Socialism: test help before the first loan, and ask founders for a stake

Add before-launch.md: a founding lottery testing whether serious
pre-launch help (a founder's stipend, a feasibility study, legal setup)
creates more co-ops that last, measured independently of the bank, and
a 5% founder stake payable in verified unpaid work. Fund it from the
loan budget, and correct the pilot's growth arithmetic.

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

JoshHeaps.Net/Content/Socialism/before-launch.md

@@ -0,0 +1,91 @@
+---
+title: Help Before the First Loan
+section: Growing the Sector
+order: 67
+summary: The pilot's hardest job is getting enough good co-ops started, so it tests, by lottery, whether serious help before launch creates more of them that last, and asks founders for a small stake they can pay in work instead of cash.
+---
+
+# Help Before the First Loan
+
+The pilot aims to fund about 400 new co-ops in five years, about 80 a year. The whole American worker co-op sector grew by about 50 a year over the last decade, after counting the co-ops that closed ([The Pilot, in Numbers](pilot-spec.md#why-about-400-co-ops)). If good groups don't show up, the bank has nobody to lend to, and the whole test stalls.
+
+The pilot already tests help *after* the first loan, by lottery ([the support lottery](pilot-spec.md#the-support-lottery)). This page is about help *before* it: whether serious support for groups who want to start a co-op makes more of them succeed in starting one that lasts, and whether founders should put in something of their own.
+
+## What we know
+
+**Mondragon's help started before a co-op existed.** When a group came with an idea, its bank picked one of them to be the manager, paid that person a salary while a team studied whether the business could work, and later lent the new co-op enough to cover its losses for its first two years ([Has This Been Tried?](precedents.md#mondragons-bank-caja-laboral)). Nobody knows how much of Mondragon's success came from that help and how much from the loans.
+
+**Light training doesn't last.** At the time, the largest randomized trial of entrepreneurship training ever run was America's GATE project. It assigned 4,197 people who wanted to start businesses to be offered free training or not. People not offered it could still find training elsewhere, so the real difference was modest: about 9 more hours of classes and advice, at about $1,321 per person. Six months later, the trained group was about 5 percentage points more likely to own a business. By 18 months the gap in who currently owned a business was small and no longer clear, and by five years there was no clear difference ([Fairlie, Karlan and Zinman, 2012](https://www.nber.org/papers/w17804)).
+
+**Heavier help is expensive, and nobody has measured what it does.** New York City has funded community groups that help people start worker co-ops since 2015. Its partners often work with a group for several years. In the program's seventh year, a pandemic year, it cost about $3.1 million, and 11 new co-ops formally launched or converted, meaning they got a tax ID, formation papers and permits. Another 21 were in progress ([NYC Small Business Services, 2021](https://www.nyc.gov/assets/sbs/downloads/pdf/about/reports/worker_coop_report_fy21.pdf)). That's about $280,000 for each co-op launched that year, though the program also helps existing co-ops, so it isn't a true cost per co-op. And there's no comparison group, so nobody can say how many of those co-ops would have started anyway.
+
+So light help is cheap and fades, and heavier help might work but hasn't been tested. That's exactly the kind of question a lottery answers.
+
+## The founding lottery
+
+### Who can apply
+
+- **A group of at least three people** who plan to work in the business, with an idea and a rough sense of what it would take. There's no loan application yet.
+- **Or a sponsor applying for a group.** Unions, worker centers, community groups and existing co-ops often bring groups together. Many co-ops start that way. They can apply on a group's behalf, and results are reported by who sponsored the group.
+- **A short screen, run by the reviewers, not the bank,** checks that the people are real and intend to work there, and that the business is legal. Any government ID is enough, including a taxpayer ID number for people without a Social Security number, or a consular or city ID.
+- **One entry per person for the whole pilot.** Groups that share a member, a family, an address, an idea or an organizer go into the draw as one unit. Groups that lose the draw can't re-enter under a new name.
+
+### The draw
+
+The reviewers, not the bank, draw half the groups by lottery, using a method filed in advance. The draw is balanced by industry, region, and the founders' gender, race and wealth. As with the support lottery, groups agree to the lottery when they apply, and an independent research ethics board approves the design. Groups that weren't drawn are offered the same help once the two-year comparison window ends.
+
+### What the helped groups get, for up to a year
+
+- **A stipend for one founding member** for up to six months, so that one of the group can work on getting the business ready full time. That's how Mondragon did it: it paid one of the founders, not an outsider.
+- **A feasibility study** by an outside specialist: is there a market, what will it cost, and can it pay a loan?
+- **Legal setup, bylaws and a business plan,** in the group's own language, with interpreters if needed.
+- **Specialists come from a vetted panel,** assigned by the reviewers, not picked by the group or by anyone who referred it. No specialist can be a member, a member's relative, or someone who referred the group. For three years they can't sell paid services to a group they helped, the same rule that applies to the support lottery's advisers. No one person or organization can advise more than a set number of helped groups.
+- **About $40,000 per group in all.**
+
+### What the other groups get
+
