What Cooperatives and Blockchain Can Learn From Each Other feat. Morshed Mannan
This week I spoke with Morshed Mannan (@MannanMorshed), a PhD candidate at Leiden Law School in The Netherlands and Research Fellow at the Institute for the Cooperative Digital Economy at The New School. His research interest in cooperatives and digital technologies eventually led him to blockchain and he's produced some really interesting research and seminars on its intersection. During the interview we discuss his previously published research about the differences between trust and...
Top Keywords
No salient keywords identified yet for this episode.
Transcript
Hello again. You're listening to the Blockchain Socialist Podcast. And today, I'm talking to Morshed Mannen. He's a PhD candidate at Leiden Law School. He studies his research studies focuses on cooperatives and digital technology, and he's also a research fellow at the Institute for Cooperative Digital Economy as part of the New School. So hi, Morshed. How are you doing? Hi, it's great to be with you on the Blockchain Socialist Podcast. Thanks for coming. So you come from a pretty interesting background I think. A lot of your research interests that I've read are pretty heavily related to the cooperative movements and the way that cooperatives are sort of legally structured and how they tend to use different types of digital technologies and, like, why they use different types of digital technologies. So I thought it would be interesting to know what really brought you to blockchain coming from the cooperative movement.
So I started working on, you know, research relating to cooperativism in 2016 and before I started a PhD. And there, I was really interested in worker cooperatives, and I was doing research that looked both at the law and governance of worker cooperatives, but also some of the management literature about worker cooperatives. And what that reveals is that there are certain shortcomings, that the empirical literature reveals that somehow are seen as inhibiting worker cooperatives' growth. And this has then led to others concluding, particularly economists, but also law and economics scholars, that the reason why we don't see greater worker ownership and more cooperatives in the economy is because there is certain inherent flaws in their organizational DNA, that there are too many transaction costs, for instance, in running a a worker cooperative. Now, obviously, that itself is contested, and there are a lot of people who point to the fact that, well, if you look at the size of the cooperative economy, you'll find that there are a billion members to the cooperative economy. There's also, the the top 300 cooperatives have over two two trillion dollars in revenue. So it's not, as simple as that. I think that, like, it's you are casting a certain, you know, idea about, an organizational form, based on a very particular conception of this. But what I found to be very important is that, okay, if we are going to try to convince more people about the viability of cooperatives, as well as, integrate cooperatives more into new sectors of the economy, then obviously we have to start looking at technological developments. And while starting to do this, I came across some of the work of, you know, Nathan Schneider and Trevor Schultz, which, you know, started taking me down more of the the route of looking at online platforms. And, inevitably, especially in this period of time between 2016 and 2017, a lot of the discussion also starts turning towards, you know, the potential of Ethereum, as well as, this whole discussion about building, different alternative platforms which use blockchain as one of the ways of, you know, operating. And, you know, some of it was just, you know, ideas on paper. And then now a few years later, maybe some of them have evolved into actual projects that are, you know, operational and have people using it and are earning, income through it. So I think, that is basically the the beginning of the journey. In 2017, my PhD supervisor and I joined, a consortium called Koala. And that is it was started by, a legal scholar, doctor Pimaverde Felipe and, a lawyer Constance Choi. And, you know, they're this group of lawyers, developers, people or even some entrepreneurs who are based around the world who work on different aspects of blockchain law and governance. And, part of it is in part of their interest includes, you know, cooperatives and so on, but it's broader than this as well. And they study smart contracts and securities law, you name it. So after becoming involved in that, I started seeing a mutually reinforcing relationship between, what I have been studying with cooperatives, but also what has been happening within a part of the blockchain space.
One of the things that I found really interesting in one of a talk that you had done before was basically shedding more light on this notion that's really common in blockchain and the blockchain world. You know, you'll hear influencers, people who really want to advocate for blockchain and cryptocurrency saying that blockchain is a trustless system, that it does not require trust and that's, you know, it it removes the need for trust and things like that. So you have you have some pretty good, interesting points that you've made about the relationship between blockchain and trust and confidence. So I was wondering if you can maybe give a little bit of that explanation and shed a bit more light on what exactly that relationship is?
Yes. Exactly. So in short, in this article that I recently coauthored with, Primavera and, doctor Bessel Ryers, we distinguish between the concepts of confidence and trust when trying to understand blockchain. So we try to challenge the idea that blockchain is, fundamentally trustless, as as many have claimed as you said. The existence of, confidence in our view essentially relies more on predictability and the reliability of processes and a fundamental lack of choice. While trust, requires a step into the unknown and the acceptance of risk. While this distinction is important, it's also important to understand that trust and confidence mutually reinforce each other. So for instance, our confidence in a system of medical accreditation allows us to trust individual accredited doctors. And so what we describe as a sort of concentric system of trust helping create confidence and then confidence allowing the creation of trust is a really important aspect of this. So in our article, we, you know, look at the general literature on trust and confidence initially before looking at blockchain in particular because this distinction and the nuances of this distinction are particularly important. We are not, of course, the first to make this distinction. We rely on the work of, for instance, Niklas Luhmann, but there are many who study trust who don't make this distinction, or they they think that, confidence is merely a weak form of trust or that, it's not something worthwhile looking at. But we think that with respect to the study of blockchain in particular, it's it's it's an important distinction to make. So we argue, that blockchain is built on the existence of confidence, but that it is important to be aware that at the edges and at the interstices of the blockchain system, trust is still needed. And so what we do in a in a later part of our article is to try to map, some of the main actors that still are relevant, for the operation of a blockchain system. So even if you have, you know, confidence in cryptographic cryptograph cryptographic primitives or the game theoretic, model that a particular blockchain is using, you are still having to trust, for instance, the core developers who might have, who would have worked on this, earlier in designing this system. You would have to rely and trust in miners acting in a certain way, as well. So we then map out basically some of those, potential sources of trust. And then the issue that arises is that if we acknowledge that there is this mutual dependency of trust and confidence, and we acknowledge that trust is still important in blockchain, then how do we create a system where you, you know, build trust, you are able to also enhance confidence in the system while, you know, any breach of trust could lead to a diminution of confidence and vice versa. So there we argue in the last section of the article that governance systems and the building of robust governance systems is the way that you deal with building confidence and generating trust. And then the question is, is that what kind of governance system would this look like? And we try to draw on, for instance, the work of Ostrom and Poliani and others, in polycentric the creation of polycentric governance systems. And so we then think that we need to learn lessons from these earlier efforts at creating polycentric governance systems to be able to build this, let's say, more virtuous, relationship between trust and confidence and be able to deal with the, you know, unfortunately, frequent breaches of trust that we can see, happening in the blockchain space. We don't, you know, we give some ideas about what these governance systems could be, prior attempts at trying to create a polycentric governance systems both online and offline, but we don't, you know, make that as being prescriptive. We we we say that this is something we need to explore further in separate research. But, that's essentially the the the core of our argument.
