by Roger A. McCain***
The privatization of state enterprise in Eastern Europe and the former Soviet Union has focused the attention of the profession on the transition from state to investor-owned private enterprise. However, classical economists from J. S. Mill to Richard Ely understood cooperative enterprise to be the primary hope for an economically liberated society, and modern evidence confirms at least part of their view.
Cooperative enterprise may be defined as enterprise owned by the employees, not individually as investors but as a group, with membership in the group conditional only on employment. Cooperative enterprises also are directed by the employees through some sort of majoritarian processes. With cooperative enterprises as with democratic polities of other sorts, the ideal may not be fully realized in every case, and some of the most widely studied cases would best be described as semi-cooperatives. On a reasonable assumption of continuity, we might suppose that enterprises that approximate cooperative organization would also function approximately as would cooperative enterprises, so that many of the comments in this paper will draw on studies of semi-cooperatives.
These studies indicate that cooperative enterprise has strong advantages with respect to labor productivity(1), but also has some disadvantages in mobilizing capital. Of course, there is nothing new about this. The founders of cooperation were, after all, more interested in divorcing themselves from the capitalist class than in attracting investment from it. Perhaps, however, there are some lessons to be learned from the privatization wave of the last few years, and it will be assumed, in this paper, that a successful enterprise form must satisfy at least the following constraints:
In 1977, McCain proposed a financial scheme for cooperative enterprises designed to meet those constraints. Mathematical models indicate that these constraints may be met by cooperative enterprises supported by appropriate financial arrangements, but the mathematical models may not make it clear how the financial arrangements might be implemented. In discussing the conversion of enterprise forms, the paper indicates explicitly how the financial arrangements may be implemented by simple conventions rather like accounting conventions.
The proposal was that the corporate cooperative issue "enterprise revenue shares" (hereafter ERS)(2). The dividend paid on each ERS is required by law to be equal to the average labor income in the enterprise.(3) Thus, the workers council cannot (even if it would) divert potential shareholder dividends to increased wages. At the same time, the shareholders share in the risks faced by the enterprise. Conversely, however, the shareholders share in the benefits of any successful innovations or investments by the cooperative enterprise, and thus investors have incentives to gather information and make efficient estimates of the prospects of the different enterprise, as they do in a capitalist financial market. Thus the revised cooperative enterprise promises the advantages of democratic enterprise joined with those of a capitalist financial market.
The allocative properties of such an enterprise were discussed in my 1977 paper. This paper discusses implementation of the proposal, in part because it is an important topic in itself, but also as a means of making the proposal more "cognitively accessible."
The proposed arrangements can be modeled mathematically much as economists model capitalist financial arrangements. In McCain, 1977, and unpublished work, I have explored models based on hypotheses involving the maximization of the expected utility of income per head. The conclusions are
This last conclusion is consistent with the observed behavior of many existing cooperative enterprises: when enterprises are privatized through worker-ownership, the employees tend to sell off the shares quickly. (Ellerman 1994) Ellerman regards this as a "Prisoners' Dilemma" response, and concludes that the employees should be forbidden from doing so. In a joint proprietorship cooperative, it is indeed a Prisoners' Dilemma interaction, since the dispersion of worker ownership either creates problems of capital supply or destroys the cooperative nature of the enterprise, with its other advantages. But in the corporate cooperative it does neither. The corporate cooperative raises capital efficiently from shareholders. Because it retains a zero net worth, increased cooperative membership does not dilute the interest of existing members in rent the cooperative's net worth, and so there is no incentive to restrict the membership and scale of the enterprise.
Enterprises, as mediating organizations, can and should have zero net wealth, a liability for every asset, and in principle every enterprise does. Joint proprietorship cooperatives, however, hold some of the assets jointly, while the liabilities -- the members' ownership claims -- are individual. This creates difficulties which are now well known. However, these difficulties do not arise in a corporate cooperative that issues ERS.
Until now, the proposal for investors' shares has been treated as economic theory. The presentation has been somewhat abstract, as economic theory tends to be. Neoclassical economic theory assumes that people are capable of making decisions that maximize their advantages, on the basis of all available information. That is, neoclassical economics assumes unbounded rationality. That assumption is reflected in the mathematical models just summarized. But human rationality is not unbounded;(5) and one aspect of bounded rationality is that decision frames affect human decisions. That is, decisions may be different when the same decision problem is presented in different ways -- in different cognitive frames -- and that has implications for the the operation of corporate cooperatives and for the conversion of other forms of enterprises to the corporate cooperative form.
