A Cooperative Framework: How to End Extreme Poverty in the Next 30 Years
Introduction
What is “extreme poverty”? In 2011 the World Bank defined extreme poverty as living on less than US$1.50 in the US, buying US goods. This oversimplified answer begs the question, “Who could live on $1.50 per day?” The answer to that question is not many. A broader examination of “extreme poverty” is had by comparing “quality of life” data. This data includes; life expectancy, infant mortality rates, access to quality health care and food security. So the goal of ending extreme poverty should be focused on quality of life issues as opposed to dollars and cents. Case in point, a homeless man in America most often has more than $1.50 go through his hands every day, but would you consider his quality of life beyond that of “extreme poverty?”
If “quality of life” issues are the focal point of the efforts to raise everyone out “extreme poverty,” the standards for an acceptable quality of life could include;
- Decrease the variance in life expectancy across the world, regardless of race, religion, nationality or ethnicity.
- Raise infant mortality rates to the rate of the highest country.
- Make sure every world citizen has access to quality health care, regardless of where they live.
- Make sure every world citizen has food security, meaning access to an affordable and healthy food supply at all times, regardless of where they live.
- Make sure that every world citizen has access to quality affordable housing.
If we can achieve these five things, we will effectively end “extreme poverty” and permanently decouple the concept of quality of life from GDP and per capita income.
How do we begin to accomplish the aforementioned goals? What institutions, distribution and communication channels and financial facilities are needed? How should they be deployed and how will they be maintained sustainably?
Institutions
In terms of operational, financial and legal structure, what types of institutions would be compatible with mutually beneficial ends and means? These corporate structures are cooperatives which are not-for-profit, mostly tax-exempt entities designed from the ground up, for the benefit of its members on a mutual and democratic basis. But to facilitate a holistic approach to achieving the outcomes previously enumerated, there must be more than one cooperative because there is more than one function, but all cooperatives and separate functions should work together as a whole, capitalizing on economies of scale and scope.
To assemble the correct group of not-for-profit, tax-exempt corporate entities, we have to analyze each discrete task and the tasks that need coordination to;
- Identify the types of non-profits needed, based on identity attributes and function.
- Model exactly how they would function as a group in a way that is first compliant with local and international corporate and tax law and efficient in terms of resource allocation (output/throughput). The goal of these entities, individually and as a group, is allow the greatest amount of resources to be used in the delivery of services to their respective and collective memberships.
A Cooperative Framework
The Cooperative identity has at least 6 points which are;
- self-help,
- self-responsibility,
- democracy,
- equality,
- equity and
- solidarity
and seven principles which are;
- Voluntary and Open Membership
- Democratic Member Control
- Member Economic Participation
- Autonomy and Independence
- Education, Training and Information
- Cooperation among Cooperatives
- Concern for Community
To maintain the aforementioned cooperative identity and carry out its principles in the purpose of increasing the quality of life for its members, I propose a collection of five(5) autonomous cooperatives;
- Credit Union
- “Production Cooperative”
- “Service Cooperative”
- “Housing Cooperative”
- Omnibus Trust Company
The five (5) separate cooperatives will be organized respectively for the following purposes, and work together under a “Collective Agreement”1:
- “Credit Union;” where individual cooperative members are organized for mutual financial benefit allowed by the scale (number of individual members) and scope (diversity of asset and risk base) to put downward pressure on the price of funds for all members of the “Collective Agreement1.” The Credit Union will elect to be treated as a 501(c)(14) or (25).
- The “Production Cooperative;” will be the producers of agriculture, industrial products and services members of the “Collective Agreement”. The major initial deliverable of the Production Cooperative is a “Comprehensive Production Plan” (i.e Business Plan), which facilitates financing. The Production Cooperative will elect to be treated as an IRC Sub-chapter T under section 521 Exempt Farmer’s cooperative. The Production cooperative model will be applied separately for the agricultural (Grower, Processor) members and service-provider members, based on profile identity. 1The Collective Agreement is a superseding Agreement between the Cooperatives for complete mutual benefit of members of each separate cooperative.
