The beginnings of the cooperative movement are usually associated with the name of Robert Owen. The real association lies, however, more in Owen's ultimate ideals than in his immediate plan of organization. Owen's central plan was for a self-supporting community, such as Fourier's phalan-stère, where producers and consumers were one and the same people, not for an organization either of producers or of consumers. In contrast to some Utopians, however, Owen knew by practical experience the consequences of the industrial revolution for working-class producers and consumers, and he urged production, by voluntary associations, for the use of consumers and not for profit. Although he regarded them as mere steppingstones to his communities, Owen approved of the few short-lived cooperatives that existed prior to the foundation of the Rochdale society, which is still alive today. These societies claimed his authority for their activities and were, together with the Rochdale pioneers, composed mostly of his adherents. Owen appears to have been the first (Digby 1948, p. 15) to apply the term “cooperative” to these activities. So Owen may be accepted as the father of the cooperative movement, if not of its precise type of organization.
The characteristic trait of the cooperative as a form of organization of economic activity is the absence of any special capital-providing class. In producer cooperatives, the workers put up the capital; in consumer cooperatives it is the consumers. Apart from farm marketing cooperatives, producer cooperatives have not proved successful unless some outside individuals or some outside organization, such as a consumer cooperative, helps substantially in providing capital and in supervising production. In practice, workers in industry have been found to be too unwilling, or else unable, to put up and risk the amount of capital required for modern equipment. They have not always been the best judges of an efficient manager, and in spite of enthusiasm and high morale, they often have not exercised sufficient discipline over their own operations.
Consumer cooperatives have, on the other hand, proved very successful in many countries, notably Great Britain and Sweden. British cooperative organization will, in the following paragraphs, be taken as the prototype. Like other cooperatives, the consumer societies rely on no special capitalist class. In addition they have certain particular economic and organizational characteristics.
The main economic characteristic of the British consumer cooperative is the payment (after provision for depreciation and a fixed interest on a limited amount of the shares held by consumer members) of a dividend on member purchases. Its main organizational characteristic is control by the consumer in place of the nonexistent capitalist. All consumers, even members who have paid only a small deposit on their shares, have the right to vote at the quarterly or half-yearly meeting. One man, one vote is the rule. The members vote for a management committee, or board of directors, which is usually unpaid. This committee appoints the paid manager and, usually meeting every week, exercises general supervision over the conduct of business. In form, the organization is thus extremely democratic. The existence of a number of autonomous retail societies of widely varying size is a further manifestation of democracy. The complete independence of the locally organized societies distinguishes the cooperatives in free enterprise and mixed economies from the communist cooperatives, which are not covered in this article.
Organization and growth
In Great Britain the retail societies formally control the two wholesale societies, English and Scottish, each of which conducts large-scale production. In appointing the wholesale societies' full-time directors, one society, one vote is not the principle, however; voting is weighted according to the value of the goods that the retail society has bought from the wholesaler.
For purposes other than trading, such as settlement of disputes or legal and financial advice, the British retail societies have formed the Cooperative Union. The final authority of the union is the annual congress, to which societies send a number of delegates roughly proportionate to their membership and which, in its discussion of policy, has been described as the focus of cooperative democracy. Most societies are affiliated with the Cooperative party, which, in 1964, had 19 members in Parliament—normally voting with the Labour party.
The opportunities for democratic control offered by cooperative constitutions are, however, not fully exercised, particularly as societies grow larger. Only a minute fraction of the members attend their retail society meetings. An inquiry in 1955 (Ostergaard 1963) revealed that only 0.5 per cent attend business meetings and only 1.65 per cent vote for the management committee. If the actual informal practice of consumer cooperatives is less democratic than its formal constitution presupposes, it is, however, more democratic in worker participation. In theory, the position of the labor employed is no different from that in capitalist enterprises. But when few consumers attend meetings, a small group of members, who are also employees, can elect workers or committeemen favorable to the workers' interests. About one-third of the places on the committees of the larger societies are now occupied by cooperative employees or former employees (Ostergaard 1963, p. 60). Democracy is also manifest in the emphasis on education in cooperative principles, particularly at the Cooperative College, in the many publications discussing all aspects of cooperatives, and in the organization of local discussion groups such as the “women's guilds.”
The growth of the British consumer cooperatives is usually traced from 1844, when the Rochdale pioneers adopted the principle of dividend on purchase. During the next half century, the development was rapid, aided by the Industrial and Provident Societies Act of 1852. This act allowed the privileges of incorporation to cooperative societies, provided no individual member held more than £200 in shares. The limit is now £1,000. When the act was amended in 1862 to permit one society to hold unlimited shares in another society, the retail societies founded the two wholesale societies. By 1900, these wholesale societies had over 12,000 workers engaged in production. Roughly the same number were employed in production by the larger retail societies together with the local federations of societies.
British consumer cooperatives continued to develop well into the twentieth century. Between 1901 and 1931, membership in the retail societies rose from 1.75 million to 6.5 million. During the same period, the total value of sales of both the retail and the wholesale societies quadrupled, while the retail price of food rose by only one and a half. By 1931, the English wholesale society owned 171 factories, employing 40,000, and the Scottish society had 56, employing 9,000. Both societies singly, or jointly, produced a wide range of goods, conducted integrated warehousing, provided shipping and business services (such as building the retail societies' premises), were involved in banking and insurance, and even owned tea and other plantations abroad.
Throughout the history of the consumer cooperatives in Great Britain, success has been greatest in Scotland and in the North. In 1939, for instance, annual cooperative retail trade per head of population was £8.8 in Scotland, £7.2 in the North, and £6.4 in the Midlands, as against £4.5 and £4.0 in the southwest and south, and this in spite of the much higher per capita income in the London area of the south.
