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

title, section, order, summary

title	section	order	summary
Open Problems	Guardrails	140	An honest list of what isn't solved yet.

Open Problems

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, 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). 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. Member capital accounts credit members for the profits they earned, but not for the future value those investments create. Options include crediting accounts for growth in the firm's value, or letting departing members sell their stake to incoming members (never to outsiders). Neither is designed here yet.

3. Members' savings sit inside their employer. Member capital accounts 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. 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.

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. Political durability. See The Constitution. Gradual construction invites gradual repeal.

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. 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 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 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 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.

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's membership requirement.