Mondragón and the Current Crises

We all know how American businesses are handling the crises: layoffs and bailouts, if they can get them. But how about the Mondragón Cooperative in Spain? Does it not face the same pressures? According to the Financial Times, one of the world's most respected business magazines, the Cooperative is taking another approach:

Fagor is a workers’ co-operative, one of dozens that dot the valleys of Spain’s hilly northern Basque country. Most belong to the world’s biggest group of co-operatives, the Mondragón Corporation. It is Spain’s seventh-largest industrial group, with interests ranging from supermarkets and finance to white goods and car parts. It accounts for 4% of GDP in the Basque country, a region of 2m people. All this has made Mondragón a model for co-operatives from California to Queensland. How will co-ops, with their ideals of equity and democracy, cope in the recession?

Problems may be shared with competitors, but solutions are not. A workers’ co-op has its hands tied. It cannot make members redundant or, in Mondragón’s case, sell companies or divisions. Losses in one unit are covered by the others. “It can be painful at times, when you are earning, to give to the rest,” Mr Zabala admits. Lossmaking co-ops can be closed, but members must be re-employed within a 50km (30-mile) radius. That may sound like a nightmare for managers battling recession. But co-ops also have their advantages. Lay-offs, short hours and wage cuts can be achieved without strikes, and agreements are reached faster than in companies that must negotiate with unions and government bodies under Spanish labour law.
Of course, Mondragón has seen this before. In the 80's, when unemployment in the Spain reached 27% and businesses where closing all over, they managed to survive with only a 0.6% unemployment rate, and only had to close three of the 103 cooperatives that made up the corporation at that time. And the three they closed were coops that had started just as the troubles began, and never reached profitability.

What distinguishes the cooperative approach from the corporate one is the notion of shared responsibility, which means shared gains and shared pains. In the United States, we have socialized the pains, and privatized the gains. Workers are also the owners, and they are able to make difficult decisions in a way that our corporations cannot. But then, there is very little difference, socially, between the highest and lowest in the company. The top pay is limited to eight times what the lowest worker makes (giving management a real incentive to keep the lowest pay relatively high). Compare that with the 300-500 times times the average wage an American CEO typically "earns."

Everybody can claim to have a good system in good times, but it is the times of trouble that really test theories. In the crises of the 80's, Mondragón passed with flying colors. the American banks restricted lending and sought bailouts; The Cooperative Bank (Caja Laboral) extended credit and took an active role in rescuing cooperatives in trouble. They went through the crises together, and survived it together. History is repeating itself, I suspect, only this time Capitalism may not be able to bail itself it.



The bailouts are coming at such a regular basis that they ought to make them into a “reality” TV series. What distinguishes “reality” TV from other forms of entertainment is that one, they are “unscripted” but highly manipulated formats, and two, they have nothing to do with reality. Certainly the weekly bailout plans qualify. If not exactly unscripted, they are poorly thought out and are mainly a matter of trying to manipulate markets. And they are certainly unrealistic. Hence, they are good candidates for being made into regular TV episodes, perhaps as “Survivor—American Economy” or “Last Bank Standing.” Something like that.

However, if they were made into a TV serial, they would be subject to the judgment of Comic-Book Man from The Simpsons, and this latest installment would likely earn from him his oft repeated honorific, “Worst...episode...ever!” First, let us see how these new “public-private partnerships” are supposed to work. The best explanation comes from Nouriel Roubini's RGE Monitor site:

Sample Investment Under the Legacy Loans Program:
Step 1: If a bank has a pool of residential mortgages with $100 face value that it is seeking to divest, the bank would approach the FDIC.
Step 2: The FDIC would determine, according to the above process, that they would be willing to leverage the pool at a 6-to-1 debt-to-equity ratio.
Step 3: The pool would then be auctioned by the FDIC, with several private sector bidders submitting bids. The highest bid from the private sector – in this example, $84 – would be the winner and would form a Public-Private Investment Fund to purchase the pool of mortgages.
Step 4: Of this $84 purchase price, the FDIC would provide guarantees for $72 of financing, leaving $12 of equity.
Step 5: The Treasury would then provide 50% of the equity funding required on a side-by-side basis with the investor. In this example, Treasury would invest approximately $6, with the private investor contributing $6.
Step 6: The private investor would then manage the servicing of the asset pool and the timing of its disposition on an ongoing basis – using asset managers approved and subject to oversight by the FDIC.

Sample Investment Under the Legacy Securities Program:
Step 1: Treasury will launch the application process for managers interested in the Legacy Securities Program.
Step 2: A fund manager submits a proposal and is pre-qualified to raise private capital to participate in joint investment programs with Treasury.
Step 3: The Government agrees to provide a one-for-one match for every dollar of private capital that the fund manager raises and to provide fund-level leverage for the proposed Public-Private Investment Fund.
Step 4: The fund manager commences the sales process for the investment fund and is able to raise $100 of private capital for the fund. Treasury provides $100 equity co-investment on a side-by-side basis with private capital and will provide a $100 loan to the Public-Private Investment Fund. Treasury will also consider requests from the fund manager for an additional loan of up to $100 to the fund.
Step 5: As a result, the fund manager has $300 (or, in some cases, up to $400) in total capital and commences a purchase program for targeted securities.
Step 6: The fund manager has full discretion in investment decisions, although it will predominately follow a long-term buy-and-hold strategy. The Public-Private Investment Fund, if the fund manager so determines, would also be eligible to take advantage of the expanded TALF program for legacy securities when it is launched.

Note that in the first case, the “investor” puts up $6 dollars for every $84 dollars of “assets” being purchased, while in the second he puts in as little $25. True, these 12-to-1 and 4-to-1 leverage ratios are much lower than the 30-, 50-, or 80-to-1 leverages that the banks and hedge funds are used to. Nevertheless, the leverage is all from public money. Supposedly, this “shares” the risk between the public and private sector, and allows the so-called private sector to price the toxic assets. But for every dollar at risk from the private sector, the public has from $3 to $12 at risk. So much for sharing. Further, the loans are “non-recourse.” That means that if the investment fails and the loan can't be repaid, the public takes the full loss, while the investor only loses the amount of money he put up initially; he has no liability to repay the public.

This is supposed to establish a “market price” for the toxic waste, but it will not. Rather, it will allow select investors to play the toxic-waste market with public money. This will not lead to market behavior. People play the market differently with their own money than with other people's money. And the program does nothing to address the underlying problem. Either the investors will offer enough money to clear the banks' balance sheets, which might mean that they've paid too much, or they won't, which means that the banks won't sell. But in either case this is a huge commitment of public funds for a problem which has a simpler and time-tested solution.

A few of the money-center banks, some insurance companies and many hedge funds made a series of bad bets. They are insolvent. There is a procedure for insolvency. The banks should be go into receivership and be broken up. The losses should be written off, and that's that. Nothing new or radical in that solution, it happens time and again.

So why not use it? Two reasons. These are no ordinary banks. They are huge behemoths so complex that even the managers and directors do not understand them. This, in fact, is the complaint of the man who took over AIG. That whole company was brought down by the activities occurring in one small division of about 400 employees, the very ones who are now getting the bonuses. But the very size of these institutions grants them great power over the economy. Further, their counter-parties, the people on the other side of the bets, tend to be powerful governments and institutions. Between them, they have the power to help themselves to a few trillion of the taxpayer's money. You will note that there is never enough money for such luxuries as health-care or education, but they can't print it fast enough for war or bankers.

Even if the plan works, it will fail, because it doesn't address the underlying problem. And that problem is that we no longer make what we consume. Unless we restore the real economy, the economy that makes real things and provides real services, we cannot restore the banks. Even solvent banks require productive enterprises to which they can lend money. But we ran out of these a long time ago. There simply isn't enough demand, even in good times, for loans from our diminishing productive sector. Hence, the banks turned to lending it for houses people couldn't afford and credit they shouldn't be using, but must because the wages are too low.

Making the big banks solvent again will not provide them with solvent customers. That can only come from a restructuring of the economy that shifts us back to real production rather than financial black magic. If we restore the economy, restoring the banks will be a trivial problem. If we do not restore the economy, it simply will not matter how “sound” the banks are.


