The following is one scenario for how the scope of change that our times require might develop. We offer it neither as a prediction nor even as a prescription, but as a (hopefully) provocative exploration of what is possible – and a reminder that the major events of tomorrow will grow out of the many seemingly small efforts of today.
So transport yourself to a great celebratory gathering in the year 2003, sit back, and prepare to enjoy as the next speaker recounts the events that shaped the momentous ’90s.
I know it seems obvious now, but 10 years ago, in 1993, few people would have imagined that the move toward a more sustainable world would have been led by the business sector. It’s true that citizens’ groups helped a lot, as they always do, but business played the starring role. Of course, the business sector today is very different from what it was then, but I’m getting ahead of my story.
In hindsight, we now realize that a key spark for the dramatic change we’ve seen was an international conference held in the summer of 1994 on encouraging sustainable development in the industrialized world. The meeting brought together people with interests in community development, the built environment, socially responsible investing, sustainability-oriented businesses, and sustainable economics. There was a lot of discussion about the importance of shifting to community-based accounting, creating new indicators for social and ecological well-being, the opportunities for efficiency improvements in communities and businesses, and techniques for improving quality of life that either cost nothing or paid for themselves quickly.
It was a good conference, but we would hardly remember it today if it weren’t for the remarkable insights of Helen Lon. As you may recall, Helen was attending the conference as a representative of her company, an employee-owned cooperative that produced specialized electronics for factory automation. As I’ve heard her tell the story, she almost didn’t come because of the intense competition they had been getting from some large transnational corporations. Her co-op had grown to the awkward point where it was big enough to be noticed by its larger competitors, but not large enough to match their deep pockets. It was now being targeted, through price wars and in other ways, and was really feeling the pressure.
The conference was a welcome break for Helen, but at first she was doubtful there was anything in all the wonderful ideas that she could actually use in her own life. On the second day, however, it hit her. She put together some of the things she had heard, translating them into her own situation, and came up with two new imperatives:
- Think of your business as a community encompassing both the formal business organization and the households of all the employees. Work to optimize the economic performance of that whole community.
- Recognize that what really counts is quality of life, not quantity of cash-flow. Judge the economic performance of your business-as-community by its ability to provide sustainable quality of life to its members.
Starting with these guidelines, she then saw a surprising way out of the dilemma her co-op faced.
On the previous day, one presentation had described the considerable savings achieveable by households through creative approaches to housing, reducing the need for transportation, energy efficiency, buying clubs, and many other techniques. Most of these techniques, however, worked best when groups of households worked together and had some kind of assistance at the community scale. For individual households acting alone, the techniques were often too much hassle, at least at the start.
Helen could relate to that! She had been hearing about these savings for years, but never found time to do much about them. Yet she suspected there was a lot she and her fellow employees could do, with some assistance. Like many businesses, her co-op had been looking carefully at ways to cut costs inside the business, but it had never occurred to them that there might be benefits for the co-op from cost savings in their households.
In fact, if they could find savings as large as others had, it would put a lot more flexibility and resiliency into their whole system. Since more of their present salaries would become discretionary income they could choose to:
- reduce their salaries, which would allow them to reduce the co-op’s prices without decreasing quality or service
- reinvest more of their salaries into the co-op, allowing it to keep pace with the market
- still have additional disposable income left over for their households.
She was a little shocked at herself for thinking of reducing salaries, but it made remarkable sense. In effect, the co-op’s assistance with reducing household expenses would be a form of non-monetary compensation. Her plan would allow co-op members to improve their families’ lives and at the same time stay competitive. Also, since she and her co-workers owned the co-op, she didn’t need to worry that the benefits from this plan would be siphoned off as someone else’s profits. This point, she realized, would make it difficult for their competitors to follow this same strategy.
The next day, Helen described these ideas to the conference. Back then it was such a novel idea that it took people a little while to get it, but those who did got really excited. Representatives of cooperatives from five different countries wanted to try some version of this strategy, specialists in techniques for improving efficiency promised assistance, and a foundation offered help with start-up costs. By the end of the conference, they had formed a plan and all agreed to stay in touch via electronic mail.
