank can't change its own charter (see [The Bank](the-bank.md)). That doesn't stop a legislature from changing it, which is how Caja Laboral's drift began.
 4. **The pilot doesn't copy the cheap money.** It lends at market rates, for the reasons on [the bank's page](the-bank.md). The help it gives *is* a subsidy, so it's counted against the bank's results and tested separately (see [the support lottery](pilot-spec.md#the-support-lottery)).
 ## America's co-op bank: the National Consumer Cooperative Bank
 **What it was.** In 1978 Congress created the National Consumer Cooperative Bank to lend to co-ops that couldn't get credit from ordinary banks. It came with a separate office to give new co-ops technical help and start-up money. The law authorized up to $300 million of federal capital over five years ([Public Law 95-351](https://www.congress.gov/95/statute/STATUTE-92/STATUTE-92-Pg499.pdf)). According to one of its later board members, the public investment that actually went in was about $100 million, to be repaid over 40 years ([Barnes, board member 1982–86](https://peter-barnes.org/blog/what-ever-happened-to-the-national-cooperative-bank/)).
 **Why it never became a worker-co-op lender.** The law was written for co-ops whose members are *consumers*: food co-ops, housing co-ops, co-ops that buy things together for their members. To qualify, a co-op has to serve members "who are ultimate consumers" of what it provides. Co-ops of *producers* can borrow, but loans to them are capped at 10% of the bank's assets ([12 U.S.C. § 3015](https://www.law.cornell.edu/uscode/text/12/3015)). A worker co-op, whose members supply their work rather than buy its products, fits that law awkwardly at best. Worker co-ops were never what it was built for.
 **What happened to it.** The Reagan administration tried to shut it down in 1981. Congress resisted, and the compromise was to privatize it. On December 31, 1981 it became a co-op owned by its borrowers, and by 1985 it was fully private and renamed the National Cooperative Bank ([Next City, 2019](https://nextcity.org/urbanist-news/the-weirdest-bank-youve-never-heard-of); [Encyclopedia.com](https://www.encyclopedia.com/law/encyclopedias-almanacs-transcripts-and-maps/national-cooperative-bank)). It survived, and it had about $2.6 billion in assets in 2019. Its technical-help office was later spun off as a separate nonprofit ([12 U.S.C. § 3051](https://www.law.cornell.edu/uscode/text/12/3051)). But in the words of one of its former directors, it became "a big lender to fancy New York City housing coops, large grocery wholesalers" and other "healthy businesses, few of whom need help getting credit" (Barnes).
 **What the pilot takes from it:**
 1. **The charter decides who gets served.** A bank "for co-ops" will lend to whichever co-ops are safest. The pilot's bank is chartered for worker co-ops only, and only those that accept [the lock](the-lock.md).
 2. **A target nobody enforces is not a target.** The 1978 law told the board to use its "best efforts" to keep at least 35% of its loans going to co-ops of low-income people or facilities they use (Public Law 95-351). Missing that target had no consequence, and the bank drifted toward borrowers that could have borrowed anywhere. The pilot has fixed measures, published in advance, and a date when it has to answer for them (see [The Test](the-test.md)).
 3. **Politics can change what a bank is.** It survived an attempt to close it by becoming something else. A charter can't protect against the legislature that wrote it. The pilot is built so that a failed test shuts it down cleanly, rather than letting it drift into a different mission (see [The Constitution](constitution.md)).
 ## Italy's co-op funds: Coopfond and the Marcora Law
 Italy has two different kinds of co-op fund, and both are useful.
 **Coopfond: money from the co-ops themselves.** Since 1992, Italian law has required every co-op to pay 3% of its annual profit into a co-op development fund, usually the one run by its federation ([Lomuscio and Tortia, 2023](https://pdfs.semanticscholar.org/a7eb/90b586cb2adb63c321f1ca616afefb27eb70.pdf)). Coopfond is the fund of Legacoop, the largest federation. It also receives whatever is left of a co-op's assets when it's wound up, or when it converts into an ordinary company. It invests in co-ops through loans and temporary, time-limited stakes, and recycles the money as it's repaid. From 1993 to 2023 it collected about €596 million. After three decades of losses and grants, about €499 million, or 91% of what it collected, is still in the fund. Around 2,400 co-ops pay in, about €18–20 million a year ([Coopfond, 2022–23 sustainability report](https://www.coopfond.it/wp-content/uploads/bilancio24_compressed.pdf)).