Chapter XVI: Distributism and Industrial Policy

Can the Patient be Saved?

It is clear to everyone that the world economy is undergoing a deep crisis. The question on everybody's mind is whether this is just a “normal” part of the so-called “business cycle,” or whether it represents something more profound, perhaps even the end of that form of capitalism as it has existed for the better part of the last century. That is, have we just caught a cold, or do we have cancer? I hope the answer is the former; I fear it is the latter.

If it is the former, then it is likely that some form of government stimulus is the proper remedy, and as much as all sides may debate the particulars, they all agree on the medicine. There is good reason to believe in this medicine: it has worked well and often since the end of World War II; indeed, our economy has become dependent on huge government expenditures to remain in balance, and these temporary imbalances can be cured as they have been cured: by a little jiggling of the monetary and fiscal policy levers. If this is the case, then we will soon recover and go on as we have.

But there is a stronger reason to believe that it will not work as it has in the past, namely because it hasn't worked for the past eight years. The fact is, the economy has been operating under an extraordinary stimulus package since 2001. Think on this: George W. Bush took all the debt we accumulated between the time of Andrew Jackson (the last time the debt was paid off) up through Bill Clinton, and doubled it! He added $5 trillion to the national debt, a considerable stimulus by any measure.

Throughout it all, the economy remained anemic. Indeed, the “economy” was driven mainly by a housing bubble created not by any real growth, but by a compliant Fed and greedy financiers. An expansion of housing should be driven by an increase in wages, but median wages in this period actually fell. Hence, I think it reasonable to believe that what hasn't worked won't work; that another $800 billion, or even another $5 trillion will not do the trick. The old reliable system will not work any longer, and no amount of medicine can revive it. The system must change or die, or must change after it dies. Change is inevitable; death is optional.

The problem lies not with the banking system, although that system has its problems, but with the industrial and farming systems, the systems that actually create wealth. All other economic enterprises depend on these. Without fixing the industrial system, all other fixes will be either meaningless or, at best, temporary. Here we will look at the problems of the current system, and how distributism responds to these problems.

The “Supply-Push” Industrial System

While we may think of the current industrial system as a natural or eternal part of capitalism, it is in fact of relatively recent vintage. Indeed, when Adam Smith wrote about “the invisible hand” in the 18th century, he assumed an economy of small and mostly local producers, none of which had any market power, and hence no way to substantially alter the competitive outcomes. Most firms, save a few dealing with commodities that were traded internationally, had an incentive to remain small and employ as little fixed-capital as possible.1⁠ But all that began to change in the 19th century, and especially in the second half of that century, with the development of the railroads. For the first time mass marketing over large areas became practical. The best way to take advantage of this new system was with highly expensive, special-purpose machinery. This made the capital employed in production very large indeed, which meant that finance became more critical to the economy than ever before; those without access to large amounts of capital had little chance of competing. By the late 19th century, a new form of organization had appeared, the “M-form corporation” (“M” for multi-divisional) which spread all phases of production, often for very diverse products, across many divisions of the firm, while imposing a hierarchical structure to keep track of so many diverse functions.

All of this resulted in firms of tremendous power, both economic and political. This power replaced the invisible hand of Adam Smith with the all-too-visible hand of managers and government. Firms were now not price-takers, as in Smith's model, but price-makers. They could drive out smaller competitors, to be sure, but they could also drive down the price of labor. But when you drive down the price of labor, while increasing its productive capacity, you run into the problem that is usually called “overproduction” but is really “underpayment.” By 1890, the system was already plagued with constant “overproduction” problems.

This structure is often called the “Sloanist” model, because it was perfected by Alfred Sloan, the legendary chairman of General Motors from 1923-1946. Kevin Carson describes the model this way:

The only way to keep the unit costs of such machinery down is large-batch production to utilize full capacity, and then worrying about making people buy it only afterward (commonly known as "supply-push distribution.") So Sloanist industry, under "Generally Accepted Accounting Principles," produces goods to sell to inventory, regardless of whether there are orders for it or even of whether the product works, and has an astronomical recall rate. It follows a business model based on consumer credit and planned obsolescence to keep the wheels running. As Ralph Borsodi described it, the push distribution system ... amounted to making water run uphill. The overall logic of the system is that instilled by hypnopaedic suggestion in Brave New World: "Ending is better than mending." "The more stitches, the less riches."⁠2

In other words, what the system actually manufactures is landfill, objects that spend as little time as possible in the hands of consumers as useful products while on their journey to the dump as useless garbage. Thus, the production model requires a consumerist model; we must be constantly taught, through expensive, manipulative, and unrelenting propaganda (advertising) that our happiness lies not in persons, but in things, and not merely in things, but in constantly new things. The old is icky; worse, it is unfashionable. Only by constantly buying what we don't need or already have can the system sustain itself; the size of the garbage dump becomes the true measure of our “wealth.”

To solve the problem of overproduction, governments have resorted to growing the public sector to supplement demand. This is has been the greatest impetus behind not only the growth in government in the 20th century, but also for the extension of its imperialist and globalist reach in an effort to find, and force our way into, ever-new markets, as well as to guarantee sources of cheap labor and raw materials.

After World War II, the system reached some balance as the forces of the corporations, the government, and unions tended to balance each other out, and were sufficient, for a time, to keep wages high enough to absorb all the production, with some help from government spending. Since the 70's, however, productivity has exploded while median wages have stagnated. A vast gap opened up between the goods available for sale and the purchasing power necessary to absorb them. Markets could not be cleared. The obvious way to solve this problem is to fix the wage system. Without a just wage, without the worker getting a fair claim to his portion of the output through his wages, there is insufficient purchasing power to clear the markets. But rather than fix the wage system, the economy has relied on consumer credit; those with too much money simply lend it to those with too little, and at usurious rates. This solves the problem in the short term, but it makes the long-term problem worse. Because of high interest, more and more capital gathers at the top, and the day of reckoning is deferred, but not deterred.

The consumer's problem becomes the investor's dilemma; without sufficient purchasing power in the mass of men, the pool of good investments shrink, and the investor is forced to turn to pure speculation. He finds his portfolio full of exotic instruments he no longer understands. And what he primarily doesn't understand is that these instruments are not “investments”at all; that is, they do not provide funds to businesses to expand production. Rather, they are pure bets on the direction of some market, such as the housing market. Further, the excess capital tends to encourage leveraging; that is, investors lend huge amounts to other investors who place it in speculative instruments which are themselves dependent on an increasingly troubled productive sector. What you have is a dense network of highly leveraged bets that depend on other bets that depend on an increasingly shaky productive sector. The bets are so highly intertwined that a failure in one sector endangers every other sector. That is how a failure in a relatively minor market, like sub-prime mortgages, can bring down the entire credit system.

Meanwhile in the productive sectors of the economy, the combination of an oversupply of capital and an underfunded consumer makes it difficult for businesses to increase their profits. In an effort to improve their margins, they start by firing their workers and end by firing their machinery; more and more, the productive sectors move actual production overseas, leaving only a shell in the home country responsible for accounting, coordination, and marketing. Production is distributed, but legal control remains centralized. They invest their capital not in expanding production, since the consumer can't absorb any more production anyway, but in acquiring other companies to eliminate competition. The result is that ownership is increasingly concentrated in vast collectives known as corporations, even as production is distributed around the globe.

The argument infavor of the M-form mega-corporation has centered around the “economies of scale” that such large organizations can obtain. However, while there are some economies of scale, these are vastly outweighed by the dis-economies of scale; mere size brings great problems. But mere size also brings great power, and it is this power that interferes with the free market and hides the inefficiencies. Corporations can command the resources of government to obtain subsidies and favorable tax treatment, and they can raise barriers to competition through regulations whose main purpose is to raise the entry cost to small and more efficient competitors. Without the subsidies to hide the dis-economies and the barriers to keep out competition, the mega-corporation would not be a viable enterprise.