Indeed, this is a major source of resistance to major innovations of all kinds, including those of enterprise form and financing schemes. Our cognitive frames are consistent with "what is" and inevitably prejudice us in favor of the existing, the accustomed. If an investor were presented today with a choice between the shares in a capitalist and a cooperative corporation -- between the known and the unknown -- which would the investor be likely to choose, regardless of the objective prospects for returns? However, law, regulation and custom can to some extent supply the frame that does not now exist.(6)
On the financial side, I believe there should be at least three separate capital funds for each worker cooperative. The three funds would be a working capital fund, a wage fund, and a dividend fund. It should be a rule of accounting and auditing that the three funds be kept strictly separate, and each used for its proper purposes. Violation of this rule should be considered stock fraud, grounds for civil damages or for petitions for bankruptcy. It might even be appropriate for the three funds each to have a separate board of oversight to assure its proper use and conservation.
The working capital fund would receive all payments to the enterprise for goods and services sold, or from any other source outside the enterprise, including the sale of newly issued shares. The working capital fund would also be the source of all payments to other enterprises for such purposes as the purchase of raw materials or machinery, rent of land, rental of buildings, taxes, services rendered under temporary contracts, and so forth. Debt service would be paid from the working capital fund, and borrowed money would, in the first instance, be credited to the working capital fund. In general, payments to individuals who are not connected with the enterprise, for any purposes, would also be made from the working capital fund. However, no payments could be made directly from the working capital fund to members of the enterprise, regular employees or investor shareholders. To make payments to these enterprise constituents directly from the working capital fund would be considered fraud.
All wage payments would be made from the wage fund. The wage fund would be replenished from time to time by transfers of funds from the working capital fund. (Thus wages of employees from come from the working capital fund indirectly, by transfer, but never directly). Any and all payments for the benefit of employees, such as health and insurance benefits, bonuses, and so on, would be made from the wage fund and not from any other source. If the workers' cooperative were to build an apartment block to provide worker-members with apartments, the interest and amortization on the mortgage, and the down payment, must all come from the wage fund. If there are nonmember employees (supposing this to be legal, as it might not be), their wages, bonuses, benefits, and so on, must also come out of the wage fund along with those of the members.
The dividend fund is reserved to pay dividends on investors' shares. It, too, is replenished from time to time by transfers from the working capital fund. To assure that the dividends promised in the investors' share rule are paid, it should be a legal requirement that all transfers to the wage fund be matched by transfers to the dividend fund. To compute the matching transfer, take the amount transfered to the wage fund, divide by the number of employees(8), and multiply by the number of investors' shares outstanding. For example, consider an enterprise that has 2000 member-employees, and 500 investor shares outstanding. At the beginning of a quarter, $15,000,000 is to be transfered to the wage fund so that the employees may be paid at an average rate of $2500 per month for the quarter. We have $15,000,000/2000 = $7500 and $7500 times 500 = $3, 750,000, so $3,750,000 must at the same time be transferred to the dividend fund. Quarterly dividends would then be the same as the average labor share for the quarter, $7500. This matching should be made as automatic as possible, for example through arrangements with a trust bank to manage the funds.
All funds in the dividend fund are committed eventually to be distributed as dividends on investors' shares. The qualifier "eventually" is important, since a growing enterprise will often, in practice, need to rely on "plowback" investment from retained earnings, and it will be appropriate to set aside a part of the dividend fund for this purpose. "Plowback" investment plays no role in my mathematical model (1977), which ignores transaction costs in securities markets and thus assumes that the enterprise can always finance investments, however small and routine, by new issues; but in real world security markets routine investments are more commonly from "plowback." This gives us reason to believe that the laws governing the corporate cooperative should also allow for "plowback." Yet this must be done in such a way that the shareholders' interests are protected. A venerable capitalist institution, the share dividend, might provide the mechanism for this. Capitalist corporations sometimes pay a dividend in fractional shares, rather than in money, so that (for example) each holder of 100 shares becomes, ex dividend, a holder of 105 shares. Those who prefer money can, in principle, sell the incremental shares. Ideally, this is not a dilution of ownership, but an offset against the growth of the asset value of the corporation through investment out of retained earnings.
