I: What is Industrial Democracy?
I throw around a lot of negativity from time to time about the potential we all have to undermine work in some serious and promising ways. It isn’t that I enjoy being negative that I do this, I just appreciate a dash of cynicism and skepticism with my optimism that in the end we’ll succeed in some grand way. But in the meantime we’re stuck with really sub-par options in a world that at every turn is trying to turn these mediocre options into worse ones.
Often times that means a lot of the choices and decisions we’re told we must make as activists or advocates of anti-work are going to be a lot less in their luster than they first appear. Tactics such as unionizing, striking, slow-down techniques are all valuable things to keep in mind but they’re often tainted by the world around them. Most unions would sell an anti-work activists down the river if it meant overall better wages and so the workplace could at least exist.
Strikes and slow-down techniques are also useful and should be a part of any anti-work advocate’s toolbox but they’re inadequate on their own. And to be effective with any of these tactics you have to amass some sort of social capital among your fellow workers in order to make hits to the capitalist’s pockets a bit harder to ignore. This means that, inevitably, your own positions are going to have to be watered down to better mesh with those around you.
Well, at least if you want to get “anything” done.
But then there are those who do get something done and they’re remembered rather fondly by a lot of folks. They might not always achieve the sort of change they’d like to see in the world, but hopefully the seeds they’ve planted were enough. Hopefully those seeds will sprout into a thousand flowers and those flowers will cut through the fields of other institutions, changing those institutions directions and temperaments until a million more flowers bloom.
Such is the philosophy, give or take some romantic rhetoric, of Ricardo Semler, who discussed in October of 2014 how to run a company with (almost) no rules. Semler is the CEO of a company called Semco which is a company in Brazil that specializes in a lot of niche and high cost products which makes it tough for competitors to easily outbid them given how effectively they distribute and produce those products. This is doubly true given Brazi’s rough economic history in the past few decades amongst several regime changes.
Semler isn’t your typical CEO though.
In the 1980s he challenged his father’s way of organizing Semco and threatened to quit and start his own company. Instead of letting this happen, Selmer”s father (the CEO at the time) gave Semler total control over the company. Semler at this point in time was only in his 20s and when he thought that Semco needed to be massively restructured and much of the management disagreed he fired 60% of them.
So okay, I’m not the biggest fans of CEOs, obviously. But every time I hear that part I can’t help but smirk a bit in admiration for Semler’s audacity which ended up getting rid of most of the management.
As time went on Semler continued to grow tired and stressed, eventually suffering from fainting spells.
After a particular fainting in New York, Semler decided it was time for a change:
After he was fired, Clóvis da Silva Bojikian had worked unhappily in executive training at Ford Motor Company’s Brazilian subsidiary and at KSB, one of Semco’s competitors in the industrial pump business, where his notions of self- governance, patterned after the “Summerhill” model of student-directed education, were not well received.
When Mr. Bojikian answered Mr. Semler’s want ad for a director of human resources, the two talked late into the night, and Mr. Semler began to see how Semco could become a more humane organization without sacrificing growth and profits.
At the heart of their conversation was the conviction that employees who participated in important decisions would naturally be more highly motivated and make better choices than those who simply followed orders from above.
And from here things only got more and more interesting.
Semler decided to fully embrace (or as much as he felt comfortable within a corporate structure) industrial democracy.
That is to say that Semco was still a corporation with a CEO, managers, and so forth but the workers had substantially more power than they usually have. And I don’t mean in the way that Google workers have “power”, I mean actual say in what happens at an organizational level. For example, Semco workers can sit on board meetings based on two empty chairs that are designed for whomever gets there first. So they’ve had people in business suits talking amongst people who are janitors and Selmer says this is something that tends to keep them more honest.
Regardless of what you think about CEOs and managers still existing, this is certainly an improvement in some ways over the conventional corporate structure. And when Mary Petersson and Anna Spängs did their master thesis on Semco and industrial democracy in 2005, this is what they found through informal surveys.
For example, they found that:
The answers collected in this part shows that the majority of the employees experience Semco as a creative and inspiring workplace. The employees also express having the support of their colleagues and bosses in order to do their job in an efficient way. (p. 44)
That’s all very good but how do we come to understand an industrial democracy to begin with? What are it’s defining features and how can we differentiate it from your traditional worker co-operative, producer cooperative or collective, particularly ones that anarchists may advocate?