The Corporation as a Planned Economy

Economic literature is full of critiques of the socialist planned economies, all of which highlight the difficulties of trying to bureaucratically allocate resources in absence of a real market. But as it happens, all of these critiques can be applied equally to the modern corporation. After a certain size, the M-form corporation becomes indistinguishable from a planned economy, and convert what should be “free market” enterprises into bureaucratic structures that suffer from all the problems of a socialist state, with none of the benefits. To see how this happens, let us examine these problems in more detail.3

Lack of an Internal Market. In a corporation of any size, there is an enormous internal trade in goods and services. The outputs for one division are the inputs to another, and services such as accounting, computing, and marketing are offered across divisional boundaries.4 But there is no market for these goods and services. In general, each division does not have a choice about which products and services to purchase and to whom they will sell their product. Yet, without a market, how does one know how to price products or how to allocate resources? The answer is that products are priced, and resources allocated, bureaucratically, by administrative decisions. Managers often find that their main job is to constantly fight the “battle of the budget” since it is the administrative process, and not the market, that determines their success. Readers will recognize this as the primary critique of a socialist economy, but one that fits equally the corporate economy. But a bureaucrat, public or private, can only make decisions as good as the information he receives. And here we encounter another problem endemic to both systems.

Information costs. In a large organization with a highly complex structure, there is a separation of of knowledge from work and a distribution of information spatially across many offices that may be separated by thousands of miles. But before any decisions can be made, this information must be gathered, processed, assimilated, and judged. Further, the separation removes the information from any context, and as the people who must use the information have little knowledge of the work they remotely supervise, the ability to judge information gets lost. It is not that such organizations lack information; quite the contrary, they are inundated by it. But it is like doing a Google search and coming up with millions of sites, only a few of which are relevant. It is impossible to know in advance which sites have the needed content. Unfortunately, in a hierarchical structure, power relationships tend to determine the content; there is always the danger that a “rank-based” logic will prevail. Managers, intent on advancement, tend to supply the information they know their superiors want to hear, rather then the information they ought to hear. Large organizations tend, therefore, to become systematically stupid.

All of this imposes high information costs. But no matter how many resources are devoted to information gathering and analysis, there is no way to ensure the completeness, accuracy, or relevance of the information.

Agency Problems. In a socialist economy, the officers of the state are supposed to run an economy that is “owned” by the people and act as their agents. But in practice, the socialist managers become the effective owners of the system, constituting a privileged group with their own interests. No matter how democratic the political system, the public at large generally lacks the information necessary to manage large enterprises. The same critique, however, applies to corporate management. The board of directors is supposed to act as the agents of the stockholders, and the managers as agents of the board. But as with the socialist collective, the managers of corporate collectives become the de facto owners.

John Bogle, the founder and former president of the Vanguard Funds, has documented the ways in which the top managers have constituted themselves as a new class that appropriates to itself all the privileges of ownership without any of the risks.5⁠ They appropriate to themselves outsized rewards that should, by right, go to the owners and the workers. How can they do this? Ownership of a business once designated active control of that business, but now, as John Bogle notes,

The position of ownership has changed from that of an active to that of a passive agent. The owner now holds a piece of paper representing a set of rights…but has little control. The owner is practically powerless to affect the underlying property through his own efforts…the “owner” of industrial wealth is left with a mere symbol of ownership while the power, the responsibility and the substance which have been an integral part of ownership in the past are being transferred to a separate group in whose hands lies control.6

In other words, “ownership” itself no longer has the meaning in the corporation that it does with any other form of property. “Ownership” has been attenuated to a mere claim to whatever portion of the profits that the directors care to distribute, and the right to vote for these directors. However, this “right,” from the standpoint of the average shareholder, is more formal than actual. In practice, the costs of running a campaign against board members is prohibitively high, and the right to vote means little to the average stockholder, who rarely exercises it. In absence of active owners, the executives become the de facto owners of the firm. The corporation becomes, in effect, a mass of unowned capital appropriated by the managers. This new class tends to push the burdens and risks of work downward, and the rewards upwards.

The Divorce of Technical from Entrepreneurial Knowledge. Socialist planners prided themselves on their technical expertise and their deference to engineering talent. However, as their critics point out, while technology provides us with an endless range of production possibilities, it is impossible to evaluate these possibilities without knowing the price of the inputs. Since so many of the inputs are internal to the corporation, and since the corporation benefits from so many public subsidies, it is impossible to say that one system is more “efficient” than another. One can easily point to engineering marvels, but one cannot say that they are economically efficient. For example, the distribution system built by WalMart is certainly a technical achievement, but it depends on subsidized transportation costs. Without these subsidies, would the system aid or bankrupt the company? Neither the engineer nor the entrepreneur can answer such a question in absence of market prices.

Regarding this phenomenon, Kevin Carson notes:

Fully rational decisions are possible only if the knowledge of the relative value of inputs is combined with knowledge of how those inputs are to be used internally. The separation of ownership of capital from the knowledge of the production process leads to decisions divorced from reality. The same is true of the separation of management from the direct involvement in the production process, and the accountability of management to absentee owners rather than to workers.7

⁠For these reasons—and for many others—the modern corporations form, in the words of David Friedman, “indigestible lumps of socialism” in what is supposed to be a free-market system. Like any socialism, the system becomes increasingly dependent on state power and subsidies.

The Distributist Alternative

This critique would be pointless if distributism had no alternatives to offer. And the distributist alternatives would not be credible unless they were on the ground and working, and working in both large- and small-scale manufacturing. As it turns out, the distributist is offering not abstract panaceas, but systems which are on the ground and functioning; systems which any interested party may examine for their effectiveness. One such system is the distributive economy of Emilia-Romagna (Bologna) in Italy. As Kevin Carson describes it:

The closest existing model for sustainable manufacturing is Emilia-Romagna. In that region of 4.2 million people, the most prosperous in Italy, manufacturing centers on "flexible manufacturing networks" of small-scale firms, rather than enormous factories or vertically integrated corporations. Small-scale, general-purpose machinery is integrated into craft production, and frequently switches between different product lines. It follows a lean production model geared to demand, with production taking place only to fill orders, so there's no significant inventory cost. Supply chains are mostly local, as is the market. The local economy is not prone to the same boom-bust cycle which results from overproduction to keep unit costs down, without regard to demand. Although a significant share of Emilia-Romagna's output goes to the export market, its industry would suffer far less dislocation from a collapse of the global economy than its counterparts in the United States; given the small scale of production and the short local supply chains, a shift to production primarily for local needs would be relatively uncomplicated. The region's average wage is about double that of Italy for a whole, and some 45% of its GDP comes from cooperatively owned enterprises.8

The salient points of this analysis concern distributed and flexible manufacturing, the use of small-scale, general-purpose machinery, the gearing of production to demand (“demand-pull” rather than “supply-push”), local supply chains, and widespread worker ownership. Let us look at these points in turn.

Flexible Manufacturing, This allows for the quick movement among different product lines as demands shift. This is difficult in the M-form corporation, where a new product line often involves setting up a new division complete with its own capital requirements, not to mention management overhead. Moreover, it is easier to integrate this sort of manufacturing with craft production, bringing about the best of both worlds. “Craft” no longer has to mean a trade-off between quality and price, between single-piece and mass production.

General-Purpose Machinery. The use of general-purpose machinery means that the factory can shift easily from product line to product line, as demand dictates, without excessive re-tooling costs. The current system which relies on product-specific machinery cannot match this advantage. Moreover, such general-purpose machinery is already widespread. Most households already own quite a bit of it, and if you canvass any neighborhood, you are likely to discover a wealth of capital which can be joined together to produce a variety of products cheaply, efficiently, and locally.

Demand-Pull Production. Demand-pull manufacturing has a number of both economic and social consequences. Economically, it lowers the need for inventories, encourages the localization of those supply lines, and lessens the “boom-bust” cycle. But socially, it relies less on advertising to move goods. Currently, consumers are the victims of non-stop propaganda which appeals to their basest instincts. It is no more than commercial pornography, but it is necessary to the supply-push problem. This propaganda is especially directed at children, who must be socialized to the culture of consumerism if the current system is to survive.

