A number of mortgage books have already been sold to unregulated private equity companies or hedge funds, mostly American; but in the proposed sales of the IBRC residential book (13,000 former INBS mortgages) we are looking at the largest sale ever of mortgages to unregulated vulture capitalists. What does this mean for mortgage-holders? Their mortgage
Irish billionaires are worth a whopping $25 billion between them The Celtic Tiger may have left the building, but Ireland’s billionaires are sitting on a combined fortune of $25 billion, according to the latest figures from Forbes magazine. There are 1,645 names on the latest list of the world’s billionaires from Forbes and between them
The euro has worked well for the creditor (surplus) countries. Germany is the best example. The German mark would have risen in value if there was no euro, and this probably would have eliminated some of the surpluses. These surpluses enabled the Germans to buy assets abroad: for example, Lidl and Aldi have expanded throughout
A new research paper from Michael Taft of Unite the Union here in Ireland shows why Ireland needs a pay increase. Highlights are: Pay is 14% below EU average Pay is 30% below other ‘small, open economies’ Irish productivity is well above the average of other EU-15 countries Irish Labour costs make up a smaller
Below is an extract from and a copy of the full report by Professor Jim Stewart on the effective tax rate of US corporations in Ireland exposing the oft cited PWC and World Bank report. The PwC/World Bank ‘Paying Taxes 2014’ shows cross country comparisons of various aspects of the tax system as they affect
A number of mortgage books have already been sold to unregulated private equity companies or hedge funds, mostly American; but in the proposed sales of the IBRC residential book (13,000 former INBS mortgages) we are looking at the largest sale ever of mortgages to unregulated vulture capitalists.
What does this mean for mortgage-holders?
Their mortgage will now be held by an unregulated entity whose sole purpose is to squeeze as much money out of the debt as possible. If it paid 30 cents for each euro of debt it will try to secure 50 cents or more back. As unregulated entities, mortgage-holders will not be covered by the Central Bank’s code of practice on mortgage arrears, which provides some minimal regulation and process for mortgage-holders who fall into arrears. Families will be completely at the mercy of these entities.
The voluntary agreement, much trumpeted by the special liquidator of the IBRC, is worthless. it is not even written down, which he confirmed to the Finance Committee of the Oireachtas late in February.
These vulture funds will base all their decisions on maximising the return for their investors. They are not vulnerable to political pressure or to negative publicity. If an asset becomes more valuable than a prospective return, they will evict families, seize the asset, and sell it on. They may securitise some mortgages further and sell these on to other entities. As most of the former INBS mortgages are on variable interest rates, they may increase the interest rates, especially on performing loans, if they feel this will increase their return.
The list of options are there for these funds, none of which are good news for any families involved.
One option not pursued by the IBRC, however, was that owners of the mortgage might be able to buy their own loan. Even if the mortgage-holder was willing to pay more for the loan than the vulture capitalist, they would not be allowed to buy it.
This sale process has also exposed, once again, the circle of big business that continues to profit from the misery they were involved in creating. The special liquidators appointed to manage the winding down of IBRC are KPMG. But KPMG were also the auditors of INBS and approved their accounts, which were so horrifically skewed towards speculative lending.
The legal advisers to the special liquidators are McCann Fitzgerald, who advised INBS on corporate governance; and a wonderful job they did.
And the “independent valuation” of the IBRC loan books for sale was carried out by PWC, the firm that valued the Anglo-Irish book in 2008 and reassured the Government that they would only require recapitalisation of €300 million. Only off by a factor of 100!
So it’s clear who this process has been designed to benefit, and what the Government means by a “recovery.” It’s a recovery of property inflation and profits for the wealthy, and a recovery of contracts and profits for big business.
Irish billionaires are worth a whopping $25 billion between them
The Celtic Tiger may have left the building, but Ireland’s billionaires are sitting on a combined fortune of $25 billion, according to the latest figures from Forbes magazine.
There are 1,645 names on the latest list of the world’s billionaires from Forbes and between them they control $6.3 trillion in wealth, according to an Irish Independent analysis of the report.
The paper says India-based Pallonji Mistry (84), the patriarch of the sub-continent’s massive Shapoorji Pallonji construction group, is listed as being worth $12.8bn and, thanks to his Irish citizenship, is Ireland’s richest person by far.