Adapting this to the corporate cooperative, the corporation chartering and securities regulations statutes would allow for the payment of dividends in shares, subject to controls to prevent the equivalent of Ponzi schemes and similar stock fraud. Formally, the first step would be a transfer of (previously unissued) shares from the working capital fund to the dividend fund, in return for cash. The transfer should be made at a bona fide market price, and provable deviations from this standard would, again, be considered stock fraud. Second, the shares would be distributed in proportion to holdings. This distribution would obligate the enterprise to set aside a bigger proportion of the net revenues for the dividend fund in future periods, and so presumably the work group would accept it only if they were satisfied that the investment would yield a sufficiently bigger value product to supply those funds -- that is, that the marginal productivity criterion would be met.
If stronger controls were needed, it might be required that the share dividends be in accordance with a written investment plan, which would be public knowledge and would associate the revenues from the substitution of the stock dividends with specific investments. (Issuance of such a plan would probably be a matter of good investor relations in any case). The plan might even require shareholder approval, either through a poll or through some representative board. These requirements would, of course, purchase greater shareholder confidence at the cost of greater transactions costs in raising the capital. Conversely, for a cooperative with moderate plowback financing needs or low transaction costs of access to capital from new issues in securities markets, a possibility would be to leave it to the individual investors to choose cash dividends or compounding through share dividends. With differences in investor expectations and preferences, this could provide a modest, routine if not controllable, flow of re-investment funds for routine investments.
Suppose liquidation is fully anticipated: the material assets (machinery, etc.) of the corporation are sold off just as its products are, and the proceeds go into the working capital fund and are divided between the employees and the shareholders in the same proportion as are revenues from the sale of products. The result is optimal: because this resale is anticipated, ex ante share prices adjust in such a way that the share of revenues (from products plus leftover capital goods) is just enough to return the investors' principle plus a market rate of return on it. So long as expectations are fully "rational," liquidation is just like sale of products and presents no difficulties.
However, there could be scope for opportunism, if an enterprise were to be liquidated by surprise when investors had expected it to continue. The investors, expecting continued production and a stream of dividends the discounted present value of which would defray their investment, receive instead S/(S+N) of their investment plus a much more brief, insufficient stream of dividends. Now, investors can always lose because of unexpected changes in corporate circumstances, and caveat emptor; but a successful system of corporate cooperative enterprises may need special protection of shareholders against this sort of opportunism, especially at a period of transition. Thus, shareholders might be assured by the corporation chartering law and securities regulations of an opportunity to petition for compensation on the grounds that they had not realistic opportunities to be informed of the plans of the work group for liquidation; and liquidation payouts might be delayed (for some moderate period) by statute to permit the filing of such petitions, in case there should be cause.
Bankruptcy is conspicuous by its absence in microeconomic theory. Since bankruptcy is a clear sign that someone has made a mistake of some sort in investing, its absence should be no surprise -- microeconomic theory does not allow for mistakes. All the same, bankruptcy presents no fundamental difficulties for a system founded on investor-owned enterprises, since bankruptcy simply transfers ownership of the enterprise from one group of investors to another, the creditors of the first. It is worth observing that this does not necessarily mean that the business is liquidated, or even that it is interrupted -- the creditors may do better by operating the business as equity owners than by liquidating its assets. Thus, it may be that the role of bankruptcy is exaggerated by those socialist reformers who seem to see it as the remedy for any ill-adapted enterprise: bankruptcy is a protection to creditors, largely against shareholders and the rest of society.
All the same, borrowing is likely to play some role in the business of a corporate cooperative, and lenders, like shareholders, will require protection of their interests. For the enterprise to become the property of the creditors means abolition of its democratic cooperative character. What then may be done? If democratic decisions have placed the corporation in a position of default on debt, then its bankruptcy must to some extent mean a suspension of its democratic processes. The point is that this suspension be limited enough so that the fundamentally democratic cooperative nature be maintained, so long as the enterprise itself is.
Lenders are expected to be prudent and are held responsible for losses that derive from any imprudent lending they may do. Bankruptcy is a court decree designed to resolve a conflict of interests when enterprise decisions have exposed creditors to risks or loses that the court finds unjustifiable in that they are unavoidable by the lenders despite their prudent caution. Supposing that a court finds that a corporate cooperative has imposed such risks or losses on lenders: what remedy may the court provide?
First, clearly, and somewhat stereotypically, they might force the cooperative into liquidation. Since the work force might choose liquidation voluntarily (under the guidelines of the last section) but by assumption had not done so, this would suspend the democratic character of the enterprise -- but only briefly, as the enterprise ceases to exist.
