When Co-ops Meet DAOs

Nathan Schneider is a journalist and professor of media studies at the University of Colorado Boulder. He was among the first journalists to cover the Occupy Wall Street movement, and more recently he authored the book Everything for Everyone: The Radical Tradition That Is Shaping the Next Economy, in which he looks at how cooperatives can become the basis of a democratic economy. We caught up with Nathan in August in Berlin, asking him to share his views on the existing cooperative model, how can they be modernized and applied in the digital economy. We also talked about the concept and application of decentralization practices in tech, and exchanged ideas on how to increase accountability and leadership in the Web 3.0 space.

Hi Nathan, one of your main research topics is the feasibility of digital cooperatives. Let’s dive deeper into this. 

Nathan Schneider: Yes, that’s a big question for me. Are there ways in which these digital tools can help new cooperatives get off the ground more easily, but also — can they be used by older cooperatives to claim some of their potential? That’s a big ask because those older cooperatives are very conservative, they are careful with their members’ money and struggling to keep up with better capitalized competitors. There is some promise there though — especially, the ability to use things like DAOs [decentralized autonomous organizations] and shared governance technologies to recapture the lateral member-to-member relationship that made cooperatives take off in the first place.

Could you share some of your favourite functioning examples of cooperatives operating nowadays?

There are a few examples that lurk around in the economy. In the US, the most wealthy corner of the cooperative movement is the credit unions, which is also a powerful movement here in Germany. These organizations grew by serving communities that didn’t have access to financial institutions — they were able to do that because they built upon the member-to-member relationship. They built on the idea that people in a neighbourhood could decide on who was creditworthy — better than some banker who never set foot there — based on relationships, based on reputation systems, based on a stake. And as these institutions grew, they received public policy frameworks and regulation to support their growth, and now they operate like a nicer, nonprofit version of banks. About a third of US citizens are members of these institutions, which constitute a powerful piece of infrastructure where people can put their money in a place that feeds their community. But what does the next generation of traditional credit union cooperatives look like? How can we really use this model as a lever to transform the current economic system rather than just work around the edges?

Another example of a contemporary cooperative is Associated Press. Because it’s a cooperative owned by members of various news organizations, it is very much invested in supporting small news outlets because of its membership model. Nobody accuses AP of spreading “fake news” — its cooperative incentive structure results in factual, reliable information. And this is one of the few media organizations that can compare to the reach of Facebook; AP claims to reach half the population of the world every day.

Not everything in the economy needs to be a cooperative, but that cooperatives can play a vital role that can enable other kinds of businesses to function, and to have better feedback loops.

Why don’t more cooperatives operate on a large scale, competing with the big tech giants?

There is nothing about cooperatives that restricts scale other than really financing access. One characteristic of cooperatives too is that when they work at larger scales, they tend to work as federations so they are not claiming the whole market — they are actually just realigning it. While working at a large scale, they actually exist to support the smaller players and the dynamism of the market, rather than to eat up the whole market all onto themselves. And that is a really exciting difference enabling them to support local and diverse business rather than trying to disrupt and consume small players into nonexistence.

Do you have any data on cooperatives operating globally?

The data is very hard to come by. In the US for example we don’t count cooperatives in our censuses — though that is about to change — and data comes from self-reporting. Globally, 10 percent of employment happens through cooperatives, and certain countries have very significant cooperative economies. In Kenya cooperatives generate half of the GDP, in northern Italy significant portions of agricultural and even some industrial activity happens via cooperatives, and in New Zealand — virtually the entire dairy market operates as a co-op. Everyone who’s been around cooperatives for a long time says that we are in an explosive moment and the interest in this model is very high. But the barriers are also very high, as the online co-op structures that people are trying to create are not yet supported by the economy and the legal frameworks. We are in the process of trying to build the ecosystem to enable appropriate financing for cooperatives in the digital economy.

Are cooperatives a viable alternative to the dominant corporate models?