- A “Service Cooperative” works to increase the efficiency of marketing the products and services of each member the “Collective Agreement”. The “Service Cooperative” will be a supporting organization electing to be treated as a 501(c)(3) under section 509(a)(3). Through the “Service Cooperative” members of the “Collective Agreement” will have access to the following facilities;
- Communications and computing organized, operated and treated as a 501(c)(12); utility-based pricing at cost debited from individual credit accounts based on the level of participation with the “Service Cooperative” pursuant to the “Collective Agreement.” (individual user accounts for the CIP database)
- Business Development Services 501(c)(6) under section 509 (a)(3); business plan development, loans and entrepreneurial credit education.
- Accounting 509 (a)(3); Individual and collective ledger access and control.
- Marketing 509 (a)(3); creating, communicating, delivering, and exchanging offerings and requests between members of the “Collective Agreement” and society at large.
- Legal Services 501(c)(9) under section 509(a)(3); development of “Collective Agreement,” individual co-op bylaws and “Service-Level Agreements.”
- Consumer Cooperative 509(a)(3); Financial literacy and consumer advocacy activities.
- Insurance Cooperative (501(c) (9) cooperative), a.k.a. MET (Multiple Employer Trust) or a MEWA (Multiple-Employer Welfare Association). This will be a Member-owned Insurance Trust, re-insured by a financial entity TBD.
4. An “Omnibus Trust Company;” holds legal title of all tangible and intangible assets (equitable title held be respective cooperatives beneficiaries/grantors). The “Omnibus Trust Company” will elect to be treated as an 501 (c )(2) or (25) Title-Holding Trust Company for the “Collective Agreement” members with the “Service Cooperative” 509 (a)(3) acting as Trustee.
5. Housing Cooperative (a 501(c)(3) Sub-chapter T cooperative); The Housing Cooperative will employ both group equity, oriented toward entity growth and limited equity paradigms oriented toward member wealth accumulation. Excess capital allocations always accrue to members, either present or future (distinguished by entity-specific model). This cooperative will set no limit on their number members. The Housing Cooperative will pool money to purchase and develop land for its members on an individual or entity basis.
All the not-for-profit models are discussed on the IRS website:
http://www.irs.gov/publications/p557/ch04.html
Distribution and Communication Channels
Based on the rhizomic growth model, distribution channels will be global and ultra local. We can accomplish this by transplanting the DNA of successful cooperatives and the supporting “Collective Agreement” to regions secure enough allow for implementation. Distribution in the case of individual autonomous cooperatives and the “Collective Agreement” include; funds accounting, logistics, labor and materials. In the case of funds, the distribution will be based on successful implementation of a “Production Plan” which allows the procurement of funds on account. In the case of logistics, local demand information is gathered (via Internet-enabled applications fed to the CIP Database) and analyzed in lieu the “Production Plan” template (Leontief matrix), thus modified to fit the conditions of the environment to which the new production plan will be implemented. The labor and capital equipment needed to implement the new production plan will be procured locally (if possible) and the material will be procured in the most ecological and economical way possible.
Communication will be global, connected though a network created ad-hoc via the Internet. The costs of which are determined by the “Communication Cooperative” embedded within the “Service Cooperative” on a utility-based pricing model for communication and computing. Each cooperative will have its own secured intranet network with extranet interfaces based on the “Collective Agreement” to facilitate a global ledger of separate cooperative accounts. To adhere to the autonomous identity of cooperatives, each cooperative must first “opt-in,” but maintains the right to opt-out if its membership wishes to decouple from the “Collective Agreement.” Communication among and by the autonomous cooperatives consists of legal (interface-based “Service-level Agreements”) messages, accounting (funds transfers and clearing; SWIFT) messages, Internet access to educational curricula and searchable “knowledge bases,” as well as audio and video teleconferencing. The “Communication Cooperative” will establish leasing and/or outright ownership of backbone and node infrastructures that ensure secure low-cost, high-throughput communication between member cooperatives and from member cooperatives to external endpoints.
Financial Facilities
Through the Credit Union, individual cooperative and “Collective Agreement” activities are funded. The process of funding is not dissimilar to conventional funding in that it is based on a business plan (Production Plan) and collateral. The “Production Plan” is derived from accessing the demand of the (potential and actual) membership by primary data collected by the “Service Cooperative.” The data collected qualifies and quantifies the demand of the prescribed quality of life-enhancing services to be delivered by the cooperatives individually and collectively. To collect this primary data, a comprehensive survey must be commissioned and implemented through the aforementioned communication channels, via Internet applications.