The causes of this cooperative success must be sought in the emergence, which occurred first in Great Britain (particularly in Scotland and northern England), of an industrial and mining wage-earning proletariat. This group was cut off, in contrast to the village community, from the middle classes and developed a strong sense of class solidarity. The more intensive development of cooperation in the North, away from the “squirearchy,” is some indication of this. Until the Education Act of 1902, education in England beyond the age of 13 was a rarity for working-class children, and, in the absence of opportunities for moving up any education ladder, potential leaders were lost to their class.
The British cooperatives were in fact firmly based on the same class solidarity as the British trade unions and the political labor movement. And the membership of the cooperatives had the same cautious, solid financial approach. To this fundamental condition of success of the cooperatives— their solidarity in two senses of the word—must be added two specific economic “techniques,” the attraction of the dividend on purchase and the branch store.
The first British Census of Distribution, taken in 1950, showed that retailing as a whole was operated by 403,839 organizations with 528,450 establishments, an average of 1.3 stores per organization. Among retail cooperative societies, however, some 1,000 organizations owned 27,263 establishments, an average of 27.3 stores per society.
The efficiency of the multiple stores is attested to by the present rapid increase in their sales, to be indicated shortly. The British cooperatives were first in this field, and for a considerable period they were without large rivals.
At first sight the continued progress of the British cooperative societies seems to be indicated by the further rise in their membership from 6.5 million in 1931 to almost 11 million in 1952, and almost 13 million in 1962. But sales per member have fallen, and total sales have, since 1950, remained fairly constant in volume with a definite fall relative to the sales of the multiple (chain) stores.
The British Board of Trade now publishes an index number of the value of retail sales of cooperative and other forms of retail organization. Taking sales in 1950 as 100, the cooperative index was 176 in 1962. But although higher than the corresponding general department store index of 160 and the index of 165 for independent retailers, it was much lower than the index of 239 for multiple stores and indeed lower than the general retailing index of 181 for all organizations.
A part of this relative decline is due to the relative decline in population and income of the regions where cooperation was most successful—Scotland and the North. But several more general causes are at work, and to predict the future of consumer cooperatives in Great Britain and, as we shall see, in other countries too, an analysis of these causes is essential.
Fortunately analysis can be firmly based on two very detailed inquiries into the British consumer cooperatives, which, while sponsored by the cooperatives themselves and so allowed full access to their records, were conducted by independent authorities. The first inquiry, an “examination” by Sir Alexander Carr-Saunders, Professor Robert Peers, and the author (1938), dealt with all the activities of the movement. The second inquiry was by the Cooperative Independent Commission (1958), which had Hugh Gaitskell as chairman, and which had terms of reference limited to “a survey of cooperative production and marketing.” These two inquiries will be referred to as the 1938 examination and the Gaitskell report.
Up to 1938, consumer cooperatives were almost unreservedly praised by English economists. Professor Alfred Marshall served for a year as president of the Cooperative Congress, and Sidney and Beatrice Webb were enthusiastic (1921). The 1938 examination, however, was critical in several respects and foretold possible stagnation, while the Gaitskell report had to take account of some actual stagnation and foretold possible decline. Both reports tried to analyze stagnation and possible decline in terms of the cooperatives' own (1) financing, (2) management, and (3) local organization. A further internal factor (4) may be the weak incentive for growth. Both reports also stressed the external factor (5) of changes in the society that the cooperatives are trying to serve.
(1) Compared to large-scale capitalist trading, the cooperatives' investment in both fixed capital and research is low. This is partly due to fear of financial insecurity expressed, as the 1938 examination says, in such slogans as “no speculation with depositors funds” and “owe no man anything” (1938, p. 456). In consequence, the cooperatives have invested heavily in supposedly safe liquid funds, such as long-term government stock. Low fixed investment is also due to the high rates of dividend on purchases. In 1935 societies with 80 per cent of the retail trade paid dividends of between one shilling and two shillings on the pound, that is, 5 per cent to 12.5 per cent on turnover. This range is higher than the average capitalist dividends on sales turnover and meant less of the surplus was available for development.
(2) The cooperatives do not secure managers of the necessary ability and enterprise for growth under competition. This is due partly to the low scale of salaries they offer compared to their capitalist competitors and partly to the bias toward appointing persons from within the movement. The independent small retail entrepreneur was not particularly efficient, but the large British capitalist retail firms now displacing him are increasingly recruiting university graduates as future managers, while the British cooperatives still consider it unwdemocratic to recruit even grammar school graduates over the heads of those working their way up after leaving school at the minimum age. This view of democracy is becoming more and more damaging to efficiency because so many more university places are now available to the more intelligent children of the working class in England. Those now without degrees are likely to be unintelligent. This was not necesarily so previous to the Education Act of 1902 but has become particularly so since the act of 1944, which increased so greatly the number of “free places” in secondary schools.
The quality of management depends not only on the principles of appointment but also on those of discharge. The British working-class tradition, reacting against ruthless capitalist practice, seldom allows the removal of cooperative managers or indeed the unseating of elected directors, however inefficient they may prove to be. “In some societies,” to quote from the 1938 examination (Carr-Saunders et al., p. 87), “it seems to be assumed that the only cause which can lead to a member leaving the committee is death.” Once the managers are appointed, their actions are likely to be cramped by the elected directors, who tend, because of the principle of no unseating, to be old. This cramping varies from society to society, according to the personalities of the directors, but will probably be greatest wherever the directors are paid and are on the job full-time, as are the wholesale societies' directors.
(3) A criticism in the Gaitskell report concerned the uneconomically small scale of the nonfood sales, which is a result of the strictly local organization and control of retail societies not specializing in particular trades. The Gaitskell commission advocated (1958, p. 252) a national retail development society which would, among other activities, set up chains of specialized shops, notably in clothing and footwear, “in which the advantages of multiple shop organization are well-proved and in which local societies restricted by boundary agreements are in no position ever to attain to these advantages.”