Yeah. I I think it's, I mean, it's it's really
I mean, I think it's true.
Like, all of these people who may have invested in some sort of, like, ICO back in 2017 or something that ended up being a scam, you know, they they were probably sold this idea that, you know, cryptocurrencies or blockchain where you're trustless, that you don't need to, like, give trust but still over this digital platform you're still interacting with other human beings and you have to trust that that human being is going to act in a particular way. So it's some it's a really a flawed type of description of blockchain, I think, which I was glad to see there were people that were, making more of a more of a nuance and more distinction. But I wanted to, because for the for the rest of this, episode, I really wanted to focus on your work on cooperatives. So you have a couple of, we have one paper that's already written called Fostering Worker Cooperatives with Blockchain Technology, Lessons from the Colony Project. And then you have another paper that's supposed to be coming out, pretty soon, I understand, called Everything Old is Evaluating the Legal and Governance Structures of Shared Services Platform Cooperatives. So I'll have these different papers, linked in the description. But, I was wondering if you can maybe make this link between this realization of, like, you know, the differences between trust and confidence in blockchain and how that relates to cooperatives and, you know, cooperatives using blockchain as well. Because, I mean, in a in a cooperative system versus, you know, a corporate system or organization, there's you place trust and confidence in different places as well, I imagine.
Absolutely. So that's a really great question. And the first step in, you know, our argument that we make in this earlier article, the one that's about blockchain as a confidence machine, is that we make the claim that blockchain that the blockchain is a confidence machine, that it relies on, confidence to be able to operate properly. But this presents a paradox when we are trying to apply this to understanding why a cooperative would use a blockchain for any of its purposes. And the the reason I tease out this paradox is that how can a technology that is reliant on predictability and the minimization of risk be used by an organizational form that is predicated on solidarity, which is intimately tied to trust? And this, you know, relationship between solidarity and trust is also borne out in the literature. I won't go into that right now, but it would almost seem to be, at counter purposes. But further exploring this concentric relationship between trust and confidence helps us understand the importance of both and this reinforcing relationship I mentioned, as well as how governance systems can contribute to this. And so cooperative governance is one mode for such, governance. Now there are multiple ways in which cooperatives are using blockchain or how certain blockchain projects are using the cooperative structure. It it it interestingly goes both ways. If we look at the latter about blockchain projects that, are using cooperatives, you see that it's one of the ways that, you try to create greater, legitimacy democratic legitimacy for for the blockchain project by saying that in addition to, let's say, owning a token in the project, you are also able to become a member of the cooperative and then have a more fundamental say in how the entire project is run and even in some cases, depending, have more of a say in the design of that particular project too. And if we look at the the former, we are looking at a business or, you know, a social business as some call it, and they are considering whether to use, a blockchain or not. And what kind of when making this choice, you end up being confronted with multiple options. So do you use Ethereum? Do you use EOS? Do you use something else? What kind of features will this have? What kind of data will be collected from the users and so on? A lot of this when we talk about a corporate company are made in a sort of silo by a certain group. And here the idea is is that there is this iterative process which involves the people who will be directly involved in, for instance, giving their data for this. And there are constant tweaks in this process in designing this. And so with this particular category, we also see a different type of governance mechanism emerging, for these choices. And I know that later on, I'll have an opportunity to talk a bit more about how this happens. But this is essentially one like, where the the difference boils down to.
Let's maybe get into some of the some of the projects that you talked about in your work. So in in these two studies, that we've that we're talking about, related to cooperatives and blockchain, You've talked about Colony, who actually both Colony and EVA. So these are two projects, people that I've actually had on the podcast before, which is pretty interesting. And then this third cooperative called the Mobility Factory. So I was curious, why were these projects chosen as part of your research? What was, like, particularly interesting or special about them?
