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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: 213

Comment by Sepp Hasslberger on May 18, 2008 at 14:15
I summed up the discussion and linked this article in

Consumer owned enterprise - Do we really need entrepreneurs?
Comment by AGNUcius on May 18, 2008 at 17:59
I agree it is important to compensate anyone for work - even if 'just' the mental work of ideas. But payment for work is called wages, not profit.

I have developed a very unconventional interpretation for the meaning of profit, and do not have any formal training in economics, so maybe I am missing something.

Would that be just as well if the group of investing consumers were to pay the entrepreneur a wage (with some or all of those wages possibly being 'product') in the same amount you suspect he should be receiving from the pool called profit, or do you see a logistical reason for drawing some of his pay from profit?

You probably understand the following better than I, but I would like to try to write it out attempting to communicate my reasoning about what I think 'profit' (price above cost) really is.

When a business is owned by just one person, that owner's wages are "mixed with", and therefore arbitrarily divided from profit. In such a small situation the difference between wages and profit is a matter of bookkeeping. The owner might say he is (1) collecting all wage and no profit, (2) no wage and all profit, or (3) somewhere in between.

If that single-owner entrepreneur hires a worker, the wages paid to that worker are a pure cost, and are not at all 'mixed' with profit. But the owner still has the ability to label any amount of his own income as either wage or profit.

But when the entrepreneur has other investors with "vote weight" ... or in other words, if the business has multiple joint owners, then any wages paid to any of those owners (assuming some owners are working or claiming to work) become more and more clearly divided from profit as the other collective owners will require all wages be 'competitive'. When any one worker/owner attempts to claim too much wage for the work he performs, the others will say something like "I know someone that can do that job better, and at a lower wage".

So it appears that profit becomes more clearly divided from wages as the number of owners increases because those owners will demand all wages paid for each position of employment to be 'competitive'.

Now, when workers are being compensated through wages alone, and wages are strictly a "cost of production", we can see concept of profit is actually the same as "price above cost".

So why would a consumer ever choose to pay "price above cost"? Why are we not able to pay just the costs (including any wages) of something like a meal at a restaurant or the repairs to a car? Even after paying the costs of wages to "idea people", managers, supervisors, accountants, and all other forms of labor, the owners of business report something called 'profit'. The owners are able to collect more from the consumers than the actual costs of production EVEN when those costs include the wages for entrepreneurial, managerial, etc. work.

It appears to me that profit is actually a measure of a consumer's dependence upon the current owners. Profit decreases as consumers gain access to the sources of production, yet wages are not effected (though I would argue consumer/owners would likely increase wages since they were already accustomed to paying the externality called profit).

For instance, imagine a large group of consumers collectively purchase a restaurant or a car repair shop. They would have to pay all the costs of a normal business, including "idea people" and managers, but they wouldn't (even couldn't) pay profit - for who would they pay it to? On the other hand, if a non-owning consumer wanted a meal or a car repair, the collective owners COULD charge "price above cost" against him - as he has no alternative.

Sorry for the rambling, I must go and didn't have time to shorten this.

I'll just repeat my question here:

Would that be just as well if the group of investing consumers were to pay the entrepreneur a wage (with some or all of those wages possibly being 'product') in the same amount you suspect he should be receiving from the pool called profit, or do you see a logistical reason for drawing some of his pay from profit?
Comment by Sepp Hasslberger on May 19, 2008 at 9:27
Good train of thought, and I think we are getting closer to understanding what the problem may be.

I agree it is important to compensate anyone for work - even if 'just' the mental work of ideas. But payment for work is called wages, not profit.

Yes, payment for "work" is wages. But then, an entrepreneur may be more like an artist or an explorer, rather than a worker. There is a certain excitement in the "work" of an entrepreneur that has a corresponding reward, which just isn't an agreed-upon wage.

Maybe I am seeing this in too romantic a light, but think of an explorer used to survive in the jungles who finds previously unknown details of geography, biology or history. Offer him a safe and guided tour of a jungle and he will likely decline. There is no challenge.

If you don't like to call the reward for the success of an entrepreneur a profit, call it a bonus, but the fact remains that it is intimately connected with the performance (and perhaps even with a bit of good luck) of the enterprising individual.

But whether you call it a wage, a bonus or a profit, the money has to come out of a "pool", which is money that isn't eaten up by costs. So a pricing "above cost" will be necessary to create the pool of money the entrepreneur can take his/her bonus from. There is really no way around this.

