Add buyouts.md: owners who choose to sell a healthy firm to its workers
can borrow on a separate $100M track with its own test (money plus a
pay floor), a capped independent price, a seller note that shares the
risk, a vote of the whole workforce and the lock. Restate the total
worst case as $450M and answer open problem #12.
Co-Authored-By: Claude Opus 5.5 <[email protected]>
Claude-Session: https://claude.ai/code/session_01QWPs69B8nQZjtPEUXMKzZx
summary:Owners who choose to sell their company to its workers can get a loan from the bank to do it, on a separate track with its own money and its own test, so the sale can't overcharge the workers or muddy the main experiment.
---
# When an Owner Wants to Sell to the Workers
This model buys nobody's company. But some owners *want* to sell to their workers. Most often, they're retiring, have no family member who wants the business, and would rather it stay in the town with the people who built it than go to a competitor or a private equity fund.
American banks already lend for some of these sales, as the evidence below shows. But those are mostly sales to employee stock ownership plans (ESOPs), trusts that come with large federal tax breaks and don't give workers one member, one vote. Sales to a real worker co-op, especially of smaller firms, are harder to finance. Lenders usually want personal guarantees, which a whole workforce can't give ([Why a new bank](pilot-spec.md#why-a-new-bank-not-existing-programs)).
So should [the bank](the-bank.md) lend for these sales? This page's answer is **yes, but on a separate track**, with its own money, its own rules and its own test, and alongside private lenders wherever they'll join in. The evidence for buyouts of healthy firms is among the strongest in the co-op literature. The ways they go wrong are also well known, and every rule below answers one of them.
## The case for it
**Healthy firms sold to their workers survive.** In France, five years after a healthy business is handed over to its workers as a co-op, 90% are still running. For French co-ops as a whole the figure is 79%, and for French businesses generally it's 61%. Even struggling firms taken over by their workers reach 76% (France's co-op federation, cited in a [2025 report to the French National Assembly](https://www.assemblee-nationale.fr/dyn/opendata/RINFANR5L17B1696.html)). That isn't a like-for-like comparison. The general figure includes brand-new businesses, and firms chosen for a handover were already doing well. Still, it's hard to read as a warning.
**Loans for these sales get repaid.** A study of 1,232 bank loans for ESOP buyouts at three large banks, from 2009 to 2013, found only 0.2% a year defaulted in a way that cost the lender money. By comparison, loans to mid-sized companies generally defaulted at 2% to nearly 4% a year over similar periods, though the two figures don't count defaults in quite the same way ([NCEO, 2014](https://www.nceo.org/hubfs/assets/pdf/Default-Study-full.pdf)). So the comparison only suggests something. It doesn't prove it.
**It can grow the sector fast.** Britain created a simple way for owners to sell to a trust for their employees in 2014, with a tax break. By January 2025 there were about 2,000 of these employee ownership trusts, and one estimate puts them at 6% of all business sales in 2024. Most are doing well. Very few have failed, mostly in construction, where profit margins are thin ([Pendleton and Robinson, 2025](https://eprints.whiterose.ac.uk/id/eprint/223994/)).
**It reaches workers the startups don't.** A startup co-op begins with a handful of people. A buyout brings in a whole existing workforce at once, often in trades where new co-ops rarely start.
**A caution about all of this evidence.** None of it comes from exactly this design. ESOPs and British trusts come with big tax breaks, and neither gives workers one member, one vote. Italy's buyouts under the Marcora Law also show high survival, 87% still operating, but most were rescues of firms in crisis, and many were only a few years old when counted ([Has This Been Tried?](precedents.md#italys-co-op-funds-coopfond-and-the-marcora-law)). The evidence shows that selling a healthy firm to its workers can work. It doesn't show that this particular track will.
## What goes wrong
**Workers overpay.** The seller usually knows the business best and wants the highest price. In one American case, the trustee who was supposed to protect the workers approved a price after a half-hour meeting about the valuation, and the workers' plan overpaid for Constellis, a private security contractor, by almost $30 million. A federal appeals court upheld the judgment ([Brundle v. Wilmington Trust, 4th Cir. 2019](https://www.ca4.uscourts.gov/opinions/171873.P.pdf)). In a British case, a founder gave his adviser rosy forecasts, the adviser raised them further, and the managers who had to run the company were given no time to read the terms. The company nearly failed under its payments to the founder and was saved only by renegotiating (Pendleton and Robinson).