Right. I think it's important to, with respect to the to the cooperatives, it's it's important to understand, a little bit about how they might view, any type of technology. Right? So as an interviewee, recently told me in commenting about, you know, suddenly finding themselves becoming a software developer or someone who's engaged with questions about software development when before they had just been, you know, someone either helping incubate a cooperative or as a as just as a worker in a completely different field. What they said is that for cooperatives, it's important to remember that technology is mainly a tool and the interest of members come first. So, I'm sure your listeners know this, but just, you know, to highlight or underscore this distinction, the cooperative is supposed to be, a member owned mutually oriented organization, which is not driven, you know, just by, the idea of maximizing shareholder value unlike a corporation. Right? And because the interest of members come first, we need to think that, okay, what kind of problems do members have and how can Blockchain help contribute to solving these problems? A common issue that cooperatives face is democratic degeneration. So where individuals become demotivated to participate in the governance of the cooperative and oligarchies begin to form. And the use of blockchain could help both, track votes, but also allow a degree of creativity in how voting power is allocated. So in a cooperative, the default is usually one member, one vote, and that's the way they deal with, the wealthiest not becoming the one who has who has the greatest voting power. But we can see, and, we see this with a few projects that are, experimenting with this, that you can, have a greater deal of creativity in how you design this voting mechanism with the same objective in mind. It can be used to so for instance, one of them can be about, reputation and something I I hope to talk about a bit more later, and how reputation tied governance can deal can deal with the issues that just because you were a valuable contributor at the beginning of, a business, it doesn't mean that later on you continue to be a valuable contributor and also different ways of recognizing contributions. The the use of blockchain can can help in doing this and recording this perhaps a bit more accurately than, just writing this down in the bylaws of a cooperative. And, obviously, it can also be used to keep track of the financial contributions made to a cooperative in a decentralized manner, as well as the rebates that maybe we owe to a manner, to a to a member. I'm a a bit circumspect about the value of, you know, crypto tokens as a financing mechanism for cooperatives, because I'm worried that it can lead to demutualization or unforeseen risks, for token holders or even a type of governance theater. But basically, all of these, give some reasons for a platform cooperative, or a cooperative that's, you know, engaging with building a platform to consider the use of blockchain. But as as I'll explain, you have cooperatives who've had to think about this and then decide that they don't want to, for now, and others who have said that, well, it's worthwhile investing and figuring out how can we use blockchain productively. So those are the reasons with, you know, looking at or thinking about how why a cooperative would want to use this. Now specifically about these three projects, with Colony, I had an opportunity to hear Aaron Fisher speak at my university a couple of years ago, and I found this reputation mechanism I mentioned to be particularly fascinating. I also appreciated the response of Jack DeRose and others at Colony to the ICO hype of 2017 and found them to be like a group of inspiring and sensible persons to follow and, see what they are doing and also how they're learning in this process.
Was this during, like, the the ICO hype that that you met them? Or?
I had heard of them before that, so but I I well, Aaron came, if I remember correctly, in 2018 to to Leiden. With respect to the other two cooperatives, as I've already mentioned, because I'm interested in, the study of platform cooperatives and have been looking at cooperatives involved in mobility of people but also of food and goods, I was intrigued by the potential of, EVA and TMF as businesses that went from being ideas to actually operating and serving their members, generating revenue. And on top of that, I found that the legal structures were distinct from each other, and it was interesting to try to compare why they would choose this and what led to them creating these sorts of legal structures. And because if fundamentally, they both deal with, an issue that cooperatives often face, is how do you go from being a small business with 15 people or five people to something that's much larger and transnational.
So then maybe let's start let's start to dig a little bit deeper with Colony. I think you made some pretty interesting points there. It's you talk about in this in this paper, specifically about Colony, that there are some learnings that co ops can take from Colony and the way that Colony is set up, which is it's pretty interesting and like, people can listen to the interview that I had with Daniel Kronovets from Colony and he explains a bit how it works. But there's sort of like, you know, you have this you're able to create Colonies which are basically like organizations that are held on on the blockchain, a a type of DAO. And then you have all of these colonies are part of what's called a meta colony, and it's sort of like a DAO inside of a DAO. It's very it is very, interesting type of setup. But I was wondering if there's anything from that experimentation that they've been doing at Colony that can translate potentially into cooperatives. I know you mentioned a little bit about the reputation.
I'm wondering if there are other other things that you've noticed. So there are essentially, you know, three prominent themes in the literature on cooperatives about some of the problems that worker cooperatives and labor managed firms, which I think is more salient for this discussion on Colony, that reoccur over the years and I feel that colony in its own way addresses all three of these themes. So what and we see this particularly in the literature on cooperative economics which is that cooperatives, such as worker cooperatives have high start up costs compared to, a company. And this is not just about, you know, registration fees and so on, but also just like getting people on board to, learn about this type of entity, to get the sort of, support network that is needed for this, and not to mention also, you know, issues about financing and so on, especially because you create guardrails essentially to prevent, an external investor, for instance, taking too much control over your cooperative. So you do that at the outset. So it's basically considered to be something that hampers, the formation of worker cooperatives because it's more expensive than, the alternative capitalist form. So that's one. The second is that if even you manage to create a worker cooperative, it's difficult to scale it transnationally. So the idea being that it well, first, even nationally and then transnationally. So once it grows beyond, a certain size, you then have to start changing the governance structure, and then it starts creating problems about the identity of the cooperative, the involvement of members, and so on. So scaling is the second issue, while remaining democratic and participatory. And the third is, of course, with, almost any business is is about financing, the cooperative. Now, ideally, I see Colony, but also others like, Dowstack, as being launchpads for nascent cooperatives, and they provide a a ready made ready made workflow process, for these