Why Employee Owned Source Code is a Problematic Solution

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Why Employee Owned Source Code is a Problematic Solution

Michel Bauwens:

(see: http://codesolid.com/employee_owned_source_code.html)

Once in a while, we are confronted by initiatives which elicit contrary feelings, especially if they come from what you consider as ‘your own side’.

An example of this would be my perplexity towards encountering CodeSolid and their proposal for Employee-Owned Source Code, originating as it does from a cooperative, which Nathan Schneider considers to be a platform cooperative. As he writes about them in a Facebook exchange:

“ I do view it as a platform cooperative because a) ownership is shared through the company's online platform, not behind it (as in a tech worker cooperative); b) membership is open to whoever contributes; c) governance is handled according to one-person-one-vote.”

Let me note that it is not clear to me that this is actually the case; I read the description as being a closed cooperative shop. The following critique has been inspired by this particular example, but it is not a critique of Codesolid itself, and we are very interested in their opinion and feedback.

So here is a labor initiative based on shared property, we should rejoice right?

I’m afraid I can’t, and this for a number of reasons:

first of all, in their presentations, they explain their motivation as a critique of open source, which they say is ‘free’ and cannot generate incomes.

This is a strange argument, since for the last 20 years, the free software movement has insisted that ‘free is not gratis’, i.e. free as in free beer, not free as in gratis.

Of course, the two aspects are often related, but it is important to see why. Software is a resource that is subject to near-zero marginal cost of reproduction. This is true independent of whether a software is open or closed. Current technology simply allows for the very easy sharing of any software available in the market, an aspect which is very strong for me personally as I live in East Asia, where hardly anyone ever pays for commercial software. This is the reason that companies like Microsoft now give their Windows 10 software for free, not because they are kind-hearted, but because they realized it was a lost battle.

So indeed, open source is not free because it is subject to a shared license. But that of course doesn’t mean at all that open source provides no income. First of all, open source is hyper-productive, i.e. entrepreneurial coalitions aligned around these shared pools have access to quantum leap in resources, compared to entrepreneurs who choose the path of private proprietary software, and this is both why open source is becoming standard amongst developers (see the 29m software projects on GitHub), but also for venture and other investors. While proprietary software is far from dead, it is a steadily declining part of the code pool.

Open sourcing software leads therefore to competitive outcomes, and thus income, to vast reductions in infrastructural investments, which can be used in other productive ways by participating entrepreneurial entities. Finally, while the open source software is often free (as is a lot of proprietary software), it also generates substantial incomes for developers, which are actually a ‘aristocracy of labor’. Fair use pools not only generate 1/6th of U.S. GDP (according to a 2011 study) and employ 17 million workers, but developers are generally well paid for their work on software. Labor for open source is only ‘free’ if the motivation of the workers is to develop such software either for their own use, or to contribute to common projects they believe in.

Making money from an abundantly shareable resource that is kept artificially scarce through repressive laws like the Digital Millennium Act is actually properly a form of rent extraction.

With these arguments in mind, what can we say about the decision to collective enclose software in a cooperative ?

First of all, in terms of income, it will make little difference, since their labor will be paid regardless, and even as a startup, it’s a good bet that they will have to develop a lot of the software for free anyway, as companies will not buy a cat in the bag.

Secondly, it makes them uncompetitive, since they cut themselves of from shared development. As a company, you’d have to think very seriously in order to buy proprietary software that will likely evolve much more slowly and with much less support than open source software. It is more likely you would work either with a private company participating in open source, or with a free software based labor cooperative. If you choose the first, you have dedicated service, likely to be reliable, if you do the second, you participate in the creation of al alternative ethical economy.

Working with closed proprietary software has indeed a number of ethical challenges:

  • the first is that you are deliberately withholding useful knowledge from humanity, and depending on the criticality of your sector, that could be a major problem (think of how renewable energy was set back for 30 years by the patenting, buy-out, and closures of companies in the 1970s).
  • second is that it aligns you with legal and technical repression, since abundant resources can only be made artificially scarce at that price; this is certainly uncomfortable for ‘progressive’ entities
  • third, it aligns you with liberal ideology, i.e. the belief that private selfish behaviour, even in a collective form, will automatically general public benefit, instead of explicitly aligning yourself with social and environmental goals
  • fourth, it aligns you exclusively with an exchange-driven economy, instead of a use-value driven economy.
  • fifth, by charging rent from a abundant resource, you align yourself to a game of the democratisation of rent extraction, rather than changing the rules of an unequal and iniquitous social and economic system; the only different is that you do this as a collective owner rather than individual shareholders. Granted, that is of course a big difference.

We also have to seriously challenge, apart from the increased lower competitivity of proprietary software over time, whether ownership in a artificially scarce immaterial resource, will actually work in any way to create “equity”, which presumably would be gained from licensing fees. But for these licensing fees, as open source companies have proven, you don’t need to privatize your software, it suffices to create value added services that the market is willing to pay for.

So for me, there is only one good argument for choosing the path of CodeSolid, apart from a purely pragmatic argument that it may be justified to use temporary limited proprietary software in a context of competitive realism, i.e. avoiding that third parties take immediate advantage of one’s open source work.

It is the argument of exploitation, i.e. the fact that, in capitalist open source companies, i.e. the private shareholders extract private rent, which is for me the only serious justification for collective artificial enclosure of software by the “good guys”; though as I argue for all the reasons above, I do not believe it will work.

