Ecosystem Podcast RCast

RCast 12: The Unsung Value of the Co-op Model (with Nathan Schneider)

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Intro: Waymo vehicles driving around Chandler, Arizona were surprised recently when rock- and knife-wielding residents launched a series of attacks. Google’s self-driving car fleet suffered slashed tires and bruised bodies. As the NY Times put it,

In ways large and small, the city has had an early look at public misgivings over the rise of artificial intelligence, with city officials hearing complaints about everything from safety to possible job losses.

I recently chatted with Nathan Schneider about the Luddites, as we share a fascination with this early 19th-century group in England that traveled around destroying the cotton and woolen mills that were stealing away their livelihood. Unfortunately for the mill owners, many were injured or killed in the process, as this machinery was not self-driving.

While today we use Luddite as a term to laugh at technological curmudgeons refusing to evolve with the times, Kirkpatrick Sale puts it best in his history of the group, Rebels Against the Future:

Beware the technological juggernaut, reckon the terrible costs, understand the worlds being lost in the world being gained, reflect on the price of the machine and its systems on your life, pay attention to the natural world and its increasing destruction, resist the seductive catastrophe of industrialism.

Need we lose our technology to save our soul? Not if we change the economic system governing it. I’ve learned a lot reading Nathan’s work, including his latest book, Everything for Everyone: The Radical Tradition that is Shaping the Next Economy, as well as the book he co-edited, Ours to Hack and Own: The Rise of Platform Cooperativism, a New Vision for the Future of Work and a Fairer Internet. Besides his career in journalism, Nathan is also a professor of media studies at the University of Colorado Boulder. And as you can imagine, he is a fan of co-ops.

During our talk we discuss the value of public and private blockchains and how even in the decentralized thrust of many blockchain projects, the old rules are just being pasted onto new ventures; how co-ops actually foster a true culture of individualism while the corporate model demands a sort of mass conformity; and interesting bits of history, such as the fact that credit cards were basically a dead industry until Bank of America launched a co-op model for banking. Only after the success of that project did privatization—and the continuing debt crisis—ensue.

Ten percent of the world’s employees work for cooperatives in some capacity and, to my surprise, the United States leads the world in the number of co-ops at 40,000. After hearing Nathan talk, you won’t want to smash your smartphone, but you just might question who you’re buying it from and what service provider you’re paying off every month.

Derek: I was listening to an interview with Will Storr, the journalist who I also had on my personal podcast earlier this year after the release of his book, Selfie, which is about how the world became so self-obsessed. He brings up the point of different experiments that have been done between Japanese and American culture showing that there is a stark difference between how a communal-focused culture such as Japan looks at themselves as compared to a very individualistic culture—America, Western cultures—which brings up the idea that the cooperative model is really about working together and no one particularly takes the lead financially. It’s more spread out in terms of wealth distribution; everyone gets a role. Knowing that we’ve moved into such an individualist culture, it seems to be getting worse and worse as we progress technologically. How do we get people to cooperate in models such as those you express in your work?

Nathan: I actually don’t think of cooperatives as anti-individualist. Part of it is because I’m an introvert. I tend to operate on my own as a journalist. As a scholar, I like forms of work that don’t involve seeing the same people every single day, day in and day out, having to debrief every crazy idea you have by the whole team. I think of this as a question of accountability. It’s a business model in which the participants of an enterprise happen to be the people who own and govern it. It’s the people to whom it’s accountable, right? Whether they’re customers, like at REI or a credit union, the thing is accountable to them.

If they’re workers, the profits of the business go to them rather than to shareholders somewhere. But that doesn’t mean they’re sitting around singing “Kumbaya” all day. I’m really grateful, for instance, that my credit union doesn’t call me every time they have to decide whether to make a loan to somebody. I’m glad that’s not necessary. 

This is actually part of a cooperative tradition we have in this country. For instance, my grandfather—this is something I learned while I was writing this book, Everything for Everyone—my grandfather, who was a farm boy from Colorado, became the director of a large national purchasing cooperative for hardware; his company was called Liberty Distributors. A distinguishing feature of the company compared to other hardware cooperatives (like Ace Hardware and True Value, very prominent brands around the country) is that Liberty was all about using the cooperative model to enable local stores to be more individualistic, to enable them to have more control over how they branded themselves and what stock they carried.