 Two cautions. Those are euros as collected, not adjusted for thirty years of inflation, so the fund's real value has shrunk more than the 91% suggests. And it isn't a one-time endowment: new money arrives every year, and Italian co-ops pay the 3% alongside generous tax breaks on their locked reserves. Still, it's the closest real-world model for the [federation's](federation.md) shared fund: the movement financing its own growth without spending its capital away.
 **The Marcora Law: public money matched to workers' own.** Under a 1985 law named after the industry minister who proposed it, Giovanni Marcora, the Italian state helps workers buy out firms that are closing. It invests alongside the workers through CFI, a specialist co-op investor whose members include the industry ministry, Italy's business development agency Invitalia, and about 270 co-ops. Before investing, CFI studies whether the business can work and advises the workers, much like Mondragon's Entrepreneurial Division. Workers put in their own money too, often from their severance and unemployment benefits ([Vieta, Euricse working paper, 2015](https://base.socioeco.org/docs/wp-78_15_vieta.pdf)).
 The survival record is good. Of the 82 buyouts started between 2003 and 2014, 71 (87%) were still operating at the end of 2014 (Vieta, 2015). That's a young group, though, and buyouts are chosen with care: workers only try one when they're confident the business can work.
 These are rescues of existing businesses, which [the pilot](pilot-spec.md#who-can-borrow) keeps out of its main test because of Uruguay's experience. The difference is in how they're chosen. Marcora buyouts need the workers' own money and a specialist's study of whether the business can work. Uruguay's went mostly to politically connected firms that had already failed.
 **The warning in the Marcora story.** The original law let the state put in up to three euros for every euro the workers invested. After Italy's main employers' association intervened, the European Union ruled that this broke its competition rules by giving worker buyouts an unfair advantage, and the program was suspended. A 2001 reform cut the state's share to one euro per worker euro, to be repaid over 7 to 10 years. From 2000 to 2006, while the rules were being rewritten, CFI made no new investments, and only a handful of buyouts happened at all (Vieta, 2015).
 **What the pilot takes from it:**
 1. **A movement fund can last.** Coopfond shows that a small cut of co-op profits, lent and invested carefully, can keep its value for decades. The federation fund is modeled on it.
 2. **Workers' own money in, alongside the public's.** Both Mondragon (20% from founders) and Marcora (one to one) required workers to put money in. The pilot doesn't require it yet. That's logged as an open question, because a buy-in also shuts out workers with no savings.
 3. **Subsidies get challenged.** Marcora's generous matching was the part that got struck down, and the program lost six years. The US has no European-style rule against state aid, but the political version of the same attack ("unfair competition with taxpayer money") works anywhere. A bank that lends at market rates is much harder to attack that way. That's one more reason the pilot's bank doesn't subsidize its loans, and why the help it does give is costed openly.
 4. **Italy locks the reserves, not the firm.** An Italian co-op *can* turn itself into an ordinary company, but its accumulated reserves go to the co-op development fund, not to the members. That's a softer version of [the lock](the-lock.md), and it's weighed in [Open Problems](open-problems.md).
 ## The pattern
 | | Mondragon's bank | US co-op bank | Coopfond | Marcora / CFI |
 | --- | --- | --- | --- | --- |
 | **Money came from** | Local savers and the co-ops' own deposits | Federal capital | 3% of co-op profits | The state, matched to workers' money |
 | **Hands-on help** | Very intensive | A separate office, later spun off | Some | Feasibility study and advice |
 | **Who it served** | Worker co-ops | Mostly housing and consumer co-ops | Co-ops of all kinds | Worker buyouts |
 | **What went wrong** | Rescues flattered its record; it drifted into ordinary banking; its flagship failed | Drifted to safe borrowers after privatization | Its real value shrank with inflation | Its subsidy was ruled unfair and the program suspended |
 Four cases can't prove a rule. But two patterns stand out. The two that actually built worker co-ops, Mondragon and Marcora, both paired money with serious hands-on help before and after launch. And both banks drifted once their mission became optional, one because the law changed and one because nobody enforced its target. The pilot takes both lessons: it tests whether the help matters, and its mission comes with a deadline and a verdict.
