Socialism: set the spin-off numbers: a 15% stake cap counting every exposure, a real consequence for captive spin-offs, and an honest power estimate for the growth comparison

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

JoshHeaps.Net/Content/Socialism/growth.md

@@ -62,7 +62,11 @@ The model makes spin-offs the standard path for a new line that earns less per w
 
 - **The new line becomes its own locked co-op,** with its own members, its own profit split, and a [lock share](the-lock.md#how-the-lock-is-made-to-hold) held by an independent lock-holder from the day it's founded.
 - **The parent invests, but doesn't control.** It can fund the new co-op from its reserve, on the terms any investor gets ([Capital, After](capital.md)): repayment plus a share of profits, for at most 15 years, with no vote. If the new co-op borrows from the bank, the parent's claim ranks behind the bank and needs the bank's approval, like any other.
-- **Reserve money stays reserve money.** When the new co-op repays the money, it goes back into the parent's reserve. Only the profit share counts as profit, and the reserve takes its cut of that too ([Investing for the Long Run](the-long-run.md)). No single spin-off can take more than a quarter of the parent's reserve. All of a parent's investments in spin-offs together stay under a third of its assets, not counting cash and government bonds. Above 40%, federal law can treat a company that holds investments as an investment fund, with its own heavy rules ([15 U.S.C. 80a-3(a)(1)(C)](https://www.law.cornell.edu/uscode/text/15/80a-3)). A co-op that mainly runs its own business is probably outside that law anyway, but the cap keeps it from having to argue the point.
+- **Reserve money stays reserve money.** When the new co-op repays the money, it goes back into the parent's reserve. Only the profit share counts as profit, and the reserve takes its cut of that too ([Investing for the Long Run](the-long-run.md)). No single spin-off can take more than 15% of the parent's reserve. Up to a quarter is allowed only by a majority of all members in a secret ballot, the same bar [the lock](the-lock.md#when-a-co-op-owns-another-company) sets for buying a company. "Take" counts everything the parent has at stake: money put in and not yet repaid, guarantees of the spin-off's loans, assets sold to it on credit, and rent or bills left unpaid for more than 90 days. Spin-offs in the same business, and spin-offs of spin-offs, count as one. A stake written off in the last five years still counts, so a parent can't lose 15% and then start again. The test uses the reserve at the start of the year, when new money goes in. A reserve that shrinks later doesn't force a sale, but no new money goes in until it's back under the limit.
+
+Federal law limits how much a national bank may lend one borrower without collateral to 15% of the bank's capital ([12 U.S.C. 84](https://www.law.cornell.edu/uscode/text/12/84)). This limit is stricter, because the reserve is only part of a co-op's own capital; members' accounts are the rest. It needs to be. A parent's stake has no collateral, it ranks behind the spin-off's lenders, and new businesses close a lot: only about 35% of American business locations opened in 2013 were still open ten years later ([Bureau of Labor Statistics](https://www.bls.gov/bdm/us_age_naics_00_table7.txt)). And a failed stake is a loss like any other, shared between the reserve and members' own accounts, with members paying most of it ([Investing for the Long Run](the-long-run.md#spending-it-badly)).
+
+All of a parent's stakes in spin-offs together stay under half of its reserve, and under a third of its assets, not counting cash and government bonds. Above 40%, federal law can treat a company that holds investments as an investment fund, with its own heavy rules ([15 U.S.C. 80a-3(a)(1)(C)](https://www.law.cornell.edu/uscode/text/15/80a-3)). A co-op that mainly runs its own business is probably outside that law anyway, but the cap keeps it from having to argue the point.
 - **The spin-off is still a co-op.** Its own workers become members, and it's in the same federation as the parent, so a failure in one doesn't leave the other's workers with nothing ([The Federation](federation.md)).
 
