Cooperatives
Cooperatives
COOPERATIVE ECONOMICS, MARKET FAILURE, AND MULTIPLIERS
PROMOTING RACIAL AND ETHNIC ECONOMIC INDEPENDENCE
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.
DEMOCRATIC OWNERSHIP
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.)
COOPERATIVE ECONOMICS, MARKET FAILURE, AND MULTIPLIERS
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.
PROMOTING RACIAL AND ETHNIC ECONOMIC INDEPENDENCE
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).
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Jessica Gordon Nembhard