Media and communications tycoon Denis O’Brien (55) is listed by Forbes as Ireland’s second richest person, with a $6bn fortune.
O’Brien also controls Communicorp, which owns radio stations in Ireland, the UK and eastern Europe.
In third spot in the Irish rankings is John Dorrance, the 70-year-old worth $2.5bn who renounced his US citizenship and moved to Ireland before selling his 10.5pc stake in Campbell Soup Company.
Forbes speculates that he moved to Ireland to avoid paying high capital gains tax in the US.
Glen Dimplex founder Martin Naughton (74) is named by Forbes as Ireland’s fourth richest person with $2.2billion in total assets.
Celtic football club owner Dermot Desmond is fifth-richest at $2bn.
The paper says that among the Irish billionaires missing from the group are Hilary Weston and her family, who are behind Brown Thomas, Selfridges and Associated British Foods, the company that owns Primark. They are estimated to have a $10billion fortune.
Dublin financier Paul Coulson, who owns a large stake in glass container maker Ardagh, is said to be worth just over $1.3billion.
The Forbes list is topped by Microsoft founder Bill Gates, with a $76bn fortune.
|The euro has worked well for the creditor (surplus) countries. Germany is the best example. The German mark would have risen in value if there was no euro, and this probably would have eliminated some of the surpluses.
These surpluses enabled the Germans to buy assets abroad: for example, Lidl and Aldi have expanded throughout Europe. They return profits to Germany, and this increases the German surplus and the Irish deficit. This applies to the other creditor surplus countries: the Netherlands, Austria, Finland, Belgium, and Luxembourg.
The Chinese are achieving similar results by keeping the value of their currency low. They have been able to buy up US government bonds, and mines in Africa and Australia, with the surpluses generated by this policy.
Some countries in the euro area were winners in international trade, and some countries were losers. The winners had trade surpluses, and the losers had deficits. In table 1 the surpluses of the winning countries are shown as an average percentage over the periods 1990–99 and 2000–09, as well as the cumulative sum of their surpluses in the latter period.
|Table 1: Average surplus or deficit as a percentage of GDP, creditor countries|
|Germany||2.2||–1||3.8||€883.5 billion||81.757 million|
|Netherlands||3||4.1||6.5||€332.1 billion||16.612 million|
|Belgium||–0.4||3.9||4.3||€127.8 billion||10.883 million|
|Austria||–1.8||–2.1||2.2||€57.7 billion||8.388 million|
|Finland||–1.4||0.9||5.3||€45.2 billion||5.363 million|
|Luxembourg||15.9||12||9.7||€28.2 billion||508 million|
|Average using population weights||1.7||2.1||4.2|
|Total||€1,474.5 billion||123.511 million|
|Note: Cyprus, Estonia and Malta adopted the euro in 2008, and Slovenia and Slovakia joined in 2007, and they are left out.
It is important to remember that the euro is a fixed exchange-rate mechanism (in 1999 each currency was fixed against the euro), with no exit mechanism. This gives rise to the surpluses and deficits.
|Table 2: Average surplus or deficit as percentage of GDP, France|
|–2.1||0.7||–0.2||–€59.4 billion||64.824 million|
|Table 3 shows the performance of the debtor (deficit) countries.|
|Table 3: Average surplus or deficit as percentage of GDP|
|Italy||–1||1.3||–1||–€150 billion||60.483 million|
|Spain||–1.1||–1.8||–6.3||–€579 billion||48.073 million|
|Greece||–0.6||–1.7||–13.3||–€115.5 billion||11.308 million|
|Portugal||–8.1||–6.4||–9.7||–€149.1 billion||10.637 million|
|Ireland||–5.8||1.4||–2.2||€36.2 billion||4.476 million|
|Average population weights||–1.8||–0.3||–2.9|
|Total||–€1,030.3 billion||134.977 million|
|Note: Cyprus, Estonia and Malta adopted the euro in 2008, and Slovenia and Slovakia adopted it in 2007, and they are left out.
The euro was overvalued with respect to the debtor (deficit) countries.
Solutions to the imbalances
1. The creditor countries could expand demand or increase wages. This would lead to extra imports from the debtor countries and go some way towards solving their deficits. The Germans object to this, because it might cause inflation in Germany. It also smacks of Keynesian economics, and the Germans are now in the neo-liberal camp and believe that governments should not interfere in markets.