cooperatives to use. I think the emphasis of Colony, for instance, on doing and not just relying on always voting on every decision, as you have in certain types of worker cooperatives, I think this is also useful to learn from. Several worker cooperatives find themselves switching from consensus or a type of direct democracy to representative democracy because of the efforts and time that the former entail once they reach a certain scale. Instead, thinking or experimenting with the idea of degenerating reputation, is a potential way to try to avoid this trade off without, you know, replacing it with an oligarchic system or a system where you have to have a lot of trust in the representative. And the degenerating reputation system is interesting because of the fact that it tries to value the most recent contribution of members and that you cannot just rest on your laurels, but have to continually contribute and continue to have that reputation. I think this could be particularly valuable for transnational cooperatives it's already a bit difficult to have an engaged membership to do something like this. And indeed, we now see, organizations like Diorg, which have transnational membership, in different parts of the world, and they use a reputation system. So, and finally, you know, there's a stream of literature, and this is about financing. There's a stream of literature that discusses the merits and demerits of having tradable nonvoting shares in cooperatives, which basically it tries to balance creating an a new source of income that is not, you know, a bank or the members themselves financing it, but you're able to have a a non member or who is, let's say, given a a debt instrument. And for that, you know, even before blockchain, like, a lot of countries already had provisions in the law that allowed them to issue, certain types of financial instruments that give, like, a capped rate of, preferred interest. But here the idea is is that can we think of, you know, investor members that are nonvoting or, you know, experiment a bit with the capital structure of cooperatives. And we can imagine that, like, a native token of an individual colony could be used in this manner. But after I've written this, article, I've also heard from cooperators that there is a reluctance of external investors to accept nonvoting equity. Right? So, again, whether that's a solution for a larger, set or a larger size cooperative which has high capital needs, I'm not sure. We have to wait and see whether that works. But, usually, we do see quite a few, requirements that, investor members either don't get votes, in their, you know, in a in a in a entity, or if there are voting rights for investor members, it's always calibrated to allow, the other stakeholders to have a greater say than the investor member because otherwise, you lose this distinction between being a cooperative and a corporation. It differs, you know, both from country to country but also a bit about what kind of cooperative form you're using. But, that's a really important way of trying to distinguish these two entities. So these are the three things that I think, Colony can contribute to. The first two, we're already seeing a little bit. The third, I'm still a bit hesitant about or, you know, we're going to see a bit more in the future, but that's also
something. Hey, everyone. If you're enjoying this episode so far, I wanna be sure that more content like this can be created. You can donate to my efforts through Patreon. So if you go to patreon.com/theblockchainsocialist, you can donate starting at $3 a month to help me out and join the newest patron, Marshall, and the 12 other existing patrons so I can keep creating content like this. At the moment, I've spent more on this project than I've ever earned from it due to hosting costs, so any amount really helps. And I've already released the first short episode of the Patreon exclusive Q and A series where I give my view on the question, is there a socialist blockchain? And, of course, I'll still be making free content like this interview to help spread the message that Blockchain does not need to be used to further entrench capitalist exploitation if we put our efforts into it. So if that message resonates with you, then I hope you'll consider helping out. If you can't help out financially, I understand. One of the things you can do instead is to subscribe to the podcast on whatever preferred platform you like to use. So the podcast is on iTunes, it's on Spotify, podcast addicts, and even YouTube, and leave a positive review. And you can also share the episode with a comrade that you think would be interested in the topic for this interview. I also wanted to add a special PSA because at the moment, it looks like we're in the middle of a bull run-in cryptocurrency prices. So I really want to stress that I do not give investment advice and this is not what drives my interest in all this stuff. If you've been paying attention, you can probably tell that. But if you are considering investing, then the one thing I will say is to please make sure to not put in any more than you're willing to lose. But that's it from me. Let's get back to the interview. I see a bit of a parallel with, you know, this discussion happening in cooperatives, and whether or not having investor members, and such. And then as well, in blockchain cryptocurrency world, there's a bit of this discussion about governance tokens. And, you know, the fact that governance tokens are traded on markets and exchanges like Kraken or all these big exchanges, but the purpose of these tokens is not for, I mean, it's not meant to be a speculative asset, I think. I mean, they make it a speculative asset, but I think that also that deteriorates its ability to govern, which is what it was meant to do.
Right. Exactly. Yeah. And it's also a bit about the design of the governance token. Right? Where, what does it, you know, what do you get to govern is the question. But also, you know, how is it, like, how what kind of say does it have? Like, what in terms of proportion? Is it based on, you know, one governance token, one vote, or is it that you look at regardless of how many governance tokens you hold, you there's that's one person, and that one person has a vote. And usually, if you go for that former, you end up becoming something that's like a very like a poor cousin of a share. Yeah. Right? And because in a public limited, public listed company again, I know if you have listeners in The US or in the different parts of the world, the idea of a publicly traded company differs a little bit as well as the conception of what a shareholders powers are. So in some parts of the world, shareholders have greater powers in terms of governance and some less. But, regardless, you end up having this sort of weaker form of this, and it raises a question of whether this is a type of governance theater that you are trying to show that you're distributed, you're trying to show that you're doing this, but the real power rests elsewhere.
Yeah. It's it's a weird thing because I mean, you already see the the effect of, like, having something that's able to govern, which is in it itself, like, you know, it's it's a way of expressing power. But if you take that to the market, then those with more market power then will just be the ones who will be able to then govern within your organization, which is, I mean, what we see in in normal corporations, which in then in a sense that is it is are you really making an a real alternative to what's currently existing? And I would think the answer is just is no. You're making the same thing except it's on a blockchain, which is not as interesting.
Well well, that but also with poorer protections. Right? So, you know Yeah.
Don't have the SEC to protect you or something.