When you look at the hardware store in my town—a member of Ace Hardware—the cooperative enables it to be much more tailored to the culture of the town than the Home Depot conglomerate down the road. So actually it’s the corporate model in my view that expects this kind of mass conformity. The cooperative model is a strategy for enabling businesses to help people fulfill ourselves. So I don’t think, especially in the US context, but also elsewhere, that cooperatives are in any way antithetical to a kind of individualistic culture or a kind of pioneering culture.

Derek: This also explains our work at RChain. I left full-time work 15 years ago because I was, like you said, being a professional journalist at the time, I got tired of being in the same office with the same people all the time. This is my first real foray back into a full-time situation. I enjoy the freedom that I’m offered and more to the point, the ability to say, “you’re an expert in this, here you go with it.” It’s very liberating. I think it does run up against the capitalist model, which I often personally associate with individualism—for example, the vast wealth gap that we’ve watched grow between top players and the rest of their staff. 

You actually write about Amazon’s mechanical turkers; I remember when that first happened. I looked into it as a freelancer and thought these are just insane rates. You’re competing against people for dollars on the hour. How does a cooperative model work in a country that is dominated, at least mentally, by capitalism? Capitalism operates as individualism for the few. It offers job individualism, where one or two people get to have their imagination go wild, and then everybody else is a servant to that imagination, and then write books about how you can do it too.

Nathan: Right, right, right. It’s a very deceptive ideology and it’s one, for instance, I see among my students very frequently, this “Steve Jobs can do it, you can do it too.” Actually, the system that enabled Steve Jobs to do what he did actually militates against you ever being like that. In contrast, a model that enables small businesses to remain small business as well. Having access to economies of scale through national cooperative purchasing provides a very different model. It also requires leaders. For instance, my grandfather was a leader. He was somebody who built something, who had vision, and so forth. The unfortunate fact, in a certain respect, is that his profits went back to his members.

So he wasn’t able to have all this money lying around to self-aggrandize and to make himself look like the most important person in the world. He ended up being able to support his family who really did better than it was doing before—a different kind of wealth accumulation. We forget our cooperative heroes and leaders, and then we start to imagine that it’s just this bland crowd that makes these things happen. No, they’re incredible people who have built the cooperative movement through U.S. history. We lose sight of those leaders. We lose sight of the role of vision and imagination. 

People like Murray Lincoln was one of the architects of the Rural Electric Cooperatives in the 1930s. Within about a decade, cooperatives enabled 90% of rural America to get electricity when the investor companies wouldn’t do it. This guy was in and out of the White House every day. He was a CEO at Nationwide, a mutual insurance company. It was owned by its members, but we lose the story because he doesn’t fit this particular self-aggrandizing capitalist mode. Yet he developed these incredibly powerful cooperatives that reshaped the American landscape. 

Capitalism has taken so much credit for stuff that actually much more diverse kinds of models have built. For instance, we think of credit cards as the apogee of capitalism, right? Credit cards are what enables capitalism to bring lending to everybody’s pocket. What became Visa was originally Bank Americard, which was run by Bank of America. It wasn’t working under the corporate model. This visionary small city, a regional banker in Seattle, said to Bank of America, “Hey, this isn’t working at all. Let’s spin this off as a separate cooperative made up of these banks.” That was what made the credit card phenomenon really work. 

Then after the cooperatives built that industry, it got demutualized, privatized, turned into this kind of rapacious and exploitative industry. But it was actually the cooperative model that enabled that feature of capitalism to grow. There are so many stories like that, where cooperative models actually enabled things that capitalism later took credit for it. 

I play a game with myself when I go into a strip mall. I look around and notice all the things that are there because of cooperatives, whether it’s the organic food store or fair trade coffee or the Visa labels in the windows of the small business or chains like Dairy Queen and Best Western that have cooperatives built into their model. Most people look at and say, “that’s capitalism at work,” when in fact there’s another logic at play that has helped build some of the best parts of our world.