(4) Looking into deeper economic causes of the relative cooperative stagnation, it is possible that the incentives to growth are weak. When income and prestige are in the form of a profit on capital, a strong motive exists to use that capital to capacity and to spread the overhead over the maximum possible output. But if income and prestige are in the form of a margin or dividend on sales, the motive is to cut costs per unit of output (even, possibly, by doing less business) so as to increase that margin. Empirical evidence to sustain this hypothesis can be found in the comparatively low distributive costs of cooperative retailing shown in the British Census of Distribution.
Cooperative shops achieve this low cost by trying to spread the load of shoppers. Some societies even avoid heavy peak loads by closing shops on Saturday afternoons, when the load would be greatest! By this means, the cooperative shops need not keep so large a sales staff; and sales staff, not capital overhead, is the heaviest item of cost in retailing. Since market prices are charged, this policy achieves a high margin of profit on the goods actually sold, but it does not stimulate growth as directly as does the increasing of profit on capital by the sale of more and more goods.
(5) With the distinct rise in the standard of living since World War II and the wider variety of goods demanded by the working class, the cooperatives have met much enterprising competition.
In the food trades, capitalist multiple stores have paid increasing attention to the tastes of consumers. When the cooperatives were first founded, the cheap shops where the working class traded offered foodstuffs of inferior quality. The cooperatives, accordingly, stressed the “purity” of the foods they sold and produced—often to the neglect of their taste. Indeed, the 1938 inquiry organized tasting panels for identically priced foodstuffs, the makers of which could not be identified, and found a preference even among cooperative society members for a majority of capitalist food products.
Engel's law, moreover, has operated to make expenditure on foods a lower proportion of the working-class budget. The cooperatives, with their concentration on foods, do not seem to have risen to the occasion. While the British Census of Distribution for 1961 gives 14.8 per cent as the cooperatives' share of the total food trade (including as high or higher a percentage for the simpler wants, for example, around 35 per cent for milk), the cooperative share of the total dry goods trade is only 5.8 per cent (including 4.3 per cent of apparel and 4.5 per cent of furniture).
In countries other than Great Britain, consumer cooperatives started later and, judging by the percentage of membership to total population, still lag behind. In 1961, these percentages were Great Britain 24.7, Finland 23.0, Sweden 16.0, Switzerland 14.2, and Denmark 12.8. Lower down the percentage scale were France 7.1, Australia and Austria 5.8, Canada 4.7, West Germany 4.6, Italy 3.9, Argentina 1.8, and the United States 0.8. Underdeveloped countries—except Israel 6.9, Burma 3.2, Ceylon 3.0, Mauritius 2.2, and Pakistan 1.6 —all have a cooperative membership to total population below 0.7 per cent, in spite of government encouragement in many of them (Statistical Statement No. 1 in International cooperative Alliance 1963).
In total value of cooperative retail trade, Great Britain again comes first with about four times that of Finland or of Sweden, which have the next highest trade. But if the trade per head of population is used as an index, Finland ranks first, Switzerland second, and Great Britain is bracketed third with Sweden. The most striking impression in reviewing the activities and structure of consumer cooperatives throughout the world is the similarity of the pattern of organization and achievement (although deviations appear here and there):
(1) The local retail society is the original and basic unit; federations of retail societies, and wholesale societies controlled by retail societies, follow later and undertake production. The Swedish wholesale cooperative, the Kooperativa Forbandet, which was founded in 1899, has gone further in production activity than the two British wholesale societies. Its products form a higher proportion of the sales of the retail societies, and by price reductions it has successfully fought monopolies or near-monopolies in such products as electric lamps, detergents, and rubber overshoes.
(2) The wide variation in the size of the retail societies is pervasive. The largest own a great number of branch stores and undertake production for local consumption, such as baking. The smaller societies are being amalgamated and, with the enlargement in size, difficulties are encountered in maintaining a real democracy. In Sweden, members of large societies meet by districts to elect a local committee for the supervision of shops in that district. Delegates from the local committees form the general meeting of the society.
(3) Some income is spent on education and propaganda. Journals are published and discussion groups organized. Economic activities are not confined to distribution and production but have spread into insurance and banking, on which the French societies concentrate. But the main activity remains the sale of foodstuffs and household consumables, particularly the more standard goods such as milk, margarine, flour, and bread.
(4) The proportion of cooperative society membership to the total population is increasing, but the sales per member are diminishing. The rates of dividend on purchase are becoming lower, and although a rapid growth in business occurred at first, an approach to a ceiling of 12 per cent to 15 per cent of national sales is indicated in most countries. Finland, however, has broken through this ceiling.
Comparing the relative strength of consumer cooperation in different countries, the greatest contrast is seen to occur between the old (European) developed countries where cooperatives are strong and the underdeveloped and the new developed countries, such as the United States, Canada, and Australia, where cooperatives are weak. Weakness in the underdeveloped countries is due to the consumer's lack of spendable income. A high proportion of the population is engaged in agriculture, and most of that proportion are subsistence farmers with no cash income to spend.
The weakness of consumer cooperation in the new developed countries has no such simple explanation. It is partly due to the higher standard of living, which has, as we have seen, checked cooperative progress in Great Britain, checking food consumption relative to other consumption. It is also partly due to the relative absence of the class solidarity so characteristic of nineteenth-century Great Britain. Indeed, the few consumer cooperatives that exist in the United States are largely found on university campuses, not in industrial sections. Cooperative weakness may also, perhaps, be due to the greater efficiency of capitalist retail management. Certainly the specialized chain store that has proved so successful was introduced into America under capitalist, not cooperative, auspices.
As among the old developed countries, in all of which class solidarity counts, the more classless ones, such as the Scandinavian countries and Switzerland, have an advantage because the class outlook does not preclude educated management and risk taking. In proportion to total population, Germany and Italy have a smaller number of cooperative members because of Nazi and fascist suppression in the 1930s.