A new research paper from Michael Taft of Unite the Union here in Ireland shows why Ireland needs a pay increase.
- Pay is 14% below EU average
- Pay is 30% below other ‘small, open economies’
- Irish productivity is well above the average of other EU-15 countries
- Irish Labour costs make up a smaller portion of operating costs than other EU-15 countries
- Irish profits are NOW growing at a faster rate than profits in the Eurozone
Read the full paper here, Ireland needs a wage increase
Below is an extract from and a copy of the full report by Professor Jim Stewart on the effective tax rate of US corporations in Ireland exposing the oft cited PWC and World Bank report.
The PwC/World Bank ‘Paying Taxes 2014’ shows cross country comparisons of various aspects of the tax system as they affect companies, for example ease of compliance. In Ireland this Report is frequently cited in media coverage to the effect that reported effective profits tax rates in Ireland (shown as 12.3% in the Report published in 2013) are higher than those in France (8.3%) and other countries. The Report is based on a hypothetical (fictional) company which is small, domestically owned, has no imports or exports and produces and sells ceramic flower pots. These and other assumptions automatically rule out many tax minimisation strategies. This note assesses the claim that this report shows effective tax rates in Ireland are close to or above those in other countries such as France. It is argued data from the US Bureau of Economic Analysis gives a more accurate estimate of effective tax rates for US subsidiaries operating in Ireland and elsewhere. This data shows that for 2011, US subsidiaries operating in Ireland have the lowest effective tax rate in the EU at 2.2%. This tax rate is not that dissimilar to effective tax rates in countries generally regarded as tax havens such as Bermuda at 0.4%.
Above is an excellent overview of the Federal Reserve and how big banks captured it by Gerald Epstein and Juliet Schor.
Well worth a read
“Some people think that the Federal Reserve Banks are United States Government institutions. They are private monopolies which prey upon the people of these United States for the benefit of themselves and their foreign customers; foreign and domestic speculators and swindlers; and rich and predatory money lenders.”
– The Honorable Louis McFadden, Chairman of the House Banking and Currency Committee in the 1930s
The Federal Reserve (or Fed) has assumed sweeping new powers in the last year. In an unprecedented move in March 2008, the New York Fed advanced the funds for JPMorgan Chase Bank to buy investment bank Bear Stearns for pennies on the dollar. The deal was particularly controversial because Jamie Dimon, CEO of JPMorgan, sits on the board of the New York Fed and participated in the secret weekend negotiations.1 In September 2008, the Federal Reserve did something even more unprecedented, when it bought the world’s largest insurance company. The Fed announced on September 16 that it was giving an $85 billion loan to American International Group (AIG) for a nearly 80% stake in the mega-insurer. The Associated Press called it a “government takeover,” but this was no ordinary nationalization. Unlike the U.S. Treasury, which took over Fannie Mae and Freddie Mac the week before, the Fed is not a government-owned agency. Also unprecedented was the way the deal was funded. The Associated Press reported:
“The Treasury Department, for the first time in its history, said it would begin selling bonds for the Federal Reserve in an effort to help the central bank deal with its unprecedented borrowing needs.”2
This is extraordinary. Why is the Treasury issuing U.S. government bonds (or debt) to fund the Fed, which is itself supposedly “the lender of last resort” created to fund the banks and the federal government? Yahoo Finance reported on September 17:
“The Treasury is setting up a temporary financing program at the Fed’s request. The program will auction Treasury bills to raise cash for the Fed’s use. The initiative aims to help the Fed manage its balance sheet following its efforts to enhance its liquidity facilities over the previous few quarters.”
Normally, the Fed swaps green pieces of paper called Federal Reserve Notes for pink pieces of paper called U.S. bonds (the federal government’s I.O.U.s), in order to provide Congress with the dollars it cannot raise through taxes. Now, it seems, the government is issuing bonds, not for its own use, but for the use of the Fed! Perhaps the plan is to swap them with the banks’ dodgy derivatives collateral directly, without actually putting them up for sale to outside buyers. According to Wikipedia (which translates Fedspeak into somewhat clearer terms than the Fed’s own website):
“The Term Securities Lending Facility is a 28-day facility that will offer Treasury general collateral to the Federal Reserve Bank of New York’s primary dealers in exchange for other program-eligible collateral. It is intended to promote liquidity in the financing markets for Treasury and other collateral and thus to foster the functioning of financial markets more generally. . . . The resource allows dealers to switch debt that is less liquid for U.S. government securities that are easily tradable.”