 In the example, the parent's members keep their $20,000 and earn a return on what they put in. The 20 new workers build full shares of their own co-op's profit instead of partial shares of someone else's. Without the spin-off, the members would most likely have turned the line down, and the jobs wouldn't exist.
@@ -73,11 +77,12 @@ This matters most for exactly the case the founding plan worried about: **expans
 
 ### 2. Rules so spin-offs can't be abused
 
-- **New lines only, unless the workers choose to go.** A co-op can't spin off work its members already do unless a majority of the workers whose jobs would move vote for it. Anyone who doesn't want to move keeps their place in the parent. A spin-off that sells mostly to the parent is treated as part of the parent for the membership rule.
+- **New lines only, unless the workers choose to go.** A co-op can't spin off work its members already do unless a majority of the workers whose jobs would move vote for it. Anyone who doesn't want to move keeps their place in the parent.
+- **A spin-off that mostly works for the parent gets the parent's terms.** The worry is a parent moving its own work into a captive spin-off whose members get a smaller share. So if a spin-off makes more than 40% of its sales to the parent in any two of three years, counting sales through a middleman, through the parent's other spin-offs, or through firms its members own, the parent has to close the gap. The spin-off's workers choose, by secret ballot: membership in the parent with the tenure they've built, or a profit pool with the parent (below) that makes shares per member equal. The test is stricter than the one [the lock](the-lock.md#when-a-co-op-owns-another-company) uses for an outside supplier (most of its output, two years running), because the parent created this company. Prices between the two are still checked every year, as below.
 - **Deals between parent and spin-off are insider deals.** Prices, fees, rent and contracts between them must match what outsiders would pay, and they're checked every year, like any [insider deal](pilot-safeguards.md#the-hidden-boss). The lock's limit on exclusive contracts applies: no contract gives one party a claim on most of what the other produces for longer than five years ([The Lock](the-lock.md#closing-the-back-doors)).
 - **Assets move at an independent appraisal.** Equipment, customers or buildings moved to the spin-off count as a sale of part of the business, which goes through the lock-holder. The parent keeps any debts and obligations from before the split. So a spin-off can't be used to park a failing line or old liabilities.
 - **Those who move don't vote on the money.** Parent members who plan to join the spin-off can't vote on the parent's investment in it. They keep their tenure on the ramp only if the spin-off's founding papers agree to it, so senior members can't move over and dilute the new members in their turn.
-- **A second opinion on big investments.** Before a parent puts more than a tenth of its reserve into a spin-off, the federation gives a written opinion on the plan to the parent's members. It's advice, not a veto. The investment is the members' call.
+- **A second opinion on big investments.** Before a parent puts more than a tenth of its reserve into one spin-off, counting everything it put in over the last three years, the federation gives a written opinion on the plan to the parent's members. It's advice, not a veto. The investment is the members' call. Bigger commitments also need the independent adviser's opinion that [every large commitment](the-long-run.md#spending-it-badly) needs.
 
 ### 3. Sharing across the group, if the co-ops choose
 
@@ -96,8 +101,8 @@ Some growth can't be spun off. More customers for the same service, or a cheaper
 
 The pilot already publishes how many jobs its co-ops create ([The Pilot, in Numbers](pilot-spec.md#what-gets-measured)). It also publishes, with the comparisons filed in advance:
 