Yeah. To protect smaller investors, but also just in general that you, over, you know, well, more than a century. Right? Well over a century, like, when just thinking about how you protect minority shareholders, how you in many different types of transactions isn't then translated anymore, and you try to then, basically rely on the goodwill of, the the the issuers. In the same way that you can't suddenly backtrack, on commitments you make. So you say you will do something, and then you suddenly change your mind and without having any sort of, you know, penalty on it beyond some sort of reputation cost is also problematic. Right? And so that's, something that when we look at the the the crypto sphere specifically, that's something to address. I think there is an ideological component here as well because, obviously, when as soon as we start talking about the SECs and other things, it raises red flags and, people wouldn't be happy about this, but or or a certain type of person might not be happy about hearing this. But that's important to to consider and to if you want to really build alternatives, it has to go a step further, in thinking about, for instance, the design of a token. What what what capacities does this ERC 20 have? Absolutely. Yeah.
So knowing all the things that you mentioned about Colony, do you think that Colony itself sort of inadvertently has taken the form of a type of cooperative? I mean, I guess it'll depend on how you define a cooperative. I but is does the fact that it uses something like blockchain make it transcend into something different, or is it a variation of of the same thing? You know? Like, it's I feel like a lot of these type of DAO projects have a lot of similarities to cooperatives, but I hesitate to call them cooperatives.
And I can completely see why. Honestly, I I I'm personally of two minds when I use the term cooperative. On the one hand, I can see see the benefits of using the term in a capacious manner, to be able to cover an increasing diversity of enterprises that seek to align themselves with cooperative values. Because it's important to remember that when cooperatives as a legal structure were created in many parts of the world, they had a particular type of business model in mind. So it could be, for instance, an agriculture cooperative or a cooperative that's used for particular retail purposes, retail and or and marketing purposes. And so that then, you know, other variations of that evolve from this, particular conception, which sometimes mean that they don't translate well into this new space. So that, means that there's a question of fit. Then the other aspect of it is that we are seeing people with, you know and I like to think with good intentions trying to build with this in the within the limits of what, they can do. So they, at the same time, are trying to build a, you know, a serviceable product. They're trying to, make it, you know, a business that actually works, as well as trying to, meet these sort of more onerous demands of being a cooperative. And it's at these three dimensions oh, and and, of course, it goes without saying now by now, that there's also the capital component of this too. So trying to balance all of these things can also mean that, we end up creating a threshold that is quite unforgiving when we use the term cooperative, in in a very strict sense. So I see that perspective. On the other hand, as a legal scholar, I sometimes feel concerned about how, the use of the term cooperative can open up abuses and contribute to diluting the difference of cooperatives from corporations and instead further the trend of cooperatives becoming more corporatized. And this is actually happening in, the global North because we see, for instance, that instead of a cooperative being treated as, a variation, as if being being distinct from a corporation. It's treated as a variation of a corporation. That is just a certain way of running a corporation and that even the idea of, for instance, the seven ICA cooperative principles, you know, about being open and voluntary and so on, being democratic, cooperation among cooperatives, like, all of these seven principles, they, you know, try to ignore them or not mention them altogether, leaving it as something that's voluntarily adopted in the bylaws of the organization. So this is a dilemma for me because of the fact that I see, the I can see both perspectives in this. And when I consider something like the call a colony network and particular particular the the metacolony, you know, you sort of see this tension come to light. So the the fact that the metacolony is supposed to help develop and support the colony network, it has member representation, and it has scope for rebates to members. This does give it a sort of mutual quality. So we see, the the resemblance, as in terms of design with what, certain types of cooperatives do, including the the sort of shared services cooperatives that I'll be talking about later. But at the same time, I think as a first step at least, a project or an initiative or a nascent enterprise should at least identify itself as being part of the cooperative movement for it to be bracketed as such. And my impression is is that the is the colony wants to assert its distinctiveness and not be bound to any particular organizational form and the ideological baggage that it might bring. If this is because of the I mean, this is my impression rather than something that I've been told, partly based on how it promotes itself, but also because I understand that, something like the cooperative movement has certain connotations for certain people, and it can be, in some cases, alienating if it's seen as not just, you know, about being left wing or not, but also, about it, you know, being dysfunctional or something that by relying too much on, democracy, it becomes very slow and lethargic and not dynamic. Like, there are all these associations which, by the way, we we should obviously try to break out from, but I can see why certain, projects would then, you know, not want to use that term too much. And in fact, I I know of, you know, full fledged cooperatives that are cooperatives that don't use that language because that's, one of the ways they get clients is by saying that, you know, emphasizing their business rather than their structure so much. Yeah.
It's I've actually I I know a guy who right? I mean, he's significantly older, like, in his eighties. But he told me when he was a kid during, you know, the middle of the Cold War and, like, the peak of the Red Scare in The US, his grandparents were co owners in sort of this cooperatively owned daycare. And they they had to stop associating with it so much that it was especially that it was a cooperative because apparently during this time people were associating people who were in cooperatives as being communists and that would be hurtful for them in their community or business opportunities in the future. So it's pretty interesting. I when I learned that, it was pretty interesting to know.
I mean, I think one of the reasons why I find the study of cooperatives to be so interesting is because of the fact that it has so many connotations for different people. So even in The US, I've read about, you know, a conservative oh, not just in The US, but also in The United Kingdom. You have, conservative movements for cooperatives, which emphasize less, you know, the aspect about, solidarity and, how this can be a means to secure rights that a neoliberal state is taking away, to being more about, you know, everyone becomes an entrepreneur and owner, like and focusing on that aspect of it. And then obviously, you have the opposite. So it's it's how you end up having, you know, Republican, legislators as well as Bernie Sanders talking about cooperatives and employee ownership, because of this. I think the third element that I think you'd find interesting is that in the global south, cooperatives were often used as a way of, trying to deal with the problem of money lenders and to deal with financial distress in rural communities. And so the creation of credit and savings cooperatives was one of the ways of trying to, tackle this problem. But, because it wasn't again, coming back to the principles, because it wasn't something that was autonomous and that was bottom that wasn't bottom up. It came through imperial fiat into these regions. Again, the perception of cooperatives became that this is something that is a governmental organization almost rather than something that is ours. And so that creates again another, you know, connotation for people who then look at cooperatives as being something that isn't, autonomous, but rather is something bureaucratic.