There’s a perception out there that venture backed companies are more efficient and that’s why they get funding, while cooperatives don’t. But the VC model only became possible when legal constraints on it were lifted. Similarly, co-ops have been able to scale in various sectors when appropriate legal frameworks were put in place; thus, there’s a $128 billion co-op bank in my area in Colorado, and there are co-ops in the United States that own nuclear power plants. If we as a society want to make co-ops more of the dominant economy, we can — we just need to make sure they have the tools and rules in place that they need, like any other kind of business.

What’s the difference between old cooperative models and the most contemporary ones that you explored?

A few years ago I reported on the Catalan Integral Cooperative, a remarkable young cooperative based in Barcelona that is involved in various projects, from farms and a reclaimed factory to urban housing and health care. I thought they must be inspired by the Mondragon Corporation, a massive worker co-op in nearby Basque Country. But they told me no — they didn’t want jobs. Their whole purpose is to get out of this idea that you have to have a job your whole life. Their purpose is to liberate people from capitalism and from the economy, not to just to establish themselves within the industrial order. Catalan Integral Cooperative’s objective is to generate a self-managed, post-capitalist society based on peer-to-peer principles. While there are certainly lessons to be drawn from the older cooperative models, such as Mondragon, the CIC example shows that they are also ways in which modern cooperatives are trying to solve different problems, and have different visions for what they’re trying to achieve.

Is it possible to register a transnational digital cooperative today?

It is, but sometimes we need to bend the rules in order to achieve the things that are commonplace in our online economy. That’s one of the opportunities that the blockchain space represents — offering us a new toolset that we can use to explore and develop what it means to be a cooperative member in the new context.

Through your research in cooperatives, have you come across what is the best jurisdiction to establish your legal entity if you want to create an international worker cooperative?

I don’t think there is a perfect jurisdiction. But for example right now in Colorado, where I live, our state happens to have really flexible cooperative laws which allows for forming multi-stakeholder cooperatives. So Colorado is becoming, as our lawyers say, the Delaware of cooperatives. There’s also an EU-wide Statute for a European Cooperative Society, which aims to help cooperatives who have activities in more than one EU country. You can always work with statutes, and they’re not that hard to change, especially locally. The real challenge is creating an economic market around these businesses that knows how to invest in them and how to help them grow.

From the consumer or user perspective, what would this new cooperative-based economy change?

My hope is that this kind of model could shift some of the accountability problems we currently face, across the spectrum. A new feedback loop of accountability would be introduced and, for instance, tech companies would lose interest in exploiting their users because the users would now be the legitimate business owners. We would have to build a model that is oriented very differently from the outset. Moreover, we would have to create frameworks where, as a society, we have a say in the institutions that we depend on, and where we own our problems — rather than just saying “oh, those evil corporations, they’re causing all these problems.”

We also need to be aware — and this has been recognized in the blockchain space — that just because an organization is decentralized, it doesn’t mean the problems go away. It just means you have a different framework for addressing those problems. And to me, that is the hope.

Do you see blockchain as a really disruptive technology which can make a real difference? What is the hope it brings, and what are the main challenges, in your opinion?

I first learned about the Ethereum whitepaper early in 2014, when I was touring with my book on Occupy Wall Street. I experienced this protest movement as being full of people craving a pure, more accountable, responsive kind of democracy. Ethereum really caught my attention because it represents something where we can actually start trying those new kinds of democracies that people were craving in the protest camps all around the world. It provides a space where we can iterate on governance fast, and where we can develop new, responsive forms of democracy which are both efficient and accountable.

Since then, it feels less like a moment where we are craving for democracy — it feels like the whole idea of democracy is in a massive crisis. And if we don’t sort out some real accountable institutions fast — democracy is going away. So I’ve been excited about the really creative mechanism designs fluctuating in the decentralization space. I want to bring them back to those old co-ops. At the same time, I think there is too much faith in that one mechanism will solve all of our problems. There’s maturity coming into play now where people are recognizing it might be a little more complicated than that. But the truth is, the blockchain space enables tremendous creativity going into what the future of accountability could look like. There’s also a potential to learn a lot of lessons from what came before and apply them in new ways.