Local Supply Chain. Local supply chains greatly lower costs and increase the utility of any firm to its own region. We have convinced ourselves that it is more “efficient” to ship a tomato 2,000 miles before we eat it, or to ship parts from the other side of the world. But obviously, there is something wrong with that equation, and even the most dedicated “flat-earther” would concede that local supply is better than remote, all other things being equal.

Since the manufacturing is divided up among largely local firms that are selling to one another and to the public, the system is free-market and all the inputs are priced at their market price. This means that correct engineering, product, and marketing decisions can be made and resources allocated much more efficiently than in the internal socialism of the M-form corporation.

Widespread Worker Ownership. Finally, widespread ownership overcomes the problems of the division of capital, management, and labor, and of the division between technical and entrepreneurial knowledge. Workers are no longer commodified cogs in an economic machine, but in control of their own destiny because they are the owners of their own properties, be it property in land, machinery, or skills. The problems associated with the division of ownership from work and management from knowledge of the production process are overcome. Moreover, a sense of community is encouraged and strengthened. And in the last analysis, this is the real purpose of an economy. It is never about just making piles of money, but creating real wealth that supports real families and real communities.

Scalability. The M-Form corporation depends on gargantuan size to achieve its power, and thereby opens up a gap between “business” and big business, two very different kinds of enterprises with two very different effects on the market. The distributed model has also shown itself to be effective in large-scale manufacturing (as we shall see in the next chapter) but it is also scalable down to the level of the family firm, or even the single individual. Indeed, the distributed model allows people to take advantage of the capital they have, but is currently unused. For example, one can use one's own kitchen and spare room to open up a small restaurant. Indeed, it is only the oppressiveness of zoning laws, regulations, and the need for extensive tax accounting that keeps this from being more common than it is.

Now, one can debate as long as one wishes the efficacy of the distributive system. However, there is one group that has decided in favor of distributism, and that is the manufacturers themselves. For the past 20 years, they have been busy creating a perverse simulacrum of a distributed system. They have realized that it is no longer profitable to hold expensive machinery, and have distributed their plants throughout the world, relying on cheap transportation and legal ownership of the patents to maintain control of the end product. In today's industrial system, it is considered somewhat vulgar to actually own a factory when all that is needed is to own the brand.⁠9⁠ This is the “Nike” system, where the “product” is not the shoe but the “swoosh” on the shoe. Indeed, Nike itself makes nothing but patents and advertisements; actual shoes are made in sweatshops. But the advertising allows Nike to sell a shoe with a dollar in direct labor costs for $100.

This sounds like a good business, but actually the company sows the seeds of its own destruction. Management guru Thomas Peters gushes that some 90% of a product's value is not in material or labor costs, but in “intellectual property.” What this means is that the corporation is able to exercise control through the patent laws. However, it will not take much for the actual factories to decide that the patent has no moral or economic justification. They will tear off the swooshtika and discover that they can sell their product locally for one-tenth of the price while paying their workers three times the exploitative wage. As the current economic order disintegrates, the corporations are likely to find that they have set in place everything necessary for their own replacement.

And that is good news.

1Pankaj Ghemawat, “How Business Strategy Tamed the "Invisible Hand" — HBS Working Knowledge,” Harvard Business School Working Knowledge, July 22, 2002,

2Kevin Carson, “Industrial Policy: New Wine in Old Bottles.”

3Throughout Throughtout this discussion, I am highly indebted to Kevin Carson, Organization Theory: A Libertarian Perspective (Booksurge, 2008).

4I should note here, in passing, that goods sold internally do not have a sales tax, giving the corporation a government-sponsored advantage over other forms of organization.

5J.C. Bogle, The Battle for the Soul of Capitalism (New Haven & London: Yale University Press, 2005), xix.

6Ibid., 31-2.

7Carson, Organization Theory: A Libertarian Perspective, 198.

8Carson, “Industrial Policy: New Wine in Old Bottles,” 4.

9Naomi Klein, No Logo (New York: Picador, 2002), 3


It's All About Usury

With all the turmoil in the financial industry, you would think that there would be a national conversation of money and lending. You would think that this would be a good time to re-examine the way we create money and the way we lend it. You would think, especially, that it would be a good time to review the subject of usury, especially since the credit card market is about to collapse in the same way the mortgage market did. But no, that conversation has not taken place.

Indeed, the last great economist to address the subject was J. M. Keynes, back in the 1930's. Keynes, who was no friend of the Church, surprised himself by finding that the Church's restrictions on usury made perfect economic sense, a sense ignored by classical economists:

Provisions against usury are amongst the most ancient economic practices of which we have record. The destruction of the inducement to invest by an excessive liquidity preference was the outstanding evil, the prime impediment to the growth of wealth, in the ancient and medieval worlds…I was brought up to believe that the attitude of the Medieval Church to the rate of interest was inherently absurd, and that the subtle discussions aimed at distinguishing the return on money-loans from the return to active investment were merely Jesuitical attempts to find a practical escape from a foolish theory. But I now read these discussions as an honest intellectual effort to keep separate what the classical theory has inextricably confused together, namely, the rate of interest and the marginal efficiency of capital. [The General Theory, 351-2]

What Keynes is saying in this somewhat technical language is that when returns to pure loans are higher than returns to actual investments, you will have a problem; if you can make more money lending to consumers at 25% than to auto makers at 10%, then the money for making things will dry up, and loans will shift to consumption and speculation. We have often noted this problem in the pages of The Distributist Review, (see The Utopia of Usurers, Usury!, Usury: Wealth Without Work, and many other articles) but we can't honestly claim that we have made a big impression on the public. However, Thomas Geoghagen in the pages of Harper's Magazine, has written an indictment of the current system entitled “Infinite Debt: How unlimited interest rates destroyed the economy.” Unfortunately, the article is not yet available on-line, but it is worth picking up a copy of the magazine to read it.

There is an interesting parallel between the lifting of the usury laws and the abolishing of the abortion laws: both were accomplished not by democratic process, but by legislative fiat; in Marquette National Bank v. First of Omaha Service Corp., a 1978 Supreme Court opinion, the court found that an 1864 law prohibited the states from enforcing usury laws in their own state if it was legal in another state. For all practical purposes, this ended usury laws.

The lifting of the usury laws had dire unintended consequences, one of which was the decline of manufacturing:

It may be hard to grasp how the dismantling of usury laws might lead to the loss of our industrial base. But it’s true: it led to the loss of our best middle-class jobs. Here’s a little primer on how it happened. First, thanks to the uncapping of interest rates, we shifted capital into the financial sector, with its relatively high returns. Second, as we shifted capital out of globally competitive manufacturing, we ran bigger trade deficits. Third, as we ran bigger trade deficits, we required bigger inflows of foreign capital. We had “cheap money” flooding in from China, Saudi Arabia, and even the Fourth World. May God forgive us—we even had capital coming in from Honduras. Fourth, the banks got even more money, and they didn’t even consider putting it back into manufacturing. They stuffed it into derivatives and other forms of gambling, because that’s the kind of thing that got the “normal” big return; i.e., not 5 percent but 35 percent or even more.

But in addition to the economic effect, it had a profound effect on the moral character of the nation:

The change in credit-card caps also had a bad effect on the moral character of the nation. Because interest rates were so high, the banks no longer wanted borrowers with good moral character. Look at the way lending has changed just since the time I was in law school in the early 1970s. Even then, the mantra of my teachers in contracts and commercial paper was: “The loan must be repaid!” I have a friend, a professor, who still quotes that refrain. But it’s out of date. At interest rates of 25 percent, or 50 percent, or 500 percent, lenders don’t really want the loan to be repaid—they want us to be irresponsible, or at least to have a certain amount of bad character.