**The seller keeps control.** Under Britain's original rules the seller could appoint the trustees who were meant to act for the workers. Britain changed that in 2024. Now the seller and their associates can't make up half or more of the trustees, and the trustees must make sure the price is no more than market value ([Pendleton and Robinson](https://eprints.whiterose.ac.uk/id/eprint/223994/)).
**The debt comes out of the workers' future.** Almost nine in ten British trust sales are paid for by the company itself, out of future profits, over about six years (Pendleton and Robinson). That's the workers' money, paying the seller. Most firms manage it, but it can squeeze out investment and pay.
**Tax breaks get expensive and attract the wrong sellers.** Britain let owners who sold to a trust pay no capital gains tax at all. By 2021–22 the tax break cost £600 million a year, and it was forecast to reach £2 billion by 2028–29. One accounting firm puts that at about 20 times what was originally expected ([Scholes Chartered Accountants, 2025](https://www.scholesca.co.uk/blog/why-did-the-autumn-budget-change-employee-ownership-trusts)). In November 2025 the government cut it back, so that only half of the gain is tax-free ([Charles Russell Speechlys, 2025](https://www.charlesrussellspeechlys.com/en/insights/expert-insights/corporate/2025/employee-ownership-trusts---government-reduces-capital-gains-tax-relief-on-employee-ownership-trusts-in-2025-budget/)). The researchers noted that a big tax break "could attract owners who have little or no interest in employee ownership."
**A trust isn't a co-op, and it isn't forever.** In a British trust, the workers usually don't vote one member, one vote. The company is typically run with an ordinary management hierarchy, and a trust can later sell the company. Nothing like [the lock](the-lock.md) stops it.
**Rescues of failing firms lose money.** Uruguay's public fund lost almost 90% of its loans, mostly on firms that had already failed ([The Pilot, in Numbers](pilot-spec.md#two-warnings-from-real-life)).
## The rules
### Healthy firms, willing sellers, no new tax break
- **Only healthy businesses.** At least three years of profits, with the latest year audited by an outside accountant and every year matching the tax returns. Sales to the seller's own other businesses or relatives don't count toward those profits. The seller must have owned the business for at least three years, and it can't be in bankruptcy or behind on taxes. Rescues stay out, as they do for [the rest of the pilot](pilot-spec.md#who-can-borrow).
- **The owner starts it, in writing.** The bank never approaches an owner, and neither do the advisers or groups the pilot pays. The owner can back out at any time before closing.
- **No new tax break.** American law already lets some owners put off capital gains tax when they sell to an ESOP or a worker co-op. It applies to one kind of corporation (a "C corporation"), requires the workers to end up owning at least 30%, and requires the seller to reinvest the money in other American companies ([26 U.S.C. § 1042](https://www.law.cornell.edu/uscode/text/26/1042)). This model leaves that rule alone and adds nothing to it. The bank's only offer is that it will lend. That keeps out most owners who are only after a tax deal, and it keeps the cost to the public from growing the way Britain's did.
- **Private lenders go first.** The bank lends alongside a private or community lender that takes at least a quarter of the main loan, on the same terms. If no lender will join, the bank can lend alone only after two lenders have turned the deal down in writing. Those deals are marked and reported separately. If private lenders join almost every deal, that's a sign the bank isn't needed for buyouts, and the results will show it.
### A fair price
- **Appraisers come from a panel, in rotation.** An independent appraiser, drawn in turn from a panel the bank keeps and paid by the bank, values the business under standard professional rules. The value is what the business is worth on its own, to a buyer who'll run it as it is. It doesn't include the premium a competitor might pay to combine it with their own business, since the workers can't get that value out of it.
- **Profits are checked, not taken on trust.** Before the appraisal, an outside accountant restates the profits as they'd look under new owners. The owner's own job is counted at a normal salary for that work. Upkeep and equipment the owner put off are counted as costs. One-off gains are taken out.
