Unique Solutions to Surviving a Financial Crisis: Lessons from Buenos Aires

When assessing economic problems in modern economies, there are always anomalies to the norm that are usually overlooked by policymakers or are addressed after an overwhelming example that brings attention to solutions that were previously not recognised or simply ignored. SME’s, or Small and Medium Sized Enterprises often create grassroots solutions or work between economic difficulties to survive in troubled economic times, and in some cases, even thrive. Economic policy is often created by those who work in larger organisations of government or industry and assume that SME’s follow suit or are always affected by the lack of business in the general economy. While this is often the case that we are all affected by government debt and a lack of jobs, it is not always the case when discussing SME’s, as bad policy often hurts them as much, if not more than a slow economy.

A recent report by a group of students at the University of Buenos Aires took to looking at those companies in Buenos Aires that were abandoned by their owners and taken over by groups of workers who formed cooperatives. The workers cooperatives managed those companies and have survived, in many cases doing fairly well since the economic troubles in Argentine after 2001. Regulations governing bankruptcy in Argentina and most economic models allows owners of companies to be removed from personal liability via the corporate model and escape with losses only to the corporate personality, the company itself. The rationale of this system is to allow and investor to move on and reinvest in another company or industry without incurring crippling personal risk and debt in their business ventures. What has been occurring recently, even in North America, is that companies would incur debt or products or unpaid wages on their accounts, and would declare bankruptcy. The result of these actions creates a situation that leaves the bank and government to recover most of the debt, as they often have the right to be paid back first by law, and the outside creditors, suppliers and employees are often left with little or nothing to compensate their losses in the bankruptcy procedure. A person to govern the bankruptcy procedure often administers the remaining company assets to sell it off and recover funds to pay back debts, but in Argentina some companies were claimed by a cooperative of workers, a legal complication that is said to be a big challenge to those cooperatives as policy support often creates barriers to success in these situations. In the bankruptcy process, the machinery and other property belonging to the creditors of a company are sold off or returned to the owners of the asset, but when a cooperative takes over a company and has to challenge the process and keep the company running with its machinery, policy can make or break a worker run cooperative, in Argentina or anywhere.

The economic crisis has affected most industries and companies, but the fear of economic constraints and the thing that can break an SME and create a net loss for an economy is the freezing of the banking system. The financial industry enjoys a special role in an economy, to manage their risk against credit given to every other industry in order that small and large companies can gain the credit they need to expand when their market demands their products and services. Despite two major economic crises over the last ten years in Argentina, many of those manufacturing cooperatives around Buenos Aires have been able to access a stable customer base and can move through the market to find enough customers to stay afloat, and even do relatively well. The biggest danger as mentioned in the study is the lack of credit for growing companies, as well as policies by the local and state and federal governments that not only limit their compensation as employees in the bankruptcy process, but to limit their ability as a cooperative to maintain the machinery to grow the company in its newly formed model. Often cooperatives are formed as a way many smaller producers can access utilities to increase their production, often seen in farming cooperatives and smaller collectives of smaller businesses. An industrial cooperative, while being an innovative and new concept, should be able to access credit and resources as any other corporation or business, limited to their ability to create profit for their organisation and survive in their market. Those that cannot grow due to a lack of customers, will most often fail, as they did in the Buenos Aires study, but those who can do well should be encouraged by policymakers and financial institutions to grow and produce jobs for their community and cooperative.

Naomi Klein and Avi Lewis released a documentary film on the struggles of forming a manufacturing cooperative in Buenos Aires in 2004. The Take (2004), shows the internal struggle of a group of autoworkers in forming a cooperative after the owner of their company left the company to bankruptcy and left the employees without back pay for months. As a small cooperative, they were able to return the company back into the market and have managed to do relatively well. This model of economic innovation will not always work, and might not always translate into other countries or economies, but the purpose of bankruptcy laws and credit must be to keep companies running and jobs living. Without those small companies and jobs for those employees, banks would not be able to earn interest and governments would not be able to earn tax revenue. SME’s are often the small key ingredients that keep all systems running and growing, and to ignore them is to promote and feed a lingering economic crisis.