One question, however, is why we were willing to oblige the bankers by displaying such a poor moral character. No doubt the convenience of the credit card was a factor, but there is more to it than that. One reason is that we had too. The shift in the economy from manufacturing to finance meant that workers were no longer able to bargain for wages through unions and other means. Since 1972, the median hourly wage has stagnated. We experienced a very odd phenomenon: productivity exploded, but wages remained the same. Obviously, there was not enough purchasing power to clear the markets. Workers responded in two ways. One was to work more hours and put more family members to work, with a devastation effect on family life. The other was to borrow more. Further, the best and brightest of our students no longer went into engineering or manufacturing, but into finance. We started to lose even the knowledge of how to make things. As Thomas Geoghagen points out, not only did financial companies account for 40% of corporate profits in 2003, (up from 18% in 1988) but this may understate the problem. Many “manufacturing” firms, like GM and GE, actually made their profits from their finance divisions. GM became a company that manufactured cars in order to make loans on them.

Our current bail-out plans are mainly directed at the banks, the hedge funds, the insurance companies, and other financial institutions. But this will not work. Without restoring manufacturing, farming, mining, and other basic industries, we cannot rescue the economy. But we have the order exactly reversed. The bankers get an instant bailout, no questions asked, while manufacturers, like the Big Three, have to crawl over broken glass to get what amounts to “chump change” in the context of the overall “rescue” numbers. Moreover, “contracts” with the derivative traders of AIG are regarded as sacred and unbreakable, while union contracts are broken at will.

It is the habit of the modernists to despise the past, and so it is no surprise that a restriction which existed in most cultures from the time of the Babylonians to the time of Jimmy Carter would be overturned. Yet, even modernism posits some empiricism, actually looking at the effects of an action. It is now long enough to look at the effects of the Supreme Courts 1978 decision. And without revisting this decision, we cannot fix the economy.


Freedom in Fremont

Anybody in the Fremont, California area, check this out:


Brave New Alternative: Modern Distributism

[This article originally appeared in The Geauga Times Courier. It is reprinted here by permission.]

by Jesse Yates

The United States of America, at the time of its founding, was to be a nation governed by the rule of law -- by the U.S. Constitution. The Constitution’s Preamble, naturally, articulated its goals, among which was to “secure the blessings of liberty to ourselves and our posterity”. Set in stone, therefore, were certain indispensable means to this end: a limited federal government with powers both clearly defined and which acted to check and balance. Somewhere along the way, however, something went wrong. When states and big businesses are vying for “their share” of billions of dollars in taxpayer money, when they are groveling at the feet of a federal government, which can set any condition it wants upon them, can it any longer be said that the federal government works within the parameters originally intended to “secure the blessings of liberty”?

Many people point the finger of blame at Fabian socialists (modern Democrats), rightly decrying redistribution of wealth. What many of these people forget, however, is that welfare is welfare by any name, thus corporate welfare, money to big farms, and all sorts of Republican earmarks “redistribute wealth” just as effectively as any liberal scheme. But even aside from this type of redistribution, big business globalists (modern Republicans) wind up enabling the very ideology they claim to detest. When only a fraction of the already tiny percentage of capitalists are “too big to fail,” then government has no real choice: it’s either “bail out” or let civilization as we know it sink. To many, our current predicament is an absolute surprise. But to some, it is really no surprise at all. For a while now, in fact, there have been “voices crying out in the wilderness”, and it may be time to listen to what they have to say.

The title for this article was inspired, as a case in point, by Aldous Huxley’s work, though not so much by his classic novel Brave New World as by an alternative he subsequently offered. From works like Brave New World Revisited and a forward he later added to Brave New World, one will find Huxley speaking of the need for economic decentralization and distributing property as widely as possible in order to remedy the oppressive partnership between big business and big government; in connection to these remedies he draws upon names like Hilaire Belloc, Mortimer Adler, and Henry George.

Though none of these men are any longer with us, their ideas are still very much alive. Belloc, for instance, along with well-known author G.K. Chesterton, popularized a theory known as Distributism, and a simple Google search will turn up pages worth of modern Distributist theories, practices, and demonstrated successes. Among the successors of Belloc and Chesterton, John Médaille, who writes for a blog called The Distributist Review, is playing a part in advancing Distributism both by his insightful writing and by drawing upon allied elements -- like (Henry) Georgism, strategies evolved from Mortimer Adler by CESJ, and, in addition to Huxley’s references, E. F. Schumacher’s work (among others).

All of these men, incidentally, would agree with President Obama that change was long overdue; still, neither elitist socialists nor monopolistic capitalists, that is, neither Democrats nor Republicans have given, nor will give us anything but an insatiably power hungry “Servile State”. The an swer may be, as the song goes, “blowing in the wind,” but, then again, perhaps the “winds of change” and a brave new alternative, are only a few more Google clicks away.

Jesse M. Yates


Learning from the Land: In the School of Saint Benedict

[Note: Please consider making a donation to Clear Creek Monastery. The Rule of St. Benedict is and should be an example to distributists across the world. The Benedictine monks at Clear Creek tirelessly work to " something beautiful for God" centering their lives in Ora et Labora (Prayer and Work).]

by Br. Philip Anderson, Prior
February 2009

Dear Friend,

As we enter the Lenten season — leaving behind the splendors of Christmas and looking forward now to that other pole of the liturgical year which is Easter — we discover that the greater simplicity and sobriety of this time of year lends itself well to a meditation on man’s proper place in the universe as caretaker of creation.

For many years now ecology has aroused much interest, not only in regard to the immediate practical decisions that must be made by governments and businesses, but also as a topic of discussion in the broader cultural context. Our contemporaries seem to experience an ever-increasing alienation from nature and a need to somehow “re-connect” with the earth, while scientists continue to point to signs that the ecological balance of the natural world is being seriously compromised by the excesses of our technology.

The Church too has participated in the discussion. The Holy Father recently alluded to these questions in an address to the members of the Roman Curia (December 22, 2008):

Since faith in the Creator is an essential part of the Christian creed, the Church cannot and must not limit herself to passing on to the faithful the message of salvation alone. She has a responsibility towards creation, and must also publicly assert this responsibility. In so doing, she must not only defend earth, water and air as gifts of creation belonging to all. She must also protect man from self—destruction.

What does the great monastic tradition issuing from Saint Benedict have to say about this essential relationship with creation?

In fact, for men and women living in Saint Benedict’s day, the question would have had little meaning. The vast majority of human beings lived in rural areas then, and for them life was intimately and necessarily connected to the rhythm of nature. The day’s activities were programmed according to the hours of sunlight. The year was punctuated by the various seasons in which planting, harvesting and every important task found its appointed time. In such a world, excepting the case of a few very rich people in large cities, it was scarcely possible to become disconnected from the rhythm of creation.

Nonetheless there is much in the wisdom of Saint Benedict that speaks to our present needs in terms of returning to a wiser way of life, a life closer to the land.

One of the pillars of the Rule is evangelical poverty. There would be neither an economic crisis in the world today, nor an ecological threat, were it not for the evil done by greed. Monastic poverty means being content with the simple things that sustain human existence in its inherent goodness. This poverty allows man to live in harmony with field and forest, without feeling the need to brutally strip the earth of her resources in order to realize an immediate gain. Although the economic reality in America has become increasingly complex in our day, it is still possible to recapture this joyous sort of poverty. We are not speaking of the tragic misery of the desperately poor, but of an attitude rooted in the Christian faith. E.F. Schumacher's Small Is Beautiful: Economies As If People Mattered (first published in 1973) offers insights that seem more timely than ever. Another important work, Flee To The Fields: The Founding Papers of the Catholic Land Movement, with a preface by Hilaire Belloc, charts a way forward in terms of an explicitly Catholic perspective.

Of course, the great corollary of evangelical and monastic poverty is work, especially manual work. Ora et Labora ("Pray and Work"') is often given as the Benedictine motto. The very early monks found that this work with one’s hands was something necessary in order to be able to pray well. Sometimes they would burn all the baskets they had woven during the year — having no need to sell them in order to make money — and start all over again, simply because this activity was good for body and mind! Saint Paul worked with his hands, even though he was entitled to live from his preaching of the Gospel. Manual work is an excellent way to put us back in touch with the wonder and beauty of creation, despite the fact that since the Fall man must toil by "the sweat of his brow" amid thorns and thistles (Gen. 3:18-19).