- **The seller can challenge it.** The seller can order a second appraisal from the panel. If the two are more than 10% apart, a third panel appraiser settles it, and that figure is final. The price can't be higher than the final figure.
- **Appraisers are checked too.** One deal in ten, picked at random, is re-appraised after closing by a different appraiser. Appraisers whose values run consistently high are dropped from the panel.
- **Everything the seller gets counts as the price.** For five years after the sale, every payment to the seller, their family or their other companies counts toward the price: salary, consulting fees, rent, royalties, payments for not competing. The only exception is a payment set at a going rate by an independent appraiser. If the seller keeps the building, the co-op gets a lease of at least ten years at appraised rent and the right to buy it at appraised value. Patents, brands, customer lists and a normal level of working cash all come with the business.
- **The seller tells the truth, in writing.** The seller discloses in writing any big customer or contract that's at risk, any lawsuit, and anything else a buyer would need to know. If the disclosure turns out to be false, the co-op can cut what it still owes the seller by the damage, and sue for more.
- **The workers get their own adviser**, chosen by the workers (or their union, if they have one) from a list the bank approves, and paid from the buyout track's own budget. The adviser explains the price, the debt and the risks in plain terms. The workers get at least 30 days with the full terms before they vote.
### The seller shares the risk
- **At least 20% of the price is paid to the seller over time**, and only after the bank's loan payments are made. If the price was too high and the business struggles, the seller's payments stop before the workers' jobs do.
- **That share shrinks if the forecast was wrong.** If profits in the first three years come in more than 20% below what the appraisal assumed, the seller's share is cut by a formula written into the sale. That puts a price on selling just before a drop the seller saw coming.
- **The seller is protected like a lender, and only like a lender.** The seller's share carries a legal claim on the business's assets, behind the bank's, and the right to be paid. It carries no say in how the co-op is run.
- **Pay isn't cut to pay the seller.** In any year the co-op cuts its members' pay rates below where they were before the sale (after inflation), the seller's payments wait. They're owed later, not cancelled.
- **The debt has to fit the business.** The bank lends only if the business's checked profits cover all the loan payments, the bank's, the private lender's and the seller's, plus the cash members need to pay tax on their profit shares ([Member Capital Accounts](capital-accounts.md#where-each-years-profit-goes)), with a real margin to spare. The margin (for example, profits of at least 1.25 times the payments) is part of the lending standards filed before the first loan ([Making It Last](durability.md#what-a-new-board-cant-change)).
### The workers decide
- **Who votes.** Every worker on the payroll 12 months before the owner applied, and still there, can vote, including part-time workers and agency temps who work there regularly. The seller and their family can't. Nobody can be laid off, reclassified or offered money tied to how they vote in that time.
- **How they vote.** By secret ballot, run by an independent election body, with a neutral ballot and after the 30 days with the full terms. The sale needs a majority of *everyone eligible*, not just of those who turn out.
- **Unions keep their place.** A union contract carries over to the co-op. Becoming a member doesn't take away anyone's right to organize.
### Then they govern
- **Everyone becomes a member unless they say no.** At closing, every worker is enrolled as a member unless they opt out in writing. The buy-in is kept small and can be paid by payroll deduction, so no one's shut out for lack of savings. Workers who opt out can't be fired for it, and can join whenever they like.
- **The membership rule, with a fair start.** New hires follow [the lock](the-lock.md)'s usual rule: membership after at most 12 months. For the first three years, workers who were there before the sale and chose not to join don't count against the rule that members must do three-quarters of the work hours. After that, the normal rule applies, as it does for every co-op the bank funds.
- **One member, one vote, from day one.** A converted firm meets the full [co-op definition](worker-ownership.md), unlike a British trust. It can keep managers, but they answer to a board elected by the members. The first board election happens within 90 days of closing.
- **The seller's control ends at the sale.** The seller can stay on as a paid adviser for up to two years, and the members can end that by vote at any time. If the seller works there, they can join as a member, with one vote like anyone else. Neither they nor their family or associates can sit on the board, hold a special share or choose who governs.