Second, the court might seize some of the material assets of the enterprise (but not all) and sell them to satisfy the creditors' claims(9). Again, this would suspend the democratic character of the enterprise, since the enterprise could choose to sell some of its material assets to pay its debts; but again the suspension is momentary and, once the claim is settled, the cooperative reverts to its democratic decision processes.
However, both of the foregoing remedies injure the interests of shareholders, as they end or disrupt the stream of dividend payments. This might be justifiable, if the shareholders had (through their dividends proportionate to wage payments) been beneficiaries of the unsustainable wage policies. However, the shareholders might themselves be the victims of work group opportunism in the form of a borrow-default-and-liquidate scheme, a slight complication of the scheme of opportunistic liquidation sketched in the last section. Implausible as these schemes might be, bankruptcy law for corporate cooperatives should protect investors against them.
A third possible bankruptcy settlement could take the form of a reduction, by court decree, of scheduled wage payments. This wage reduction would continue for a specified time, limited to a few years at most, during which there could be a reasonable hope that the creditors' claims could be satisfied.(10) Such a decree would mean that the cooperative would continue for some time with its democratic processes compromised.
Fourth, replacement of the management who have created the unsustainable policies could certainly be in order. Simple replacement of elected with appointed management would, however, amount to abolition of the cooperative nature of the enterprise, and is therefore inadmissible. However, it does seem that the court might require that a new election for management and the members' representative body be held. It should not be surprising if a management and board that had not averted bankruptcy would be found no longer representative of the membership as a whole; and if, despite everything, the discredited management should retain the confidence of the membership, that might suggest that there must be more to the story than managerial incompetence.
A difficulty that might arise with a decreed reduction in scheduled wages is that the decreed wages might not be sufficient to retain the work force, if members should find that, at the decreed wages, they have better alternatives elsewhere. This is a case in which the enterprise is unable both to pay its debts and its variable costs, and in a case of that kind, it is inevitable that investors will lose. In a capitalist economy, investors lose in this situation -- shareholders lose everything and creditors settle for so-many cents on the dollar. Some such losses will occur in any economy.
If a corporate cooperative is on an unsustainable path of wage and dividend disbursements, and may reasonably be expected to persist so, then it would be desirable to bring about an revision of the policy before losses are incurred. With this in view, bankruptcy courts might consider petitions of bankruptcy from shareholders' groups or members' groups who believe the enterprise' scheduled wages are unsustainable. Member-employees might well file such petitions, either as minority groups who perceive the unsustainability of the existing policies, or even as a majority group who regard the existing management as no longer representative of the membership.
Many cases in bankruptcy are settled not by decrees but by negotiation. We might expect that equally to be the case in an economy of corporate cooperatives as well.
In any healthy economy, bankruptcy is uncommon. If it becomes common, there is clearly more wrong than the simple human errors that bankruptcy is capable of dealing with. In the rare cases that are appropriate, it is the job of a bankruptcy court to receive petitions and, if the petitions are judged to have merit, to balance the various interests and forms that recovery may make. Bankruptcy courts would have the same task in an economic system based on corporate cooperatives. Among the four forms of decrees mentioned, it seems that they would have scope to do so.
Another abstraction in the model is its tacit assumption that the corporate-cooperative system is already in place and ongoing. A more concrete view requires also some discussion of the process of conversion -- a process that has proved far more difficult in Russia and Eastern Europe than most observers predicted.(11) Accordingly, we now proceed to discuss conversion of other enterprise forms to corporate cooperatives, beginning with the conversion of capitalist corporations because it is the easiest case.
A bit of algebra suffices to answer the question. First compute the Adjusted Value Added -- that is, value added minus interest payments and rents of land and rentals paid out for buildings and other rented capital. Adjusted Value Added, AVA, is the total of incomes and benefits to employees and shareholders, including shareholders' potential incomes in the form of retained profits. Next compute the total wage bill, W, inclusive of all benefits. The number of ERS to be issued is S = (AVA-W)/W.(13) Then suppose that S* conventional shares are outstanding ex ante conversion. For each share that an investor owns, she receives in its place S/S* ERS.
It may be convenient to issue trading units that are fractional ERS. Suppose that conventional shares in a corporation to be converted trade, ex ante conversion, at $35/share, reflecting earnings per share of $3.00, while W/N, the average wage and thus the dividend on an ERS, is $30,000.00. Then a trading unit of one ten-thousandth of an ERS would be expected to trade in the accustomed range.