HELEN’S PLAN – IN ACTION
The plan worked better than they had expected. By the end of 1995, all the companies that adopted Helen’s ideas had lowered basic household expenses by at least 25 percent and were doing well in the marketplace.
One of the surprises was the considerable boost this approach gave to employee morale because of the increased sense of security, community, and success they and their families felt. This improved morale translated into more productivity and more creativity, and enabled them to attract and keep some of the best talent in the field. Many felt these morale effects contributed at least as much to their increased success in the marketplace as any price cuts did.
The word quickly spread among cooperatives. There were also a number of small- to medium-sized traditional businesses that explored how they might use Helen’s ideas. Most of these decided that her ideas would work well only for businesses with a strong internal sense of community and trust. A few close-knit, owner-run businesses did quite well with her ideas, but for larger businesses, co-ops had the clear advantage. This realization, and the example of the co-ops’ success, prompted a few founder-owned medium-sized businesses to convert to the co-op form through employee buyouts.
One of the businesses that converted was a competitor of Helen’s co-op. It had started to head toward bankruptcy in mid-1995. Seeing what was going on, the employees decided to buy the business out before it went under. The business media saw this as a last gasp effort to save jobs and was sure it was doomed to failure, but within a year this new co-op was doing fine.
In 1996, Helen’s principles were extended to associations of co-ops. That is, as the co-ops kept looking for ways to improve overall community efficiency, it became clear that some services and support systems, like banking and insurance, needed to be organized on a scale larger than the individual co-op. The co-op movement already had some of these services in place, but Helen’s principles brought a new perspective that led to much creative restructuring and expansion of these services.
By 1997, some of the co-ops had gotten so good at improving household efficiency that they had lowered basic household expenses by more than 50 percent! Especially in these co-ops, but in others as well, members started to take the benefits of this new "whole-system productivity" in the form of more free- and flex-time arrangements. All kinds of creative new arrangements, from job-sharing to sabbatical programs, were developed. Some people used this new flexibility to spend more time with their families, others used it for personal projects, and still others became active in citizens’ groups and community organizations. Quite a few created an international citizens’ group to extend Helen’s ideas, not only among co-ops but to the larger society as well.
FUNDING THE BUYOUT
There is another important thread that also begins with a participant from the 1994 conference, John Tully, a key figure in the socially responsible investment world. John heard Helen at the conference, found her ideas fascinating, but didn’t become actively involved – at least not at first. But by mid-1995, when it was clear that Helen’s plan was going to work, John started to think about the larger implications.
John knew that the more democratically run employee-owned businesses, like the Mondragón cooperatives in the Basque region of Spain, had a clear record of more whole-system and long-term decision making than standard businesses. Because they weren’t controlled by outside capital, they were more patient and resilient, more stable in turbulent economic times. As both owners and employees, co-op members naturally wanted their co-ops to survive and be reasonably profitable, but they balanced other interests against the bottom line.
As employees, they wanted safe workplaces, so they adopted healthy and environmentally friendly production processes. As people who generally lived in the same communities as their workplace, they made sure their businesses were good neighbors, contributed to social well-being, and polluted as little as possible. Even before Helen’s innovations, these co-ops managed to do all this and still out-compete comparable traditional business.
Of course, these characteristics by themselves wouldn’t solve all the world’s problems, but John felt that if somehow the business community as a whole were to behave like these co-ops, a social and political climate would develop in which the world’s problems could be addressed much more easily.
The problem had always been how to make the conversion, but now, with some real excitement, he started to glimpse the way it might happen. He sensed that Helen’s innovations, added to the other strengths that co-ops had already demonstrated, could at some point turn the co-op into an irresistible alternative to the standard corporation.
Having witnessed the rapid collapse of the old Soviet Bloc, he was aware that cultural change often builds slowly and then comes with a rush – and that it was best to be prepared for that rush. To do so, he identified two key needs for assisting conversions to employee ownership:
- retraining for both workers and managers to get the full benefits from employee ownership
- capital for the buyout process.
John knew there was already a network of consultants who could provide retraining but not on the scale that might be required. So he organized a project to strengthen that network and develop materials for training traditional organizational-development consultants in the special aspects of employee-owned businesses. He also developed a socially responsible investment fund specifically to help with employee buyouts.