“To switch debt that is less liquid for U.S. government securities that are easily tradable” means that the government gets the banks’ toxic derivative debt, and the banks get the government’s triple-A securities. Unlike the risky derivative debt, federal securities are considered “risk-free” for purposes of determining capital requirements, allowing the banks to improve their capital position so they can make new loans. (See E. Brown, “Bailout Bedlam,” webofdebt.com/articles, October 2, 2008.)
In its latest power play, on October 3, 2008, the Fed acquired the ability to pay interest to its member banks on the reserves the banks maintain at the Fed. Reuters reported on October 3:
“The U.S. Federal Reserve gained a key tactical tool from the $700 billion financial rescue package signed into law on Friday that will help it channel funds into parched credit markets. Tucked into the 451-page bill is a provision that lets the Fed pay interest on the reserves banks are required to hold at the central bank.”3
If the Fed’s money comes ultimately from the taxpayers, that means we the taxpayers are paying interest to the banks on the banks’ own reserves – reserves maintained for their own private profit. These increasingly controversial encroachments on the public purse warrant a closer look at the central banking scheme itself. Who owns the Federal Reserve, who actually controls it, where does it get its money, and whose interests is it serving?
Not Private and Not for Profit?
The Fed’s website insists that it is not a private corporation, is not operated for profit, and is not funded by Congress. But is that true? The Federal Reserve was set up in 1913 as a “lender of last resort” to backstop bank runs, following a particularly bad bank panic in 1907. The Fed’s mandate was then and continues to be to keep the private banking system intact; and that means keeping intact the system’s most valuable asset, a monopoly on creating the national money supply. Except for coins, every dollar in circulation is now created privately as a debt to the Federal Reserve or the banking system it heads.4 The Fed’s website attempts to gloss over its role as chief defender and protector of this private banking club, but let’s take a closer look. The website states:
* “The twelve regional Federal Reserve Banks, which were established by Congress as the operating arms of the nation’s central banking system, are organized much like private corporations – possibly leading to some confusion about “ownership.” For example, the Reserve Banks issue shares of stock to member banks. However, owning Reserve Bank stock is quite different from owning stock in a private company. The Reserve Banks are not operated for profit, and ownership of a certain amount of stock is, by law, a condition of membership in the System. The stock may not be sold, traded, or pledged as security for a loan; dividends are, by law, 6 percent per year.”
* “[The Federal Reserve] is considered an independent central bank because its decisions do not have to be ratified by the President or anyone else in the executive or legislative branch of government, it does not receive funding appropriated by Congress, and the terms of the members of the Board of Governors span multiple presidential and congressional terms.”
* “The Federal Reserve’s income is derived primarily from the interest on U.S. government securities that it has acquired through open market operations. . . . After paying its expenses, the Federal Reserve turns the rest of its earnings over to the U.S. Treasury.”5
So let’s review:
1. The Fed is privately owned.
Its shareholders are private banks. In fact, 100% of its shareholders are private banks. None of its stock is owned by the government.
2. The fact that the Fed does not get “appropriations” from Congress basically means that it gets its money from Congress without congressional approval, by engaging in “open market operations.”
Here is how it works: When the government is short of funds, the Treasury issues bonds and delivers them to bond dealers, which auction them off. When the Fed wants to “expand the money supply” (create money), it steps in and buys bonds from these dealers with newly-issued dollars acquired by the Fed for the cost of writing them into an account on a computer screen. These maneuvers are called “open market operations” because the Fed buys the bonds on the “open market” from the bond dealers. The bonds then become the “reserves” that the banking establishment uses to back its loans. In another bit of sleight of hand known as “fractional reserve” lending, the same reserves are lent many times over, further expanding the money supply, generating interest for the banks with each loan. It was this money-creating process that prompted Wright Patman, Chairman of the House Banking and Currency Committee in the 1960s, to call the Federal Reserve “a total money-making machine.” He wrote:
“When the Federal Reserve writes a check for a government bond it does exactly what any bank does, it creates money, it created money purely and simply by writing a check.”