A difficulty with state enterprises is that their costs are not likely to be proportionate to market requirements, so that their profits (AVA-W) are not really proportionate to the capital value of the enterprise. To the extent that the former state organization can be rationalized by the new worker-owners, they may enjoy windfall gains. If this rationalization is anticipated by investors, they will bid up the shares and the government will benefit to some extent. If the investors do not anticipate the rationalization, they, too, may experience windfall gains. But all of this is symptomatic of success, and not avoidable except at the cost of failure.
If the state enterprise is unprofitable and is subsidized ex ante conversion, the case is more difficult. The losses may result from the inefficiencies described in the previous paragraph or from the fact that the state enterprise supplies (to some extent) public or merit goods. If the latter considerations are important, then privatization in any form is not workable; here I assume that public and merit goods are not important in the state enterprise's output. The major purpose of privatization will then be to eliminate subsidies. Since AVA-W is negative, no share issue can be based on the methods suggested so far. Unless a radical rationalization can be anticipated, the enterprise will not be salable in any case as an investor-owned corporation, without a continuation of the subsidy. In the case, it will probably be best to transfer the enterprise to the workers, without any initial ERS issue, and with a politically viable schedule for the gradual elimination of the subsidy. The employee-members may then enjoy the windfall benefits of rationalization net of the elimination of subsidy, if there are any. Or, in the opposite case, they have the greatest feasible opportunity to offset the elimination of subsidies by means of rationalization, and so minimize their own loss of living standards.
Estimate adjusted value added, AVA, as before. It will be necessary to rely on book value estimates of the capital value of the cooperative enterprise and to use an estimate of the average return to equity capital to impute the market returns on that book value. The product of estimated capital value and estimated market returns is DS. Then W is estimated as AVA-DS and from there we proceed as before. Thus S = DS/(AVA-DS). These S shares should be divided equally among the members, who may then choose to sell them. Once a market is established the cooperative corporation might choose to raise capital by issuing still more shares.
Some cooperatives allow members (and sometimes others) to own shares that are paid a specified rate of return, as if they were loans in perpetuity. Since the rates of return paid are not likely to reflect market considerations, these shares should probably be included along with the net capital value of the cooperative enterprise in estimating DS above. Shares would then be distributed in proportion to each person's capital ownership, either as investors or as members.
But who should receive the share issue? There are at least three possibilities. It could go to the workers. That is, the state enterprise could, in effect, be converted to a cooperative and then, as a cooperative, converted to corporate form. But this would create inequalities as the workers in more fortunate or capital intensive enterprises would gain relative to the rest. It would also delay the development of capital markets, to the extent that the employee-members might have little reason to sell rather than holding the shares. Second, the share issue might be to the government, which would then sell them to foreign capitalists or to those citizens who have cash with which to buy them. This accelerates the development of capital markets, and might attract needed international capital flows and/or absorb excess liquidity and so prevent inflation (if it were done in a timely fashion), but the inequalities created would seem even more dangerous than those under the first case. Third, vouchers might be given to the citizens, in equal amounts, that could be redeemed for company shares, as in the Czech Republic. The recipients of vouchers could then sell them abroad or to citizens with cash if the offers were right.
State farms are somewhat a special case, since it may be best that they be converted, not to corporate cooperatives, but to individual proprietorships through the distribution of land. This might be accomplished in two stages. We might envision a state farm converted to corporate farm offering shares only to its own members, and then distributing land in return for shares, further converting itself into a farmers' cooperative or even dissolving. In practice, this would probably require financial support (loan capital) to enable the farmers to acquire the land and avoid alienating it to absentee owners.
If the decision is to continue as a corporate cooperative, the estimation of AVA, W, DS and S may have to be based on pretty arbitrary and conjectural ratios. An alternative, in principle, would be to let the cooperative corporation retain its collective property, but issue shares only as a means of raising capital if there is a need and an opportunity to do so. Once capital markets have been established in the privatizing nation, a better basis would exist for the conversion of historic cooperatives to corporate form.
