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Discovering an economy that works for all

dairy cow
CC/Flickr/Royalty-free image collection
Regulations and laws – the so-called “rules of the game” – are crucial to fostering economic growth.

Just south of where Twin Cities’ suburbs fade into rural Minnesota sits the Mohn farm in Lakeville. It’s a working example of the “free market” and democratic capitalism’s compatibility.

Lee Egerstrom

Bruce Mohn is the principal operator of a fourth-generation dairy farm. He seeks economic viability and protection from volatile markets by being a member of Hastings Co-op Creamery. This is democratic capitalism in which members modify their own business behavior to gain market strength by pooling resources and democratically agreeing on business strategies and investments.

Cheryl Mohn is the embodiment of the individual entrepreneur. She owns and operates a mail-order dairy clothing and equipment business, Uddertech, from separate buildings on the farm site. She takes all the risks of the marketplace. By doing so, she has to out-hustle her competition.

Unlike sharing risks, capital and opportunities in a cooperative, the main tool protecting Uddertech from being run over by large firms with more market power are federal and state regulations. These attempt to curb excesses of monopoly power, collusion, fraud, high-margin investing and other tools of anti-trust practices.

Profiled in book

Alex Marshall, a senior fellow with the Regional Plan Association think tank for New York, New Jersey and Connecticut, profiles the Mohns in an important book, "The Surprising Design of Market Economies," published by University of Texas Press.

It is one of three new books that should enlighten Americans about their economy, business structures and government regulations if citizens look beyond simplistic slogans in the final month of this year’s election campaigns.

Marshall and authors Marjorie Kelly ("Owning Our Future") and E.G. Nadeau ("The Cooperative Solution") bring fresh thinking to highlight where Minnesota and America stand in a global economy, and where signs suggest they may be going. The books establish historical context to set forth public policy safeguards that will allow markets to function and business to grow, without throwing the economy back into chaos.

Marshall, a former Libertarian, builds on the work of Nobel laureate economist Douglass North and others that show what regulations and laws – the so-called “rules of the game” – have done to foster economic growth. Trade, economic growth and opportunities have increased exponentially over time, aided by government oversight and infrastructure.

Working with government

“Market economies are made,” Marshall insists, by working in hand with government. He uses an urban planner’s broad definition of infrastructure to describe everything from municipal water and sewer, canals and highways, railroads and airports, public education and libraries, and Social Security and health care. All become necessities to sustain life and support our shared economies.

One chapter of the book describes his November 2009 Minnesota visit, studying the state’s cooperative business models, along with Wisconsin’s. That’s where he notes how the Mohn family — rugged individuals though they may be — uses cooperative marketing systems, the cooperative Farm Credit System (AgriBank), mutual insurance programs and cooperative investment firms. All are either authorized or supported by federal laws and regulations as infrastructure for our economy.

Marjorie Kelly’s "Owning Our Future" sees far more such linkages between public protection and capital as evolving and overdue. A fellow with Boston-based Tellus Institute and cofounder and president of Business Ethics magazine, Kelly sees the need to shift “the design of economic power” from an extractive ownership model to a generative ownership model. In short, this means moving corporate America away from impersonal, capital-driven ownership systems to long-term, people driven enterprises focused on both business and social objectives.

Kelly describes a combination of cooperatives, charity-based and community-based enterprises, and worker-owned business models as emerging enterprises that can influence entire industries. Among them, she profiles Organic Valley Growers, the now-national farm and food marketing co-op at LaFarge, Wis., that was largely launched by western Wisconsin and southeastern Minnesota farm families.

Cooperative business models

While she looks across business models and ownership structures for ethical governance of enterprises, cooperative development specialist E.G. Nadeau looks specifically in "The Cooperative Solution" at cooperative business models for linking capital with human, ecological and social objectives. (The Association of Cooperative Educators sponsored the book and St. Paul-based The Cooperative Foundation funded it.)

Nadeau, from Madison, Wis., draws heavily from his Wisconsin and Minnesota backyard experiences to insist that co-ops can help the United States “tame recessions, reduce inequality, and protect the environment,” as the book title proclaims.

In an interview, Nadeau said the Great Recession was the 47th such economic downturn in U.S. history. He lays much blame on impersonal capital influences that turn markets into “bubbles” and encourages aggressive and high-risk business behavior for the periodic crashes.

Credit unions and mutual insurance companies largely avoided the sub-prime lending and derivatives scandals that rocked Wall Street and precipitated the Great Recession, he said. Member-ownership and member democracy prevented the “risky” behavior. “There should be lessons here for everyone,” he said.

Minnesota works best when it works together. Looking at today’s state public-policy leaders we’re not seeing much cooperation; that needs to change.

Lee Egerstrom is an Economic Development Fellow at Minnesota 2020, a nonpartisan progressive think tank based in St. Paul. This article originally appeared on its website.

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Comments (1)

Democratic Economy

The problem with this model is that while it's more resistant and resilient in Recessions and Depressions due to a more democratic decision-making model, market pressure, regardless of regulations or government-funded infrastructure, will always drive competitors to take greater and greater risks (up until the point of collapse) that drive down the profitability of co-operative firms who don't take those risks. Firms who refuse to take these escalating risks can only survive by pursuing niche markets; i.e. those who are willing to pay a higher price for the difference (real or perceived) from the "mainstream" they offer. In order for a democratic, people-over-profits production model to win-out generally, democratic decision-making must be enshrined in each and every workplace. And with global outsourcing a commonplace, it's clear that it must be unconditionally accepted internationally.

Nonetheless, the cooperative model is highly laudable and does have a real, positive impact on the economy at-large, and a Recession is a good opportunity to highlight the stability offered by more democratic economics.