3. The Fed generates profits for its shareholders.
The interest on bonds acquired with its newly-issued Federal Reserve Notes pays the Fed’s operating expenses plus a guaranteed 6% return to its banker shareholders. A mere 6% a year may not be considered a profit in the world of Wall Street high finance, but most businesses that manage to cover all their expenses and give their shareholders a guaranteed 6% return are considered “for profit” corporations.
In addition to this guaranteed 6%, the banks will now be getting interest from the taxpayers on their “reserves.” The basic reserve requirement set by the Federal Reserve is 10%. The website of the Federal Reserve Bank of New York explains that as money is redeposited and relent throughout the banking system, this 10% held in “reserve” can be fanned into ten times that sum in loans; that is, $10,000 in reserves becomes $100,000 in loans. Federal Reserve Statistical Release H.8 puts the total “loans and leases in bank credit” as of September 24, 2008 at $7,049 billion. Ten percent of that is $700 billion. That means we the taxpayers will be paying interest to the banks on at least $700 billion annually – this so that the banks can retain the reserves to accumulate interest on ten times that sum in loans.
The banks earn these returns from the taxpayers for the privilege of having the banks’ interests protected by an all-powerful independent private central bank, even when those interests may be opposed to the taxpayers’ — for example, when the banks use their special status as private money creators to fund speculative derivative schemes that threaten to collapse the U.S. economy. Among other special benefits, banks and other financial institutions (but not other corporations) can borrow at the low Fed funds rate of about 2%. They can then turn around and put this money into 30-year Treasury bonds at 4.5%, earning an immediate 2.5% from the taxpayers, just by virtue of their position as favored banks. A long list of banks (but not other corporations) is also now protected from the short selling that can crash the price of other stocks.
Time to Change the Statute?
According to the Fed’s website, the control Congress has over the Federal Reserve is limited to this:
“[T]he Federal Reserve is subject to oversight by Congress, which periodically reviews its activities and can alter its responsibilities by statute.”
As we know from watching the business news, “oversight” basically means that Congress gets to see the results when it’s over. The Fed periodically reports to Congress, but the Fed doesn’t ask; it tells. The only real leverage Congress has over the Fed is that it “can alter its responsibilities by statute.” It is time for Congress to exercise that leverage and make the Federal Reserve a truly federal agency, acting by and for the people through their elected representatives. If the Fed can demand AIG’s stock in return for an $85 billion loan to the mega-insurer, we can demand the Fed’s stock in return for the trillion-or-so dollars we’ll be advancing to bail out the private banking system from its follies.
If the Fed were actually a federal agency, the government could issue U.S. legal tender directly, avoiding an unnecessary interest-bearing debt to private middlemen who create the money out of thin air themselves. Among other benefits to the taxpayers. a truly “federal” Federal Reserve could lend the full faith and credit of the United States to state and local governments interest-free, cutting the cost of infrastructure in half, restoring the thriving local economies of earlier decades.
Ellen Brown, J.D., developed her research skills as an attorney practicing civil litigation in Los Angeles. In Web of Debt, her latest book, she turns those skills to an analysis of the Federal Reserve and “the money trust.” She shows how this private cartel has usurped the power to create money from the people themselves, and how we the people can get it back. Her eleven books include the bestselling Nature’s Pharmacy, co-authored with Dr. Lynne Walker, and Forbidden Medicine. Her websites are www.webofdebt.com and www.ellenbrown.com .
This is an interesting paper from 1963 on Marx's law of the falling tendancy of the rate of profit. Full paper here Shane Mage Thesis on The Law...
Co-ops– cooperative economic enterprises– have been embraced by significant groups of people at different times and places. Their attraction precedes the heyday of industrial capitalism by offering a means to consolidate small producers and take advantage of economies of scale, shared risk, and common gain.
At the advent of the industrial era, cooperatives were one of many competing solutions offered to ameliorate the plight of the emerging proletariat. Social engineers like Robert Owen experimented with cooperative enterprises and communities.
In the era of mass socialist parties and socialist construction, cooperatives were considered as intermediate steps to make the transition from feudal agrarian production towards socialist relations of production.