Derek: That brings to mind something that blows my mind. There’s a newish co-op here in Culver City, where I live. My wife and I are going to join; I used to live by the Park Slope co-op. There are so many things that are related to agriculture in the cooperative movement. I didn’t even know until reading your book that Land O’ Lakes was a cooperative. There are so many examples of this, yet talking about the branding and marketing of capitalism, how does such a large segment of the rural and agricultural population in America vote for an administration that is against their best interests?

Nathan: Well, it’s not totally clear. Sure, you can have the argument about best interests and so forth. But actually, if you look at the relationship to those cooperatives politicians in the Republican Party has, I think a better understanding of the importance of cooperative enterprise in American history emerges. Democrats have retreated to the urban areas where cooperatives are generally small and marginal. 

I love the Park Slope food co-op. My wife used to be a member; it’s a beautiful place. I was kind of an interloper for bad behavior; I need to do a lot of penance for that [laughs]. Urban consumer cooperatives, for instance, were born during the 60’s counterculture. They were never really intended to serve large economies. They were about a marginal counterculture and that’s fine.

But it means that progressives don’t actually understand the dire importance of cooperatives informing the economy of this country. The fact that when I go up to my relatives’ farms in northern Colorado, they’ve got tanks that say Infinity Ag on them. That’s a cooperative. They’re buying from their inputs from a cooperative, then their beets still go to the beet processing co-op in Fort Morgan that we’ve been going to for a century. Their whole livelihood is built on this model. They’re getting their electricity from a cooperative. 

So you look at someone like Mike Pence; he’s been supportive and worked with the Indiana co-ops and electric co-ops and credit unions for years. Whereas, a lot of the Democratic politicians, especially since the Clinton years, have abandoned and failed to understand how rural America works.

You end up with weird stuff, where the 2016 Democratic and Republican platforms both advocated expanding employee ownership for totally different reasons. There’s this weird way in which we have this opportunity a new consensus in which both Democrats and Republicans are talking about credit unions. The Main Street Employee Ownership Act, which enables more conversions of small- and medium-sized businesses to employee ownership, had total down-the-line bipartisan support. That’s not supposed to happen right now, but it’s made up of this history. 

Progressives are just starting to discover this whole tradition of a grassroots democratic economy. Let’s really get behind that. In some respects, Republicans have been sitting on it while they’ve been neglecting its radicalism and thinking of it as the status quo, as opposed to this really transformative opportunity and movement.

Derek: Nothing is inevitable, except perhaps what we’re doing to the climate and environment. But even that can be changed. You advocate for changes in regulations that are more cooperative- and employee-friendly. I was not aware of this bipartisan support because most of my time is spent scrolling through my news feed and seeing that the administration now is trying to cut Bush wetlands regulations to open up more wetlands for exploration. So we’re moving so backward in that front. Do you feel that there is more awareness, in terms of real regulatory power of protecting workers? I don’t want to say subsidies for co-ops, although that could be an idea. Do you think such an idea will gain traction as we move forward?

Nathan: I think there’s a tremendous opportunity. I’m glad you brought up the question of subsidies. I don’t think subsidies for co-ops is a bad thing—at the very least, there’s already such a tremendous subsidy for investor-owned businesses. The way in which the political system is slanted to support those who accumulate large amounts of money; the way in which capital gains tax structures benefit those who are primarily investors rather than actual value creators. This happens every day, all over the country, especially in very desperate communities: the government shells out tons of money to subsidize the entry of extractive businesses and then extract the value somewhere else. We’re subsidizing investor ownership as a business model left and right.

Whereas cooperative models, which are resistant to investor ownership, are left in the lurch by that kind of bias. And so when we’ve had explosions of really productive cooperative development, it’s been through policy-based recognition that we need to level the playing field. For instance, when those electric cooperatives came up and transformed rural America because the Department of Agriculture through the Rural Electrification Act of 1936 was able to issue bank-rate loans to co-ops. That meant cooperatives were able to get the same cost of financing as banks. Now I think we have an opportunity to expand that kind of policy. 