-- **Job growth compared with matched conventional firms,** in full-time-equivalent jobs, counted both with and without spin-offs, and broken out by thirds of value added per worker (a way to compare how productive firms are that doesn't depend on how a co-op splits pay and profit). The gap should show up most in the most productive co-ops.
+- **Job growth compared with matched conventional firms,** in full-time-equivalent jobs, counted both with and without spin-offs, and broken out by thirds of value added per worker (a way to compare how productive firms are that doesn't depend on how a co-op splits pay and profit). The gap should show up most in the most productive co-ops. Growth is measured from each co-op's second full year to its tenth, the same way for its matched firms, and a firm that closes counts as losing all its jobs, so co-ops that survive by not growing aren't flattered or punished by who's left. Value added isn't reported for the matched conventional firms, so the thirds come from each co-op's own value added per worker in its second full year, before growth is measured, and each co-op is compared only with its own matched firms. Productivity is also tested as a sliding scale across all co-ops, not just in thirds. Young firms' job growth varies enormously. Among American firms under five years old that stayed open, the fastest-growing tenth grew about 110 percentage points a year faster than the slowest tenth, and a few very fast growers pull the average up ([Decker and others, 2016](https://www.nber.org/papers/w21776)). On rough figures, about 130 co-ops in the top third against about five matched firms each, the smallest gap the comparison could reliably find is something like 12 to 20 percentage points a year, depending on how many close and how the reviewers handle the outliers. So **the prediction that the gap shows up most in the most productive co-ops probably can't be tested at this scale.** The reviewers file the time span, the handling of outliers and the power calculation before the first loan. A finding of no gap doesn't mean co-ops grow as fast.
-- **Expansions voted down.** Each co-op reports major expansion proposals and how members voted on them.
+- **Expansions voted down.** Each co-op reports every major expansion proposal that reached its board or a members' vote, and what happened to it. "Major" means a new line of business, a new location, a spin-off, or anything expected to add at least a tenth to the co-op's hours or to spend at least a tenth of its reserve. Related proposals within a year are added together, so splitting one plan into small pieces doesn't hide it. Any member can put a proposal on the list. Lines offered to the federation or to other workers after the members turned them down are counted too. The yearly audit checks the list against actual hiring and spending. A proposal nobody writes down still can't be counted, so this undercounts.
 - **Spin-offs:** how many, how they do, and the gap in pay and profit share per member between each parent and its spin-offs.
 - **Who gets hired.** Applicants and hires by gender and race, compared with the matched firms, since members who share profit have a reason to hire few people, and people like themselves.
 - **How hires heard about the job.** The share of hires who came through a member's referral rather than a public posting, and how long referred and other hires stay. Referred hires often stay longer, so referrals aren't bad in themselves. But hiring through friends and family is also the quietest way for a co-op to keep looking like its founders, and applicant counts can't see it.
@@ -130,7 +135,7 @@ If the most productive co-ops grow much more slowly than similar conventional fi
 
 - **Not every line can be spun off.** Where growth has to happen inside one firm, members still have a reason to turn down work that earns less than their average. Reporting the expansions they vote down makes that visible. It doesn't stop it.
 - **Spin-offs cost something.** Separate books, a separate board and separate legal costs. For a small line, that may be more than it's worth. And splitting a line off a firm that shares its customers and managers can make both work less well.
-- **Reserve money can be wasted.** Money that can't be paid out is tempting to spend. Fagor, Mondragon's appliance maker, overexpanded and went bankrupt in 2013 ([Investing for the Long Run](the-long-run.md#whats-still-open)). The quarter cap and the federation's opinion are limits, not a test of whether an investment is wise.
+- **Reserve money can be wasted.** Money that can't be paid out is tempting to spend. Fagor, Mondragon's appliance maker, overexpanded and went bankrupt in 2013 ([Investing for the Long Run](the-long-run.md#whats-still-open)). The caps on spin-off stakes and the federation's opinion are limits, not a test of whether an investment is wise.
 - **The parent profits from people it doesn't work with.** For up to 15 years, the parent collects a share of the new co-op's profit. It's finite, it carries no vote, and dealings between them are checked at outside prices. That's the model's line between renting capital and owning people's work ([Capital, After](capital.md)). Some will say it's still the wrong side of that line.
 - **Richer and poorer co-ops.** Spin-offs will often be lower-paid than their parents, and lower-margin work is disproportionately done by women and workers of color. Voluntary pooling and published gaps are the answer offered. Neither closes the gap.
 - **Steady employment cuts both ways.** Co-ops keep people on in bad years and hire slowly in good ones. Where that means fewer jobs than the business could support, the people who don't get hired pay for it, and they don't get a vote.

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

@@ -21,7 +21,7 @@ An honest list of what the model hasn't solved yet, most dangerous first.
 