Right. No. It's it's interesting. I think using using that, thinking of cooperative members as, like, making everyone an entrepreneur is a great selling technique for, if you want to be more, to sound better as a cooperative instead of focusing on the democratic part. I think it's not a bad not a bad idea, actually, to to take it take entrepreneurship away from the from the right wingers.
Yeah. Yeah. Yeah. I mean, that's, I think the one of the ways that people try to frame it is by saying that, why would you, instead of hiring an employee, you're hiring someone who has both the rights of an employee, but are but is also, an entrepreneur and owner. So they are committed to giving, the best, service. So it's so, you know, in in new law and economics terms, it's a way of trying to solve an agency problem, that you, you know, you don't have an employee shirking because they, you know, only get a certain amount of the value they create.
So now I think it would be good to switch to the other paper that we've been talking about. So this is, the everything is old everything old is new again, evaluating the legal and governance structures of shared services Platform Cooperative. So this is more this is the the paper about comparing, the EVA coop and the Mobility Factory coop or TMF. But so I was wondering because of the title, is there anything about these type of models using blockchains that, you know, is, like, a reversion to the old or, like, you know, why is the old new again, essentially?
So the the title of my study is intended to reflect that while, you know, the online platforms developed by these two cooperatives are relatively new, including, you know, the fact that ever uses EOS, The idea of sharing expenses by cooperatives through a secondary entity for the mutual benefit of member cooperatives has long existed in agricultural and retail sectors. So the idea of a shared services cooperative or certain types of consortia have been there, you know, for a very long time. And so what we're seeing here is that instead of it being, let's say, marketing together or owning a warehouse together or renting a warehouse together, instead, what you're doing is that you're sharing the cost of developing a platform. And that can I mean, obviously, that's can be something that's using Blockchain or not? The fact that, you know, we can see a rejuvenation of these sorts of structures, especially because the development of software as they're adopted and there is greater demands on improving the software, it it has high capital costs. And one of the ways of trying to deal with this in a cooperative manner is having cooperatives, sort of trying to share expenses. And the the way the reason I compare these two is that they do it in very different ways. But, essentially, they're both trying to scale in a cooperative manner and try to reduce the costs that fall on the shoulders of individual cooperatives for to have a good platform.
So then in comparing these two models is there anything that you that you think makes it very clear on why one would decide to use blockchain and the other one would not decide to use blockchain?
So as I as I mentioned in this paper, what I call shared services platform cooperatives have to be technologically agnostic. It is possible that a car sharing platform could use blockchain, but the question is whether the founders and the developers working on this platform see any added value to this. So in my interviews with the with some of the directors of the TMF, this issue of using blockchain didn't arise, but there were discussions about, you know, other future directions that the platform could be used for. For instance, about, using some of, the non personal data that is generated, from the from the the movement of the vehicle or, even using, the car itself as a as a moving battery to transport energy from one area to another. Obviously, we we know of examples of energy cooperatives or energy networks which are using blockchain, but this didn't come up with this discussion with TMF. While when discuss ask ever its members, Dardan, one of its founders, they appear to be more persuaded by the purported benefit that, using an blockchain can have in in enhancing privacy. So there seems to be a genuine belief in how the use of a blockchain can contribute to more equitably sharing, the benefits and also reducing some of the dangers of, you know, the so called sharing economy. It's interesting to see with ever how their proposed use of blockchain evolved from their initial white paper. And I remember in early discussions, they, you know, there was talk about using Ethereum, about the potential issuance of tokens, including utility tokens and so on. But then over time, and not even a very long period of time, there is now a much more modest use case where there isn't an issuance of tokens. And the main purpose of, using blockchain is basically for an internal accounting function and a privacy function. It's too early to say how this will play out in other countries, but I was intrigued by the fact that the drivers, of ever found it to be completely unobtrusive in their use of the platform, and they had to have no familiarity with blockchain or even have possess a a crypto wallet. So just downloading the app generated private keys, and I found that this, made the experience much more seamless and had the opportunity of actually making one of these dApps, basically, much more, you know, friendly for a mass market.