The term “industrial” in “industrial democracy” might give us a bigger picture of what’s going on here.
The term “industry” was once used with “captains of industry” or to show off the might of a given economic sector. This might has historically come from capitalists, managers, CEOs and their partners in government. The workers typically do not have as much control when we have an “industry” especially as when something is an “industry” it’s usually a gigantic conglomerate of some sort. There’s some sort of glue keeping it all together but what comes out of it can vary widely, the “music industry” and “movie industry” are both examples of this. They are both sectors of the modern economy that contain highly concentrated interests and often fractious disputes over power.
And given industries more technical definition refers to production of raw materials within factories we can always look at the constant conflict between workers and bosses.
This last conflict is exactly that which industrial democracies aims to address. In Semco in particular Semler tried to make sure that the workers frustrations and interests were heard much louder. To do this he reduced the amount of hierarchy in Semco, drastically cut the amount of rules and regulations and instituted institutional transparency.
Here’s a few things he did at the beginning and has remained since:
Noting that the company cafeteria was the subject of endless complaints, they asked employees for help in improving it, and wound up turning over food service management to a group of the workers themselves. … Let the employees set their own hours, so they could all travel at nonpeak times … Next, they let employees set their own compensation.
These were all small steps in Semler’s quest for more democratic organizing in Semco but they were also important ones that improved the sense of control that workers have over their environment. As an anarchist, I would like to see this go much further (i.e. Semler shouldn’t be in the firm to begin with) but I can also recognize the value in these changes on their own terms and see progress being made and waiting to be emulated elsewhere for the better.
These steps are also indicative of what industrial democracies defined by in the 2005 study:
Industrial Democracy is an economic arrangement which involves workers making decisions, sharing responsibility and authority in the workplace.
Although industrial democracy generally refers to the organization model in which workplaces are run directly by the people who work in them in place of private or state ownership of the means of production, there are also representative forms of industrial democracy.
Representative industrial democracy includes decision making structures such as the formation of committees and consultative bodies to facilitate communication between management, unions, and staff. (p. 12)
Note that the authors draw helpful distinctions between this form of economic democracy and other forms.
For example, cooperatives are a “one member, one vote” structure where as industrial democracies tend to share more voting powers to the CEO or a group of managers, etc. In addition, cooperatives tend to have the workers in much more total control than they are in Semco. In Semco, Semler still has ultimate say, though to his credit he never exercises this authority given that it would de-legitimize the sort of empowering culture he is trying to foster.
Unfortunately for Semler, his entire presence puts a bit of a hamper in fostering a more empowering environment. That isn’t to say that Semco isn’t empowering, according to the study (which is admittedly over 10 years old now, so perhaps things have changed) most workers feel empowered in their environment. It’s helpful to note that there are outliers within the study who did not feel the same, which could indicate that not all workers are being heard.
On the other hand, you may have this problem with a worker cooperative.
When it comes to the more anarchist alternative like worker self-management, this tends to involve workers making core choices of the company’s direction on their own terms. They do so with no outside management or CEOs telling them how to best manage stocks or anything else. This is a bigger step up from Semco is doing but we can at least see a sort if “distant cousin” relationship between what Semler after and what an anarchist might want, if nothing else.
II The Promise of Industrial Democracy
If you think I’m crazy for saying that (and get in line for thinking I’m crazy by the way) I’m not the only one:
I want to argue that what Semler introduced so successfully in his factories should not be described as ‘democracy’ but rather as a form of ‘anarchy’ or, to get technical about it, ‘anarcho-syndicalism.’
That’s Johnathan Gifford, a blogger and fan of Semler himself.
Gifford relies on Chomsky’s definition of anarchism to make his point, “A federated, decentralized system . . . in which human beings do not have to be forced into the position of tools, of cogs in the machine.’” and remarks that you can “sign him up” for anything that closely resembles that, even if we call it “anarcho-syndicalism”.
Gifford sees the link rather strongly, in Anarchy in the Workplace: In Praise of Self-Organization he comments that:
Semler’s genius lies in the way in which he has given Semco employees a genuine common objective. People like to have jobs. They like to get paid. They can very quickly grasp that in order to create and protect jobs, it is necessary to make and market things that customers actually want.