 6. **Political durability.** *(Partly answered.)* Gradual construction invites gradual repeal. [Making It Last](durability.md) builds the bank to survive a hostile government: the lending standards and the test are fixed in law, board vacancies can't freeze lending, the verdict says "not tested" rather than "failed" if the bank turns away applicants who meet its own standards (every rejection is re-scored, the line is more than 1 in 10 clear passes turned away, and the result has to be one those applicants could have changed; see [the line](durability.md#when-rejections-mean-not-tested)), and repeal can't unlock the co-ops. Still open: after the Supreme Court's 2026 ruling any president can replace the bank's board; money not yet lent can be taken back in a budget bill; the lock's bankruptcy protection depends on a federal law that can be repealed; and at pilot scale the sector has no real constituency. The 1-in-10 line is a judgment call with no benchmark behind it. The bank's law lets applicants and borrowers sue to enforce its deadlines and signed loans ([Who can go to court](durability.md#who-can-go-to-court)), but that's untested, lawsuits are slow, and if the Justice Department won't defend the law itself, the people left to defend it may not be allowed to. The Constitution probably requires that the board have the last word on each loan, so the board can overrule its staff, only in writing, by named vote and in public ([Who has the last word](durability.md#who-has-the-last-word)). Whether the credit officers can keep protection from being fired after *Slaughter* is unsettled, and a president who empties the board hands its power to the Treasury Secretary.
 
-7. **Growth and dilution.** *(Partly answered.)* Softened by the tenure ramp, not eliminated, and federal tax law softens it less than the founding plan expected: by default, the part of a share new members haven't reached goes to the reserve, not to other members ([How a Locked Co-op Is Taxed](taxes.md#the-tenure-ramp)). 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. [When Growing Means Sharing](growth.md) makes Mondragon's answer the standard path: a lower-margin line becomes its own locked co-op, funded from the parent's reserve as a finite, voteless investment, under rules that stop it being used to push existing workers out or move money through insider deals. Still open: growth that can't be split off still dilutes, spin-offs create richer and poorer co-ops (the groups can pool profits, but don't have to), and the evidence comes from co-ops that could hire non-members, so it probably understates the problem under the lock. Members who share profit also have a reason to hire people like themselves. The pilot tests co-ops' hiring as a group with fake paired applications ([Testing hiring directly](growth.md#5-measuring-it)). But that can only catch co-ops being much worse than ordinary employers, conventional firms aren't tested alongside them, and hiring through members' friends and family is only counted, not tested.
+7. **Growth and dilution.** *(Partly answered.)* Softened by the tenure ramp, not eliminated, and federal tax law softens it less than the founding plan expected: by default, the part of a share new members haven't reached goes to the reserve, not to other members ([How a Locked Co-op Is Taxed](taxes.md#the-tenure-ramp)). 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. [When Growing Means Sharing](growth.md) makes Mondragon's answer the standard path: a lower-margin line becomes its own locked co-op, funded from the parent's reserve as a finite, voteless investment, under rules that stop it being used to push existing workers out or move money through insider deals. Still open: growth that can't be split off still dilutes, spin-offs create richer and poorer co-ops (the groups can pool profits, but don't have to), and the evidence comes from co-ops that could hire non-members, so it probably understates the problem under the lock. Members who share profit also have a reason to hire people like themselves. The pilot tests co-ops' hiring as a group with fake paired applications ([Testing hiring directly](growth.md#5-measuring-it)). But that can only catch co-ops being much worse than ordinary employers, conventional firms aren't tested alongside them, and hiring through members' friends and family is only counted, not tested. And the measure of whether co-ops grow more slowly than similar firms is too noisy, at pilot scale, to find anything but a very large gap ([Measuring it](growth.md#5-measuring-it)).
 
 8. **Who decides which sectors are "essential"?** *(Partly answered.)* 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. [Who Decides What's Essential](essential-work.md) takes the choice away from people. A fixed formula decides: work qualifies only if public programs already pay for most of it and it pays badly. The money goes to workers by the hour, measured from records like Medicaid's visit logs, and states whose rates fall behind inflation lose federal Medicaid money in step. The data sources are now named: federal payment records for public money, and Census revenue, with new Census questions on a deadline and rules so status can't flip on noise. Still open: counted properly, hospitals are near the line, which would add their low-paid jobs and a great deal of cost; child care's status is undetermined until the new data exists; other work mostly paid for by families doesn't qualify; employers and owners may still capture some of the money; and it plausibly costs tens of billions of dollars a year.