+The same public help any would-be business owner can already get, like the Small Business Administration's free counseling centers, and the bank's published standards. They can apply for a loan whenever they're ready.
+
+### What it doesn't change
+
+Help doesn't lower the bar. Every group applies for its loan through the same underwriting. The help doesn't cover early losses. A co-op that needs money to get through its first years borrows it from the bank at market rates, like any other loan.
+
+### How big
+
+About 250 groups in each half, so $10 million for the help. With groups that size, the lottery has an 80% chance of detecting a difference of about 12 percentage points in how many groups end up running a co-op, for example 25% against 37%. Smaller effects might be missed.
+
+**The money comes from the loan budget.** Of the roughly $300 million set aside for loans, $10 million pays for this help instead, which leaves the pilot's cash cushion and running costs untouched. The pilot's capped help budget is $30 million in all: $20 million after the first loan and $10 million before it ([The Pilot, in Numbers](pilot-spec.md#how-much-money-and-why)). Every dollar counts against the bank in the [money test](pilot-spec.md#the-decision-rule), the same as help after the loan.
+
+## What gets measured
+
+- **Are they running a co-op?** The main result: the share of all groups in each half that have a co-op operating two years after the draw, with at least three members and a minimum level of sales, however it was financed. It's measured from government business records by the reviewers, not decided by the bank. So the result can't come from helped groups simply being coached to pass the bank's own underwriting.
+- **Are they still running at year four?** The share of all groups in each half with a co-op still open and paying fairly four years after the draw. That counts every group, so help that pushes weak groups into launching and failing shows up as a cost, not a benefit.
+- **What did it cost?** The public cost for each extra co-op the help created, and for each extra co-op still open at year four. At the smallest effect the lottery can detect, about 30 extra co-ops for $10 million, that's roughly $330,000 each. A ceiling is filed in advance. Above it, the help isn't recommended for any larger program, however many co-ops it creates.
+- **Who did it reach?** Founders' prior earnings, wealth, gender, race, immigration status and language, in each half.
+- **Where else did groups get help?** Groups report other help and funding they used, so any effect from help found elsewhere, or co-ops simply moving from other lenders to this one, can be estimated.
+
+The co-ops from both halves count in the main test, and the main result is also reported without the helped half's extra co-ops. So help can't quietly change what the main test measures.
+
+## Should founders put in money of their own?
+
+Mondragon required it: its founders put in a fifth of the start-up money. Under Italy's Marcora program, which helps workers buy out closing firms, workers put in their own money too, often from their severance pay and unemployment benefits ([Has This Been Tried?](precedents.md)). A stake makes founders care what happens to the loan. But a cash buy-in shuts out workers with no savings, who are the people co-ops most often serve.
+
+**The model's answer: a small stake, payable in work.** The founding members together put in at least 5% of the first loan. They can pay it in cash, in unpaid work before launch, or both.
+
+- **Work is valued at the local median wage for the job**, from the government's wage survey, not at whatever pay the founders plan to give themselves.
+- **Only hours logged at the time count,** from the date of application, and a specialist from the panel or the reviewers checks them. Hours paid by the stipend don't count.
+- **It's a real stake.** Unpaid work is recorded as back pay the co-op owes, ranked behind the bank ([The Founder Problem](founder-problem.md#the-tools)). Founders lose it if the co-op fails.
+
+For a typical first loan of $500,000, that's $25,000 in all. Five founders could meet it with about $5,000 each, or with a few months of evenings and weekends. Three founders would need about $8,300 each, or more hours.
+
+**What the stake does and doesn't do.** It shows commitment, and it makes sure founders have something to lose. It doesn't stop fraud. A group that plans to take the money and disappear gives up only work it never intended to be paid for. The defense against that is elsewhere: loans paid out in stages as the business hits milestones, and the rules in [Guarding the Pilot](pilot-safeguards.md).
+
+## What this doesn't solve
+
+- **It tests help for groups that come forward.** Many workers never think of starting a co-op at all. Sponsors like unions and community groups help reach them, and results are reported by sponsor. But the lottery can't test outreach to people nobody reaches.
+- **A year's help may not be enough.** New York's partners often work with groups for several years. If the effect needs longer, this design will understate it.
+- **Groups that lose the draw may find help elsewhere.** That makes the helped half look less different, so the result may understate the real effect, as happened in GATE.
+- **Four years of survival is a small sample.** Only the groups that launch can survive, perhaps 60 to 90 in each half. So the year-four result will be rough.
+- **The work stake still costs time.** Founders who can't spare unpaid hours, because they need every paid hour they can get, still face a barrier. The stipend in the helped half partly makes up for that. Outside it, nothing does.
+- **Help only for co-ops will be called unfair competition.** It's a research cost, time-limited to the pilot, published each year, and counted against the bank. That's the honest answer. It won't stop the attack.
+- **$10 million is $10 million.** If the help doesn't create more co-ops that last, the pilot will have spent it to learn that.