Once the “Production Plan” is arrived at, the individual entrepreneurs associated into cooperatives are brought into existence to serve the stated demand. Collateral is had by the pledge and delivery (by contract) of all assets (tangible real estate and machinery or intangibles, such as“table funding” notes and accounts receivable/factoring). The “Service Cooperative” (the “Omnibus Borrower”) will procure financing via collateralized (non-recourse) loans, allocating funding pro-rata to the individual cooperatives based on the necessary funding stated in the individual and collective “Production Plans.” This type of funding is congruent with conventional purchase financing of real estate, machinery and services. The Credit Union will fund the “Service Cooperative” (or individual members) via “Letters of Credit” or other mechanisms appropriate to purposes of the beneficial entity.
Deployment Models
To deploy the previously-described “Cooperative Framework” and to describe the function of each separate autonomous cooperative entity, it is proposed to set up a visual model using UML with XMI connecting to the underlying entity-specific XML schema (Legal, Tax, MISMO, XBRL and StatML database (maintained in the CIP2) that define each entity’s attributes, functions and interfaces with other entities. From this programmatic model, a “Collective Agreement” (document) can be derived ad-hoc. This framework will make future growth more efficient as new entities are added to the model, creating new interfaces (transactions) and thus revisions to the “Collective Agreement” can be had on-demand (redistributed to all members for opt-in/opt-out). This is called “Agile Modelling” which is consistent with the principles of the cooperative movement. The model will incorporate the primary data (StratML) collected by the “Service Cooperative” for the initial development of the “Production Plan” (transactional database), which can be used by report-based analytical tools and GIS to enable a geo-spatial representation of the ‘proposed’ impact of the cooperative’s initiatives on a local demographic. The actual outcomes arrived at serve as a feedback mechanism to inform iterations of the “Production Plan” to improve outcomes automatically over time (absent politics).
2 The CIP Database is a repository of XML schemas for relational and transactional queries and analytics
The previously described modelling is a work in progress, but the “Cooperative Framework” model is depicted statically in Fig 1 as follows;
Fig 1
From the depiction we can begin to see how the “Cooperative Framework” works together to produce and distribute the necessary products and services to effectuate the stated “quality of life” benefit to members. The model is robust in its ability to facilitate cooperative and individual quality of life solutions. Individual members can apply for funding via the Credit Union on the same playing field as corporations (Co-ops) through the “Service Cooperative” based on the individual member’s plan integration with the overall “Production Plan.”
In summary, the particular “quality of life” improvement outcomes achieved through the respective cooperatives (and/or) individual members;
- The three(3) health-related outcomes are accomplished via the MET/MEWA, member-controlled and funded health insurance 501 (c)(12) cooperatives
- The food security outcomes are accomplished via the Agricultural Production and Processing 521 Exempt Farmer’s cooperative units
- The quality housing outcomes are accomplished via the Housing 501 (c)(3) Sub-chapter T cooperatives
- Finance, marketing and operational logistics are developed, documented and communicated via the “Service Cooperative” 501(c)(3) section 509(a)(3) through its respective divisions
- Transactional banking, financial advising and funding is accomplished via the Credit Union 501(c)(14)
Sustainability
The “Cooperative Framework” is designed to be operationally sustainable by its ad-hoc development and provision of services and financially sustainable by that same demand-side utility. The framework is designed to meet the needs of the membership based on real-time membership demand data which is applied recursively to regulate supply (“Production Plan”) to maintain equilibrium. This process creates a “Steady-State Economy” proposed by ecological economists such as John Stewart Mill3, and later Herman Daly4. The “Cooperative Framework” works to provide for its membership, a Maslov-like “quality of life” baseline, upon which new local economies could be built. The framework’s coverage will expand over time to include a global (but autonomous) membership community.
3 John Stewart Mill In his magnum opus, Principles of Political Economy, he wrote:
…the increase of wealth is not boundless. The end of growth leads to a stationary state. The stationary state of capital and wealth… would be a very considerable improvement on our present condition.
4 Herman Daly and his associates Robert Costanza, AnnMari Jansson, Joan Martinez-Alier, and others to create the field of ecological economics.