The cooperatives that have been discussed so far were formed by final, “household” consumers to provide for their own consumption. An important branch of the consumer cooperative movement, however, is engaged in the purchase of materials and supplies consumed in further production. In contrast to the cooperatives of producers formed to market their products, these purchasing associations are, logically, consumer cooperatives. They answer the same need for good quality commodities at reasonable prices. This need arises particularly among producers who operate on a small scale and are unable independently to buy in sufficient bulk to realize large-scale economies. Cooperatives have thus been organized among the small traders and craft industries in Germany and among fishermen, particularly in Spain (Digby 1948, pp. 76–77, 126–127). But farmers are the outstanding example of such small-scale producers, and cooperation has become firmly established in supplying requirements for agricultural production. These requirements include not only materials such as feedstuffs for livestock and seed and fertilizer but also petroleum products for operating tractors, electrical power equipment, and various farm implements. To this list, facilities for insurance and credit might also be added.
The use of cooperatives for obtaining these supplies varies among countries, largely because of different economic and technological circumstances. The cooperative provision of the mainly imported feedstuffs is important in Great Britain, and the provision of electrical power is important in the rural areas of the United States. The methods of organization also vary from country to country. In Great Britain, large purchases are made from the powerful consumers' wholesale societies already mentioned. In Sweden and Norway, the supply associations have their own wholesale organizations. Sometimes, as in Denmark, the cooperatives' supply organizations specialize in one commodity, such as feeds or fertilizers; sometimes, as in Finland, the organization does a general trade, both in farmers' supplies and household goods.
Beyond the main function of these various institutions—the function of supplying “reliable goods at reasonable prices”—Margaret Digby points out (1948, p. 95) that the farmers' societies “raise the standard of farming by keeping in touch, in a way which is sometimes impossible for the individual farmer, with developments in agricultural science and technology, and transmitting them to him by means of the improved seeds, chemicals and implements which it is able to put at his disposal.”
In the underdeveloped countries where primitive small-scale agriculture is the rule, supply societies should thus play a large role and are, in fact, substantially helping development. However, because of the almost universal shortage of enterprise and saving and the rate of population increase in these countries, considerable government subsidies have been required in order for the cooperatives to provide land, capital, organizers, and expert technicians adequate for economic growth.
P. Sargant Florence
Bailey, Jack 1955 The British cooperative Movement. London: Hutchinson's University Library.
Carr-Saunders, Alexander M.; Florence, P. S.; and Peers, R. 1938 Consumers' cooperation in Great Britain: An Examination of the British Cooperative Movement. London: Allen & Unwin.
Co-operative Independent Commission (Great Britain) 1958 Report. Manchester cooperative Union. → Known as the Gaitskell Commission report.
Digby, Margaret 1948 The World cooperative Movement. London: Hutchinson's University Library.
Fay, Charles R. (1908) 1948 cooperation at Home and Abroad: A Description and Analysis. 2 vols. New ed. New York and London: Staples.
Hough, John A. 1945 Cooperative Retailing: 1914–1945. Unpublished manuscript, International cooperative Alliance (London).
International Co-operative Alliance 1963 Reports and Statistics. Unpublished reports of the Alliance (London).
Ostergaard, Geoffrey 1963 Democratic Control in British Retail cooperatives. Applied Economic Papers (Hyderabad, India) 3:55–65.
Stephenson, Thomas E. 1963 Management in cooperative Societies. London: Heinemann.
Webb, Sidney; and Webb, Beatrice 1921 The Consumers' cooperative Movement. London and New York: Longmans.
Woolf, Leonard 1918 cooperation and the Future of Industry. London: Allen & Unwin.
"Cooperatives." International Encyclopedia of the Social Sciences. . Encyclopedia.com. (June 24, 2017). http://www.encyclopedia.com/social-sciences/applied-and-social-sciences-magazines/cooperatives
"Cooperatives." International Encyclopedia of the Social Sciences. . Retrieved June 24, 2017 from Encyclopedia.com: http://www.encyclopedia.com/social-sciences/applied-and-social-sciences-magazines/cooperatives
People in every society and throughout history have participated in cooperative arrangements, including joint decision-making; economic, social, and political collaboration; and collective ownership. There are a multitude of examples in every culture and era, starting with the early African nations, Aboriginal societies in Australia, the First Nations in the Americas, and Indian and Southeast Asian civilizations. Many grassroots cooperatives have operated throughout the world over the past two to three centuries. In modern history we refer to cooperatives as enterprises, usually businesses (for-profit and not-for-profit) that are jointly owned and governed by a collection of people for a specific economic and/or social purpose. Although these are found throughout the world, the most famous cooperatives have been located in Great Britain, Japan, Italy, Spain, and Canada. In 1752 Benjamin Franklin was one of the founders of the first formal cooperative recorded in history, a fire insurance company in the United States.
Cooperatives are companies owned by the people who use their services, those who formed the company for a particular purpose and are the members of the enterprise, i.e., member-owners. Cooperatives are created to satisfy a need—to provide a quality good or service at an affordable price (that the market is not adequately providing); or to create an economic structure to engage in needed production or facilitate more equal distribution to compensate for a market failure. The International Cooperative Alliance, a nongovernmental association founded in 1895 that represents and serves cooperatives worldwide, defines a cooperative as “an autonomous association of persons united voluntarily to meet their common economic, social, and cultural needs and aspirations through a jointly-owned and democratically-controlled enterprise.… Ranging from small-scale to multi-million dollar businesses across the globe, co-operatives employ more than 100 million women and men and have more than 800 million individual members” (International Cooperative Alliance [ICA] 2005).
