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Can Consumers Collectively Own 'Producers'?

In today's world we have for the most part - a strict separation of production and consumption, which together constitute "the market". The incentive for a market economy is a division of labor. Some are good at organizing, others are good at doing various "jobs". The enterprising spirits who are good at organizing become producers or purveyors of commerce, meaning, distributors of things produced. The less enterprising who yet need some resources to survive contribute by selling their manual or mental skills and services, receiving a compensation, which then enables them to buy the necessities of life and more from the enterprising types who have organized productive activity.

A driver behind this set-up is that both producers and distributors are able to charge a fee for their activity, which is generally termed a "profit". That fee or profit is an incentive to organize and take the risks associated with commerce - productive and distributive activities.

Profit is also a source of contention. In the long term it tends to separate people into classes - the monied and the less fortunate workers or consumers. In its extreme manifestation, this distribution of labor has brought us multinational corporations centered majorly on profit and only in a secondary way on providing goods/services. Consumers, who buy those goods and services originally were the masses of workers who had some part in producing. Increasingly, the corporations can mechanize production, leaving their consumers without resources to buy what they need.

This is the background to a proposal of Patrick (AGNUcius) to stimulate consumer ownership of productive activities, which would allow to bring some balance back into the commercial equation. Consumers who need the products or services of a productive entity could band together and own that entity.

To get an idea of what AGNUcius proposes, here some quotes from comments on a different conversation about hosting in the context of p2p systems:

The solution I propose - to insure ownership flows as the organization grows - is to understand all "price above cost" (or what is commonly called "profit") is a plea for growth from the user who paid it, and must be handled as an investment from that user toward more space and tools.

As those investments vest to the user who paid them, ownership of the space and tools needed for effective hosting are shared among the participants in a self-balancing manner.

Users who pay more than cost slowly gain ownership.
Users who pay exactly cost retain current ownership.
Users who pay less than cost slowly lose ownership.


and

I wish I could say I see more of this - especially in the agriculture sector considering the current world food crisis.

What I see instead is massive agribusiness owners consolidating ever more control while small farmers continue to struggle and finally succumb to the debt they attempt to hold by themselves.

If bunches of consumers (say about 1000 per bunch) could "get together" to buy small, organically diverse farms with the expected return being product instead of profit (notice only consumers would settle for product instead of profit), then those consumers would collectively hold that debt - and would have a very good chance of paying it off. In some cases they might just be able to fund it directly without even taking out a loan.

In doing this, the consumers would be their own 'hosts'. The people working on the farm would likely also be consumers from it, and could pay their costs from part of their labor while also receiving a very good wage.


and again:

In a 'normal' business the owners are working against the consumers in that they are attempting to keep the price of the goods above the costs of production. In other words, they are trying to "make profit".

Keep in mind that wages paid for work are calculated as a cost and are on the opposite side of the equation from profit.

But when the consumers of a product are the owners of the sources of those products (in just the right amount*) - in other words, when the business is "consumer owned" - there is no desire and indeed no possibility of keeping price above cost.

In this bizarro economy profit is 'undefined'. The product is available "at cost" and is not even 'sold' in the traditional sense because those that intend to use the product own it even before it is produced.

As an example, imagine a small group of nut-lovers own an almond tree. If they hire someone to care for the tree and to harvest and store the nuts they would pay those wages as a cost of production, but they can't pay profit unless they were to pay it to themselves. So they get the product "at cost" and they own it even before it is produced.

(*) A consumer has "Just the right amount" of source ownership when it is sufficient to produce exactly the amount of product he desires before the next round of production.


In a different conversation titled Quality of Experience, AGNUcius brought up the possibility of users owning a means of transportation they might frequently use:

What would happen to the quality of experience if the very community intending to utilize the product/service/institution could somehow get together and fund it for themselves?

For instance, what would happen if all the potential passengers of a train were organized enough to invest toward building the tracks and purchasing the train, and were therefore collective legal property owners of that entire transportation system - with nobody else to answer to?

Any passengers that had paid more would have more "vote weight", and those that cared less about control had paid less, but all the initial costs had been 100% funded by potential consumers/customers.