At Clear Creek we exercise many forms of manual labor, including carpentry, forging and much building, not to mention those domestic activities such as cooking and the making of clothing and shoes. In terms of our direct relationship to the land, the most notable activity would probably be that involving our forest, composed mainly of various types of oak trees. For several years now, thanks to a grant from the Sustainable Agriculture Research and Education Program, we have been working to improve our land by clearing unhealthy trees from the forest, thereby letting in more sunlight. This allows certain grasses to grow, which in turn offer new pasture for our rugged-hair sheep. We intend to bring in goats as well to clear unwanted weeds and brush from the under wood. We also have planted many trees, especially pines. Monks learn many a lesson from the land.

It would all be to no avail, however, without something more. The French author and statesman, Andre Malraux, famously said, "The twenty-first century will either be spiritual or it will not be". Even if a nuclear conflagration is somehow avoided — and the threat has by no means disappeared — it will take something more than a form of "global awareness" to preserve the world’s natural resources. This is where the other half of Saint Benedict’s motto, Ora ("Pray”), enters the picture.

Among the animals of the forest only one is capable of ruining everything, the one who walks upright, the same one whom God established shepherd of all creation in the beginning. It is the spiritual struggle between good and evil being waged in his heart that causes man, either to care for creation, or to destroy it. This is what Pope Benedict XVI meant when he said in his discourse to the Roman Curia last December, "What is needed is something like a human ecology, correctly understood". It is through prayer that we realize this human ecology, transcending the limited resources of the natural environment.

Between the somewhat romantic musings of city folk, who dream of moving to the country to start a new life, and the harsh reality of having to earn one’s daily bread from the earth that has become rebellious to sinful man, there is certainly a wide margin, which is also a serious challenge. But do we really have a choice?

The well—known Catholic author and educator, John Senior, was once giving a talk to a small group of adults about this very idea of escaping from the excesses of a civilization worn thin with technology. While he was saying something to the effect that "real swimming" is done in the ocean or lakes — or more modestly in the "old swimmin’ hole" — an old-timer who was among the listeners brought forth the objection that "we used to lose a few in the ‘swimmin’ hole…'". Looking the man squarely in the eye, Senior replied, "Yes, but we are losing all of them in the swimming pool."

Monastic life does not hold the key to unlock all of the world’s problems, but a serious reading of the Rule of Saint Benedict can be an inspiration, not only for monks, but also for those living outside the monastery walls. This is especially true due to its precious sense of balance, organizing things around the poles of prayer and work. It is our hope that Our Lady of Clear Creek Monastery, by living from the Rule, can help many to recapture the joy of a human existence rooted in faith – and the non-so-common realism of common sense.

May Our Lady of the Annunciation obtain for you an abundance of heavenly blessings.


Three Acres and a Penguin: Why Distributists Should Try Linux

Gripe, gripe, gripe. Globalization swallows the globe. Monsanto poisons your popcorn. Big Business and Big Government team up to embed RFID tracking chips in schoolkids. And distributists love to hate the whole mess. Cheers!

Well, friends, I have good news. Linux. It's time to free your computer.

Have you heard of Linux? Maybe you went to download Firefox (a free web browser), clicked around, and noticed that after "Windows" and "Mac" there was "Linux", with a little penguin. (His name is Tux.) Maybe you're periodically forced to interact with your IT department, and you've overheard "Linux" as they discuss their arcane secrets. Maybe you're way ahead of me, and are irritated because I'm probably not going to mention OpenBSD.

Or maybe you have no clue what I'm talking about. What is Linux? Basically, Linux is a pile of programs that lets you take your computer, strip it down to the bare hardware, and start fresh. Linux is an alternative operating system . If you just download Firefox, you're still in Microsoft Windows or OS X. When you download Linux, you're in Linux.

Why is this good news for distributists? Because Linux is free . Not only "free as in beer," but far more importantly, "free as in speech." You can download Linux and use it as you will. You can try free alternatives for almost any task you can think of: email, browser, word processor, spreadsheet, graphic design, typesetting, games, and many more. You can customize most of these programs, as well as the overall window manager, beyond your wildest pre-Linux dreams. You can also remove any application that annoys you. (Try removing IE.)

You can even read the source code; and if that sounds silly, you can rest assured that thousands of other programmers do read the source code. Why does this matter? Computer programs are made up of hundred, thousands, or millions of lines of code, and in the world of Microsoft or Apple, that code is proprietary . It's generally illegal to read the code unless you work for Microsoft or Apple. In fact, when you buy the program, you don't even get the source code. You only get (no, you rent) the computer-readable binary code, which looks like gibberish and can't be altered. It works (hopefully) but you are not allowed to know how. Or fix it.

Imagine if you could only fill your car with gas from Exxon. Or only get an oil change at the dealership. Or if it was illegal to open the hood of your car unless you worked for the manufacturer. Even if you had no desire to be your own car mechanic, these rules would seem a bit draconian.

So why this paroxysm of intellectual property law for computer software? It's understandable; when advances in computing made it possible for companies to sell software to non-programmers, they quickly noted that you could pay a hundred thousand dollars to develop a vital program, and your competition could copy it the next day. They thought sharing wouldn't work. They were wrong.

Whether the proprietary model is moral is beyond my allotted portion. It's certainly obvious that, permissible or not, it drastically curtails the freedom of the user. It seriously tips the balance of power towards the corporation. How would you feel about a brake job if it was illegal to have a rival company check up on the work? You probably store plenty of private information on the same computer that mysteriously connects you to the Internet; wouldn't you prefer that this computer had no secrets?

Linux is exciting because it turns the proprietary model on its head, and it works . Linux is often called open source or simply free (or libre) software ; the basic idea is that you can read the code, tweak it, add to it, re-release it, even charge money for it. For instance, I charge money for customizing an installation of web site software. You get a web site that's based on a common, powerful, well-supported program, but I make it unique for you. Anyone can do anything they like with the code except try to lock up the portions they used. The code stays free.

So where does all this code come from? Why do programmers spend millions of hours on code they will give away?

This also should excite distributists. Free software is a unique ecosystem. (I'm going to stop saying "Linux" now; it sounds cooler than "free software," but it actually has a definite technical meaning, and it isn't the only free OS in town, either.) A program is not like an apple. If I share my apple with you, we each only get half. (Which is why it matters who owns an apple tree.) If I share my program, we both have a full copy; and I benefit from your feedback.

Every program's niche is different. Many programs happen simply because the programmers want or need them. Major programs might be the work of a non-profit foundation, as with Apache (which runs more than half the servers on the Internet), or subsidized by a for-profit company so the code can be reused elsewhere, as with (a free office suite which also runs on Windows or a Mac). Some companies offer free software, and charge money for support. Some programmers seem to live on donations and advertising. People do what works.

Chesterton fought for economic liberty, and knew it was bound up with political liberty. Today, he would say that both are bound up with digital liberty. Do you own a computer? Especially a spare older computer you can wipe clean without fear? Try a few free Linux lessons. Or if you'd like to stay on your current operating system, at least try a free web browser or word processor. If these are the tools you use every day, why not choose tools you can make your own?

Creative Commons License
This work is licensed under a Creative Commons Attribution-No Derivative Works 3.0 United States License


Is There A Bellocian Response For Today’s Economic Crisis?

Dear readers of The Distributist Review,

Paul Likoudis, News Editor for The Wanderer -the oldest Catholic newspaper in the United States- recently conducted an interview with yours truly regarding "Bellocian Economics," and has kindly granted us permission to reprint it here. Our thanks go to Mr. Likoudis for the opportunity. We would also like to applaud The Wanderer for their recent defense of distributism.

If you would like to subscribe to the online or hardcopy version of the newspaper, please go to The Wanderer website.

For the benefit of our readers, a Scribd version is below. Please feel free to copy the Scribd version onto your websites, however please add the following link to The Wanderer (

Is There A Bellocian Response For Today’s Economic Crisis?

One of the signs of the times of the past two decades is a growing interest in Distributism, often de­scribed as a “third way” economic philosophy opposed to both capi­talism and socialism. It was chiefly formulated by the British historian and journalist Hilaire Belloc and is firmly grounded in Catholic social teaching, especially Pope Leo XIII’s encyclical Rerum Novarum.