When you look at employee ownership in this country, we have 14 million beneficiaries of employee stock ownership plans. That’s largely because, in the seventies and eighties, adjustments were made to the tax code that ensured that there wasn’t double taxation on employee ownership and employee stock ownership plans. Suddenly this model became very attractive. The law had been corrected to appropriately accommodate it. I think we need to develop a kind of politics that demands that community-based businesses have an equal chance with investor-controlled businesses. So that when we talk about entrepreneurship, our entrepreneurs have a genuine choice. 

When they have a great idea, they should be able to decide whether they want to sell it to investors or to the people or workers or whoever the right stakeholder classes are. We need this to be a meaningful option in the economy again, across sectors. 

Derek: The crypto world could be a place where we can help level that playing field. But so far, unfortunately, a lot of the rules of the old economy are being copied into the new one, just as the sort of vitriol and ignorance that exists because of social media is also being copied. It’s disheartening. And yet t’s very energizing. For example, a lot of the people that I work with on a daily basis at RChain, who are focused and understand the benefits of our portfolio companies and people doing good things. But then you have the sort of bubble of social media and the crypto world. The very first mistake was treating cryptocurrencies like stocks and derivatives and thinking that you could just make a quick dollar, which is exactly to your point, it: it misses everything. But I do think there’s a lot of opportunity in that space and I hope to see more of it.

Nathan: When I first I heard first heard whispers about Bitcoin pretty early on, the activist folks I was reporting on just weren’t interested in it. It was like, “Oh, great, more money. Do we really need a new kind of money in the world?” Then I learned about the theory; I read the white paper just a few weeks after it came out. Then I realized, “Oh wow, this isn’t just about money. This is about an opportunity to rewrite our social contracts.” That’s exciting. It’s so great that so many brilliant people have dived into this opportunity and started hacking away and trying to build these new social contracts. At the same time, I think we’ve imported a bias, that kind of vision that we were never able to impose on the existing economy, of a kind of radical economizing of everything.

Turning every question from a choice into an economic calculation helped build bias into bitcoin. It was very much an economic logic that good economics will save us rather than politics. Politics is something you want to eliminate. You want to reduce the opportunity for friction of people’s involvement. What I see in crypto is an opportunity to actually deepen politics, to create a richer, more appropriate politics where people’s needs and wants and longings can be better heard and better incorporated into how decisions are made. That economics can be automated and drift to the side. I want to be done with economics. Let’s move on to the interesting stuff, which is politics. I think unfortunately the bias has inclined people to build economic systems above all to fixate on the economics in a way that’s going to lessen the opportunities for people to bring their full humanity to the table in these projects.

Derek: I really appreciate your optimism and clear thinking on these topics. I am currently working on a book called, Anatomy of Distraction. The book specifically deals with how, since the Industrial Revolution, our increasing dependence upon technologies is literally changing our anatomy and physiology for the worst. I’m reading Kirkpatrick Sale’s Rebels Against the Future, which is the history of the Luddites. I wonder: What is a Luddite today? What function do they play in the governance and economic models that we have right now?

Nathan: That’s a good question. The Luddites were people who saw technology being developed in a way that was sidelining their humanity, that was devaluing their skills in a lot of respects. I think we’ve been really fooled away from that kind of clear-sightedness. When we look at new platform economies that have been emerging in the last few years and the growing prevalence of surveillance economy, we’re in a deer-in-the-headlights moment. We see the newness. We’ve been presented with so many benefits that we are not seeing the costs, and we’re especially not recognizing the way in which this is a kind of recapitulation of what the Luddites were seeing, which is a machine taking away the best parts of your job—the craftsmanship—and leaving you only with the worst parts of your job. You’re just feeding the algorithms and feeding the machine, doing this kind of replicable work that has nothing to do with the craft as part of what makes you human.