The 'recurring' operational costs could be gathered as ticket fees similar to what occurs now with one difference: whenever a passenger (whether he is currently a partial owner or not) paid a price above cost for a ticket (such as when in a bidding war against other potential passengers), then that amount (what is generally called 'profit') would be treated as an investment from and for that very same passenger. Every little bit of profit becomes a sort of incremental funding that eventually 'vests' to the very same user that paid it. I also mention some organizational problems that are easily overlooked in our desire to shift ownership to consumers:


My view, expressed in that same conversation, was that in order to make such an arrangement work, one would need a clear contract to guard against the agreement falling apart in case one or more of the owners do not want to continue for whatever reason:

The major problem I see is one of constancy of intent. It may be easy to get such a group together, even on the spur of the moment, but in the long run, one of the people says they need the money back which they invested (they found something more exciting to do with it) or they had a falling out with another one of the people who they co-own the car with. I think this is called the "human factor" and it's perhaps the major obstacle against owning things in common with others.

So a pretty strong agreement would have to be made to guard the group from destruction in case one or more of the human elements that are part of it change their mind. People for instance should be able to leave but not to have their investment returned to them, unless they bring a "replacement" investor/member agreeable to the group.

It's ok to co-own capital in other words, but it is also important to treat the agreement itself as an entity entitled to protection from possible destructive actions of the single investors/members, and to make that protection explicit in the form of a clear contractual relationship.

The larger a co-owned venture, the more there will be a different kind of problems, this time organizational in nature, which any entrepreneur has to routinely solve. In a co-ownership arrangement, I could imagine that the "firm hand" of the entrepreneur who makes sure things function smoothly might be missing. The more people are needed to run the enterprise, the less these people feel part of it. They become merely employees and although that is not a bad thing in itself, a company with employees also needs direction. Of course a director can be employed as well, and can be instructed how to run things. We are coming back to the need for a clear contract that spells out the rights and duties of investors/users/members on the one hand and employees/managers on the other.


AGNUcius agrees a contract would be needed and after some more discussion (which you can read up going to the 'Quality of Experience' post he adds:

My vision is for the contract to be applicable to *any* physical sources that any users choose to share. This universality is important for the higher goal of eventually using the coupons/titles as a form of currency across disciplines.

All production requires physical sources. Anytime someone uses a term such as "immaterial production" there is a chance someone (maybe even the author) is accidentally thinking physical sources are not needed or are a "marginal" in cost that needs no consideration. That thinking is faulty.

Here are some example applications and associated physical sources the contract could cover:

A Social Networking Website: The initial and recurring costs of the computer hardware, electricity, rent or cost plus tax of the land and building house the computers, cooling...

A Restaurant: The rent or cost plus taxes for the land and building, electricity, gas, water, ingredients for the recipes...

A Farm: The rent or cost plus taxes for the land and buildings, cost of implements such as tractors and tools, fuel, seed, eggs, spores, housing for some of the animals & plants & mushrooms...

A Clothing Production: Land and buildings, tools such as a loom, spinning wheels, heavier sewing machines...

There is no situation needing co-ownership that is exempt.


and

... but treating profit as user investment is absolutely essential to insuring the enterprise continues to remain in the hands of the users. If we do not specify the destination of profit (profit is the same as "price above cost"), the originators will retain control even as the number of users increases to slowly become well-meaning dictators. Democracy will cease to be direct and product will no longer be approaching "at cost" for all users.


So here we go - we've got the problem set out in reasonable detail.

Where do we go from here?

Are there volunteers who would like to wrap their minds around the problem of a simple contract defining the relationship of co-owners?

Are there basic questions or ideas why it would or wouldn't be proper to explore that avenue of bringing production closer to consumption?

Any comments are welcome.

Views: 84

Comment by AGNUcius on May 14, 2008 at 15:14
Comment by Sepp Hasslberger on May 14, 2008 at 16:16
This is a comment posted by David Braden on the original discussion,

The Story of How Humans Came to Live in Peace and Plenty


A very interesting conversation at the P2P site. I think the co-ownership contract could be thought of as a single focus example of the self-help corporation - producing a particular product or service for consumption by the owners. I had a similar idea for a purchasing co-op as the start up for a local currency based on the evidence of ownership of productive assets. I think you are limited in what you can do on a single focus basis so long as you are competing with economies of scale and do not incorporate economies of integration.

Aside from "the corporations are responsible" and "resources are scarce", I get the most resistance from a prejudice against hierarchy. The most efficient decision making structure to have evolved to date is the one employed by business corporations. I think we need to design in that same efficiency if we are going to build local organizations with the power to balance global organizations. If that is the case, there are many examples of Articles, Bylaws, and operating procedures - and I like the ones that are written clearly without a lot of legalese.