Belloc never claimed he was in­venting a new system; rather he wanted to return to an economic arrangement of society that pre­vailed in Europe before the rise of post- Reformation capitalism and the big banking houses that pros­pered on the poverty of the masses and war.

With the rise of globalization and the spread of “democratic cap­italism” after the fall of the Berlin Wall, capitalism — as we all see much too clearly today — is in cri­sis. Catholics looking for a solution are looking to Belloc, his associ­ates G.K. Chesterton and Fr. Vincent McNabb, OP, and the Americans Dorothy Day and Peter Maurin, founders of the Catholic Worker Movement.

One sign of the Belloc/Distribut­ism revival is The ChesterBelloc Mandate ( www. distributist. blog, put up by a 34-year-old New Yorker, Rich Aleman. This of­fers viewers an extensive library of writings by Belloc, Chesterton, Fr. McNabb, Day, papal encyclicals, and other Church documents, and contemporary expositors of Dis­tributism such as John Sharpe, Thomas Storck, John Medaille, Jo­seph Pearce, Dr. William Fahey, among others.

“There is definitely a resurgence in interest in Belloc,” said Aleman, “which can be seen in the growing number of online web sites devot­ed to his work, the reprinting of his books, and many organizations in existence modeled on Distributist ideals. One example is the E. F. Schumacher Society, named after the German economist and Catho­lic convert, E.F. Schumacher. Their development of the Community Land Trust Model has proven itself a terrific method for restoring local farming.

“In such a scheme, the Land Trust purchases the land, while the farmer is responsible only for his home and barn; the land trust then establishes as a lease contract be­tween the farmer and the trust for 99 years, thus removing the mort­gage and tax burden from the farm­er. The benefits of this as a transi­tional solution toward agricultural restoration are multiple.

“Then there are other Distribut­ist ideas offered such as measured and small- scale technology, the creation of agricultural schools, the support for credit unions, micro­lending, and land associations tasked with relieving unemploy­ment and home ownership,” said Aleman.

There are also political ideas that reflect the Bellocian ideal, Aleman added, such as the discontent on the part of the average citizen with the narrow difference between the politicians from both major parties, or that the left and right, Aleman said, “ are fashionable political markers with no true bearing on in­dividuals. Our lawmakers are either pro-life while undermining the ma­terial necessities of the family, or pro-death and at the same time championing the legitimate rights of the workers.

“However, today the individual­ist and collectivist dichotomies of old are fading, and are replaced in­stead with a restored concern for in­dependence for the family and so­cial interdependence for the com­munity, with a proper understand­ing that our material needs are sub­ordinate to our spiritual ones. Thus, the alternative to the materialism of capitalism and socialism is a social and economic policy centered on a wealth- producing society through family and cooperative ownership.

“This last takes the form of work­er- owned businesses, where the workplace is owned by the work­ers who produce the goods and ser­vices of society, such as the Arizmendi Bakery project that started in San Francisco and is spreading across California.”

The Arizmendi Bakery takes its name from Fr. Jose Maria Arizmen­diarrieta, a Basque priest who founded Mondragón Corporation in 1943, a self-managed worker co­operative which currently makes $16 billion in a range of products, including appliances and small parts manufacturing, and has some 77,000 worker-owners.

Another example, Aleman said, is Confcooperative in Bologna, Italy, a Catholic cooperative inspired by Rerum Novarum. That and other cooperatives in the Emilia-Roma­gna region make over 40% of the region’s GDP.

A model of a renaissance in non­industrial local agriculture is Polyface Farms in Staunton, Va., a Protestant endeavor to promote lo­cal farming through their school of husbandry. People who want to learn farming are provided room and board for various terms of appren­ticeship, and upon completion of their term, these apprentices return to their own region able to apply what they learn.

In another case, there is the Cath­olic Homesteading Movement lo­cated in Oxford, N.Y., also instruct­ing in the fundamentals of living off the land. Operated by Richard Fahey and his family, day and weeklong workshops are offered on topics ranging from organic garden­ing to fruit-tree grafting.

“People are willing to listen to al­ternatives such as Belloc and Chesterton proposed due to the fi­nancial crisis we are in,” said Ale­man. “I believe the Distributists and other like-minded reformers of their time, spoke clearly to the hearts and minds of the common man, unlike anything seen before or since, and the reemergence of their work is once again popular and necessary.”

Belloc’s Economics

For Catholics who are complete­ly unaware of Distributism, and Catholic social teaching, the basic thing to understand is that Belloc took as a personal mission Pope Leo XIII’s exhortation that “ the law, therefore, should favor ownership, and its policy should be to induce as many as possible of the people to become owners.”

Man always fully dedicates him­self to the work and land that be­long to him, as Chesterton reiterat­ed through the parable of the Good Shepherd. Today most men have been convinced to pick between thousands of careers just to work for someone else, but the Distributists recalled to memory the natural de­sire for man to work and own for himself.

Money has been transformed from a means of exchange backed by commodities produced by the economy, to property. But money in itself is unproductive, as Belloc re­minds us. Only productive proper­ty is a generator of real wealth and strength for the family and the lo­cal community. Land allows us to secure something for ourselves and is a shelter against the gap between poverty and wealth. Most of us work and save money for that purpose, so we can plant our roots and raise our families in a home, because its val­ue to us transcends what the market tells us it is worth. For Belloc, a na­tion founded on micro-property is a stable and fruitful nation.

“Belloc believed that the conse­quences of narrowing the division between ownership and work pre­sents for the family an autonomy from the consolidation of power, and wealth for the community, which man, as a corporeal being would always be partially depen­dent on. This productive property supplies the requisites for domestic autonomy, which in turn provides for a greater means toward achiev­ing the ends of life, e.g., the eternal vision, or our original purpose,” said Aleman.

“By the family and workers own­ing the means of production — the tools, equipment, etc. — needed for labor to transform raw resources into goods and services, the family and the worker could be independent from big business and big govern­ment and pursue thrift as well as en­joy a robust spiritual life. After all, the ultimate goal of the ‘restoration of property’ — the title of another Belloc book — would lead to the Christian reform of morals, just as Pope Pius XI reiterated in Quadrag­esimo Anno, through the quest for a life of virtue, instead of the dog-eat­dog world.”

Through the lens of Belloc’s anal­yses, people today can gain a bet­ter understanding of the economic, political, and social crisis this coun­try is facing.

Belloc formulated his views on the coming of the Servile State, and the need for a Distributist society from the contemporary crisis En­gland was experiencing due to over­producing as a consequence of the embrace of mass production in lieu of the small producer, Aleman ob­served.

“The problem with overproduc­tion is that it creates under- con­sumption; large- scale business needs to churn out as many goods as it can create, while consumers are unable to match the volume of pro­duction dispensed. As a result, wag­es decline as the capitalist cuts la­bor costs in order to maximize profit. This cost reduction and de­sire of the capitalist to increase his purse leads him to ship his labor overseas.

“But of course here is the conun­drum. The consumer and the em­ployee are the same people, so as costs are reduced, the worker finds himself with a declining wage, and the employer expects the same worker to consume the goods he and other capitalists produce,” Aleman explained.

The only “solution” to overpro­duction is usury. The people with the profits lend them to people with the low wages. This sustains consump­tion for a while, but is ultimately self­defeating, so the government ab­sorbs the excess production. It fails because the government cannot per­form this task as the productive base on which its taxes depend has been shipped overseas. So now we borrow money from nations that are making things to sustain consumption. But of course, that can’t go on forever. There is a limit. The results are stag­gering. Today our nation is two­thirds consumption, and one-third production.

Stagnant wages, institutionalized usury, derivatives, impersonal in­vestment, planned obsolescence, waste, and consumer debt trans­formed a nation of small businesses and small farmers into over-indul­gent consumers, pitted between cor­porations passing their liabilities to taxpayers, an obliging government protecting them from liability, and the “stimulus” of Keynesian poli­cies which inflated government in the first place.