- **Paying off the debt builds the members' accounts.** Loan payments come out of profit, but they aren't a cost in the co-op's books. So the profit that pays down the loan is still credited to members' [capital accounts](capital-accounts.md) under the usual split, and paid out on the usual schedule. The workers who pay for the business build up a claim on it.
- **Help with the change.** Moving from one owner to a members' democracy is hard. The French parliament's report calls support and training for newly elected leaders essential. Converted firms get governance training and the hands-on help that [the support lottery](pilot-spec.md#the-support-lottery) tests, paid from the buyout track's own budget.
- **Who benefits is published.** Who became a member, who sits on the board and how profit shares are split, by race, gender and job, the same as for [the startups](pilot-spec.md#what-gets-measured).
### Locked, like every co-op the bank funds
A converted firm accepts [the lock](the-lock.md) and stays a co-op forever. This is the biggest difference from Britain's trusts. The seller gets a fair price once. After that, nobody can cash in the business again. Every seller signs knowing that.
The lock costs the seller something too, and they should know it. If the co-op fails while the seller is still owed money, the business can't be sold whole to an ordinary buyer. It can only go to another co-op, or be sold off in pieces. So the seller will likely get back less than from a failed conventional firm. That's one more reason to set the price where the business can carry it.
## Why a separate track
Buyouts would make the pilot's main result look better than it deserves. A business that has already survived for years is far more likely to keep surviving than a new one. If buyouts were mixed into the main test, the co-ops' survival would look better whether or not worker ownership had anything to do with it. That's why [the pilot](pilot-spec.md#who-can-borrow) already scores existing firms separately.
So buyouts get:
- **Their own money.** $100 million, set aside in the same one-time charter, separate from the $350 million for new co-ops. That raises taxpayers' worst case from $350 million to $450 million, and the model says so. Up to $5 million of it pays for the workers' advisers and governance help. Buyout loans can never draw on the startup money or the startup help budget, so they can't shrink the main test.
- **Their own limits.** The same $3 million lifetime limit, which covers every business owned by the same seller or group, so one owner can't split a company into pieces to get around it. The same caps on industries and places apply. With a private lender's share and the seller's share on top, that means companies priced up to about $5 million: small and mid-sized firms. Bigger sales can use the ESOP market that already exists.
- **Their own test, judged at year 12 with the rest.** It has two parts, and both must pass:
1.**The money.** The buyout money has to earn at least the Treasury rate after all losses and costs, and its losses can't be higher than the loss rate the bank publishes before its first buyout loan.
2.**The pay.** Among converted firms still open, members' median pay per hour can't have fallen below where it was before the sale, after inflation. A track that gets repaid by cutting its members' pay hasn't passed.
The two tracks pass or fail on their own. A good buyout record can't rescue a failing startup test, and a bad one can't sink a passing one.
If the bank's share of a typical deal is about $1.5 million, half the limit, $100 million funds roughly 60 to 70 buyouts. That's too few for the tight survival comparison the startup test uses. So survival is published and compared, but as evidence, not as a pass-or-fail line. The comparisons are with similar businesses bought by conventional owners using government-backed small-business loans, and with ESOP buyouts, which federal pension filings make it possible to follow. The terms of every deal are published: the price, the appraisals, the loans and the seller's share.
**Expect opposition.** Business brokers and private equity funds, who make money when owners sell, may see a public lender as a competitor. Italy's main employers' association got part of its worker-buyout program suspended by the EU ([Has This Been Tried?](precedents.md#italys-co-op-funds-coopfond-and-the-marcora-law)). Keeping the bank at market rates with no tax break is the best defense, because it leaves little to call unfair. The rest is in [Making It Last](durability.md).
## What this doesn't solve
- **The workers pay for what they helped build.** A fair price is a price for the owner's years of ownership, and the workers pay it out of profits their own work will produce. This model accepts that, because the alternative is taking the business, and it doesn't take anyone's business. The rules keep the price fair. They can't make it free.
- **The seller always knows more.** Written disclosures, checked profits and a shrinking seller's share make hiding problems costly. They can't make it impossible.