@@ -9,7 +9,7 @@ summary: Lead with "nobody is forced," point to the co-op banks that already exi
 **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.
-**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.
+**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. The record, failures included, is in [Has This Been Tried?](precedents.md).
 **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.
@@ -11,11 +11,11 @@ summary: A small public bank that lends only to worker co-ops, at market rates,
 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.
+Mondragon's history supports the first half of the premise. For decades, apart from some government job-creation money, its own bank, Caja Laboral, was its co-ops' only source of capital from outside their own members. But that bank also gave them cheap loans and intensive hands-on help, in a market protected by tariffs, so nobody can say which one mattered (see [Has This Been Tried?](precedents.md)).
 **Design:**
- **Charter:** lends only to firms that meet the [co-op definition](worker-ownership.md) and accept [the lock](the-lock.md).
+- **Charter:** lends only to firms that meet the [co-op definition](worker-ownership.md) and accept [the lock](the-lock.md). The bank can't widen its own charter. Mondragon's bank drifted into ordinary lending after a change in the law, and America's co-op bank drifted toward the safest co-ops once nothing held it to its target (see [Has This Been Tried?](precedents.md)). A charter can't stop Congress from changing it, but the fixed measures and deadline in [The Test](the-test.md) mean a mission change can't happen quietly.
 - **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.
@@ -23,6 +23,6 @@ Mondragon already proved the first half of the premise: it had to build its own
 The actual numbers (how much money, how many co-ops, loan limits, and how "market rate" is checked) are in [The Pilot, in Numbers](pilot-spec.md). The rules against sham co-ops and political favoritism are in [Guarding the Pilot](pilot-safeguards.md).
-**Precedent:** the United States already has one. Congress created the National Consumer Cooperative Bank in 1978. It was never scaled or aimed at worker co-ops specifically, but "a federally chartered bank for cooperatives" is not a new idea. Italy's Coopfond, financed by a mandated slice of member co-op profits and used to seed new ones, has decades of data on exactly this kind of lending.
+**Precedent:** this has been tried, in pieces. Congress created a National Consumer Cooperative Bank in 1978, but its law was written for consumer co-ops, and after it was privatized in 1981 it became mainly a lender to housing co-ops. Italy's Coopfond, funded by 3% of co-op profits, has lent and invested in co-ops for three decades and still holds about 91% of what it collected. Italy's Marcora Law puts public money alongside workers' own to fund worker buyouts. The details, including how each went wrong, are in [Has This Been Tried?](precedents.md).
 **And a warning:** Uruguay's public fund for worker-run firms, FONDES, lost almost 90% of its loan book within five years, mostly on rescues of already-failed firms with political connections. [The pilot](pilot-spec.md#two-warnings-from-real-life) is designed around that failure.
@@ -0,0 +1,90 @@
 ---
 title: Investing for the Long Run
 section: The Co-op
 order: 27
 summary: Why economists expected worker co-ops to underinvest, what the evidence actually shows, and the rules that keep members who are about to leave from starving the firm.
 ---
 # Investing for the Long Run
 Picture a machinist who is 60 and plans to retire in three years. Her co-op is voting on a $2 million production line that will take four years to start paying off, then earn money for fifteen. Whichever way it's paid for, part of the cost comes out of the profits she shares in while she's still there, and almost all the benefit goes to people who work there after she's gone. Why would she vote yes?
 That's the **horizon problem**: a member's stake in the firm lasts only as long as their job, but many good investments last much longer. In a conventional company the problem mostly doesn't arise. A shareholder who plans to sell next year still wants the company to invest well, because the share price reflects the future profits the investment will earn. A co-op member has no share to sell. [The lock](the-lock.md) makes sure of that.
 This page explains why economists worried about this, what actually happens in real co-ops, and how this model handles it.
 ## The worry
 In 1970 the economists Eirik Furubotn and Svetozar Pejovich, studying worker-run firms in Yugoslavia, argued that such firms would pay out too much and invest too little, because members can't take the value of an investment with them when they leave. The same year Jaroslav Vanek, one of the leading academic supporters of worker management, predicted underinvestment in firms that finance themselves from collective savings (both summarized in [Novkovic, *Journal of Socio-Economics*, 2008](https://www.theholmteam.ca/Novkovic-coopDifference2008.pdf)). Taken to its extreme, the prediction is that such firms slowly starve themselves of capital.
