A story from the Wall Street Journal
The New York Times version can be found here.
A repeated theme in my posts will relate to what can go wrong with co-ops and to protect against those occurrences.
Public sector services are cooperative-like. Member (citizen) owned, nonprofit, democratic, community concern etc.
What goes wrong with cooperatives and cooperative-like endeavors is that they can fall victim to being captured by the people who have been hired to operate them. In some cases, the result can best be described as a “control fraud” where the folks in control of the entity use it as a weapon for their own personal gain. William Black, professor of law and economics, former banking regulator, is the guru on the subject and I recommend a review of his writings at New Economic Perspectives. I am especially grateful to Professor Black for pointing out the quote in Jonathan Swift’s novel, Gulliver’s Travels:
“The Lilliputians look upon fraud as a greater crime than theft. For, they allege, care and vigilance, with a very common understanding, can protect a man’s goods from thieves, but honesty hath no fence against superior cunning. . . where fraud is permitted or connived at, or hath no law to punish it, the honest dealer is always undone, and the knave gets the advantage” (Swift, J., Gulliver’s Travels).
It seems to me that the cooperative effort goes off the rails when a fundamental question is answered incorrectly: Do the people who run the operation exist to serve the interests of the members, or do the members exist to serve the interests of the people running the operation?
It also seems to me that in the investor owned sector, exploitation is permitted if the other market participants do not take steps to prevent it. In other words, the market participant can assume exposure to the lesser crime of “theft” (i.e., exploitation) and “take the appropriate care and vigilance, with a very common understanding,” to protect themselves.
But in the cooperative (and public sector arena) where there is not a profit motive, do the union arguments normally targeting the for-profit sector amount to “superior cunning” in the cooperative/public sector since the unions can cut a deal with the managers (it isn’t their resources they are signing away) at the expense of the members? See here for a “fact check” analysis of what FDR thought about public sector unions.
Full disclosure re: Bill Black’s position, a recent blog post would indicate that any opposition to public sector unions amounts to a “war on workers.” I greatly respect Professor Black’s views on matters on which he is clearly an expert. But real world circumstances leads me to conclude that he is rooting for the unions for the sake of the unions – and that those unions have decided that cooperative members (citizens) exist to serve the interests of those workers.
Apparently FDR would not approve. Public sector collective bargaining provides the means for a war on the citizens.
Cooperatives are not government, but is the analysis more closely related to the public sector example than the investor owned business sector?