Meanwhile, around the world, Helen’s ideas were working well, but most results were at a small scale, ignored by the press. Ignored, that is, until mid-1997, when two of Helen’s transnational competitors withdrew from her co-op’s market, leaving the two co-ops, Helen’s and the 1995 conversion, as the dominant players.
There were big stories in the Wall Street Journal and Business Week, and lots of analysis by commentators. Most economists felt it was a special case and that only desperate workers would agree to use Helen’s approach. Besides, they warned, if everyone did this the economy would stop growing and we would head into a depression.
After a few weeks the press got bored and moved on to other things, but the publicity stirred a lot of interest among employee groups. There had already been a steady drift toward employee ownership, if not full co-ops, even among large companies: Avis had been employee-owned for years, and in mid-1994, United Airlines was bought by its employees – to cite just two examples.
At the same time, the corporate down-sizing movement had undermined morale throughout the corporate world, and many corporate employees – from managers to shop floor workers – who would never have considered a co-op in the 1980s now found them to be a very attractive alternative. John’s buyout fund got a lot more inquiries than before, and serious buyout movements were started in about 20 percent of the largest companies worldwide.
A few transnational corporations did become employee-owned at this time and decided to decentralize into close-knit transnational alliances of more locally based co-ops. The employees (and now owners) saw this as the logical next step beyond what they had done during the 1980s to flatten the hierarchy and increase employee participation. The older associations of co-ops found they had a lot to learn from these converted transnationals.
A COOPERATIVE ECONOMY
At the same time, smaller co-ops were busily forming, or strengthening, alliances with other co-ops, some regional and some global. This led further to associations of these alliances. Sorting out the complicated issues raised by these multiple levels turned the co-op movement into a fertile laboratory for developing new governance approaches for creating the right balance among local, regional, and global needs.
The interest in cooperatives was buoyed by the debate over the North American Free Trade Agreement (NAFTA) which educated the public to the damage being done to communities by highly mobile capital. As a result, many communities started to orient their economic development efforts toward locally owned businesses, or at least businesses with patient capital. Employee-owned businesses were one of the prime beneficiaries, and public attitudes toward co-ops shifted from "strange and suspect" to "good for communities."
The process might have only gradually gathered steam if it weren’t for the Recession of 1998. As you know all too well, the weak economy plus steady social and environmental deterioration during most of the 1990s kept people on edge, and when it looked like the economy was headed down again, a computer error at the New York Stock Exchange on October 16, 1998, cascaded into the biggest global stock market drop ever.
What surprised everyone, however, was the reaction of both employee groups and investors. Around the world, employees fearing for their jobs if their companies went bankrupt rushed to buy them out. At the same time, investors, anxious to get out of the stock market and find a safer place for their funds, noticed that employee-owned companies had some of the best records for not defaulting on loans or bonds. The result was a rush of money into John’s fund and dozens of others like it that sprung up like mushrooms, which, in turn, enabled a rush of employee buyouts.
The whole process was self-reinforcing. The more companies converted to employee-ownership, the more the employees of the remaining traditional companies worried about being left behind. And the more investors found a safe haven in buyout funds, the more others wanted to do so. Naturally, some traditional corporate leaders were dismayed by what was happening, but they turned out to be as powerless to stop this process as the old Communist Party bosses had been to stop the break-up of the Soviet Bloc. By the end of 1998, two-thirds of the top 1,000 global companies were employee owned. Of those that remained, most either went bankrupt or converted by the end of 1999. John’s foresight enabled what would have otherwise been a financial meltdown to turn into a remarkably smooth transformation.
COUNTING THE REAL COSTS
1998 was indeed a momentous year. That summer confirmed what many were suspecting: that the depletion of the ozone layer was decreasing agricultural yields around the world at an alarming rate. This, and more discoveries of extensive groundwater contamination, headed the list of environmental bad news. In the US, as the country headed into the congressional elections of November, the people were clearly ready for a change.