If they share in the organisation’s success, they quickly come to understand that jobs cannot be protected at any cost, and that high salaries may be unaffordable. People begin willingly take the kind of ‘tough decisions’ that businessmen pride themselves in making – with the hugely significant difference that employees have made the decision themselves, rather than having it imposed on them. And they do this primarily through a form of self-organisation that is not, essentially, democratic. Natural leaders emerge, and lead people in certain directions. Core issues are decided by consensus, not by a literal show of hands. People get together and decide on the best way forward.
This is actually a more thoroughgoing form of democracy than the kind that we see in the governance of modern nation-states. In Semler’s democracy everyone’s opinion makes a difference all of the time, not just on Election Day.
I call this a form of organisational anarchy.
There’s much to take interest in Semler’s model, even as an anarchist. Though we may admit that Semler doesn’t go far enough he does tend to defer and have others defer to the worker’s judgments as much as he feels comfortable. His comfort level doesn’t reach quite where we’d like it to but relative to most CEOs it’s approximately anarchic.
But again, that’s relative to other CEOs, I’m not claiming Semler is an anarchist (though Gifford claims Semler has said he is one) or that Semco is a model that anarchists should necessarily aspire to. But it doesn’t have some promising components to it that I don’t think anarchists could dismiss without doing themselves a disservice.
For example, Gifford also denotes 10 important democratic changes that happened within Semco:
- Small symbolic changes that make a big difference
- Workers committees take on managerial roles
- A new leadership network
- A bonfire of bureaucracies
- Divide and prosper
- Profit (and information sharing)
- Appraise your boss
- Rounding the pyramid
- Set your own salary and bonus
- Spin off new satellite suppliers
Let’s analyze these one at a time to see how much we can take or leave from it:
- These are changes ranging from aesthetic to structural. For example, the elimination of dress codes, employees were encouraged to not clock-in fellow employees, there was no longer one big clock telling time but many different small clocks. These are all things that, done by themselves, don’t count for much. Even though they make a “big difference” in some psychological ways for workers, without real institutional change going on as well then the workers would be in the same situation, but with a nicer work environment. That’s hardly empowering.
- Luckily, Semler didn’t just do what many companies in America do (and only piecemeal at that) and simply change the colors of the drapery. He also instituted structural, organizational and institutional ways for workers to empower themselves when it came to decisions. The committees mentioned here represent the employees, well besides the managers. Which is, again, the rub. The fact that managers and employees are still separated between each other means that this institutional policy change is a good start but isn’t as penetrating of the hierarchical relations found in most corporations as I’d like.
- People in leadership positions would sometimes hold meetings (open to any employees if I recall correctly) but these meetings soon become obsolete as folks learned how to self-manage. In the meantime though these meetings were a way for leaders to actually justify their position of power and privilege over others. This is an excellent way to keep hierarchy from becoming too obviously stratified. And while not a perfect solution can help keep folks honest to a certain degree, pending broader participation and incentive structures.
- As mentioned before, Semler phased out most rules and regulations. Semler takes a contextual approach to rules saying, that day to day decisions should be ‘ruled by wisdom that varies from factory to factory and worker to worker’. There isn’t too much to complain about here that I haven’t mentioned before in terms of there still being managers and a CEO who ultimately hold more power if they want to. But to elaborate a bit, the fact that this exists is a dangerous thing and this promise of not wanting to harm the culture he’s trying to foster only works if the managers or leaders respect the culture as well. Luckily, they do. But in the long run it’s still far too big of a risk for an organization that’ striving towards maximizing empowerment.
- All this really means is that the company divided different parts of the company into their own smaller sections and thus reduced their diseconomies of scale by quite a bit. Nothing much to disagree with her, especially as I agree with Semler that, “economy of scale is one of the most overrated concepts in business.’
- We’ve already discussed this before, but to quote Semler directly, “‘enough salaries were known to give an extremely accurate idea of pay at all levels of the company.’… ‘The truth may not be pretty, or easily explained,’ says Semler, ‘but it is always better to be out in the open.’” That’s the kind of philosophy I can really get behind.
