06.14.09
The Macroeconomic Benefits of Cooperative vs. Capitalist Ownership
The Macroeconomic Benefits of Cooperative vs. Capitalist Ownership
Mondragon: A Better Way to Work?
Abstract: A computer model linking national income and product accounts, input-output structure, the labor market, and consumption data for the U.S. economy is used to compare the effectiveness of traditional macroeconomic policies and alternative forms of business ownership in generating more stable or equitable growth and avoiding business cycle recessions. The instability of the economy is demonstrated to result from underlying structural weaknesses rooted in the capitalist form of ownership.
Typical macroeconomic policy options cause feedback effects via investment or consumption behavior that eventually result in financial crises, making these policies inadequate for long term stabilization and growth. Tax policy favoring business interests can create new investment, but its effect is often defeated by declining consumption demand as a product of wealth redistribution. Relatively faster growth of liquidity also causes a high growth rate of investment, favoring production in the short term, but a falling profit rate leads to riskier financial practices and crisis in the long run. Higher growth of fiscal spending produces a higher growth rate of output and employment but it is disproportionately in low wage and service sector jobs. The profit rate rises steadily but increasing debt creates a liquidity crunch that eventually chokes off new investment. Financial crises also result from increasing the velocity of money, an effect of intensified financial intermediation and financial speculation.
The producer cooperatives of the Mondragon region of Spain offer an example of the economic benefits of an alternative financial and institutional structure based on the cooperative form of ownership. Mondragon businesses are owned and operated by their employees. Management is elected, and the position is rotated among the firm’s employees. Decisions that are made by management in capitalist ownership are often made by democratically elected committees or by direct vote of the employees in cooperatives. Priority is given to the job creation or preservation potential of a business strategy before its potential for profit. The salary ratio between high and low wage jobs is fixed. Profits are only partly distributed to employee-owners, and only then in retirement accounts that can be accessed after retirement. Profits and retirement accounts are used to finance new investment and business start-ups. As a result of these structural differences, there is far less leakage of wealth from the Mondragon economy. A very high proportion of business revenues remains in the local economy and provides for community services and infrastructure development; retirement, health care, and social welfare benefits; employee education and training; and new investment and business development.
The underlying argument is that an economy based on the participation of workers in control and management would be more productive than the existing structure of the U.S. economy. The hypothesis is tested by adapting a structural macroeconomic model of the U.S. with parameter values that reflect cooperative rather than investor ownership. Simulations of the U.S. economy using altered coefficents to represent cooperative business structure but with the same exogenous final demands generate much higher growth without cyclical fluctuation. The consequence of investing directly from earnings rather than from debt or the issuance of stocks and bonds is stable, sustainable growth without financial crises.
If maximizing economic growth and stability are the prime objectives of economic policy, employee ownership with democratic control is demonstrated to be a more effective ownership structure for accomplishing that objective.