JoshHeaps.Net/Content/Socialism/index.md

@@ -17,7 +17,7 @@ This model doesn't buy, seize or convert anyone's company. Instead it builds new
 - **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)
 - **Owners who want to sell to their workers can.** The bank lends for these sales on a separate track, with its own $100 million and its own test. Only healthy firms qualify, there's no new tax break, the price is capped at an independent appraisal, the seller shares the risk, and the whole workforce votes. [When an Owner Wants to Sell to the Workers](buyouts.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. An independent lock-holder can veto any attempt, including selling the business off piece by piece. [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. It's built so that a hostile government can't quietly freeze it or rig the result, though Congress can always repeal it. [The Test](the-test.md), [The Pilot, in Numbers](pilot-spec.md) and [Making It Last](durability.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. It's built so that a hostile government can't quietly freeze it or rig the result, though Congress can always repeal it. It also tests, by lottery, whether serious help before launch gets more co-ops started. [The Test](the-test.md), [The Pilot, in Numbers](pilot-spec.md), [Help Before the First Loan](before-launch.md) and [Making It Last](durability.md)
 - **Co-ops back each other up.** They pool part of their profits into a shared fund. If one fails, its workers are moved into others instead of being left with nothing. [The Federation](federation.md)
 - **Nobody is left behind by low-margin work.** Owning a company doesn't help much when there's barely any profit to own, so a strong floor covers the rest. [Ownership and the Floor](the-floor.md)
 

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

@@ -27,7 +27,7 @@ An honest list of what the model hasn't solved yet, most dangerous first.
 
 9. **The 1/N problem.** *(Mostly answered.)* Peer monitoring works at 30 people; at 10,000 your extra effort raises the pool by a rounding error. The answer is culture and structure: co-ops really do push out free riders, and the federation model keeps units small enough for monitoring to bite while pooling risk above them.
 