Democracy does not work in a large corporation because most of the shareholders do not spend the time to read the annual report and make an informed decision on who to elect as directors. In a community investment enterprise all of the shareholders would be intimately involved in the day to day operations - and able to make informed decisions about who should be director.

The more interesting question - and one in which I have yet to have anyone engage - is the process of issuing shares for labor. I think it would be a negotiating process, where management would offer more shares for onerous and difficult tasks and fewer shares for pleasant easy tasks. I also like the idea of licensing the use of assets owned by the enterprise - so the licensee is empowered to make the day to day decisions - within the parameters of the license.

Finally, I am very interested in further exploration of the issues raised in Economics of Integrated Production:

* the difference between use value and monetary value - where increased abundance reduces monetary value per unit - whereas, the right to partake of increased abundance, represented by the share, increases in value.

* pricing in shares can be thought of as internal transactions trading at cost - while dollar transactions trade at market value. The difference between the cash cost of the goods sold (including unredeemed shares for labor) and the market price received is available to reinvest in assets to increase production.

There is a further possibility based on the difference between the abundance to be acquired through share purchases relative to the cost of purchases in the national currency. That difference creates a "market value" for shares sold for the national currency - so the SHC/CIE could have a policy of "only" issuing shares for labor - but shareholders have liquidity through a local market in shares.

I have a great deal of experience in drafting and interpreting contracts and look forward to working with anyone who is interested.
Comment by Michel Bauwens on May 14, 2008 at 16:49
I'll just repete what I've said before, I'm personally not enthused about working for an entity that would be owned by external consumers, and if I were a farmer, would prefer community-supported agriculture (which is growing fast) to consumer-owned agriculture (which I don't think exists yet).

In an ideal world, I would prefer the arrangement proposed by dominique pelbois, which proposes a structure that combines worker-ownership (the one's working), and their clients, with a slight majority for the client side (because sales income will exceed the cost of production)

for details see:

Pour un communisme libéral par Dominique Pelbois

Dominique Pelbois (12 avril 1947 - 16 août 2003), a fait aboutir en 1999 sous la forme universitaire d'une thèse de Doctorat (sous la direction d'Alain Gouhier puis, par intérim, d'Etienne Balibar) un travail de recherche mené à titre personnel en pensée économique et politique qu'il avait commencé bien des années auparavant, en 1975, hors de tout cadre universitaire, et auquel il n'a envisagé que très tard de donner une forme académique.... http://www.eleves.ens.fr/home/pelbois/Pelbois/communismeliberal.html
Comment by AGNUcius on May 14, 2008 at 19:02
It certainly seems sensible in some way that workers should gain ownership in the enterprise. The idea of worker-owned corporations is old and well supported.

But there is something that confuses me as we scale the situation. At some point the idea seems to break down, and I can't quite put my finger on when or how this occurs.

For instance, let's start with a situation as originally described by John in the post that began this discussion. Imagine there is a transportation system that serves approximately 100,000 users. I think Dominique Plebois, Michel Bauwens, David Braden, the IWW, Karl Marx and probably millions of other people through history would say the mechanics that work on that system should have shares of ownership.

Now, if we scale the situation to 1000 users I doubt the stance would change. It still seems the workers should gain ownership over the land and capital needed for the operation.

If there were only 10 users - say 10 people purchased a large van to use as a ride-share should the mechanic that maintains it gain ownership in it?

What if you and just one other person bought a car together?

Should the mechanic that services your own car gain shares ownership in that car? Why or why not?
Comment by Sepp Hasslberger on May 14, 2008 at 19:25
Patrick,

I have gone through the links you give, and I am not sure whether I would agree that profit needs to be abolished or, as proposed, treated as a consumer investment in the enterprise.

I can see that it may work, but I am not quite sure how it could work as well as what we have right now. In fact, in his comment that I ported here, David Braden says:

"The most efficient decision making structure to have evolved to date is the one employed by business corporations. I think we need to design in that same efficiency if we are going to build local organizations with the power to balance global organizations."

The major difficulty I see with consumer owned means of production is the need to run and manage those means. And it is no small feat to run a company. You might think that consumers could do it just by themselves and that might, in an ideal world, be the case. But our world is far from that ideal. Not everyone can take full responsibility for the production of what they intend to consume.

There are risks in running a factory or a farm, there is work involved, at times you need a bright idea and at times you need to think fast to navigate the boulders in the stream ahead. The owner, I would call him/her entrepreneur, has a real function, and I don't think that a (reasonable) profit is unjustified as payment for the effort it takes to make a company produce and continue to work.