Cooperatives are usually classified as consumer-owned, producer-owned, or worker-owned (or a hybrid of some combination of the stakeholders). For example, consumers come together and form a buying club or a cooperative grocery store in order to obtain the goods they need at an affordable price, particularly where fresh produce and natural and vegetarian foods are not supplied elsewhere or are very costly. In some places consumers also come together to buy electricity, environmentally friendly fuels, pharmaceuticals, child care, financial services (as in a credit union), or almost any good or service. Cooperative retail enterprises such as natural-food grocery stores and rural electric and energy cooperatives are some of the most numerous and successful examples. Cooperative financial institutions such as credit unions are some of the most widely used cooperatives. They make financial services and loans available in underserved communities, and keep financial resources circulating in the community. Producers also form cooperatives to jointly purchase supplies and equipment and/or to jointly process and market their goods, particularly in agriculture and arts and crafts. Workers form cooperatives to jointly own and manage a business themselves, to save a company that is being sold off, abandoned, or closed down, or to start a company that exemplifies workplace democracy and collective management. Worker-owned businesses offer economic security, income and wealth generation, and democratic economic participation to employees, as well as provide meaningful and decent jobs and environmental sustainability to communities (see Gordon Nembhard 2004b, 2002; Haynes and Gordon Nembhard 1999). Cooperative housing expands home or apartment ownership to more people, addressing both financing and maintenance issues, and often builds in long-term affordability. Cooperative ownership is growing in the provision of social services such as home health care, health care, drug rehabilitation, and child care; and in the area of fair trade.
Cooperatives, particularly worker-owned co-ops, are a form of democratically owned economic enterprises that allow members to control their own income and wealth, stimulate the local economy, address market failures, and be agents of change in their local sphere. Cooperatives are characterized by pooling of resources, joint ownership, democratic governance, and sharing risks and profits in the production, distribution, and/or acquisition of affordable high-quality goods and services. Cooperative businesses operate according to a set of agreed-upon values and principles or guidelines that have evolved over the past 150 years. The seven key principles are: voluntary and open membership; democratic control by members (based on “one member, one vote” rather than voting according to number of shares of stock owned); members’ economic participation (returns based on use); autonomy and independence (self-help organizations controlled by members); continuous education, training, and information; cooperation among cooperatives; and concern for community (see International Co-operative Alliance 2005; Thordarson 1999). These seven modern cooperative principles are based on the values and principles set forth by the Rochdale Equitable Pioneers Society, started in 1844, whose original members are considered to be “the founders of the Co-operative Movement” (ICA 2005; also Holyoake 1918 and Laurel House Co-op and Laurel Net Cooperative 1999.)
Cooperatives often develop and survive as a response to market failure and economic marginalization (see Fairbairn et al. 1991). Worker-owned cooperatives and other democratically owned businesses are some of the most innovative and empowering arrangements for bringing together labor and capital in an equitable and productive relationship. Cooperative economic development has been successful as an urban as well as rural economic development strategy to create jobs, increase incomes (and sometimes wealth), and reduce poverty around the world. Although cooperative models are not well known or well publicized, the United Nations and the International Labor Organization have recently recognized the potential of cooperative enterprises for economic development and poverty reduction (Birchall 2003; International Labour Conference 2002).
Some of the issues that cooperatives address are: local development in an increasingly globalizing world; community control in an age of transnational corporate concentration and expansion; social and community entrepreneurship, particularly when business development is increasingly complicated and especially risky; pooling of resources and profit-sharing in communities where capital is scarce and incomes low; and increased productivity, superior working conditions, and high worker satisfaction in industries where work conditions may be poor, and wages and benefits usually low. There is evidence to suggest that cooperatives lead to superior value creation. David Levine and Laura D’Andrea Tyson surveyed the research and found that “both participation and ownership have positive effects on productivity” (1990). Levine and Tyson also point out that many researchers note the superior working conditions in cooperatives:
For example, the European worker co-ops, which have been the subject of extensive empirical inquiry, typically have managements committed to employee ownership and representation, job security, compressed status and compensation differentials, and guaranteed worker rights.… The results have been more consistently favorable in correlating worker ownership and management with lower turnover, absenteeism, and higher worker satisfaction.… In almost no cases does participation make things worse. (Levine and Tyson 1990)
In a comparison of social and economic indicators in three towns in northern Italy with similar demographics but different levels of cooperative ownership, David Erdal (1999) found that citizens in Imola had a better quality of life than in the other two towns with fewer or no cooperative enterprises. Imola, with 25 percent of the workforce employed in cooperative businesses, is reputed to be the town with the largest number of cooperatives in Italy and Europe. In total, Imola scored highest (positively) on seventeen of the nineteen combined measures about quality of life. Experience of crime, police activity, cardiovascular mortality, and perception of gap between rich and poor, for example, were all lowest in Imola. Positives such as confidence in government, perceiving politicians to be on your side, posteducation training rates, and physical and emotional health, were all highest in Imola.
Cooperatives develop out of the wealth of cultural and social capital in communities, whose diverse residents often have strong social networks and few options but to work together. Cooperatives create social efficiencies derived from the democratic participation of all, self-help, self-management, and concern for community principles that guide them. Cooperatives encourage interaction, teamwork, intercooperation, and giving back to one’s community. They also develop social ties among members and between members and the community—that is, social capital—so that networking and working together become the norm, and the skills to facilitate this are developed in all members. Gordon Nembhard and Blasingame (2002) find that co-op members and employee owners become used to the transparency and accountability in their own organizations (e.g., open-book policies, “one member, one vote,” shared management, etc.). They come to expect transparency and accountability and help recreate this in civil society and political arenas. Many members become more active in their communities in general, taking on leadership roles both in their co-ops and in voluntary and community organizations (this was found especially with women members and in communities of color). In addition, citizen activism and advocacy often can be effective countervailing forces that increase democracy and participation.
Cooperative enterprises are a particularly effective and responsive way for subaltern populations to participate economically. Because subaltern peoples are discriminated against in mainstream labor, capital, and housing markets, they often have to rely on one another and work together. Subaltern populations often have little personal wealth and are excluded from much of mainstream prosperity and economic stability: The market system does not often work for many members of subaltern groups.