- This is one of the few concrete safety measures for managers abusing their powers and to be fair, it’s not too shabby. Managers are evaluated by the teams they work with twice a year and if they fall under an 70% would put the manager in risk of being switched for someone else. As long as you’re going to have managers (and again, I’m not a big fan of them myself) it helps to have these sorts of feedback loops. I’d argue for stronger ones though, maybe a seasonal review instead of two times a year? That seems a bit more effective to me. But then so does getting rid of the managers entirely.
- Here’s where we get to a really meaty aspect of the whole deal: the concentric circles. There are counselors, partners, associates and coordinators. The counselors were the executives, partners are the leaders of a given business unit, associates are “everyone else” (regular employees), coordinators are leaders of particular departments or groups of associates. I have no issue with associates and coordinators but the partners and counselors are what bother me the most for obvious reasons.
- This is pretty self-explanatory and welcomed by me, though it should be collectively decided and not bargained with on the basis of managerial policy.
- Basically the workers get to subcontract out their own individual work if they want to. This is basically the exact opposite of a non-compete clause if you want to think about it like that. Pretty basically decent thing to do but in the corporate world this is a fairly impressive step forward.
So there you have it, there’s much of the promise that Semco holds based on its small democratic changes that it made throughout its time that added up to a fairly participatory structure, relative to others. The 2005 study denotes that Semco’s structure actually ends up (due to managers and a CEO still being a part of the firm) a more ” representative” form of industrial democracy than a participatory one.
But again, relative to most other corporations and particularly those that are in Brazil, Semco is looking pretty good. Maybe that doesn’t mean to much to you, but it probably does to the workers.
To quote Gifford once more however:
Semler, let me remind you, is still the owner. Semco is not a cooperative; it’s a self-organised capitalist venture.
And therein lies the failure.
III: The Failure of Industrial Democracy
There’s another handy article called Semco – Insanity That Works, most of it is just a retread of things we’ve gone over except with a slightly different perspective and some different wording. So there’s not much to say in the way of substance with regards to this article. But consider the title before you consider the substance of the article?
Okay, I know, don’t judge a book by its cover!
But that’s not what I mean.
Consider the “weirdo effect” as I call it, or as the economist Bryan Caplan says
Suppose you’re interviewing a smart guy, without a college degree, and he offers you a money-back guarantee. You might think “What a great deal” and accept. But then again, you might start thinking “What a weirdo. What’s wrong with him?”
And this, I propose, is the stumbling block to lots of worthwhile innovations. A person with an unconventional idea may have a point, but is also unlikely to be “normal.” He may not fit it with other people. He may have problems with authority. He may be deviant in more ways than one!
My argument about normalcy is an example of what economists call statistical discrimination.
In a world of costly information, employers sensibly rely on a lot of statistical generalizations. One of these, I’ll warrant, is that weirdos are, on average, worse employees than conformists. Admittedly, the truth of this probably varies from industry to industry. (Check out Peter Jackson!) But typically, usually, normally, normality is the best bet. The upshot is that some clever but unconventional ideas sit on the shelf, untried.
To not only call something “weird” is to incriminate it in effects way past its intent or past the person who holds those beliefs, but to call something insane means you’ve got some problems with your ideas. It’s similar problems that we as anarchists or anti-work advocates faces in explaining our ideas. But Semco’s structure isn’t really as radical as those things and yet business people call it insane on some sites. They equate it with “anarchy”, sometimes in positive ways and sometimes in negative ways but the equivalency is still there.
All of these signals though cause an effect on how much the sort of industrial democracy that Semler would like to see spread in the world, a negative effect if you couldn’t guess. In fact, much of Brazil hasn’t implemented Semler’s organizational structures and neither has the US for that part.
Some of it may come from Semler’s own methods of communication:
The CEOs and Sloan fellows who attend Mr. Semler’s classes listen attentively, chuckle at the right moments, and take careful notes. But it’s not clear what they take away from these encounters.
“When he talks, it’s a bit of smoke and mirrors,” says Bruce McKern, director of the Sloan master’s program at Stanford University’s Graduate School of Business. “He challenges just about every shibboleth of corporate management, but it happens so quickly you’re not quite sure what he has in place to replace them.”
A move like this can leave people in a sort of paralytic fog about what they can do to change things in their life. Sure the status quo sucks (and this is a big bias to get over in of itself) and we should do something about it but if you can’t decide what or how, it’s easy to fall into less productive trains of thought about the affairs of the world.
