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If only we could get Jeremy Corbyn to understand about capital

Summary:
Jeremy Corbyn has suggested that all those gig economy companies should be replaced by cooperatives. Which some will applaud as a no doubt lovely idea - except to do so is to entirely misunderstand the role of capital in these things.Jeremy Corbyn has suggested that 'gig economy' contracts should be replaced by cooperatives as he accused the Conservatives of presiding over a "broken" economic model.We don't suggest that our current model is entirely peachy, that there's nothing to be one to improve the structure of the economy. We do insist though that some attention has to be paid to reality:Mr Corbyn suggested "gig economy" firms like ride-hailing service Uber or food delivery firm Deliveroo could be replaced by co-operatives, in which drivers collectively set pay and conditions and

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Jeremy Corbyn has suggested that all those gig economy companies should be replaced by cooperatives. Which some will applaud as a no doubt lovely idea - except to do so is to entirely misunderstand the role of capital in these things.

Jeremy Corbyn has suggested that 'gig economy' contracts should be replaced by cooperatives as he accused the Conservatives of presiding over a "broken" economic model.

We don't suggest that our current model is entirely peachy, that there's nothing to be one to improve the structure of the economy. We do insist though that some attention has to be paid to reality:

Mr Corbyn suggested "gig economy" firms like ride-hailing service Uber or food delivery firm Deliveroo could be replaced by co-operatives, in which drivers collectively set pay and conditions and share or reinvest the profits from their work.

We're entirely fine with cooperatives - if that's how you wish to organise yourself then great, you do that. We are indeed liberals after all. We're entirely fine with the existence of John Lewis, with farmers' cooperatives, with any method of organisation that it pleases people to partake in. We only insist that those different forms of organisation must compete against the others in the market.

However, that reality bit. Firstly, there's that slightly worrying idea that what Jezza means is a forcible change in that structure. Even in the absence of that we come to the second objection. Why aren't these firms cooperatives, why is it that they've adopted that capitalist model?

Because they've all been making great gaping losses as they start up, meaning that they've needed capital to exist. And that's the problem with cooperatives, the only capital, by definition, that is available to them is what the workers are bringing to the table themselves. Uber has swallowed however many billions it is and still makes gargantuan losses. Deliveroo being smaller has consumed less of that capital but it's still rather more than we expect a grouping of would be bicycle couriers to be able to chip in.

All of which is what the capital part of capitalism is about, allows. The ability for a new business to build itself by using outside capital, not just what the workers themselves can provide. This is true whether we look to government to provide the capital or private markets.It's still an outside source of that necessary capital and there is and should be a price for the provision of it.

As above, we're fine with cooperatives. But it's just one of those reflections of reality that the model isn't going to work with anything which is capital hungry. Precisely because capital in large quantities is not something which the workforce can bring to the table. Capital light projects like three building a new app, sure, that can and is done. But businesses which swallow hundreds of million to billion to grow just cannot be financed on the cooperative model.

Which is rather the point of this very capital part of capitalism. It's the only way we've got o mobilising the savings and investments of thousands and millions of people into large scale organisations.

Tim Worstall

Tim Worstall is a British-born writer and Senior Fellow of the Adam Smith Institute. Worstall is a regular contributor to Forbes and the Register. He has also written for the Guardian, the New York Times, PandoDaily, the Daily Telegraph blogs, the Times, and The Wall Street Journal. In 2010 his blog was listed as one of the top 100 UK political blogs by Total Politics.

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