The kind of voting systems we have now in democratic governments, for instance, are just so poor at accounting for and balancing preferences. And there is a potential for tremendous innovation in the DAO space. But there are also forgotten lessons to be learned from offline governance. Sortition, for instance, is the selection of political officials as a random sample from a larger pool of candidates. It is a system intended to ensure that all competent and interested parties have an equal chance of holding public roles. It was very prominent in the Athenian democracy, for example — but is much less prominent now. And actually it’s a system that has a lot of really nice features, it’s a way of balancing expertise and populism — but it is going to be very hard to implement that in our governments now. In the blockchain space, however, we could try out 15 different kinds of sortition systems and see how they work.

As we play with all these different kinds of fun mechanisms, we can’t forget that there’s a lot more to governance than voting. And the point of good governance is that it fades into the background. When it’s working well, democracy consumes less of our attention, not more.

In your recent article on decentralization you mentioned tools that are meant to decentralize issues and introduce novel possibilities run the risk of enabling astonishingly unaccountable concentrations of power. Can you give some examples of that?

First of all, I’m not sure that just more decentralization per se is going to solve any problems. When we look at past systems, it appeared necessary to establish forms of centralization that protect the kinds of decentralization we like. One example is protecting competitive labor markets by having labor laws that are centralized and centrally enforced, or protecting decentralized business markets by having centralized antitrust law, which ensures that when a company takes too much market power, it faces consequences. I don’t think we should be afraid of those things. To me, the more useful question rather than whether the new systems are decentralized is — are the systems we are creating more accountable and liberating? The system can be as unconstrained as possible, but in cases when constraints are necessary — those constraints should be accountable. If enough of us think they are really stupid, we can change them. I think the technologies developed in the Web 3.0 space can be useful — if we reframe them around actually advancing a democratic promise and advancing accountability.

What will it take to overtake incumbents such as Google, Facebook, Amazon? Is it even possible to overtake or replace them with more accountable, decentralized solutions?

If we are going to tolerate the role that they currently play, we should get serious about building accountability into them — because exit is not an option. Perhaps certain aspects of these systems are indeed natural monopolies — but if so, they should be either regulated like crazy, or they should be democratically structured, like a school board.

One project I’m interested in now is how can we start inserting some user ownership into these companies? Interestingly, Uber, Lyft and Airbnb have all been begging the Securities and Exchange Commission to let them share ownership with their users. They do want to align their interests with their users. Let’s take advantage of that desire, let’s give users some equity and change the rules around that. But they also have to give users a voice. That seems like a reasonable compromise.

If you were brought into the Ethereum Foundation because someone asks, how can we be made more accountable — what would be your suggestion?

I think first the question is — what powers they actually have? There’s a lot of lack of clarity about that. My understanding is that there’s the official foundation and then there’s a shadow — a tyranny of structurelessness that is also very much at work. So first, I would say that we need to have clarity about what the power structure is — where the buck stops. And then ask — who are stakeholders, who are the citizens?

And then wonder what is appropriate for those citizens to be involved in, and what isn’t? And then ask how do they get involved. For instance, in a technical context for a startup, you don’t want a thousand random people looking over the shoulders of developers, you want to honour expertise.

Can you speak more about your thoughts on leadership in institutions or cooperatives?

It’s important to recognize that you don’t want everybody always involved in everything. Instead, you want to identify the places where accountability really matters, design for those, and then leave the people who are vested with responsibility — the space to use that responsibility. I spend more time with cooperative entrepreneurs lately reminding them that they are leaders, rather than talking about horizontal organizing or decentralization. They assume that because it’s a cooperative they need to defer on everything to the amorphous membership. But cooperatives have always needed leaders. The question is, how is that leadership accountable? Once that’s clear, let’s free those leaders to express their full selves and put their talents to work — that’s what we want. We don’t want to constrain people, we want to empower them.

As we build new kinds of organizations, we also need to dispense with the illusion that we’re departing entirely from the past: just because we’re dealing with crypto ledgers doesn’t mean we don’t need to have institutions anymore or that humans don’t have to trust each other anymore. I think that evidence is very strong from our experience that whenever we try to escape those things, we’re going to end up with stuff that’s worse.

Thank you!

This interview was conducted by Ola Kohut and Yalda Mousavinia in Berlin on 22. August 2019.