But where Semler is strongest is also where his ideas inevitably fail the most:
That’s the price, he concedes, of his personal magnetism.
“At the company, no matter what you do, people will naturally create and nurture a charismatic figure,” Mr. Semler says.
“The charismatic figure, on the other hand, feeds this; it doesn’t just happen, and it is very difficult to check your ego at the door. The people at Semco don’t look and act like me. They are not yes-men by any means. What is left, however, is a certain feeling that has to do with the cult of personality. They credit me with successes that are not my own, and they don’t debit me my mistakes. They give undue importance to what I say, and I think that doesn’t go away.”
Semler’s social capital, in other words, often dictates some of the direction that Semco ultimately goes in as opposed to the workers around him. This is another way in which Semler himself is undoing or acting in counterproductive ways to his own goals of fostering an empowering environment for his employees.
The his part of that is important given that, “…Mr. Semler’s ownership stake is a big reason that he is able to implement his managerial principles at all, and maintaining those principles is the primary reason Semco has never had a public stock offering.”
Both of these things are big parts of why Semco ends up failing in some crucial ways for me but it’s important to keep in mind that these failures are qualified and relative. That is to say that these failures are not absolute or have absolutely no good parts to them. Instead, they are failures that come from cumulative drawbacks that have been accepted by Semler for the “greater good” (my phrasing) of his own company.
There’s also the basic fact that these seeds he is trying to plant with Semco are often marketed to the wrong sort of people:
“I don’t know that any American company could operate under his beliefs,” says Dan Sheffield, executive vice president of RGIS Inventory Specialists of Auburn Hills, Mich., which has a joint venture with Semco to service clients in South America, including Wal-Mart.
Even in Brazil, “I’m not sure the supervisors walk the walk as thoroughly as Ricardo thinks they do. I’m sure Ricardo wants it that way, and probably has everything in place, but the people under him are maybe not as trusting as he is. Everyone would love to work in an organization like that, but how do you get there? The only way is for the company to have complete trust in you. We make them earn it first; we don’t assume the trust,” he says. “Ricardo takes pretty big leaps of faith.”
That’s another important aspect to this thing, if people feel Semler is taking a “pretty big leap of faith” then what are we to make of the chances for more radical organizations? Surely these organizations shouldn’t be attempting to get other CEOs to adopt their principles and if they are it should be a smaller effort. After all there are basic general incentives of class, power and so forth that dis-incentivize messing with The Way Things Are.
Which in turn goes back to status quo bias and the “weirdo effect” where even someone who thinks Semler is right still admits that he goes “against all common sense”. Which means that even those who find Semler coherent, convincing and ultimately right, imply that such an idea (or anything approximating it let alone going past it) is going to have a tough road ahead of itself if it wants to be accepted by the businesses leaders of the world.
As Semler himself said:
Asked why true participative management is still such a rarity, Mr. Semler cites two elements that he says are in sadly short supply: “One, the people in charge wanting to give up control. This tends to eliminate some 80 percent of businesspeople. Two, a profound belief that humankind will work toward its best version, given freedom; that would eliminate the other 20 percent,” he says.
Mr. Semler says he no longer worries about Semco surviving without him, and, unlike his own father, he has no intention of passing the company on to his son. And although he wants his ideas to be heard, he knows they are still an affront to most corporate leaders. “Semco is on the fringe of business thinking, which tends to be very conservative, by nature and design,” he says. “Rethinking ways of doing business will rarely be popular or easily adopted. But we like it our way, and hope that we will sow some seeds out there.”
But there are some problems for these seeds:
- They don’t think it applies to them as a firm, i.e. they don’t have the right people
- Changing from a top-down firm to a more democratic one is very difficult and only happened to Semco because a unique set of circumstances which brings me to…
- Semler himself is in a very unique position within the company as the son of the former CEO and now the CEO for a few decades even if he isn’t as active. The sort of trust this fosters is priceless and hard to obtain and maintain.
- It requires managers willing to take chances and for that I refer to you the “weirdo effect”
- The structures in place usually disproportionately benefit managers and the CEO so why would they change it?
There are other reasons on top of all of this to summarize from the link above but that’s the meat of it.