Under the capitalist mode of production, co-ops have filled both employment and consumption niches deferred by large scale capitalist production. Economic activities offering insufficient profitability or growth have become targets for cooperative enterprise.
In theory, cooperatives may offer advantages to both workers and consumers. Workers are thought to benefit because the profits that are expropriated by non-workers in the capitalist mode of production are shared by the workforce in a cooperative enterprise (less the present and anticipated operating expenses and investments, of course). Many argue as well that the working conditions are necessarily improved since workplace decisions are arrived at democratically absent the lash associated with the profit-mania of alienated ownership (though little attention is paid to the consequences for productivity and competitiveness against capitalist enterprises).
Consumers are said to benefit when they collectively appropriate the retail functions normally assumed by privately owned, profit-driven outlets. Benefit comes, on this view, by purchasing from wholesale suppliers, collectively meeting the labor requirements of distribution, and enjoying the cost-savings from avoiding a product markup (little attention is paid to limitations on participation dictated by class, race, or gender; the wholesale quantity discounts enjoyed by capitalist chains are also conveniently overlooked).
A case can also be made for the cooperator’s dedication to quality, safety, and health- promotion.
In reality, cooperatives in the US are largely indistinguishable from small businesses. Like small private businesses, they employ few people and rely heavily upon “sweat equity” for capitalization. Like other small businesses, US cooperatives operate on the periphery of the US economy, apart from the huge monopoly capitalist firms in manufacturing, service, and finance.
Cooperatives as a Political Program
Since the demise of the Soviet Union and Eastern European socialism, many on the US Left have rummaged for a new approach to the inequalities and injustices that accompany capitalism. Where more than a decade of anti-Communist purges had wrung nearly all vestiges of socialist sympathy from the US psyche, the fall of the ludicrously-named “Iron Curtain” found Leftists further distancing themselves from Marxian socialism. Hastily interning the idea of socialism, they reached for other answers.
It is unclear whether this retreat was actually a search for a different anti-capitalist path or, in reality, grasping an opportunity to say farewell to socialism.
In recent years, several Leftists, “neo-Marxists”, or fallen Marxists have advocated cooperatives as an anti-capitalist program. Leading advocates include the Dollars and Sense collective centered around the University of Massachusetts, Amherst, GEO (Grassroots Economic Organizing), Professor Gar Alperovitz, Labor Notes, United Steel Workers of America, and media Marxist-du-jour, Professor Richard Wolff. Some are organizing around the idea of a “New Economy” or a “Solidarity Economy”, with cooperative enterprises as a centerpiece.
Now coops are not foreign to Marxist theory. After World War I, the Italian government sought to transfer ownership of unused land from big estates, latifondi, on to peasants, especially veterans. As much as 800,000 hectares were thus passed on to poor peasants. Through this process and land seizures, the number of smallholders increased dramatically. Socialists and Communists urged the consolidation of these holdings into collectives, agricultural cooperatives. Certainly more than 150,000 hectares ended up in cooperatives. In those circumstances, the rationale was to increase the productivity, to save the costs, to enhance the efficiency of peasant agriculture in order to compete with the large private estates. Cooperatives were not seen as an alternative to socialism, but a rational step away from near feudal production relations toward socialism, a transitional stage.
Likewise, in the early years of the Soviet Union, Communists sought to improve small-scale peasant production by organizing the countryside into collective farms, producers’ cooperatives. They saw cooperative arrangements as rationalizing production and, therefore, freeing millions from the tedium and grind of subsistence farming and integrating them into industrial production. Through mechanization and division of labor, they expected efficiency and productivity to grow dramatically, speeding development and paving the way for socialism.
Again, cooperative enterprises counted as an intermediary for moving towards socialist relations of production. Thus, Marxists see the organization of cooperatives as a historically useful bridge between rural backwardness and socialism.
But modern day proponents of cooperatives see them differently.
“The ‘evolutionary reconstructive’ approach is a form of change different not only from traditional reform, but different, too, from traditional theories of ‘revolution’” says Gar Alperovitz of cooperatives and other elements of the “Solidarity Economy” (America beyond Capitalism, Dollars and Sense, Nov/Dec, 2011). Like most proponents, Alperovitz sees cooperatives as pioneering a “third way” between liberal reformism and socialist revolution. However, a minority of advocates (Bowman and Stone, “How Coops can Change the World”, D&S, Sept/Oct, 1998, for example) see cooperatives as the “best first step towards that goal [of a planned, democratic world economy]. They suggest that the correct road is through “spreading workplace democracy” and on to socialism.