 It's a serious argument, and the design has to answer it rather than hope it away.
 ## What actually happens
 **The predicted underinvestment mostly doesn't show up in the data.**
 - **France.** The largest comparison so far used two big, representative samples of French firms across many industries, including services. Worker co-ops were as productive as conventional firms or more so, used their equipment and labor efficiently, and weren't inefficiently small. Contrary to the textbook prediction, they grew as fast as conventional firms or faster ([Fakhfakh, Pérotin and Gago, *ILR Review*, 2012](https://ideas.repec.org/a/sae/ilrrev/v65y2012i4p847-879.html)).
 - **Italy.** A study of a large panel of Italian worker and social co-ops tested the prediction directly. It found the opposite of what the theory expects: the more of a co-op's capital was held in collective reserves that no member can withdraw, the *more* productive it was ([George, Fontanari and Tortia, 2019](https://ideas.repec.org/p/trn/utwprg/2019-20.html)).
 **But there's a catch, and it matters.** These co-ops don't get to choose freely. Italian law requires every co-op to put at least 30% of each year's profit into a reserve that members can never take out ([Italian Civil Code, art. 2545-quater](https://www.brocardi.it/codice-civile/libro-quinto/titolo-vi/capo-i/sezione-iv/art2545quater.html); [Lomuscio and Tortia, 2023](https://pdfs.semanticscholar.org/a7eb/90b586cb2adb63c321f1ca616afefb27eb70.pdf)). Mondragon did the same thing by its own rules. So the honest reading isn't "the horizon problem is a myth." It's "**a required reserve seems to be enough to keep it in check.**"
 Mondragon's history shows the pressure is real. When its co-ops set their own reserve levels, the share of profit going into reserves swung from 35–53% in the 1960s down to 11–29% in the 1970s. One co-op, Alecoop, which employs students who leave every three years, faced losing its capital as each group took its money out, so it raised its reserve share to 60%. In 1989 Mondragon raised the minimum reserve for all its co-ops from 20% to 50% of profit ([Morris, *The Mondragón System*, 1992](https://www.ilsr.org/wp-content/uploads/2013/03/mondragon-3.pdf)). Where the horizon pressure bit, the answer was a bigger required reserve.
 ## The fix that backfired: selling your place
 There is an obvious way to solve the horizon problem completely: let members sell their membership when they leave. Then, like a shareholder, a retiring member benefits from every good investment, because it raises the price of their place.
 The plywood co-ops of the Pacific Northwest did exactly this. Each member owned one share, and shares could be sold to new members. For decades they were among the most durable worker-owned firms in American manufacturing. Economists who later studied the share prices found membership had been extremely profitable ([Craig and Pencavel, *American Economic Review*, 1992](https://ideas.repec.org/a/aea/aecrev/v82y1992i5p1083-105.html)).
 Then success worked against them. Workers nearing retirement found their shares had risen from $1,000–2,000 to $25,000, $50,000 or more. Young workers couldn't afford to buy in, so retiring members sold to conventional lumber companies instead ([Lindenfeld and Wynn, 1995](https://geo.coop/articles/why-some-worker-co-ops-succeed-while-others-fail)). Observers called it "the failure of success." It wasn't the only cause of their decline. The whole plywood industry moved south from the 1960s on, and many conventional mills in the Northwest closed too ([Pencavel, lecture notes on worker co-ops, 2018](https://cleo.rutgers.edu/wp-content/uploads/2020/03/John-Pencavel-Notes-for-Students_WorkerCoops2018A.pdf)). But the co-ops that were sold while still profitable were sold because their members could sell them.
 The retiring plywood workers weren't doing anything wrong. They were making a free choice with property they legally owned. This model simply doesn't create that property. A tradable membership turns the co-op back into something owned and sold, which is exactly the claim [the thesis](thesis.md) says this kind of firm exists to prevent. And it prices the next generation of workers out, which is how the plywood mills ended up being sold.
 ## Who pays for an investment, and when
 The horizon problem bites when the members voting today pay for an investment whose benefits arrive after they leave. How much it bites depends on where the money comes from.
