Common ownership

Common ownership refers to holding the assets of an organization, enterprise, or community indivisibly rather than in the names of the individual members or groups of members, as common property. The principle of holding the means of production in common with free access to the output is the defining feature of a communist society.

Common ownership of the means of production is advocated by communists and some forms of socialism. Advocates make a distinction between collective ownership and common property; the former refers to property owned jointly by agreement, such as producer cooperatives, whereas the latter refers to assets that are completely open for access, such as a public park freely available to everyone.

History

See also: Communalism

Pre-Neolithic tribes held property in common through tradition. Thus, common ownership of land is an example of customary land ownership in tribal societies which pre-dates the arrangement of colonised alienated land. Marxist theory describes this primitive communism as based on common ownership on a subsistence level. Another term for this arrangement is a "gift economy" or communalism.

Movement in the UK

The principle was adopted by the “new wave” workers’ co-operative movement during the 1970s, and continues into the present day, although it is less common. In 1976, the British Parliament passed the Industrial Common Ownership Act (“ICO Act”), which gave £100,000 of "seed" funding to the Industrial Common Ownership Movement (ICOM) and £50,000 to the Scottish Co-operative Development Committee (SCDC), respectively. ICOM was fueled by three strands of thought–Christian socialism, workers’ control and “rice and sandals” alternativism–and successfully promoted the creation of over 2,000 worker’s co-operatives, before merging in 2001 with the Co-operative Union to form Co-operatives UK, thus reuniting the worker co-operative and consumer co-operative sectors.

In parallel, the growth of some 60 local co-operative development agencies (CDAs), supported by local authorities, gave on-the-spot start-up assistance to groups wanting to create a co-operative. Some local retail co-operative societies were also active. By combining personal, community, and business development, this movement brought many disadvantaged people the opportunity to go into business for themselves on the basis of economic democracy, equal opportunities, and social inclusion.

Finance: The ICO Act also established a £250,000 rotating loan fund managed by Industrial Common Ownership Finance Ltd (ICOF). ICOF — since 2005 trading as Co-operative and Community Finance- has grown steadily and now manages a range of funds totalling some £4.5 million. Some of these have been endowed by public bodies, and others were raised through public subscription. This was the start of the ethical investment movement in Britain.

Currently, as signalled by the British Labour Party’s abandonment of “clause 4” of its constitution, which called for common ownership and was printed on party membership cards, ideology has given way to pragmatism, and the social enterprise movement focuses on outcomes rather than structures.

Common ownership and socialism

Many socialist movements advocate the common ownership of the means of production by all of society as an eventual goal to be achieved through the development of the productive forces, although many socialists classify socialism as public ownership of the means of production, reserving "common ownership" for what Karl Marx termed "upper-stage communism". From a Marxist analysis, society based on a superabundance of goods and common ownership of the means of production would be devoid of classes based on ownership of productive property.

Therefore, public or state ownership of industry is seen as a temporary measure to be adopted during the transition from capitalism to socialism, which will eventually be displaced by common ownership as state authority becomes obsolete as class distinctions evaporate. Common ownership in a hypothetical communist society is distinguished from primitive forms of common property that have existed throughout history, such as communalism and primitive communism, in that Communist common ownership is the outcome of technological developments leading to superabundance.

It is the practical application of the socialist desire to achieve the “common ownership of the means of production” (see Clause IV). Its purpose, by preventing control being obtained through the purchase of a company’s share capital, is to ensure that the founders’ aims are pursued in perpetuity. This is particularly desirable to the founders of a workers’ co-operative, who, inspired by solidarity and the desire to create fulfilling employment, will typically build the business up through hard and low-paid work (misleadingly called “sweat equity”). They may out of a sense of fairness wish to hinder future generations of employees, or their heirs, from winding up the co-operative so as to be able to share the sale proceeds among themselves (see asset stripping).

In practice

Common ownership is practised by large numbers of voluntary associations and non-profit organizations, by all charities, as well as implicitly by all public bodies. Most co-operatives have some element of common ownership, but some part of their capital may be individually owned.

A very significant early influence on the movement has been the Scott Bader Commonwealth, a composites and speciality polymer plastics manufacturing company in Wellingborough, Northamptonshire, which its owner, Ernest Bader, gave to the workforce in installments through the late 1950s to early 1960s. (Contrary to the popular concept of common ownership organisations as being small organisations, this is a high-technology chemical manufacturer whose turnover has exceeded £100 million per annum since the early 1990s with a workforce of hundreds.)

In London, Calverts is another rare example of an established worker co-operative with a policy of pay parity. The John Lewis Partnership is probably the most famous example of a worker co-operative, albeit one without pay parity. From the collective movement, one of the most successful ventures is probably Suma Wholefoods in Elland, West Yorkshire.

UK law

The principle is typically implemented through inserting two clauses in a company’s Memorandum of Association, or an industrial and provident society’s rules.

• the first provides that the company’s assets shall be applied solely in furtherance of its objectives and may not be divided among the members or trustees.
• the second provides for "altruistic dissolution”, an "asset lock", whereby if the enterprise is wound up, remaining assets exceeding liabilities shall not be divided among the members but shall be transferred to another enterprise with similar aims or to charity.

British law has been reluctant to entrench common ownership, insisting that a three-quarters majority of a company’s members, by passing a “special resolution”, have the right to amend a company’s memorandum of association. This three-quarters majority above applies to most limited companies, except that it is possible since 2006 to entrench altruistic dissolution in an industrial and provident society registered as a 'community benefit society' ('bencom'). This statutory asset lock is not available to societies registered as 'bona fide' co-operatives. However such entrenchment has also been written into the Community interest company (CIC), a new legal status that was introduced in 2005.

Economic theory

In economic theory, common ownership is analyzed in the field of contract theory. According to the incomplete contracting approach pioneered by Oliver Hart and his co-authors, ownership matters because the owner of an asset has residual control rights. This means that the owner can decide what to do with the asset in every contingency not covered by a contract. In particular, an owner has stronger incentives to make relationship-specific investments than a non-owner, so ownership can ameliorate the so-called hold-up problem. As a result, ownership is a scarce resource that should not be wasted. In particular, a central result of the property rights approach says that joint ownership is suboptimal. If we start in a situation with joint ownership (where each party has veto power over the use of the asset) and move to a situation in which there is a single owner, the investment incentives of the new owner are improved, while the investment incentives of the other parties remain the same. However, in the basic incomplete contracting framework the sub-optimality of joint ownership holds only if the investments are in human capital, while joint ownership can be optimal if the investments are in physical capital. Recently, several authors have shown that joint ownership can actually be optimal even if investments are in human capital. In particular, joint ownership can be optimal if the parties are asymmetrically informed, if there is a long-term relationship between the parties, or if the parties have know-how that they may disclose.

See also

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