Yeah. I think they were in my interview with him, it really seemed like they were able to figure out how to bridge that gap between, like, just getting a normal user on and using this somewhat innovative technology that a lot of people just aren't aware of and has its own, like, sort of quirks. You know, make making all of those weird things about it that a normal person wouldn't know just sort of hidden and in the background as sort of just a back end thing rather than making it a forefront thing. Because I think what a lot of decentralized applications do is, I mean, it's very clear that you're using Blockchain, and it's very, like, you know, 90% of the people who are probably on it, if not more, are doing it because they want to experiment with Blockchain, and they believe in something about it, and they want to play with it. Whereas in their use case, I mean, they're doing something that already exists, quite normally with Uber and all these other ride sharing applications. So I think it was a pretty interesting way how they figured out to to mask that. I I I I think the the messaging,
so an off chain aspect of it, the messaging is really important here. So what they, I think, try to emphasize to to drivers is about how, using this can have certain privacy benefits in terms of localizing the data onto their device or also and I will explain this a little bit when talking about this their social franchise system, but they, try to, you know, the the the their argument is that they're not going to have all of the data of the drivers, riders, and so on going back to the global corporation of EVA in in Quebec, but rather that it would stay in a in a locality and that it would not even be, it would be like anonymized personal data that would be available to comply with local regulations. And also in some cases to be able to collaborate effectively with our local authorities. So to think about, okay, how do you do with traffic in this city? Maybe having some of this data that's, you know, not personal, but it tells you about which routes are busiest and so on, could help with this. So it it's trying to, you know, strike this this balance, of, you know, compliance with privacy, with, also drivers themselves being curious to know about more about, you know, how, well they are performing, how busy they are. Like, a lot of this information that isn't available with with an Uber and is actually leading to litigation now where they're trying to force, the the platform to reveal this information. They want to try to make that easily accessible through, for instance, a dashboard. And, of of course, using, a a a blockchain protocol can be one of the ways of doing this.
In, you mentioned that in a study that the mobility factory is this what's called an SCE, which is a special type of legal structure within the European Union that is supra national. So it's a European legislation, It's not like a specific European country legislation. But I was wondering what is the advantages of using this type of legal structure, maybe for those European listeners out there, and I I also wonder if that has to do a bit with the not using blockchain parts. It's one of the advantages you mentioned was, the, you know, a cooperative's ability to scale and how, a project like Colony sort of helps with that.
Yeah. So, an SCE is known in English as a European cooperative society. It was created, by a European regulation in 2003, and it's supplemented by another directive, which is you don't have to go into right now. And that, regulation came into effect in 2006. And one of its objectives is to enable cooperators in different parts of the EU to form a legal entity that is, recognized more or less uniformly in all of the member states.
And this is something right. Yeah. Like, this this is pretty big because as far as I understand, there's no there's no similar thing for, like, a corporate structure, is
there? Well well, there there there is. There is a European society. So the s the SE. The Society is Europe Air. Sorry. It's not European. It's a is a Society is Europe Air. It's a European public company. So it's supposed to be the equivalent of a public limited liability company in all of these countries. So and in fact, there are more, as you'd expect, more SCs than there are SCs. But, they have both been in the works for many decades before they actually, you know, were created. And they were, you know, came into being in the early two thousands at around the roughly the same time. But it's actually in the case with the SCE, it's quite significant. And one of its, advantages as of having this is that the diversity of cooperative laws across member states is even more, than with corporations. I mean, even corporate law across all of the member states is diverse. But with cooperatives, it's perhaps arguably even more so, and also because of the fact that certain countries like Spain also have regional cooperative laws. So the idea that you're able to have the supranational form, is, you know, took a long time to negotiate and to to create. Now the idea is is that if it's once it's implemented, as the regulation was, you would you know, an SC recognized in Spain would be recognized as a legal entity in, The Netherlands, in Poland, and so on. And one of the goals behind this is to, of course, encourage cooperation between cooperators across the EU, both as individuals but also through existing cooperative organizations. So you can imagine the benefits this can have happen, This can have for orthodox types of cooperatives, such as those involved in insurance or agriculture or, energy even now. It could also have benefits, for the platform sector as cooperatives in different member states may wish to pool the cost of developing software. And this was, an important driver for TMF, as a secondary entity for existing car sharing cooperatives. So that's again they're both EAVA and the mobility factor involved in the mobility sector. But, EAVA is involved in ride hailing, while TMF is involved in car sharing, typically electric car sharing. And so the type of membership they have is a bit different, and the the business model is a bit different. Well yes. And the important factor here is that, you are trying to, you know, encourage, solidarity and build an international brand while also achieving this gain of, developing software in a cooperative manner. Admittedly, and this is where, you know, it's important to assess the, pros and cons, there are still very few SCEs in existence in the last fourteen years, and it isn't for every type of, cooperative either. So for instance, the minimum subscribed capital for, SCE is €30,000, which means, and in some cases, because the way this works is that, each regulation is implemented into national law, but, the provisions of the regulation sometimes allow a degree, degree of flexibility to national legislators in how they implement the regulation. So when they say it has to be a minimum of 30,000, it means that if a legislator wants, it can set it higher than 30,000. It just can't go below. The problem with it the issue is and this is where the distinction between different business models becomes really salient. For some cooperatives, gathering the €30,000 is easier than it is for a worker cooperative with a small number of people who would even struggle to, you know, regularly pay salaries to all of their worker owners. So, you know, that's what I mean by it not being suitable for everyone and why it is important to look at different types of options for scaling.
So then in in the case of Eva, which is incorporated as a social franchise in Canada, I guess what is what are the advantages of this particular legal setup and do you think there's any sort of relationship with that and its decision to use Blockchain?
Yeah. So, specifically, the Ever Global Corporation is registered, in Quebec and holds the intellectual property, of Ever. And it's interesting that, of course, we're talking about a corporation while still talking about cooperatives, but it's important to understand, this network. It operates as a social franchise network and licenses, the technology of ever to social franchisees where the local franchisees are cooperatives. Right now, there is the the first one, which is a Quebec, Quebecois solidarity cooperative, which is basically a form of multistakeholder cooperative that can include multiple stakeholders as your listeners might have heard before, including drivers, riders, and supporters from a local community. I won't repeat more of what you've already heard about this, but essentially, it gives, these stakeholders, a say in governance. For instance, there's going to be a general assembly on the December 1, and you have local assemblies as well as a joint assembly where you have a process of communication and voting and feedback to, the persons who are running ever. And at the same time, if, the business is financially successful, there is scope for giving rebates based on the transaction of, the cooperative members to these members. So if there is, what in corporate terms you refer to as profit and, in corporate cooperative language, it's not always described as profit. It's called surplus, for instance. You then get a part of that back once it reaches a certain level.