 **1. The reserve.** At least 30% of every year's profit goes into the co-op's permanent reserve (see [Member Capital Accounts](capital-accounts.md#where-each-years-profit-goes)). No current member can ever take that money home, so spending it on a long-lived investment doesn't take anything out of our machinist's pocket. The reserve is money that already belongs to the co-op's future, and it gets spent on the co-op's future.
 **2. Members' accounts.** Money members leave in their [capital accounts](capital-accounts.md) isn't lost when they leave. It's paid back to them with interest. So if the co-op keeps more of this year's profit in members' accounts to pay for the new line, the machinist gets her money back when she retires. Her real cost is the wait, and the risk that the co-op fails.
 **3. Spreading the cost over time.** A business doesn't count the whole price of a machine as a cost in the year it's bought. It spreads the cost over the machine's working life. A $2 million line that lasts 20 years counts as $100,000 of cost a year. This is called *depreciation*, and it's how ordinary accounting already works. The profit split is based on profit after depreciation, so the machinist isn't charged for the years after she leaves. The bank does the same with repayment: loans for buildings and long-lived equipment are paid back over the asset's working life, up to 25 years for real estate, the same limit the SBA's main loan program uses ([SBA, types of 7(a) loans](https://www.sba.gov/partners/lenders/7a-loan-program/types-7a-loans)).
 **This doesn't fix everything.** Depreciation spreads the cost evenly, but the payoff isn't even. If the line takes four years to start earning, the machinist is charged for three years of it and sees none of the benefit. That's the residual horizon problem, and it's why the reserve matters so much. The investments with the slowest payoff are the ones the reserve should pay for.
 ## Where the gaps are
 That leaves four ways the horizon problem can still get in.
 - **Paying it out as salaries.** The reserve rule applies to *profit*, and members set their own salaries. A co-op could raise everyone's pay until there's no profit left, and the reserve would get nothing. Newer members have an extra reason to like this: their profit share starts small and grows with tenure, but their salary is paid in full from day one.
 - **Pay that isn't salary.** Pensions promised for the future, retiree health cover, generous severance. These push costs onto whoever works there later.
 - **Selling off the furniture.** The lock stops anyone selling the *firm*, but not its assets. Members about to leave could sell the building, book the gain as profit, split it, and leave their successors paying rent.
 - **Development that pays off late.** Designing a new product or building software costs money now and pays later, but it's usually counted as a cost in the year it's spent. So the members voting today pay for all of it.
 ## The rules
 **1. The reserve's share applies to pay above the going rate, too.** This isn't a cap on wages. Members can pay themselves whatever they decide. But the reserve takes its 30% of everything members receive above the going rate, whether it's called profit or pay.
 - **The going rate for each job** is the higher of two numbers: the median pay for that occupation in the co-op's own metro area, from the government's wage survey (the Bureau of Labor Statistics' [Occupational Employment and Wage Statistics](https://www.bls.gov/oes/)), or the local living wage for a full-time worker supporting one child, from [MIT's Living Wage Calculator](https://livingwage.mit.edu/). The living-wage floor matters. In home care the median wage can be close to poverty pay, and a co-op that raises its aides to a living wage shouldn't owe anything for doing it.
 - **It's checked job by job.** Paying one group below the going rate doesn't make room to pay another group above it. The co-op's auditor assigns each job its occupation code from what the person actually does, not from their title.
 - **It counts total pay.** Employer retirement contributions above 6% of pay, bonuses, and severance beyond the co-op's standard formula all count as pay. Co-ops can't promise pensions or retiree benefits they don't pay for in full each year.
 - **How it's settled.** Thirty percent of the excess is moved from members' [capital accounts](capital-accounts.md) into the reserve. No new cash has to be found, because the members already took that money as pay. If a member's account can't cover it, the rest comes out of their future account credits.
 - **There's a precedent.** US tax law already treats salaries that aren't "reasonable" as disguised profit ([26 U.S.C. § 162(a)(1)](https://www.law.cornell.edu/uscode/text/26/162)), so owners can't dodge tax by calling profit pay. This rule stops the same disguise being used to dodge the reserve. The tax test is judged case by case. This one is a fixed formula, so it's cruder but much harder to argue about.