I think we need a new kind of a Luddite, first in that willingness to resist the fact that there are no Facebook users’ unions that are actively resisting the very dangerous behavior of the platform. There are no forms of organizing. Active organizing among people who are stakeholders in these technologies is very troubling; we’ve been duped and alienated and isolated. That’s where the individualism is most dangerous, where we’re all kind of acting as discreet individuals rather than recognizing that we’re in a common struggle here. We’re way behind in many respects. There are opportunities to reclaim that in these platforms, especially with the tools in the blockchain world that look toward finding new modes of bringing people together and forming new kinds of solidarity.

We have to recognize the way in which platforms like Facebook have been very intentionally designed to reduce solidarity, to make sure that we’re all seeing different things. We’re encountering it as individuals alone. We’re not thinking of ourselves as possibly having something in common, whereas if nothing else, even the speculative side of the crypto experience has given people a little taste of the experience of being in something together, of having a common enterprise in which we’re all standing or falling—in this case on the speculative price. It could be on better bases as well. That’s what we want to build for: recognizing our actual shared interests. What we have in common and how we can build tools that allow us to reclaim the solidarity that has been stripped away by the nature of the platform economy so far.

Derek: Speaking specifically of blockchain, a number of people I’ve talked to feel that whatever their personal feelings are, that enterprise adoption is going to drive blockchain technology into mainstream adoption, which would negate the idea of a purely public blockchain. The reality is a lot of the companies will be building on private blockchains. Do you have any feelings on the roles of the public versus the private blockchains? Does a private chain really stand up to the sort of ideals it was originally created for?

Nathan: I don’t think it’s necessarily an immediate disaster. There are also disasters to be found in public chains, right? There is a kind of speculation. There are dangers on both sides. One thing that I think is interesting, these private enterprise models can actually be really useful for upgrading what has worked best in cooperative enterprise in the last century. A lot of the largest cooperatives in the U.S., for instance, are purchasing cooperatives that do joint purchasing among a large number of small businesses. I work pretty closely with people from one of those, and they’re very interested in blockchain for coordinating their supply chains. That would be a private chain model, but it would be a kind of cooperative chain in the sense that it’s helping to coordinate the joint purchasing of a bunch of small businesses all over the country.

That this technology could help us do that even better to spin up small purchasing cooperatives into large ones very, very quickly. Turn this from being slow and boring, a hidden process to something that is just part of how business is done so that we could build cooperatives as easily as we build a Facebook group. That’s a real opportunity within the private space. It would be great for those things to be public. We would have open supply chains and the flow of value would be much more transparent. We could move toward a less walled garden approach to running the economy. But that’s a few steps down the line. At the moment a private chain that’s cooperatively owned would not be so bad and actually present really exciting opportunities for supporting small- and medium-sized businesses, enabling them to do what they do better.

Derek: And hopefully protect our data better. I have my feelings on the bigger picture, but in terms of anything that will get us better security is a good thing at this point. You write that co-ops take hold when regular order is in flux. You also mentioned, and I didn’t know this, that 10 percent of the world’s total employment happens through co-ops, and that the United States is the leader with 40,000 cooperative businesses. Do you think this is an example of a lack of marketing, that people don’t realize how influential co-ops are, and why we should, as we’ve been talking about bringing them to the front, more often?

Nathan: Yes, a lack of marketing combined with active repression for decades. In the 1930s, forties, even until the fifties, the U.S. government would produce propaganda films about how great cooperatives are, that this was going to be the next step of democracy. Of course, we have political democracy. Let’s bring it into the economy. This is our way of and inoculating ourselves against Communism and Fascism. This was part of the story in the Cold War period. The overwhelming concern was Soviet communism. There were anxieties that cooperatives were a kind of front for that even though the difference between a rural cooperative and Soviet collectivized farms are night and day. It’s a totally different model. But as a result, even though these cooperatives like Land O’ Lakes kept going strong through that period, they really suppressed their cooperative identity and didn’t talk about it.

I never knew my grandfather’s business was a cooperative. He wore a belt buckle for that, but he just didn’t talk about it in those terms. Because he was a conservative businessman doing good old American capitalism. It just happened to be in a cooperative. As a result, capitalism has been allowed to take credit for all this stuff that was actually built by cooperative businesses. Now we’re playing in reverse. More and more businesses are realizing that they can actually reach a new generation by talking about their cooperative values. Yet it’s still remarkable how few do actually draw on this opportunity.