The main objections are however also strategic.

As open source software and all open knowledge, has proved to be hyper-cooperative and hyper-competitive, the question indeed arises, who will profit from that extraordinary productivity, where will the freed surplus go ?

Clearly, SolidCoop does not like that, but paradoxically, by removing themselves from that hyper-productive advantage, they are leaving it to capital to profit exclusively from these gains. I believe in this context, that the proposed choice literally condemns progressive social change by leaving the appropriation of that enormous surplus value to capital.

Is there an alternative from retreating towards collective privatisation of abundantly shareable resources?

I believe there is, and it has two aspects. One is the notion of open cooperativism and the second is the one of commons-based reciprocity licensing.

How does Open Cooperativism differ from Platform Cooperativism? Platform coops decide to mutualize platform ownership, and this could be either private common ownership, or a commons. So certainly, platform coops that decide to include the user community in their governance and property arrangements, could be open cooperatives.

Open cooperatives are cooperative arrangements whereby the goal of the entity is the production of a social good, with the aim to create livelihoods around this social good, i.e. they are not-for-profit (but not ‘non-profits’); second, they agree to actively construct shared resources for humanity, i.e. they co-produce commons with the productive communties and ethical entrepreneurial coalitions they are aligned with or belong to; third, they go beyond collective private ownership towards multi-stakeholder forms of property and governance that include user communities.

One of the issues however with open coops, i.e. coops that actively co-produce commons, is the issue of captation of value by outsiders. In my view, this is much less a problem for software, but become a serious problem when it is linked to physical production, and its necessary investments in places, machines and raw material. In such a context, the use of the open source software by much stronger capitalist forms, especially if they do not contribute to the common effort, represents a huge issue of value distribution and fairness.

Here is where the commons-based reciprocity licenses come in, such as the CopyFair license we have proposed. Interestingly, the very first iteration of such a license, was the Peer Production License, explicitely designed for worker cooperatives. In the P2P Foundation's vision, this is too restrictive, and so we want to generalize the use of such licenses to a larger number of players, as long as they are committed to include positive and negative social and environmental externalities in their vision and practice. So, in this expanded scenario, commons are still produced and shareable by other workers and citizens, but commercialization is forbidden by non-reciprocal players. The hyper-productive advantages of open-sourcing are fully taken on by participants, and the surplus value only goes to the co-producers, not to any freeriders.

But what about equity ownership mean in this scenario? Can participants obtain equity ? Yes, in everything that is not an abundantly shareable resource. (by the way, what I critique is not the ownership as such, since I favour the Sky Trust and other Commons Trusts proposals, but these types of ownership aim to be inclusive of all citizens). A mutualized commons fund, that collects ownership and investments in land, machine-parks, and other 'rival' resources, also actually represents the value of the immaterial equity from the collective expertise of the entity (as capitalist firms do, since only 20% of their worth can be traced back to material resources). The equity in this case results from the value created by the software, rather than the software itself.

Since we live in a time period where equity in software no longer functions, this model only represents a gain. As the cooperative of platforms gains since, the commons funds grows and can start paying out an extra basic income to all participants (see the ideas of Dmytri Kleiner in that respect).

Voila, I made my points here I believe, explaining why I believe Employee-Owned Software is a pragmatic and strategic mistake for progressive forces and the alternative economy.

For an example of a successful commons-based ethical entrepreneurial coalition, look at the practices of Enspiral.org which combines the co-construction of commons (Loomio, Co-Budget), ethical entrepreneurial forms, common governance of the common cooperative infrastructure (Enspiral Foundation); and very clever proposed ways to coopt external funding (capped returns, etc ..)."

Let me add one thing, a common weakness both the the Employee-Owned license and to Copyfair, is that both restrict the common pool in some way, in the first case to all those who cannot pay, in the second case to all those who do not reciprocate. So a potential weakness of the Copyfair license is that by restricting usage for non-reciprocating for-profit companies, it slows down the development of the overall pool. However, this can be balanced once entrepreneurial coalitions of the cooperative and solidarity economy start adopting it 'en masse'. While this is also the case for Employee Owned Software, if it functions as a open platform as Nathan suggests, it however restricts usage by all players who do not own property or money and can't pay for the license; while in the contrary case of an open cooperative, usage is donated to all humanity, regardless of economic capability, and it is only non-reciprocal exploitation that is forbidden. However, since free software is likely to outpace development compared to closed software, the positive externalities, and surplus value extraction, are likely to be much higher. So in the case of the Copyfair License, it is likely that the recaptured equity will be much more substantial.

This means that the equity value (not located in the software itself but in the overall value created by the software) will rise faster. In this case, an equitable solution for the distribution of that higher value is possible through the use of the Fairshares model, which recognizes the co-created value by founders, funders, workers and users. Ethos in the UK also has an interesting equity solution: market value contributions are rewarded in real shares, network value contributions are rewarded with virtual shares that are periodically transferred to real shares.

Just to make sure and to avoid any misunderstanding, What I am not saying is the following:

  • I am not saying that developers should work for free
  • I am not saying that software should be gratis
  • I am not saying that workers-owners of cooperatives should not pursue equity
  • I am not saying that this is not a worthy experiment

But what I am saying is: I believe it is the wrong solution for a misdiagnosed problem.