In this setting, the Full-Cost Accounting proposal got looked at in a whole new light. As you may remember, this proposal was first put forward by a group of economists looking for a way to get the market to encourage more sustainable choices. They had developed a method for assessing the full social and environmental cost, over the full life-cycle of use, for the major resources and materials used in the economy. They proposed that the government should charge use-fees for these resources when they first entered the economy. These use-fees would be set to reflect the full cost so that the price signals sent through the economy would be more accurate.
Revenue from these use-fees would be used to assist in the shift to less damaging resources, and for environmental restoration and various social investments to offset the damage caused by the use of these resources. The hope was that this would, over time, greatly reduce the use of damaging resources, replacing them with resources of less full cost.
Before 1998 this proposal had been considered much too radical and had been opposed by most of the traditional business community. The co-ops, however, many of whom had already switched to more environmentally and socially friendly products and processes, supported the idea. In the tumult of the fall of 1998, the public mood shifted, and this proposal became the rallying point for many of the strongest congressional candidates.
The result, as you know, was the Economic Reform Bill of 1999. This bill established:
- resource use-fees, based on the Full-Cost Accounting proposal, to be phased in over five years
- fair-trade laws that permitted states and localities to impose "adjustment fees" on goods from outside their jurisdiction produced according to lower standards than locally produced goods
- systems for more equitably spreading both work and personal time throughout the society, based on procedures pioneered by co-ops
- the use of a broad range of indicators for measuring economic well-being
- the phasing out over five years of government subsidies for a wide range of unsustainable practices, including subsidies for energy use and transportation.
Similar legislation had either already been passed, or was soon passed, by most of the world’s nations.
The fair trade laws required dismantling the General Agreement on Tariffs and Trade (GATT) and various regional trade agreements, but by 1999 worldwide support for these had essentially vanished anyway. New agreements were put in their place to make sure that "adjustment fees" were indeed fair, using procedures developed by the global co-op associations.
A SHIFT TO QUALITY
We’re getting much closer to the present now, so I suspect that much of the remaining story is familiar. I’m sure you remember that not all of the companies that converted to employee ownership in 1998 and 1999 were successful. It soon became clear that there was a lot more to success in this new environment than just an employee buyout. The companies that did best had high levels of employee participation and followed Helen’s two principles of seeing themselves as a whole community and keeping score in terms of quality of life.
The combined effect of the Full-Cost Accounting laws and of increased efficiency at the household, business, and community levels was a significant shift in the kinds of products and services demanded in the marketplace. Long-life, environmentally friendly products were in, throwaways were out. The net result was an overall decrease in demand. Indeed what started as the Recession of 1998 looked like it might evolve, in the old Gross National Product terms, into the Depression of 2000.
Fortunately, it has been far from depressing! Thanks to the new systems for spreading work, there is little "unemployment" even though the total hours worked have declined. Thanks to our new indicators of quality of life and community well-being, revenues from the use-fees are being spent in highly efficient ways for the common good. In fact, the whole focus of political attention has shifted from the quantity of economic activity to its quality. Many of us have enjoyed watching the new indicators go up as the feverish pace of economic activity that characterized most of the 20th century has started to cool off.
The impact internationally has been equally dramatic. Full-cost accounting quickly made it clear that most trade between the North and the South was neither fair nor wise. The character of this trade has completely changed, allowing local economies all over the world to flourish and serve real human needs. With the fear of unemployment gone, the last support for the arms trade has vanished, freeing-up an extra trillion dollars a year for more constructive purposes. And thanks to the global co-op associations, we now know how to deal democratically with global issues without squashing local initiative.
It has been a momentous decade. Who would have guessed, just ten years ago, that here in 2003 the vast majority of all major companies would be employee owned and democratically controlled? We still have a long road ahead of us as we work to develop truly sustainable societies. But we have transformed many of the crucial structures that were making the economy act like a cancer and are returning the economy to its proper role as a servant of sustainable human well-being within a healthy natural environment.
It is ironic that the two great combatants of the 20th century, Soviet-style socialism and transnational corporate capitalism, have now both crumbled – and for the same reasons! Neither could stand up to the competition offered by a more decentralized, more democratic, and more humane system that offered its participants a better quality of life. They did not see themselves this way, but we can now see that they were both the last gasp of the Empire Era with its assumption that human systems should be centrally ruled and controlled by a small elite.