The proposal of David Braden as laid out in

The Story of How Humans Came to Live in Peace and Plenty

and in

3 D Networking,

and especially in his idea of a

Self-Help Corporation

could be a test case for the idea of consumer owned means of production. Getting some of those groups going would give us some experience to judge the "consumer owned" concept's ability to replace current modes of production. It would also bring about a deal of independence from the corporations, as basic necessities of the participants are taken care of. It's easier to make decisions when your basic necessities are not in question.
Comment by AGNUcius on May 14, 2008 at 20:54
I agree with you Sepp, but you have misunderstood me.

When I talk about ownership, it is only about property rights, not about management. Management is work that would be paid for with wages (a cost). A manager is just another employee.

The major difficulty I see with consumer owned means of production is the need to run and manage those means. And it is no small feat to run a company. You might think that consumers could do it just by themselves and that might, in an ideal world, be the case. But our world is far from that ideal. Not everyone can take full responsibility for the production of what they intend to consume.

I do not think the consumers would or could just do it by themselves in most cases.

Regular corporate owners already hire managers and pay them wages for the work that they do. There is no reason to assume consumer-owners wouldn't do the same.

The consumer-owners will need to hire managers when they don't know how to get the high-level goals accomplished. This would be common.

Think of a consumer-owned farm. There are good reason for the owners to hire an experienced farmer to manage that farm. Most people don't know how to farm, and attempting to take on all of that responsibility would be a disaster.

I agree the consumers would rarely qualify to manage their own enterprise, but that is not a problem. They will just hire someone to do that work.

But now we are back to the concern of consumer-owners taking advantage of employees (whether management or other laborers).

Do you agree that management can be hired out, or would you say consumers can't be owners because they will (for some reason) be required to manage for themselves?
Comment by Sepp Hasslberger on May 14, 2008 at 22:20
In a small or medium enterprise, ownership and management go hand in hand. Usually, the owner is the manager. I agree that management can be hired out, but it is tricky, as you also have to maintain some degree of control over the manager, and not just once a year!

Good managers aren't plentiful, and someone who only has a job to lose is quite likely to be careless with a company. After all, he can always move on to another job. The consumers/owners will be left with the damage (of a company that has to be revived/restructured/refinanced).

Consumer owners taking advantage of employees? It could happen.

Let's say we hired a manager. The more pressure you put on him, the more the employees are likely to suffer. This happens today. The highest paid managers are ruthless - the ones who will mercilessly cut jobs and salaries to "save the bottom line".

Not that these things couldn't be overcome.

I just have little faith in our average consumer to run a business that they have no clue about (or to make the right decisions that will allow a manager to successfully run it).
Comment by AGNUcius on May 15, 2008 at 15:50
Ok, you have some good points.

Let's say at least one of the people beginning such an enterprise needs to be skilled in that area. So a group of 100 people starting a tiny farm would need at least one of them to be an accomplished farmer.

It may not be so important for some industries. For instance, I don't see owning and sharing a bus as needing a very skilled manager.

Another thing is the difference in goals and the price compared to cost. A group of investing consumers are in "the business" for the sole purpose of product. They are not interested in profit, as it doesn't even come into play unless there was too much produced for them to consume. This relieves some of the management pressure on the "bottom line" since the costs of production can absorb all of what would have been profit and still allow the consumer to receive the product at the same price as retail.


As for worker exploitation: this is currently a huge problem in Capitalism, and is something I will address soon in a post about how to protect the worker's ability to consume.
Comment by Sepp Hasslberger on May 18, 2008 at 9:33
Let's say at least one of the people beginning such an enterprise needs to be skilled in that area.

That brings us back to the entrepreneur, someone who has a desire to start some activity and who knows what they're getting into.

This morning, an article caught my eye:

Entrepreneurs value 'ideas' over weatlh, study finds

I tend to think that motivation is important for starting a business, just as is knowledge and dedication to the idea. And I don't think that profit - although it doesn't seem to be a strongly motivating factor - is a negative thing.

What IS negative is speculative profit. "Making money" by interest, or by speculative investment, is the cancer of the economy, rather than the fact that someone who starts a business gets to enjoy better economic conditions than the consumers served.
Comment by Michel Bauwens on May 18, 2008 at 12:11
Interesting article you are pointing too, I wonder if you could comment on it on our blog, and refer to this earlier argument here, which is greatly supported by this survey,
see http://www.p2pfoundation.net/In_peer_production%2C_the_interests_of_capitalists_and_entrepreneurs_are_no_longer_aligned

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