Belloc’s solution to big govern­ment is decentralization. “Distribut­ists are decentralists who believe most functions should occur at the smallest level as possible. In a Distributist state, the role of central government addresses challenges outside the scope of locality, such as defense, or international trade, amongst other things. Local guilds and other institutions exist to re­strain the concentration of power or property, whether bureaucratic or commercial,” said Aleman.

The early movement and Belloc believed the implementation of Distributism would not come from above, but from below, in other words, not by government force but by a proselytizing popular move­ment convinced and eager to real­ize the various facets of Distributist living.

The Mandate

“What I strive to do with The ChesterBelloc Mandate,” Aleman said, “is to create a fountain of in­formation for the academic and lay­man on the subject of Distributism and Catholic social teaching. Be­sides the work of Chesterton, Belloc, and Fr. McNabb, I’ve also included some of the work of Amintore Fanfani, Fr. Heinrich Pesch, A.J. Penty, B.A. Santamaria, Hilary Pepler, Cardinal Manning, and my favorite, K.L. Kenrick.

“The first time I ever heard the word ‘ Distributism’ was on Dale Ahlquist’s (president of the Ameri­can Chesterton Society) show on EWTN about six years ago. My cu­riosity led me to an article by Thomas Storck, called ‘ What is Distributism?’ Storck’s work left a lasting impression on me, as did some of the great work of the now defunct Caelum et Terra.

“However, I found information on Distributism to be scarce and often piecemeal. Luckily, after reading the republishing of the Distributists’ work by IHS Press — another sign of the Bellocian revival underway today — I decided to consolidate as many essays and articles as I could find on the topic. Some of these ma­terials required constant trips to the library, while others I searched for in schools across the country. I want­ed to prove to the readers of the site that Distributist thought wasn’t lim­ited to the classics, but extended to other publications such as America, Blackfriars, Commonweal, Orate Fratres, etc.

“I also wanted my readers to real­ize that Distributism wasn’t a small movement in Great Britain. From the various Catholic Land associations, the 24 branches of the Distributist League, the Guild of St. Joseph and St. Dominic, and the massive con­tributions from various columnists for Chesterton’s G.K.’s Weekly, Dis­tributism permeated across the Brit­ish Isle, and in Ireland where simi­lar features of a Distributist rural economy were already in place.

“The feedback has been very pos­itive, and over the years Distribut­ism has risen rapidly amongst Cath­olics and other Christians. Online and print journals are often chatting about it on a worldwide level. As a result, I’ve added a foreign-language section dedicated to contemporary articles about Distributism I’ve found from Spain, Argentina, France, Poland, and the Czech Republic, among many others.

“But The Mandate and the re­prints on it are one-half the topic. John Medaille, author of ‘The Voca­tion of Business: Social Justice in the Workplace,’ and I collaborate at The Distributist Review (, a contem­porary online web site discussing contemporary politics and socioeco­nomic issues from a Distributist per­spective. We believe we offer sound analysis about the current crisis in the Bellocian tradition.”

The Wanderer


A New Social Encyclical is Coming

It is long been rumored that Pope Benedict XVI has been preparing a new social encyclical which will address the current crises. Robert Moynihan writes of it here. The Pope may have given some hints about its contents during a meeting with the clergy of Rome on February 27.


It Starts With a Pen

Whole Farm Cooperative is a 30 member family coop in the heart of Minnesota. The cooperative’s mission is to “nourish our families spiritually and economically” and to build customer awareness about “where their food came from.” Whole Food Cooperative members are dedicated to building a sustainable community and providing local residents with the fruits of their labor of love.

Martin Primus, whose grass-based Dairy -Fresh Air Farm- is a member of Whole Farm Coop, offers some terrific writing for the cooperative’s website. Listed under “Marty’s Musings” (click here, then go to the right hand side of the page) is a particular article called “Distributism,” which is a quasi “open letter” to author and self-labeled libertarian Joseph Saladin, owner of Polyface Farms (we previously covered Polyface Farms). In this piece, Martin argues for Mr. Saladin’s distributist identity rather than the libertarian moniker he's reserved for himself.

Martin also raises the distributist argument when writing for his local paper’s blog, the Sauk Centre Herald. We urge our readers to check it out and comment. Let the Sauk Centre Herald know how important Marty’s contributions are to their publication.

Jesse Yates, another of our readers, recently submitted a piece to the Geauga Times Courier, a weekly paper in Northeastern Ohio. The article is called “Brave New Alternative: Modern Distributism,” which ties the widespread ownership model endorsed by the earliest documents of the United States, with Aldous Huxley’s book Brave New World Revisited, where Huxley prescribes decentralization as the antidote to big business and big government. The editor of the Courier, intrigued by Yates’ provocative piece, praised his argument for micro-property and will publish the forthcoming article.

Joseph Hargrave has recently started a blog presenting his case for distributism, amongst other topics. Joe is no stranger to distributism, having been published in journals such as Inside Catholic (The Case for the Worker’s Cooperative).

Those who subscribe to The Wanderer, the oldest Catholic newspaper in the United States, might have caught last week’s interview between editor Paul Likoudis and myself, discussing “Bellocian” economics. We spoke about the early League’s objections to mass production, today’s crisis, and examples of current neo-distributist programs.

How will we once more light the flame of the “Hound of St. Dominic”? The baby steps begin by making distributism relevant at the local level. Submit an article to your local paper. Blog about it. Answer comment boxes on other sites. Track back to us. Every little bit helps.

You might not change the world tonight, but your pen can light the flame of tomorrow.

Servire Deo regnare est!


Here's what autoworkers must contend with

A sample of how the UAW sells concessions and job loss to the members. The authors of this are the "representatives" of about 900 UAW workers whose wages have been cut to $14 hr and managers and engineers, whose plant will soon be closed.

I'd appreciate hearing from anyone who has any advice on how to respond to these things at the factory level, with the suggestion of the employee-ownership option:


MARCH 2, 2009

On Monday we were called to attend a special UAW meeting to hear about the modifications to the UAW/Ford 2007 National Agreement. We were expecting to hear the worse, but the UAW International had already chosen Ford as the lead company for negotiations and that was a good thing. Could you imagine what GM or Chrysler would give up to satisfy the government? We would be taking Wage cuts, more cost for medical insurance, plant closures and pension cuts.

The Auto industry is in a severe crisis. Ford is spending more than a billion dollars a month just to stay in business. Ford cannot survive these costs unless they restructure their debt or go to the government and ask for money under 'THEIR TERMS'. Sacrifices must be made by all stakeholders including senior management, general salary, bondholders and creditors, dealers, suppliers, and our UAW/Ford membership.

Here are the positives for the UAW Membership;

Ford is in the best position for recovery because that didn't take government monies.
Ford sets the pattern for negotiations for GM and Chrysler
Our base hourly wages were not cut
No reduction in our health care
No reduction in our pension
Cost of living adjustments are only suspended for 2009 and 2010
Christmas and performance Bonuses are only suspended for 2009 and 2010
Ford's commitments in keeping our plant open through 2011
Ford has great products coming this year and next year

This will not be like the concessions in the 1980's that were never recovered in future contracts. The commitment from the International is to regain these suspended concessions in the next contract, provided Ford makes the turn around.

What would the consequences be provided we voted NO? Do you really want GM or Chrysler to set your destiny? This would be a permanent loss.

What would the consequences be provided we voted YES? You would have a job with a decent wage and benefits AND a chance to regain what was temporarily lost.

It was best said by our President of the UAW International Union that day and I quote, " I would rather be called different names that I have experienced over these concessions, than to have someone cuss me out because they did not have a job to go to the following day." Ron Gettlefinger, President

Difficult times require the moral courage to make difficult decisions. At the Union meeting on the 4th of March 2009 we will have an International Representative to present the modifications to our National Contract and answer questions. We will be voting on Thursday, March 5th, 2009, from 5 am until 5 pm at the Union hall. The future of you and your families are in your hands.

Please attend your Union meeting and remember to vote YES!

In Solidarity,

Jim Eagle Roger Terveen
Plant Chairman President
UAW Local 879 UAW Local 879


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