The overall objective of this study is to envision a society in which all or almost all corporate enterprises are cooperative enterprises. In the United States, for example, this could be accomplished by a federal corporation chartering law that would require all corporations engaging in interstate or international commerce to adopt a cooperative governance system and the three-funds ERS financial structure outlined earlier in this paper. To do so immediately, though -- even if it were politically thinkable -- would, of course, be hasty. Cooperative governance is tried and proven, and the advantages of the ERS are (I believe) theoretically clear, but the financial proposal is untried. The immediate need is for experimentation with it. Such experiments might be undertaken by existing cooperative or worker-owned companies. Let us consider, for example, a major "worker-owned" corporation based on a worker buyout of an investor-owned corporation, or on a long-term ESOP program, or both. Several such corporations exist in the United States today. Formally -- in the terms of the previous discussion of conversion -- it is an investor-owned corporation in which the investor is (or include as majority owner) a trust fund administering shareholdings on behalf of the employees. This is a fragile arrangement, since "worker ownership" persists only as long as the trust retains majority ownership. It may not give the employees democratic control of the company, since the trust is not likely to be democratically administered. Moreover, the assets of the trust can neither be distributed to the employees nor diversified, since that would endanger the "worker ownership" of the company. However, since the employees and investors are substantially the same people, this provides an ideal environment for experimentation with the proposal made here. Let the shares in such a company be converted to ERS according to the formula previously given, and the company converted to cooperative governance. If these ERS perform well as investment instruments, the trust could offer them for sale on financial markets as a means of diversifying the assets of the trust. The trust might then be converted to a closed-end investment fund with the shares held by the employees as individuals; making the transition to a cooperative enterprise financed by ERS complete. I project that, given the productivity advantages of cooperatives, the owners of such experimental ERS would enjoy windfall gains. Perhaps we might eventually see a boom in voluntary conversions of conventional corporations to cooperatives financed with ERS to secure such windfall gains.
Legislation may be needed even to make such experimentation legally permissible, and certainly legislation could encourage it, as legislation has encouraged experimentation with ESOP's. Perhaps the supposition that our Congress could be foresightful enough to encourage such experimentation will seem the most visionary aspect of this paper. But we do have the example of the ESOP legislation to demonstrate that such legislation is possible. It certainly is a better hope than waiting for our economic system to collapse and hoping that our posterity will be able to improvise a new, workable system of cooperation in the teeth of a crisis such as that the Russian Republic has faced in the last few years.
As a first step toward such experimentation, it might be useful to prepare a model corporate charter for a cooperative corporation financed by ERS. This would no doubt have to be a collaborative effort among lawyers, accountants and economists.
This is all too long-range and speculative to speak to the needs of workers who may be disemployed in the next few years. There is a present need for reforms of enterprise in this country, to protect the livelihoods of American workers here today. And there is a tried and proven model that could be put into practice here today: codetermination with parity. In codetermination with parity, both shareholders and employees are represented on the board of directors, and they are represented equally. This system has been widely required in West Germany (and now in Germany) and is proven successful there. It should be implemented as soon as politically possible in the United States. A federal corporation chartering law could require that corporations of a certain size, participating in interstate commerce, would be required to be governed by codetermination with parity. Such a law might also explicitly permit a three-funds system as a further guarantee (beyond equal representation on the board) of the participation of shareholders in corporate revenues. This would be relatively easily reversible in a codetermined as in a worker-owned enterprise, should it prove unworkable. For that purpose, the corporation chartering law might include a model corporate charter for codetermination with a three-funds financial structure.
Of course, all of this is visionary in the present political climate. The most urgent present need is for real economic education; that is, for an education that makes the body of citizens aware of the real economic potential of cooperation, including both its proven benefits and its future potentialities.
This paper has revisited a proposal for a financial structure for cooperatives put forward by McCain. (1977) To give the proposal more concrete form, accounting rules have been proposed for the ongoing operation and conversion of other forms to corporate cooperative form. The accounting rules center on the use of three distinct funds for routine operation, the payment of wages, and the payment of dividends. The major objective of these proposals is to make the protections to shareholders explicit and obvious as a means of facilitating efficient capital raising in a world in which both investors and enterprise decision makers have bounded rationality. The paper then goes on to sketch the economics of conversion from several forms of enterprise to cooperatives financed by ERS. In many ways, the conventional corporation is the easiest, since its participation in capital markets provides reasonable valuations on its assets which may be used in the conversion. This provides the base-point for the other cases. Legislation and voluntary experimentation are proposed as steps toward a full realization of the proposal.
The overall conclusion of the paper is that the conversion of other enterprise forms to corporate cooperatives is feasible and in many cases desirable, in both formerly socialist and traditionally capitalist economies.