While the theoretical framework for the worker cooperatives structure is relatively straightforward, a number of technical and philosophical questions remain. If you have answers to these questions please contact me.
These questions will require a broad discussion.
- What should the third cooperative principle be?
Strategic startups questions:
Which startup approach should the emphasis be placed on? 1) Getting personal loans for members starting worker cooperatives that would then be invested in the coop. Since the individual members intermediate the financing, the questions of losses to outside investors in the coop goes away and is replaced by a moral hazard problem of members effectively taking risks with other peoples money. This approach is consistent with the current coop principles. 2) Allow a loss bases return for members where they cumulatively invest sufficient assets to cover startup losses. This requires updating the 3rd coop principle. It is problematic for both capital intensive startups and low net worth individuals. 3) Allow a loss bases return for outside investors. This requires updating the 3rd coop principle and rethinking the defining characteristics of a coop. Worker ownership is sacrificed under this scenario until the investors are compensated for their losses. 4) Rely on donations to cover losses the members can’t handle. This is also consistent with the current coop principles. 5) Continue to pretend that the startup losses don’t actually reduce the value of member investments. This is the current low growth option that is inconsistent with reality.
Technical startups questions:
Should a founding member who suffers a loss and leaves before a cooperative is profitable have a claim on future profits even if they are no longer a member? Should this claim be equal to their loss or can this claim on profits be greater than their loss? Would their claim be equivalent to a founding member that stayed? If a member leaves the cooperative with a claim on future profits, can they sell that claim (is it tradable)?
The next questions relate to the identity of a worker cooperative and are intentionally provocative. They are asked because, in many cases, low net worth individuals will be unable to bear startup losses, making starting a worker cooperative impractical (absent donations). Also it is impractical for founding members to cover the startup losses in many large business (industrial manufacturing, telecommunications, oil extraction/production, etc.).
If a non-member investor in a worker cooperative startup bears a loss on their investment are they entitled to a future claim on profits? Can their claim on future profits be greater than one (in the same way a founding member)? Is that claim on future profits tradable?
What is fair compensation for bearing a loss? What would be considered the equivalent of usury or predatory lending for borrowing? Should the coop community establish caps on loss based compensation? Is this feasible across industries and sectors?
Tax and Accounting Questions
For the tax lawyers and accountants. Some of these questions are probably trivial to answer.
Would a worker cooperative that initially distributed profits in proportion to member losses be eligible for Subchapter T (United States only)? What about after the founding members (and possibly investors) are compensated for their losses and profits are distributed purely based on labor? What about for a worker coop in a cyclic sector (agriculture for example) where loss based compensation was a recurring feature.
Some questions about individual tax issues. If a founding member loses money on their investment (a realized loss in the truest sense), can that loss be reported for tax purposes? Even if the investment isn’t sold? Will the answers may depend on the legal form of the cooperative?
Carried interest shouldn’t exist (its a huge give away to the super rich). But given the current state of affairs, could some of the profits coop members receive and reinvest be classified as carried interest?
Most of these questions arise because the confusion about capital and labor is embedded in the tax system. As if somehow capital, and not labor, is generating profits. This creates a perverse system where people are taxed less when their income comes from other peoples labor, rather than their own. The theoretically irrelevant, but functionally important question for tax purposes is what portion of a worker cooperative members income should be taxed as wages?
If one were to try to apply slave law to members of a coop there would be some irreconcilable contradictions. The same is true of employment law. Worker coop members are neither slaves nor employees. Trying to fit coop membership into the employment law mold will not necessarily work no matter how hard we try. But it does leave a lot of questions.
Should the minimum wage apply to worker coop member? In new coops? For new members? Should overtime laws apply at all? If coop members choose their own hours? Should certain types of insurance like workers comp be require? What are the appropriate legal protections for worker coop members as workers, managers, owners, and investors?