Shaulablog

While driving to our weekend getaway along the Columbia River, we listened to Bob Mondello’s NPR story on the 1960s heyday of the financial musical, when shows were about the trials and tribulations of the sort of business folk who worked nearby on wall street. He highlights entertaining songs such as “Capital Gains” from “Subways are for Sleeping”. He also relays the plot of a show titled “The Rothschilds” about the rise of the Jewish banking family to the point where they had enough political influence to press for a declaration of rights for European Jews in the 1800s. The play’s climax comes when the family takes revenge on a German Prince who promised political support in return for a loan and then reneged. They do so by nearly bankrupting themselves undercutting the price for German Peace Bonds, successfully preventing the state from raising needed funds and getting a capitulation from the Prince which also guarantees them a piece of all future bond business.

Later that weekend we climbed Beacon Rock, the 2nd largest freestanding rock in the world after The Rock of Gibraltar. Beacon Rock was introduced into European history by Lewis and Clark in 1805. Most of the park signage noted that Beacon Rock was purchased by Henry J. Biddle in 1915 for $1 from Charles Ladd on the condition it be protected. Biddle’s children eventually got the rock turned into a state park. According to The Lewis and Clark Columbia River Water Trail, by Keith G. Hay, Charles Ladd purchased Beacon Rock in 1904 from a Philadelphia banker and investor in the Northern Pacific Railroad, Jay Cooke. Hay does not report a purchase price; however it seems likely that it was more than $1. Charles Ladd’s wife Sara was an award winning amateur photographer, and I learn from an article about her in the Oregon Historical Quarterly (Glauber, Spring 2007) that Charles Ladd was a successful Portland banker and businessman.

Both of these stories are about situations where people have enough capital that they’ve moved beyond using it for productive value or speculative value and into purely using it for political value. Interestingly they both involve losing large sums of money, or at least being able to risk doing so. The first story is a financial negotiation where being the last financier standing gives one control over a situation which could ultimately make their money back. Charles Ladd made more of an outright donation: sacrificing the difference in prices paid in return for a guarantee of preservation – a move that also reaped large future rewards but for the public rather than for himself.

For me, the key common element here is to note how excess capital trumps multi-party decision-making. Certainly easy to applaud when it’s a triumph of righteousness, but as a general principle it leads away from democratic governance. Theoretically, this kind of power comes from commercial success, which could be a kind of endorsement for the right to wield it. Unfortunately I think this “economic permission for power” is difficult to sustain in a world where businesses operate at non-local scale so that it’s impossible for customers to understand the full impact of who they choose to give their business to, or hold those at the top accountable in a social way.

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Rick and Shauna have run a jewelry store for over 25 years. We got talking about how they got started on $1000 in cash and raw determination. Rick built their first display cabinets himself and they would trade jewelry work for other services they needed- like interior work on their first store. Shauna would work to get items for customers on short order when their inventory was still small and used carved waxes in their display cases to showcase their designs on the cheap. Shauna told a story about how they worked seven days a week for years until another friend was killed in a freak accident and they realized they needed to start living some of life in the moment, at which point they finally started closing Sundays and Mondays. At one point Rick used the term “sweat equity” for how they were able to get off the ground by doing work for other jewelry stores to keep themselves afloat while they built their business.

I’m preparing for a trip to Spain to visit Mondragon – a series of worker cooperatives that were started in 1956. Since then they have launched or converted over 100 separate businesses as cooperatives to do various kinds of manufacturing and distribution. I’m familiar with Mondragon because the cooperative structure is an opportunity to better align the interest of wage labor and ownership in larger organizations by making them the same, and Mondragon is an oft heralded and much-studied example. At some level they’re a fascinating open experiment in the global struggle between the rights of labor and the rights of management, and thus folks seem to like to periodically predict the death or triumph of their model as the Mondragon Experience (as they call it) copes with economic downturns, globalization and the creation of the EEC. I’ll likely be writing more about Mondragon, but I compare them to Rick and Shauna because part of their model has been to help workers launch new cooperatives by building up equity through labor and doing spin-offs.

William F. Whyte is a researcher from Cornell who has studied Mondragon since 1977. Whyte published an article in 1999 with updates about changes due to globalization. An interesting aspect of Mondragon is that they established their own credit union early on, and it has played a critical role in the growth of new businesses. I have read criticism that this bank was no longer supporting the cooperative system as well as perhaps it once did, that rather than investing in new cooperatives the bank now invests in private partnerships. According to Whyte, at this point nearly ¾ of the banks investments are in private companies outside the cooperative network. It was with some surprise that I read the system actually no longer forms new cooperatives:

“we talked to Jose Maria Ormaecbea, one of tbe five founders of Ulgor [the very first cooperative in 1956] and, as of 1990, still a key leader. As be saw it, the main reason worker cooperatives were becoming increasingly difficult to create was that technological changes were requiring far more investment than bad been necessary when the first production cooperatives were being formed in the 1950s and 1960s. In that early era, founding members of a cooperative worked for two years at bottom labor rates. What they saved by so doing was converted to capital accounts, meaning that money was loaned by members to the cooperative they were forming. That amount was then supplemented by a grant from the Basque regional government to support job creation. By 1990, the required investments could be financed only if workers put in four or five years at reduced pay—and even then, Ormaecbea said, shortfalls could occur. The MCC [leadership body of Mondragon] leaders reluctantly abandoned their program of creating cooperatives by that means.”
Industrial and Labor Relations Review, Vol. 52, No. 3 (April 1999) William F. Whyte

Economists all recognize that we’re in a period of increasing income and wealth inequality but they argue about whether or not it matters. I argue that it does –The gap between wage labor rates and the amount of capital required to launch a competitive business has widened, to the point where it may not be possible to be the next Rick and Shauna unless your social connections put you in the upper half of our hourglass economy and you have access to Friends and Family funders who can get you started. It means America is decreasingly the land of opportunity and increasingly a place where “who you know” outranks “what you know” or “how hard you work”. Because it’s a naturally reinforcing spiral, if this is not what we want America to be, we have to proactively address it.

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