Examples such as the Mondragon Cooperative Corporation (MCC) illustrate the economic power of the combination of ethnic solidarity, democratic ownership and participation, and interlocking economic activities. The Mondragon Cooperative Corporation is a complex of more than 150 industrial, financial, distributional, research, and educational cooperatives, mostly worker-owned, in northern Spain. The holding corporation is “rooted in grassroots networks of cooperative businesses owned by Basque nationalists” who chose cooperative enterprise development as a means to assert their economic independence (see Gordon Nembhard and Haynes 2002). The first cooperative was a worker-owned and worker-managed ceramic heater factory, started in 1956 by graduates of a community-run alternative “polytechnic” high school founded by a priest who taught cooperative economics and worker ownership. Additional cooperatives developed using the same model. Early members also established a credit union, Caja Laboral, that has continued to supply financing, technical assistance, and research and development for future cooperatives. Caja Laboral has become the seventh largest bank in Spain and is the MCC’s engine of growth, supporting cooperative development as well as facilitating economic stability among the cooperatives in the system. Other schools and a university were established to support the growing worker-owned factories in the network. The complex of cooperatives also established its own social security system (Lagun-Aro) early on, when the government of Spain would not allow the member-owners to participate in the national system because they were considered to be self-employed. The association grew into a multibillion-dollar cooperative network of manufacturing, service, educational, financial, and distributive enterprises. Trends continue to show progressive growth in assets, sales, and workforce. In 2005, for example, total sales for all the cooperative’s companies exceeded $11 billion euros (U.S. $15 billion); total assets were greater than $22 billion euros (U.S. $29 billion). The workforce reached 78,455 in 2005—81 percent of whom were member-owners (Mondragon Corporacion Cooperativa 2006). The fifty-year success of this cooperative holding company and its affiliated companies can be explained best and most fully when the panoply of economic, social, cultural, and political market and nonmarket forces involved are analyzed.
Freedom Quilting Bee in Alberta, Alabama, is another example of a successful cooperative organization that organized itself based on cultural and social solidarity as well as economic need and affinity (Rural Development Leadership Network 2002). In the mid-1960s a group of African American women in sharecropping families in Alabama formed a craft cooperative to pool their resources to produce and market quilts to supplement their families’ earnings. Sharecropping, a system of debt peonage, did not provide self-sufficiency for black farmers. In addition, during the civil rights era, white landowners were evicting black families from the land if they tried to register to vote or were involved in civil rights activity. The co-op helped the women buy sewing machines and other supplies, provided a place for them to quilt together, and marketed and distributed the quilts around the country, including through the Sears Roebuck catalog. The cooperative was so successful that it bought land, built a small sewing factory, started a day care center, and by 1991 was the largest employer in their town. In addition, the co-op was able to use its land to help sharecropping families relocate and eventually buy their own land, especially after they were denied access to their traditional farms because of their political activity. The income earned also was an important supplement to the meager income their families made from farming. In 1967 Freedom Quilting Bee was one of the founding members of the Federation of Southern Cooperatives—a predominantly African American cooperative development nonprofit organization with agencies in six southern states (Federation of Southern Cooperatives/Land Assistance Fund 1992, 2002).
Birchall, Johnston. 2003. Rediscovering the Cooperative Advantage: Poverty Reduction Through Self-help. Geneva, Switzerland: Cooperative Branch, International Labour Office.
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Federation of Southern Cooperatives/Land Assistance Fund. 1992. 25th Anniversary, Annual Report 1967–1992. Atlanta, GA: Author.
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Gordon Nembhard, Jessica. 2002. Cooperatives and Wealth Accumulation: Preliminary Analysis. American Economic Review 92 (2): 325–329.
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Gordon Nembhard, Jessica, and Curtis Haynes Jr. 2002. Using Mondragon as a Model for African American Urban Redevelopment. In From Community Economic Development and Ethnic Entrepreneurship to Economic Democracy: The Cooperative Alternative, ed. Jonathan M. Feldman and Jessica Gordon Nembhard, 111–132. Ůmea, Sweden: Partnership for Multiethnic Inclusion, University of Ůmea.
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"Cooperatives." International Encyclopedia of the Social Sciences. . Encyclopedia.com. (June 24, 2017). http://www.encyclopedia.com/social-sciences/applied-and-social-sciences-magazines/cooperatives-0
"Cooperatives." International Encyclopedia of the Social Sciences. . Retrieved June 24, 2017 from Encyclopedia.com: http://www.encyclopedia.com/social-sciences/applied-and-social-sciences-magazines/cooperatives-0
A cooperative in its simplest sense is formed when individuals organize together around a common, usually economic, goal. For business purposes, a cooperative refers to the creation of a nonprofit enterprise for the benefit of those individuals using its services. According to the National Association of Business Cooperatives, roughly 100 million Americans belong to one of the 47,000 existing cooperatives. Of these cooperatives, 10,500 credit unions make up the largest segment. Other types of goods and services that can be provided by working under cooperative principles include agricultural products, utilities, child care/preschools, insurance, health care, legal services, food, equipment, and employment services.
THE ROCHDALE PRINCIPLES
The modern cooperative dates back to 1844, when the Rochdale Equitable Pioneers Society was established in Great Britain. According to the National Rural Electric Collective Association, the Rochdale Principles are still followed by every cooperative business. First is the principle of a voluntary and open membership. Cooperatives are open to all individuals who are able to use their services and are willing to accept the responsibilities of membership.
The next principle is that of a democratic organization, operated by its members. The board of directors is comprised of members and is accountable to them. Members actively participate in the co-op by developing policy and making decisions. In a primary cooperative, each member has one vote. Other cooperatives are organized in a different but democratic manner. Members also contribute equally to the economic capital of the cooperative. Part, if not all, of the capital becomes the common property of the collective. Surpluses can be used for development of the organization, as reserves, to benefit members according to their use of or contributions to the cooperative, or to support other member-approved works.
A cooperative is autonomous and independent from other organizations. If it enters into a working relationship with another organization, the arrangement must "ensure the democratic control" of its members and maintain the independence of the organization. Cooperatives provide training and education to members and employees of the organization in order for them to contribute effectively to the cooperative. They also provide information on the benefits of cooperation to the public. Cooperatives work with other cooperatives in order to strengthen the cooperative movement locally and abroad. Although cooperatives exist for the benefit of their members, they work towards the sustainable development of their communities in accordance with membership policies.