Yeah. Which is a little bit of like a a a Marxist term almost. You're getting your labor surplus back a bit.
Exactly. And that's and that's why it's tied to transaction. Right? So it's saying saying that if you transact more, you're likely to, you know, your rebate will be more. So it's and it's interesting and, I mean, it has legal implications too because rebates would be taxed differently than capital interest on capital and so on. And that again, is also an interesting way of trying to both distinguish cooperatives from corporations, but also, can be tinkered with to try to incentivize, cooperatives. So for instance, in some jurisdictions, the the rebate on cooperative transactions might not be part of income tax. And so unlike, let's say, capital gains, And so, you know, that's, again, acknowledging the distinction between the two because one of them relies on work hours. So if you've worked a hundred hours and someone else has worked ten hours, that's obviously different than you've invested a $100 and someone's invested $10, and you're taxing that differently. So, from my discussions with the founders of ever, I know that the idea of creating a social franchise, arose organically as part of the thinking about, cooperative ways of scaling. In short, to scale the way a typical platform company does would require a great deal of capital investment, particularly if it is to other countries with a different type of ride hailing sector, a different ride hailing culture, and of course different regulations concerning this industry. This is a significant gamble if, the business doesn't kick off there. Right? So if the business falls, you'd already have committed such a large, amount of cash. It's also not just a question of capital but also a question of attitude. So patience and sustainability versus being predatory and speculative. So as with a commercial franchise, a social franchise would rely on a group taking the lead in the city interested in the social franchising arrangement and demonstrating that they could operate a social franchise successfully. It it requires greater patience that you can't, select that particular city bay from, you know, where you are in another part of the world just because you think it it has potential for that sector. You actually need a group that will build this bottom up. So based on my conversations with Kartham, three of the conditions of this arrangement, will be for the prospective franchisee to form a cooperative to operate a local node of this of their sister chain of EOS, so ever sister chain of EOS, and to remit a portion of the transaction fee to ever global corp. I think it's about 5%, the transaction fee. Something that ever has committed to do is to strike a balance between ensuring user privacy while also complying with local regulations so that the data is stored locally, as I mentioned. Right? But at the same time, you want to, and might need to give access to, local authorities through a block explorer, you know, the some of the transactions because, you know, if there's criminal activity or if there is certain things that you need to disclose, you can't, you know, just pretend you don't know anything, basically. You or or design a system that's like that. And more broadly, one of the reasons why the social franchise system would be appealing for this particular type of, organization is that the start up costs that you are introducing for a franchisee is supposed to ensure that only serious committed people will seek to introduce EVA in their city, and this obviously improves the likelihood that it will success as a viable be successful as a viable business. Because if you imagine, if you just say, you know, here is this technology. Anyone who's interested can apply, and we will, allow you to, use it. It can create scope for both, moral hazard and people abusing this, but it can also then dilute the brand name of ever globally. And that's, something if you're trying to create a business in a very competitive industry, I think it's something this sort of patience and caution is very important. I know that some of this seems almost like counter, at your tech at odds with a lot of the logic that operates in the space, but it's it's really important, I think, as a way of understanding why ever so distinct.
It it's yeah. It's it's it goes against the grain of, like, the standard, tech startup culture of, like, you know, move fast, break things type of thing.
Exactly.
In the cooperative space, I feel like you have less room to break
things. Yeah. Or it's supposed to be more like you you you try to nurture.
Right. You you the the whole point that you're pursuing a cooperative versus a startup is because you're not trying to, screw people over in a certain sense.
And and and and you see this sort of, you know, baked into the the structure. Right? So for instance, as I mentioned with, external investors, which is a very important, point to make when we talk about such a venture capital fueled industry as tech startups are. In the reason why a cooperative would be, you know, unattractive to many types of VCs, even though I have to say that there are cooperative startup, you know, incubators emerging, accelerators, and so on, who try to, you know, valorize the the benefits of cooperative formation. Just leaving those aside, if we look at the the sort of the the orthodoxy here, we see that, you know, they would be interested in having strong control rights. They would want a very generous upside for the fact that they're, you know, investing in you now while you're still an early stage idea. But this would be at odds with this sort of baked in organizational structure of a cooperative where it could say, well, we can't give you, let's say, a preferred interest more than, what a postal bond offers or what you know, there's usually different sort of metrics, that are set in the law that says that, okay, it's this is the max, 6% or, you know, 3%, that we can give, on any investment you you give. It could be that if, or conversely, it can be that if you invest in our as an investor member, you invest in a cooperative. You can't withdraw it for two years or three years. So it really pushes that long term idea that sort of is again against, at odds with how we talk about this particular space where, you know, there there can be seismic changes within three years. So maybe for for the last question,
is just how should people keep up with your work? Where should they where should they follow you?
So I I, post preprints and, when I can open access versions of these articles and papers on ResearchGate and SSRN. And I also discuss some of my ongoing research and share literature, that I'm looking at on Twitter, hoping that, you know, more people, especially more lawyers and, you know, people studying businesses become interested in studying cooperatives.
Alright. What what's your Twitter handle?
At manan morshed. So at m a, n n, a n, marshad. So at, like, my last name then first name.
Okay. Cool. Well, thanks a lot. That was super interesting and really nice to, to make this connection between cooperatives and blockchain.
Thank you very much, and it's it was great to be with you this evening.