I think we are hung up on the word "profit" because it signifies different things to different people. To me as an entrepreneur, profit signifies a pool of resources that can be used to distribute rewarding merit. But profit may also signify the very opposite, which is "money made" just for the sake of rewarding the use of purely financial "investment". In that way, profit is disconnected from merit and becomes an object of speculation. It also is then pushed in a rather non-human way, disregarding what is destroyed (humans, environment) in the process, because the overriding motive is ... the profit.

So yes, there should be a clear distinction between profit as a source of cash to reward merit of those who actually work and profit as a surplus that is drained from the enterprise to go to people who are not in any way connected with the actual work, people who merely have provided some financial investment.

A good discussion of this can be found on the P2Pfoundation's wiki:

On the difference between capitalists and entrepreneurs

To bring this back to the area of peer production or consumer owned enterprise, I'd like to point to a quote in Michel Bauwens' notes on his recent talk at the Pontifical Academy of Social Sciences here in Rome.

Charles Leadbeater, in We Think summarizes the explanation of Yochai Benkler, referring to his landmark book on “The Wealth of Networks”:

“Benkler’s explanation for how open source communities coordinate themselves runs something like this. The raw material of these collaborations is creative talent. But creative talent is highly variable. People are good at different things and in different ways. It is very difficult to tell from the outside, for example by time and motions studies, who is the more effective creative worker. It is very difficult to write detailed job descriptions and contracts for creativity, specifying what new ideas need to be created when. Creativity cannot be delivered just-in-time. Open source communities resolve the difficulties of assessing creativity and quality by decentralising decision making down to individuals and small groups. They decide what to work on, depending on what needs to be done and what their skills are. There is little sense in working on a project that is already well staffed and where your contribution will add very little. It is very difficult to pull the wool over the eyes of your peers: they will soon spot if the contributions that you make do not really come up to scratch. That allows people to work on just their bit of the puzzle. Good central design rules allow the whole thing to add together. Work in open source communities gets done when creative people self-distribute themselves to different tasks, they submit their work to open peer review to maintain quality and the product has a modular design so that individual contributions can be clicked together easily.”

To me this means that "consumer owned" must not be seen as owned in the sense of an investment of capital but as "owned and run by consumers" in the sense that any one of the co-owners will contribute not only an initial investment to buy the company but will contribute to the best of their ability to the running of the company. In that sense, employees and managers are part of the old paradigm, the way capital used to run an enterprise. We will have to find new designations for the functions people fill to make an enterprise work, and figure out how to compensate them (either in money or in goods or in something immaterial, such as honor) for their contribution.
Comment by Sepp Hasslberger on May 19, 2008 at 10:07
But whether you call it a wage, a bonus or a profit, the money has to come out of a "pool", which is money that isn't eaten up by costs. So a pricing "above cost" will be necessary to create the pool of money the entrepreneur can take his/her bonus from.

Let's call it a surplus instead of profit.

Profit - income above cost that is used to reward financial investment in a business.

Surplus - income above cost that is used to reward performance, enhance collaborative efforts or distribute ownership in a consumer owned productive unit.

Just to sort out the two very similar but yet very different uses of price above cost.
Comment by AGNUcius on May 19, 2008 at 16:57
If you don't like to call the reward for the success of an entrepreneur a profit, call it a bonus, but the fact remains that it is intimately connected with the performance (and perhaps even with a bit of good luck) of the enterprising individual.

I don't care about the name; I'm concerned WHERE the value comes from - or in other words, HOW that pool is increased.

I'm willing to accept your analysis if it 'works' for the construction of an alternate economy, but I am not sure it will always make sense.

For instance you say:
"But whether you call it a wage, a bonus or a profit, the money has to come out of a "pool", which is money that isn't eaten up by costs. So a pricing "above cost" will be necessary to create the pool of money the entrepreneur can take his/her bonus from. There is really no way around this."

But the way I envision a consumer-owned company, there are points in time where each consumer has "just enough" source ownership that no selling of product ever need occur. In those fleeting (since consumer choices change and the productivity of sources change) instances, there will be no "price above cost" because the consumers would have already paid for all of the costs of production before production occurred, and the product itself is not sold - as it is already the property of those intending to consume it.

So when a group of honey eaters have "just enough" ownership in beehives to supply them with the honey they desire, and one of them is an entrepreneur that deserves bonuses, then why would it be a problem to pay that bonus as a cost - a sort of extended wage? There would be no "price above cost" to draw from because when the consumers are the owners in sufficient amount, there is no selling of product (honey)...

Ah, but maybe you want to draw the bonus payments from "price above cost" because you are saying the entrepreneur deserves the bonus ONLY when he is able to produce more than the owners paid for the amount they intended to consume for themselves. In that case the extra product could be sold to non-owning consumers at "price above cost" ... (actually, if the honey was really 'extra', and the current owners had already paid all costs, then ANY price would be above cost since this 'extra' product would itself be 'bonus') ...