The basic operating principles used by cooperatives are simple. The member-owners share equally in the control of their cooperative. They meet on a regular basis, monitor the business closely using a variety of tools, and elect a board of directors from among themselves. The board in turn hires managers to oversee the daily affairs of the cooperative in a way that serves the members' interests. The initial capital for a cooperative comes from membership investment. After the cooperative's costs are covered and money is designated for operations and improvements to the cooperative, the remaining surplus or profit (in a for-profit enterprise) is returned to the membership. For a small business, membership in a cooperative may provide greater purchasing power or access to a wider distribution of goods or services than the business would have on its own.
A related concept is that of a collective. A collective is comprised of a group of individuals pooling together their intellectual and financial resources in order to operate a business enterprise for their mutual benefit. Frequently, members have no specific job but rather contribute to projects if they have free time or specific strengths to add to a job. Members of the collective share equally in any monies left over after paying bills. This alternative method of working has lately found favor with creative businesses such as advertising and design groups. Collectives may remain intact or be of a more fluid nature with members joining and dropping out regularly.
Cooperatives may be consumer-owned, producer-owned, or worker-owned. A consumers' cooperative is one in which individuals combine their buying power, usually for the purchase and wholesale or retail distribution of agricultural or other products. Cost savings are achieved by buying directly from the producer or farmer. A form of commonly known consumers' cooperative is a food or grocery cooperative. Membership is open to anyone, with goods sold at market price to members and non-members alike, with any surplus over expenses going back to members. According to Aliza Earnshaw in Business Journal-Portland, "[Food] co-ops must pay out at least 20 percent of the surplus in cash, but may reinvest 80 percent in the business for the good of members." The benefits to members of this reinvestment may include reduced prices, a larger store, or extra services.
Management of the food co-op works with members to determine these benefits. Some members may desire a discount when purchasing their goods. Other co-ops may use a patronage system in which members receive dividends at the end of the year, based on how much they have purchased at the co-op. This method keeps members involved and also helps to ensure the viability of the cooperative.
A credit union is a cooperative financial institution, which is owned and controlled by the consumer members who use its services. Typically, they serve groups that share something in common, such as where they work, live, or go to church. They are closely regulated, with deposits insured by the National Credit Union Share Insurance Fund. Unlike banks and savings-and-loans, they are not-for-profit enterprises.
A utility cooperative, such as an electric cooperative, is another consumer-owned cooperative. They are private, independent utilities established to provide electric, natural gas, or telephone service at-cost to their member-owners who are primarily in rural areas. Many utility cooperatives are also involved in community development projects.
Another type of consumers' cooperative is a preschool or child care cooperative. The most common type of cooperative preschool is the parent-based one in which parents come together to provide care and schooling for their children. Newer versions of cooperative preschools may be initiated by a business or group of businesses. In this case, a business may provide a space, initial capital, and assistance to a child care program but gives ownership and operation responsibilities to the parents/employees who use it.
Likewise, a business consortium comprised of businesses or organizations form a cooperative to be operated and owned by their collective employee groups. Organizations generate the dollars needed to fund the program initially, provide space for the program, and possibly hire a management group. The board of directors for the consortium cooperative preschool consists of both parent-members as well as representatives of the business or sponsoring organizations.
A producers' cooperative is typically operated by farmers, producers of goods, or small businesses. Farmers and producers organize cooperatives in order to process and market their goods as well as to acquire credit, equipment, and production supplies. This provides them with greater economies of scale. For example, members of an agricultural cooperative, such as a dairy cooperative, will combine their efforts in order to purchase equipment and supplies at a discount, process their milk products in a combined fashion, and then market and distribute those products as a group. Unlike a collective farm, however, a member of an agricultural cooperative retains the ownership rights to his or her land. Similarly, small businesses can organize cooperatives to provide their membership with supplies or common services at a reduced rate. Crafts people frequently come together in the form of a cooperative in order to purchase supplies inexpensively and then to sell their goods to a larger market.
Just as non-members may take advantage of the benefits of consumers' cooperatives such as food co-ops, producers' cooperatives such as small businesses may employ non-members. However, according to John Murray in Review of Social Economy, studies done on the use of non-member labor within a producers' cooperative show this generally has a negative impact on the cooperative, such as reduced productivity. It may also spur the evolution of the cooperative into a more conventional form of business "in which the owners [are] employers rather than employees."
A buyers' cooperative is an association of businesses that gather together so that they may obtain economies of scale by combining their purchasing power and negotiating wholesale prices as a group. Claude Solnik describes the benefits of buying cooperatives this way in his article in the Long Island Business News, "Whether they're small or large operations, in the electronics industry or in health care, education or government, many managers reduce costs through joining a good, old-fashioned buying cooperative…. A big reason that smaller outfits join these cooperatives is that they save them some real money." Small businesses that join a buying cooperative are able to get the same pricing on merchandise from vendors as larger retails or "big box" stores. Better service on delivery and exchanges as well as greater selection are also benefits touted by co-op members. In an era of proliferating big-box stores buying cooperatives are gaining popularity among small- and mid-size retail organizations.
A worker-owned cooperative is a business that is commonly owned and managed by its workers. By organizing a business as a cooperative, the owner/employees make the initial investment in the enterprise, work for its success, and reap any benefits. They also share in the risks of the business. Another method of developing a worker-owned cooperative is when a labor union purchases a failing or failed privately owned business and operates it using the principles of cooperation. Some types of businesses which are often owned and controlled by their employees include restaurants, manufacturing and distribution enterprises, and taxi companies.
More information about cooperatives is available from the International Cooperative Alliance at www.coo-p.org, or from the National Business Cooperative Association at www.nbca.org.