Whether postured as a “third way” or a step towards socialism, it is difficult to get a clear picture of the extent and success of the cooperative movement; it is equally challenging to gather a sense of how it is suppose to function in a capitalist economy.
As for numbers, Alperovitz (“America beyond Capitalism”, D&S, Nov/Dec, 2011) muddies the waters by citing the numbers of “community development corporations” and “non-profits” (Alperovitz, 2011) as somehow strengthening the case for cooperatives. The fact that community development corporations have wrested control of neighborhoods from old-guard community and neighborhood groups and embraced developers and gentrification causes him no distress. Of course “non-profits” count as an even more dubious expression of a solidarity economy. In a city like Pittsburgh, PA, mega-non-profits remove 40% of the assessed property from the tax rolls. These non-profits not only evade taxes, but divide enormous “surpluses” among super-salaried executives. They beggar funding from tax shelter trusts and endowment funds, completing the circle of wink-and-a-nod tax evasion. Of course there are, as well, thousands of “non-profits” that pursue noble goals and operate on a shoestring.
Alperovitz alludes to credit unions as perhaps sharing the spirit of cooperation without noting the steady evolution of these once “third way” institutions towards a capitalist business model. Insurance companies also share this evolution, but they are too far down this path of transition to capitalist enterprise to be credibly cited by Alperovitz.
Alperovitz leaves us with “…11,000 other businesses that are owned in whole or part by their employees.” In this slippery total of whole or partial worker ownership are included ESOPs– Employee Stock Ownership Programs, a touted solution to the plant closing surge that ripped through the Midwest in the 1980s. Alperovitz pressed vigorously for ESOPs in the steel industry in the 1980s as he does cooperatives today. When asked to sum up their track record, one sympathetic consultant, when pressed, said: “I don’t think its been a real good record of success. Some have actually failed…” (Mike Locker, “Democracy in Steel?”, D&S, Sept/Oct, 1998). But we get no firm number for cooperatives in the US.
Another advocacy group for cooperatives gave a more candid picture of the cooperative movement in the Sept/Oct, 1998 issue of Dollars and Sense (“ESOPS and Coops”). A study by the Southern Appalachian Cooperative Organization claimed that there were 154 worker-owned cooperatives employing 6,545 members in the US. In sixty percent of the 154, all workers were owners. Median annual sales were $500,000 and 75 percent had 50 or fewer workers. Twenty-nine percent of the coops were retail, twenty-eight percent were small manufacturing, and twenty-three per cent food related businesses.
Interestingly, the same article claims that there were approximately 11,000 ESOPs in 1988 (source: National Center of Employee Ownership). If we take Alperovitz’s 2011 claim seriously, there has been little growth in the ensuing thirteen years of “…businesses that are owned in whole or part by their employees…”.
From this profile, we can conclude that cooperatives in the US are essentially small businesses accounting for a tiny portion of the tens of millions of firms employing less than 50 employees. As such, they compete against the small service sector and niche manufacturing businesses that operate on the periphery of monopoly capitalism. Insofar as they pose a threat to capitalism, they only threaten the other small-scale and family owned businesses that struggle against the tide of price cutting, media marketing, and heavy promotion generated by monopoly chains and low-wage production. They share the lack of capital and leverage with their private sector counterparts. Cooperatives swim against the tide of monopolization and acquisition that have virtually destroyed the mom and pop store and the neighborhood business.
Some of the more clear-headed advocates acknowledge this reality. Betsy Bowman and Bob Stone concede the point: “…Marx argued in 1864 that capitalists’ political power would counteract any gains that coops might make. This has proven true! When capitalists have felt threatened by cooperatives, they have conducted economic war against coops by smear campaigns, supplier boycotts, sabotage, and, especially, denying credit to them.” (Bowman and Stone, D&S, Sept/Oct, 1998).
Until recently, cooperators and their advocates had one very large arrow in their quiver.
When pressed on the apparent weakness of cooperatives as an anti-capitalist strategy, they would counter loudly: “Mondragon!”.