I'll have to think more about this. I always assumed the "price above cost" meant the consumer was pleading for growth, and so should be treated as his investment (he paid it) in more sources. But I do see that it might also make sense to reward an entrepreneur/manager's efficiency by causing part of that consumer's payment to be treated as a bonus. But what about the manual-laborers? Shouldn't we also 'bonus' them?

Hmm... Thanks for the interaction, I think we are making progress and even beginning to address the resistance I always receive about protecting workers even though there is another way consumer-ownership protects workers that is much more powerful based on the fact that every worker is also a consumer (of something), so must have ownership in the sources of THAT production to be safe.

Anyway, I am still trying to find a way to make that presentation.
Comment by Sepp Hasslberger on May 19, 2008 at 21:06
Next step will be another contract - for the workers - as an open source continuously amendable document.

Well - maybe not continuously amendable but certainly subject to any adjustments the parties feel to make.
Comment by Sepp Hasslberger on June 1, 2008 at 15:48
It seems that some activity is already going on consumer-owned producers.

Have you seen ...

BeerBankroll is taking a similar approach to the creation of a new, community managed brewery.
Comment by AGNUcius on June 1, 2008 at 18:02
Thanks for the pointer Sepp. I love beer, especially Free (as in Freedom) beer. ;)

Unfortunately BeerBankroll is not truly Consumer Owned for two reasons:

1. The initial investors are being persuaded to invest for profit instead of product. If they would pay me in "at cost" beer, I would invest today!

2. Many of the consumers are not owners and do not automatically gain ownership according to the amount they pay above cost. Because of this, the organization is not self-balancing, and will continue to move further and further from being Consumer Owned as it grows.

The quick way to check if any corp/org is Consumer Owned is to find out where the profits are going. If "price above cost" is being reinvested into the enterprise, AND if each of those reinvestments eventually 'vest' back to the consumer who paid it, then the Consumers will always be the Owners. But if that difference is treated as a reward for the current owners, or is reinvested but without regard to the original payer (the consumer), or if it is thrown away toward some random charity, then the chance for Consumers to remain Owners during growth is slowly eroded until you end up with another typical Capitalist situation.

Since it is impossible for a consumer to pay profit when they have sufficient *real* ownership (being paid with product, not just typical corporate shares that payout profit) in the sources of that production, the only people that will be paying profit are the late-comers. If we pretend they are not Consumers, and therefore do not 'deserve' ownership, then we can pretend BeerBankroll is Consumer Owned, but the truth is that BeerBankroll is Originator Owned, and intends to keep price above cost, just as almost every other business in the world.

On the front page at http://BeerBankroll.com Step 3 reads "Sell tons of beer and make a tidy profit". This proves that the they are not Consumer Owned, and do not intend to to be since profits safely approach zero in a Consumer Owned corporation. Allowing price to meet costs is not a problem for a Consumer Owned business - it is one of the main goals!

Thanks again for bringing this up. I don't mean to sound so negative. I'm only trying to be accurate.

I am trying to figure out how to write the next part of this that shows how to protect the worker's ability to consume and intend to also make it a response to Vinay's request at http://GlobalSwadeshi.net to map out how a Consumer Owned restaurant would function.
Comment by Sepp Hasslberger on June 1, 2008 at 18:47
How could a restaurant be consumer owned?

I suppose it would have to start out in a way similar to the beer bankroll, where consumers get together to do the initial buying (or newly establishing) the business act.

Once a restaurant is in the hands of habitual consumers (question: how to interest enough people who are regulars of a certain restaurant?) it would continue to serve its habitual customer base. But any restaurant can't survive only on the habitual customers. There will, therefore, be a good many clients who just happen in once but who don't stay.

What do those occasional clients get out of their visit to the restaurant? It could only be a lower price for their meal. I see no sense in making these customers owners. There would be no profit for them, and for the restaurant it would increase accounting in a not indifferent way.

Still, getting a meal at close to cost would be a possible way to attract customers, a thing any restaurant has to do to stay in business.

But in the end, I think, you would end up with a model not so different from the beer example. You would have the habitual customers be the actual owners. Of course there could be the case of new customers who stay and become frequent visitors. They probably would like to acquire some of that ownership, that you say would be financed by the part of price they pay that is over and above cost. But the first ones had to "buy in" by making an actual investment. How would the late comers be required (would they at all?) to make up for that first investment of the original owners?
Comment by Sepp Hasslberger on June 26, 2008 at 14:37
Check out

Marcin Jakubowski on a policy to expand material peer production through land

as a way to jump start consumer ownership of local productin - starting from the basics: food and where food comes from which is the land.

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