 **2. Gains from selling assets go to the reserve.** If a co-op sells a building, equipment, a brand or a patent for more than its value on the books, the whole gain goes to the reserve, not into the profit split. A sale to an insider, or a sale-and-lease-back, is checked like any [insider deal](pilot-safeguards.md#the-hidden-boss).
 **3. Development projects can be spread out, like machines.** A co-op can designate a specific development project *before* it starts spending on it: designing a new product or a better production process, or building software. For the profit split only, its cost is then spread over up to five years, the same way a machine's is.
 - **Only real development qualifies.** It has to meet the test international accounting standards already use to decide when development creates a real asset: it's technically doable, the co-op intends to finish it and can, and it's likely to earn money ([IAS 38](https://www.ifrs.org/issued-standards/list-of-standards/ias-38-intangible-assets/)). Those standards specifically exclude training, advertising and start-up costs, and so does this rule. Those stay costs of the year they're spent.
 - **The people who chose it carry the risk.** If a project is abandoned or written down within five years, the cost that hasn't yet been charged comes out of the capital accounts of the people who were members when it was designated, including former members whose payouts haven't been made yet. Payouts take up to five years anyway, so the money is usually still there. That makes the rule useless for pushing costs onto the next group of workers.
 - **Limits.** The total cost still waiting to be charged can't exceed half of the co-op's average profit over the last three years, measured before any spreading. Only co-ops with an independent audit can use the rule, and the auditor checks each open project every year.
 - **It only changes how costs are divided between this year's members and future ones.** It doesn't touch the co-op's tax return or its reports to the bank. The co-op publishes both numbers side by side.
 **4. Accounts earn a fair rate while they're at risk.** A current member's account earns the one-year Treasury rate plus two percentage points, credited in years the co-op makes a profit. In a loss year it earns the plain Treasury rate. Money in a current member's account is at risk: it shares in the co-op's losses and ranks behind its lenders. Paying only a risk-free rate on it would push every member to take cash instead. **Once a member leaves, the balance earns the plain Treasury rate.** It no longer shares in losses, so it's no longer at risk, and nobody should collect a premium from the work of people they no longer work alongside. For comparison, Italian law lets co-ops pay members up to 2.5 points above the rate on its postal savings bonds on the capital they've put in (Lomuscio and Tortia, 2023), and Mondragon paid 6% plus an adjustment for inflation (Morris, 1992). The details are on the [capital accounts page](capital-accounts.md#how-the-account-grows).
 ## What's still open
 - **The end game.** A co-op whose members are mostly close to retirement and not being replaced could let its equipment wear out. The reserve can't be taken, and the rules above catch most of the ways to pay it out. But nothing forces a co-op to *maintain* what it has once its bank loan is repaid.
 - **Too much investment, not too little.** Reserve money can't be paid out, so there's a risk it gets spent on expansion that doesn't pay. Fagor, Mondragon's appliance maker, expanded across Europe and China, mostly on borrowed money, including buying the French appliance maker Brandt in 2005. Then the Spanish housing crash took away its main market, and it went bankrupt in 2013 ([Wikipedia](https://en.wikipedia.org/wiki/Fagor)). Outside a bank loan, nothing here tests whether a big project is worth it.
 - **Whether 30% is enough.** Italy requires 30%. Mondragon found 20% too low and moved to 50%. This model uses 30% as a minimum that each co-op can raise. [The pilot](pilot-spec.md#what-gets-measured) measures investment per worker, and the return it earns, against matched conventional firms. So if co-ops invest too little, or waste what they invest, it will show.
 - **Is the account rate right?** Two points above Treasury is well below what investors expect from a small business, so members may still prefer cash. Paying the co-op's own return on its assets instead would reward good investment directly, but it would also make the account more volatile. Which is better is unsettled.
@@ -15,9 +15,13 @@ A worker co-op under this model means two things, and they are not the same thin
 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.
 Protected leave (parental, medical, caregiving) counts as tenure, so taking time off to care for someone doesn't set your share back.
 Where does the profit share actually go? Part is paid in cash each year, and part builds up in a personal account that's paid out when you leave. See [Member Capital Accounts](capital-accounts.md).
 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.
- **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.
+- **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. Pay isn't capped, but raising salaries doesn't let members skip the co-op's reserve: it takes its share of pay above the going rate too ([Investing for the Long Run](the-long-run.md)).
 - **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.
 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.