State Farm could be out there recruiting millennials by talking about being a co-owner of your own insurance company. They’re not doing that at all. It’s a shame but it’s really the result of a history of suppression that has left us with an amnesia about the really powerful and heroic legacy that we have to build on. 

Derek: You also write that co-ops have a lower chance of failure. What are the reasons for that? 

Nathan: That’s after the startup phase. There’s data suggesting that once a co-op and an investor in the business get going, the co-op is going to be more resilient. When you’re a cooperatively-run business, you have a much higher incentive for self-preservation than an investor in a business.

Investors close down plants and liquidate assets. There’s more of a likelihood that members of a cooperative are going to take on some sacrifices in order to keep the business going because they depend on it so much. Rather than just let it go, collect the money and run. It has to do with those dynamics. Whether that’s a good or a bad thing, it’s interesting in some cases. In some ways, you might ask, why don’t we have an economy where it’s easier for things to come and go, and enables us to have a different kind of resilience. There are arguments to be made on both ends, but it does suggest that cooperative businesses, because of their structure, have an incentive to behave differently when they encounter hardship.

 Derek: We also share a passion or for religion. That’s my background in academics. I happen to not have one, but I really appreciate the communities and particularly the mythologies that have come out of cultures for thousands of years. One thing I really appreciated was the parallels you draw between religious examples and cooperative model.

Nathan: The role of religious communities in building some of these legacies is really significant. I want to be careful and not suggest that you have to be religious to make this stuff work, or that these communities are necessary, but they have been really significant. 

By far the largest worker cooperative network in the world is Mondragon, in the Basque region. It was started by this amazing half-blind Catholic priest. In the 1950s, the credit union movement in the U.S. came out of a model developed by a Jesuit priest in the maritime provinces. Working with farmers was taken up by the Quebecois, a journalist, who built it into a kind of parish-based banking system that is now the largest financial banking business and in Quebec, and then it was imported by a Protestant elder. 

These are stories that repeat themselves all over the place. There certainly are ways in which religious community enables a kind of trust and solidarity that might make some of the collective action problems a little easier that come up with cooperatives. The call on many religious communities to have an imagination beyond just the way things are, and to act a little differently from how the rest of the world acts—cooperatives have been a tool for that. They enable people to set their own terms and values in the economy. As a result, some really interesting cooperative innovations and really successful business innovations have arisen out of religious communities and religious inspiration.

Derek: What gives you hope that the cooperative model will be implemented more as we move forward, both in America and perhaps globally? 

Nathan: The nature of the problem is becoming clear. We have incredibly widespread accountability problems. Our businesses, especially the really big important growing dominant ones, are just not accountable the way we need them to be. We can drag them in front of Congress as many times as we want, but they are so clearly on their own agenda. We need a different strategy. 

Another difficulty that we’re in is that we’re no longer in the realm of national companies—the old model of what’s good for GM is what’s good for America. That’s not the case when we’re looking at companies that are by their nature running on transnational networks. We need governance for them that is transnational. And we can’t just rely on a hodgepodge of national regulations to deal with the emerging digital economy. 

We need to build democracy into the businesses themselves and govern those businesses from within much more than we’re used to. We’ve been relying on external regulation that just no longer has any teeth and isn’t really appropriate anyway with these emerging companies. The need is really great, but also it’s really critical to recognize the diversity of these forms.

One thing that I’ve been concerned about is when people take one cooperative that they’ve seen in one place and then impose that model on a very different kind of creature. For instance, RChain adopted the bylaws of a consumer cooperative, REI, in order to run what is ambiguously an investors/producers cooperative. 

Actually, the challenge is much more interesting. We need to think about the appropriate stakeholders, and appropriate incentive structures to organize those stakeholders, and draw from the diversity of the history of this model in order to meet the new challenges that we get to work with right now. The less we imagine that this is a simple solution that’s plugin fix for everything, and the more we recognize economic democracy as an opportunity and an adventure and something that doesn’t have a fixed answer waiting for us, the more powerful it will be for us.