Colvin, Robert. "Buying Cooperatives Are a Useful Weapon." Modern Plastics. January 2001.
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"Cooperatives." Encyclopedia of Small Business. . Encyclopedia.com. (June 24, 2017). http://www.encyclopedia.com/entrepreneurs/encyclopedias-almanacs-transcripts-and-maps/cooperatives
"Cooperatives." Encyclopedia of Small Business. . Retrieved June 24, 2017 from Encyclopedia.com: http://www.encyclopedia.com/entrepreneurs/encyclopedias-almanacs-transcripts-and-maps/cooperatives
An association or corporation established for the purpose of providing services on a nonprofit basis to its shareholders or members who own and control it.
The nature and functions of cooperatives differ considerably—such as purchasing cooperatives, consumer cooperatives, and marketing cooperatives.
In the context of agriculture, a farmers' cooperative refers to an organization of farmers residing in the same locale that is established for their mutual benefit in regard to the cultivation and harvest of their products, the purchase of farm equipment and supplies at the lowest possible cost, and the sale of their products at the maximum possible price.
The term cooperative also signifies the ownership of an apartment building by a nonprofit corporation that holds title to it and the property upon which it is situated. Stock in the corporation is allotted among the apartment units on the basis of their relative value or size. The right of occupancy to a particular apartment is granted to each cooperative member, who purchases the shares assigned to the desired unit. The member subsequently receives a long-term proprietary lease to that unit. The rent payable pursuant to the lease is that member's proportionate share of the expenses the corporation incurs in operating the cooperative—such as insurance, taxes, maintenance, management, and debt service. The cooperative concept evolved in New York City during the early 1900s as a mode of accommodating the public's desire for home ownership; it subsequently expanded to other large urban centers.
In order to finance the purchase or construction of the cooperative building, the cooperative places a blanket mortgage on the property, which is pledged to support the given debt. Lenders usually are hesitant to accept an individual member's stock and proprietary lease as security for a long-term loan. The members' lien (a claim on property to satisfy a debt) on the lease would be subordinate to the blanket mortgage on the property. The purchaser of a cooperative apartment usually must have sufficient cash available to pay for the stock allotted to the unit he or she wishes to obtain. The initial price of the stock generally does not exceed the amount required for a down payment on a single-family residence. As cooperative members accumulate equity (the value of property exceeding the total debts on it) in their stock, subsequent purchasers must either have a substantial amount of cash available or locate a seller who is willing to recoup the equity in installments over several years.
Cooperative members are also financially dependent on each other. The existence of a single blanket mortgage paid by rent receipts means that if several members default in their rent payments, the corporation might not have sufficient funds to pay a mortgage loan installment. Foreclosure will ensue in regard to the entire membership unless it acts to satisfy the default. Although special reserves and assessments are generally employed to cover such a contingency, the available funds might be inadequate to prevent default.
"Cooperative." West's Encyclopedia of American Law. . Encyclopedia.com. (June 24, 2017). http://www.encyclopedia.com/law/encyclopedias-almanacs-transcripts-and-maps/cooperative
"Cooperative." West's Encyclopedia of American Law. . Retrieved June 24, 2017 from Encyclopedia.com: http://www.encyclopedia.com/law/encyclopedias-almanacs-transcripts-and-maps/cooperative
A cooperative (also referred to as a co-op) is a form of business ownership that consists of a group of people who have joined together to perform a business function more efficiently than each individual could do alone. The purpose of a cooperative is not to make a profit for itself, but to improve each member's situation. However, members of certain types of cooperatives do make a profit by selling
their product and/or service to customers who are not coop members.
Cooperatives can take many forms. For example, a group of single parents may decide to band together to provide a child-care facility so they will have reliable day care for their children. Each parent contributes a certain amount of money and/or time, and in exchange they all have a safe place to leave their children. A credit union is also a type of cooperative. The purpose of a credit union is not to make a profit for itself, but to help each member be more financially secure. By creating their own financial institution, members can receive a higher interest rate on the money they have placed in savings and receive a lower interest rate on loans. Retailers have also started establishing co-ops. Ace Hardware, for example, is a co-op of independent hardware store owners. By banding together, the hardware owners can share advertising costs and receive discounts for bulk ordering of materials and supplies. Sharing costs and discounts allows small hardware stores to compete with large chain hardware stores.
While cooperatives can be found in many different areas of the economy, they are most commonly found in the agricultural area. A group of farmers may band together to allow themselves to be more competitive and to achieve more economic power. Agricultural cooperatives allow members to save money on materials needed to produce and market their product, which means a larger profit margin for all members. Ocean Spray Cranberries, Inc., for example, is a cooperative of several hundred cranberry and citrus growers from all over the country. Other well known cooperatives include Blue Diamond, Sunkist, IGA (Independent Grocers Association), and Land-OLakes.
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"co-operative." A Dictionary of Sociology. . Retrieved June 24, 2017 from Encyclopedia.com: http://www.encyclopedia.com/social-sciences/dictionaries-thesauruses-pictures-and-press-releases/co-operative
co·op·er·a·tive / kōˈäp(ə)rətiv/ (also co-op·er·a·tive) • adj. involving mutual assistance in working toward a common goal. ∎ willing to be of assistance. ∎ (of a farm, business, etc.) owned and run jointly by its members, with profits or benefits shared among them. • n. a farm, business, or other organization that is owned and run jointly by its members, who share the profits or benefits. DERIVATIVES: co·op·er·a·tive·ly adv. co·op·er·a·tive·ness n.
"cooperative." The Oxford Pocket Dictionary of Current English. . Encyclopedia.com. (June 24, 2017). http://www.encyclopedia.com/humanities/dictionaries-thesauruses-pictures-and-press-releases/cooperative
"cooperative." The Oxford Pocket Dictionary of Current English. . Retrieved June 24, 2017 from Encyclopedia.com: http://www.encyclopedia.com/humanities/dictionaries-thesauruses-pictures-and-press-releases/cooperative