-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.
+10. **The pilot's own weak points.** [The pilot](pilot-spec.md) puts the burden of proof on the co-ops, which means roughly a 1-in-10 chance of shutting down a pilot that was actually working. It tests individual co-ops, not the [federation](federation.md) support network Mondragon relied on. Its lotteries test help after the loan and, since the pre-launch lottery was added, help before it ([Help Before the First Loan](before-launch.md)), but only among groups that come forward, not outreach to workers who never think of starting a co-op. Founders now put in a small stake they can pay in unpaid work, but founders who can't afford months of unpaid work still face a barrier. Its comparison group (small businesses with government-backed loans) is biased in directions that partly cancel out, by amounts nobody knows. And market-rate lending based on collateral may mostly reach founders who already have some wealth. Approval rates by race, gender and wealth are published so that shows up, but publishing a gap doesn't close it.
 
 11. **Federal or state?** *(Mostly answered.)* The test stays federal, because one bank with one plan makes one clean experiment. Any state can copy the bank under the same published rules, reported separately, and a model state law protects the lock ([Making It Last](durability.md#federal-test-state-copies)). Still open: whether a few state lenders sharing one plan would have been the stronger experiment after all, since the most durable public bank in America, North Dakota's, is a state bank.
 

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

@@ -51,8 +51,8 @@ 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, 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.
+- **About $290 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.
+- **$30 million, capped, for business help:** $20 million after the first loan (bookkeeping, governance training, legal setup, and more intensive help for half the co-ops, chosen by lottery; see [the support lottery](#the-support-lottery)), and $10 million before it, taken from the loan budget, for a lottery testing whether serious help makes more groups succeed in starting a co-op that lasts ([Help Before the First Loan](before-launch.md)). 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
@@ -65,7 +65,7 @@ To be confident that co-ops do "at least about as well" as conventional firms, y
 
 That also means a roughly 10% chance of shutting down a pilot that was actually working. That's the cost of putting the burden of proof on the co-ops, and it's stated openly.
 
-**The honest problem with 400.** The whole US worker co-op sector was about 751 firms in 2023, roughly triple what it was a decade earlier ([NCEO summary of the Democracy at Work Institute census](https://www.nceo.org/employee-ownership-blog/democracy-at-work-institute-releases-its-2023-worker-cooperative-state-of-the-sector-report)). That's about 50 new co-ops a year. Reaching 400 in five years means roughly doubling the rate at which co-ops get founded.
+**The honest problem with 400.** The whole US worker co-op sector was about 751 firms in 2023, roughly triple what it was a decade earlier ([NCEO summary of the Democracy at Work Institute census](https://www.nceo.org/employee-ownership-blog/democracy-at-work-institute-releases-its-2023-worker-cooperative-state-of-the-sector-report)). That's net growth of about 50 co-ops a year, after counting the ones that closed. Reaching 400 in five years means about 80 a year, roughly 1.6 times that pace, on top of whatever else the sector adds.
 
 That creates exactly the pressure that sank Venezuela: an institution with a target lowers its standards to hit it. So:
 
@@ -168,7 +168,7 @@ Mondragon's bank gave its co-ops far more than loans. It gave them a salaried ma
 
 **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.
+**What it doesn't test.** Mondragon's help started *before* a co-op existed: studying the idea, paying the manager, lending to cover early losses. This lottery starts after the loan, so a second lottery, among groups that want to start a co-op, tests help before launch ([Help Before the First Loan](before-launch.md)).
 
 **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.
 

JoshHeaps.Net/Content/Socialism/precedents.md

@@ -72,7 +72,7 @@ These are rescues of existing businesses, which [the pilot](pilot-spec.md#who-ca
 **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.
+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 now asks founders for a small stake, at least 5% of the first loan, which they can pay in unpaid work instead of cash, because a cash buy-in shuts out workers with no savings ([Help Before the First Loan](before-launch.md)).
 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).