In truth, Semco and Selmer have only failed in their strategy and how far they take some of their values. If Selmer tried to appeal more to the working class or find some employees who could speak the way that he might need to so that he can better communicate this in terms of working class interests and goals, he could have a bigger hit on his hands. Obviously I don’t know that for sure and I could be wrong, especially seeing how I know very little about Brazil.
On the other hand, how is appealing to the business leaders of the world going? What does he have to lose?
But even if he had things to lose I think there’s also the fact that what he has to lose isn’t enough. The values Selmer has pushed are good ones but they simply don’t go far enough to question the whole structure of state-capitalism. He does much more than most CEOs, for sure. But that doesn’t mean much in the current political and economic climate.
Still, this failure doesn’t seem insurmountable so perhaps there’s…
IV: A Chance for Redemption?
I’m a big believer in second chances.
…And possibly 15th chances too.
So OK, maybe I’m not always the best judge of when it’s time to move on from something (or someone) and when it isn’t. But that won’t stop me from offering some conciliatory words that’ll hopefully be encouraging to my readers.
That TED talk I mentioned at the top which included Semler discussing Semco also discusses the effect his philosophy has had on schools:
And so we created this school, which is called Lumiar, and Lumiar, one of them is a public school, and Lumiar says the following: Let’s divide this role of the teacher into two.
One guy, we’ll call a tutor. A tutor, in the old sense of the Greek “paideia”: Look after the kid. What’s happening at home, what’s their moment in life, etc.. But please don’t teach, because the little you know compared to Google, we don’t want to know. Keep that to yourself. (Laughter)
Now, we’ll bring in people who have two things: passion and expertise, and it could be their profession or not. And we use the senior citizens, who are 25 percent of the population with wisdom that nobody wants anymore. So we bring them to school and we say, teach these kids whatever you really believe in.
So we have violinists teaching math. We have all kinds of things where we say, don’t worry about the course material anymore. We have approximately 10 great threads that go from 2 to 17. Things like, how do we measure ourselves as humans? So there’s a place for math and physics and all that there. How do we express ourselves? So there’s a place for music and literature, etc., but also for grammar.
So over the years, we started going into other things. We’d say, why do we have to scold the kids and say, sit down and come here and do that, and so forth. We said, let’s get the kids to do something we call a circle, which meets once a week. And we’d say, you put the rules together and then you decide what you want to do with it. So can you all hit yourself on the head? Sure, for a week, try. They came up with the very same rules that we had, except they’re theirs. And then, they have the power, which means, they can and do suspend and expel kids so that we’re not playing school, they really decide.
And then, in this same vein, we keep a digital mosaic, because this is not constructivist or Montessori or something. It’s something where we keep the Brazilian curriculum with 600 tiles of a mosaic, which we want to expose these kids to by the time they’re 17.
And follow this all the time and we know how they’re doing and we say, you’re not interested in this now, let’s wait a year. And the kids are in groups that don’t have an age category, so the six-year-old kid who is ready for that with an 11-year-old, that eliminates all of the gangs and the groups and this stuff that we have in the schools, in general.
And they have a zero to 100 percent grading, which they do themselves with an app every couple of hours. Until we know they’re 37 percent of the way we’d like them to be on this issue, so that we can send them out in the world with them knowing enough about it.
And so the courses are World Cup Soccer, or building a bicycle. And people will sign up for a 45-day course on building a bicycle. Now, try to build a bicycle without knowing that pi is 3.1416. You can’t. And try, any one of you, using 3.1416 for something. You don’t know anymore.
So this is lost and that’s what we try to do there, which is looking for wisdom in that school.
I think there’s real benefit to just be planting seeds, and I think that if we’re only measuring by Semler’s idea of a “seed” and leaving us with the tools so that we may have a much wiser future I can’t say he’s doing too bad.
And of course, I’m a sucker for alternative forms of education.
Semler claims he’s not very evangelical (which explains why he has only tried it amongst classes of folks he understands best), and he recognizes the lack of incentives (“You’re running a company with a 90-day mandate. … If you’re not good in 90 days, you’re out. So you say, “Here’s a great program that, in less than one generation –“ And the guy says, “Get out of here.”‘) and he recognizes that “the fact is that it takes a leap of faith about losing control. And almost nobody who is in control is ready to take leaps of faith. It will have to come from kids and other people who are starting companies in a different way.“
And I think that’s where Selmer recognized that this is where education comes into play.
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