This large-scale network of over 100 cooperative enterprises based in Spain seemed to defy the criticisms of the cooperative alternative. With 80,000 or more worker-owners, billions of Euros in assets and 14 billion Euros in revenue last year, Mondragon was the shining star of the cooperative movement, the lodestone for the advocates of the global cooperative program.
But then in October, appliance maker Fagor Electrodomesticos, one of Mondragon’s key cooperatives, closed with over a billion dollars of debt and putting 5500 people out of work. Worker-employees lost their savings invested in the firm. Mondragon’s largest cooperative, the supermarket group Eroski, also owes creditors 2.5 billion Euros. Because the network is so interlocked, these setbacks pose long term threats to the entire system. As one worker, Juan Antonio Talledo, is quoted in The Wall Street Journal (“Recession Frays Ties at Spain’s Co-ops”, December 26, 2013): “This is our Lehman moment.”
It is indeed a “Lehman moment”. And like the Lehman Bros banking meltdown in September of 2008, it makes a Lehman-like point. Large scale enterprises, even of the size of Mondragon and organized on a cooperative basis, are susceptible to the high winds of global capitalist crisis. Cooperative organization offers no immunity to the systemic problems that face all enterprises in a capitalist environment. That is why a cooperative solution cannot constitute a viable alternative to capitalism. That is why an island of worker-ownership surrounded by a violent sea of capitalism is unsustainable.
The failures at Mondragon have sent advocates to the wood shed (see www.geonewsletter.org). Leading theoretical light, Gar Alperovitz, has written in response to the Mondragon blues: “Mondragón’s primary emphasis has been on effective and efficient competition. But what do you do when you are up against a global economic recession, on the one hand, or radical cost challenges from Chinese and other low-cost producers, on the other?”
What do you do? Shouldn’t someone have thought of that before they offered a road map towards a “third way”? Are “global economic recessions” uncommon? Is low cost production new? And blaming the Chinese is simply unprincipled scapegoating.
Alperovitz goes on: “The question of interest, however – and especially to the degree we begin to face the question of what to do about larger industry – is whether trusting in open market competition is a sufficient answer to the problem of longer-term systemic design.” Clear away the verbal foliage and Alperovitz is admitting that he never anticipated that open market competition would snag Mondragon. Did he think that Fagor sold appliances outside of the market? Did he think that Mondragon somehow got a free pass in global competition?
Of course the big losers are the workers who have lost their jobs and savings. It would be mistaken to blame the earnest organizers or idealistic cooperators who sincerely sought to make a better, more socially just workplace. They gambled on a project and lost. Of course social justice should not be a gamble.
The same sympathy cannot be shown for those continuing to tout cooperatives as an alternative to capitalism. If you want to open small businesses (organized as cooperatives), be my guest! But please don’t tell me and others that it’s somehow a path beyond capitalism.
Comrades and friends: It’s impossible to be anti-capitalist without being pro-socialist!
Below are a number of valuable union pamphlets in defence of public wealth and in opposition to privatisation.
We have to get beyond sectoral interests and look at the common good, to defend the very idea of social ownership as an alternative to the anarchy and chaos of corporate monopoly capitalism.
If unions in particular, and the left in general, oppose privatisation only in detail—unfair to workers, or creates even poorer service—then they will certainly be beaten, and will not build a basis for recovery of the socialist case for public provision. If unions and the left fight privatisation politically they may be beaten—stopping a government that represents international as well as domestic capital is not an easy thing—but they may also build a new basis for such a recovery. The experience of our nearest neighbours in Britain—and limits to what unions can do alone—tell us this.
An example of the value of public wealth is the ESB. At its peak it employed 13,500 workers in well paid decent work with education and training opportunities for skilled workers. In 2002 the ESB provided the lowest energy prices out of 15 EU member states. But as a result of imposed deregulation and open competition the ESB was forced to raise its prices by 14% and hand over 60% of the market to over-priced private enterprise resulting in massive redundancies and a reduced workforce down to about 6,000. These are decent jobs gone for future generations of workers. Despite this the ESB has never received state subvention and over the last 10 years has handed back almost 2 billion in dividends back to the public.
Read more of this in the TULF’s pamphlet below ‘Robbing the peoples wealth’.