- **A fair price is a matter of judgment.** Appraisals are estimates. The rules make overpaying harder and put the seller's own money behind the price, but they can't make valuation exact.
- **The vote can be pressured.** A secret ballot, a neutral ballot and a majority of everyone eligible help. They can't stop a well-liked owner or manager from leaning on people in the break room.
- **One failure can become a story.** A single buyout that goes wrong will make a better headline than sixty that don't. Publishing the expected loss rate in advance, and every deal's terms, lets anyone check whether a failure was bad luck or bad lending. It doesn't stop the headline.
- **"Forever" is a lot to ask of a business that wasn't founded that way.** Some owners won't sell under the lock, and some critics will say it's wrong to lock a firm its members never chose to lock at founding. Whether the lock should protect the co-op form or only its value is an open question for every co-op, not just these ([Open Problems](open-problems.md)).
- **It may pull good founders away from co-ops.** A founder who expects to sell to their workers one day can start a conventional company, keep full control for 20 years, and then sell at a fair price. That may be a better deal than founding a co-op ([The Founder Problem](founder-problem.md)). For the model's goal, more workplaces owned by the people who work there, it's still a win. But it could leave fewer strong founders for the startup test.
- **Sixty buyouts is a small sample.** The track shows whether the loans can be repaid safely without cutting pay. It can't show much more than that about whether the workers who were bought in end up better off.
@@ -74,7 +74,7 @@ Unlike the Export-Import Bank, this bank can't be frozen by leaving board seats
### Where the money sits
The $350 million is paid into the bank as its own capital when it's chartered, not handed over year by year. The model says plainly what that does and doesn't protect.
The $350 million, and the separate $100 million for [worker buyouts](buyouts.md), is paid into the bank as its own capital when it's chartered, not handed over year by year. The model says plainly what that does and doesn't protect.
- **It needs explicit legal cover.** By default, the Treasury keeps a federal corporation's accounts ([31 U.S.C. § 9107](https://www.law.cornell.edu/uscode/text/31/9107)). The farm co-op banks were exempted from that rule by name, and this bank's law has to do the same, so its money isn't held where one agency can freeze it.
- **Running costs come from the bank's capital and income**, as [the pilot](pilot-spec.md#how-much-money-and-why) already says, not from yearly appropriations. So nobody can starve it by refusing to pass a budget line.
@@ -15,6 +15,7 @@ This model doesn't buy, seize or convert anyone's company. Instead it builds new
- **Workers own their company.** Every member gets one vote. A share of the profits grows with tenure until long-time members split them equally. Salaries still exist, and hard jobs still pay more. 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. An insurance pool the co-ops pay for protects workers' last paychecks and part of their savings if the co-op fails. [Worker Ownership](worker-ownership.md), [Member Capital Accounts](capital-accounts.md), [Protecting Members' Savings](savings-guarantee.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. 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)
- **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)
@@ -31,6 +31,6 @@ An honest list of what the model hasn't solved yet, most dangerous first.
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.
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.
12.**Voluntary buyouts: in or out?***(Answered.)* In, on a separate track: $100 million of its own, healthy firms only, a willing seller, no new tax break, a capped price the seller shares the risk on, a vote of the whole workforce, and its own test of money and pay, so it can't flatter the startup result ([When an Owner Wants to Sell to the Workers](buyouts.md)). Still open: whether a price set by the market is fair to workers who pay it out of their own future work, and whether about 60 deals can show more than that the loans get repaid.
*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.
@@ -15,7 +15,7 @@ The rules that stop people from gaming the pilot (sham co-ops, hidden owners, ri
| | |
| --- | --- |
| **Money** | $350 million, once. |
| **Money** | $350 million, once, plus a separate $100 million for [worker buyouts](buyouts.md). |
| **Lending window** | Years 1–5 (up to year 8 if good applicants are scarce). |
| **Target** | About 400 new worker co-ops. |
| **Loan size** | Up to $3 million per co-op, including all later loans. |
@@ -47,7 +47,7 @@ Private co-op lenders exist and do good work, but they're small. Shared Capital
## How much money, and why
**$350 million, one time.** In the pilot, the bank lends only its own capital. It doesn't borrow on top of it. That makes the worst case easy to state: taxpayers can lose at most $350 million, minus whatever is repaid.
**$350 million, one time.** In the pilot, the bank lends only its own capital. It doesn't borrow on top of it. That makes the worst case easy to state: taxpayers can lose at most $350 million, minus whatever is repaid. A separate $100 million for owners who choose to sell to their workers has its own rules and its own test ([When an Owner Wants to Sell to the Workers](buyouts.md)), which makes the total worst case $450 million.
It breaks down like this:
@@ -77,7 +77,8 @@ That creates exactly the pressure that sank Venezuela: an institution with a tar
- **New worker co-ops only, for the main test.** "New" means the *business* is new, not just the legal paperwork. A conventional firm that reincorporates as a co-op isn't new (see [Guarding the Pilot](pilot-safeguards.md)).
- **Existing co-ops may borrow too, but they're scored separately.** Firms that have already survived for years would make the results look better than they are.
- **No rescues of failed conventional firms.** That's where FONDES lost its money, and it's a different experiment (see *Voluntary buyouts* in [Open Problems](open-problems.md)).
- **No rescues of failed conventional firms.** That's where FONDES lost its money.
- **Healthy firms whose owners choose to sell to their workers** can borrow on a separate track, with its own money and its own test, so they can't flatter the main result ([When an Owner Wants to Sell to the Workers](buyouts.md)).
- **At least three worker-members at the first loan**, meeting the [co-op definition](worker-ownership.md) and accepting [the lock](the-lock.md).
- **Members are on the payroll as employees.** That gives them minimum wage, unemployment insurance and workers' compensation like any other worker. It also means the co-op shows up in the government business records the test relies on.
- **Any legal industry.** Loan officers judge business plans, not industries. But no single industry may take more than 25% of the money lent, and no single county more than 10%, so one bad sector or one local market can't sink the whole test.
@@ -195,7 +196,7 @@ At year 12, both measures must pass:
**There is no "inconclusive, keep going" option.** If the evidence doesn't clearly show co-ops holding their own, that counts as a fail. The burden of proof is on the co-ops, which is where a skeptic would put it.
**The emergency stop.** If net losses ever pass 20% of the capital ($70 million), new lending freezes, and the reviewers report within six months on the cause:
**The emergency stop.** If net losses ever pass 20% of the capital ($70 million), new lending freezes (the [buyout track](buyouts.md) has its own stop, at $20 million), and the reviewers report within six months on the cause:
- **A recession:** lending restarts only if the SBA's own loans from the same years lost money at a similar rate. That's a fixed comparison, not a judgment call.
- **Fraud:** lending restarts once the reviewers certify the specific gaps are closed and recovery has been pursued. Otherwise one organized fraud ring could end the experiment on purpose (see [Guarding the Pilot](pilot-safeguards.md)).
@@ -65,7 +65,7 @@ Two cautions. Those are euros as collected, not adjusted for thirty years of inf
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.
These are rescues of existing businesses, which [the pilot](pilot-spec.md#who-can-borrow) keeps out entirely because of Uruguay's experience. It does lend for sales of *healthy* firms whose owners choose to sell to their workers, on a separate track ([When an Owner Wants to Sell to the Workers](buyouts.md)). 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).
@@ -21,7 +21,7 @@ Mondragon's history supports the first half of the premise. For decades, apart f
- **Self-sustaining by design.** One-time capitalization, then it lives on its loan book. Losses are public and published. A permanent appropriation would turn it into a subsidy line, and subsidy lines get captured.
- **Full transparency.** Portfolio data (default rates, survival, wages, productivity, member retention) published annually, so anyone can check the result, including critics.
The actual numbers (how much money, how many co-ops, loan limits, and how "market rate" is checked) are in [The Pilot, in Numbers](pilot-spec.md). The rules against sham co-ops and political favoritism are in [Guarding the Pilot](pilot-safeguards.md).
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). Loans for owners who choose to sell their company to its workers run on a separate track, described in [When an Owner Wants to Sell to the Workers](buyouts.md).
**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).
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Claude Opus 5.5