Cooperatives

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Definition

A co-operative is 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.

The Wikipedia has a very elaborate entry on Cooperatives, at http://en.wikipedia.org/wiki/Cooperative


Values

Co-operatives are based on the values of self-help, self-responsibility, democracy, equality, equity and solidarity. In the tradition of their founders, co-operative members believe in the ethical values of honesty, openness, social responsibility and caring for others.


Principles behind cooperatives

From http://www.ica.coop/coop/principles.html


The co-operative principles are guidelines by which co-operatives put their values into practice.


1st Principle: Voluntary and Open Membership

Co-operatives are voluntary organisations, open to all persons able to use their services and willing to accept the responsibilities of membership, without gender, social, racial, political or religious discrimination.


2nd Principle: Democratic Member Control

Co-operatives are democratic organisations controlled by their members, who actively participate in setting their policies and making decisions. Men and women serving as elected representatives are accountable to the membership. In primary co-operatives members have equal voting rights (one member, one vote) and co-operatives at other levels are also organised in a democratic manner.


3rd Principle: Member Economic Participation

Members contribute equitably to, and democratically control, the capital of their co-operative. At least part of that capital is usually the common property of the co-operative. Members usually receive limited compensation, if any, on capital subscribed as a condition of membership. Members allocate surpluses for any or all of the following purposes: developing their co-operative, possibly by setting up reserves, part of which at least would be indivisible; benefiting members in proportion to their transactions with the co-operative; and supporting other activities approved by the membership.


4th Principle: Autonomy and Independence

Co-operatives are autonomous, self-help organisations controlled by their members. If they enter to agreements with other organisations, including governments, or raise capital from external sources, they do so on terms that ensure democratic control by their members and maintain their co-operative autonomy.


5th Principle: Education, Training and Information

Co-operatives provide education and training for their members, elected representatives, managers, and employees so they can contribute effectively to the development of their co-operatives. They inform the general public - particularly young people and opinion leaders - about the nature and benefits of co-operation.


6th Principle: Co-operation among Co-operatives

Co-operatives serve their members most effectively and strengthen the co-operative movement by working together through local, national, regional and international structures.


7th Principle: Concern for Community

Co-operatives work for the sustainable development of their communities through policies approved by their members.


Typology

1.


"Cooperative ownership of business enterprises produces financial benefits for member-owners, while building business skills, and providing experience in democratically controlled enterprise. Successful cooperative businesses enhance neighborhood revitalization and stability. Where cooperatives include community residents as member/owners, they create a strong linkage between people and place by helping to ensure that residents are direct stakeholders in and beneficiaries of local business activity.

Worker Cooperatives enable member-owners to obtain financial benefits as shareholders of the business. Worker cooperatives exist in nearly every business sector and include manufacturing and processing companies, health services agencies, restaurants, and other enterprises. Many include residents as member-owners, thereby playing a central role in the community development arena. A notable example is Cooperative Home Care Associates in the South Bronx, a worker cooperative that employs some 550 African-American and Latina women-75% of whom had previously been on public assistance.

Employee Stock Ownership Plans (ESOPs). ESOPs enable employees to own all or part of a company's stock. They range from "democratic" ESOPs that are controlled on the basis of one-member one-vote, to companies that provide their workers with stock options but no voting rights (the latter case does not constitute a cooperative ownership model). ICA Group has been at the forefront of efforts to expand the role of ESOPs as a community development strategy. ICA has assisted groups like the Fifth Avenue CDC in Brooklyn and Manna Inc. in Washington DC, to establish temporary services agencies that will ultimately be transitioned to worker-owned enterprises. Workers come from the neighborhoods where the agencies are located as well as from throughout New York City and Washington DC.

Consumer Cooperatives. Consumer co-ops enable a group to reap economies of scale through their joint purchasing power. They provide products and services to members in a local or regional area and enable members to exercise more leverage with suppliers. Because consumer coops make purchases in bulk, members are often able to save on per unit costs. Consumer cooperatives are organized primarily in the insurance, food, and utilities industries. Rural electric cooperatives operate more than half of the electric distribution lines in the United States and provide electricity for 26 million people.

Community development credit unions (CDCUs) are a type of consumer cooperative that plays an important role in communities in both rural and urban areas. CDCUs are financial institutions that are owned and operated by low-income residents and provide access to credit by recycling member deposits back into the community. Northeast Community Credit Union provides lending products such as mortgages for first-time homebuyers, small business loans, and credit restoration loans to inhabitants of San Francisco's Chinatown neighborhood and has 1,200 members.

Producer Cooperatives. Producers, individually, or as a group, own and operate cooperatives that provide members with expanded production, marketing and distribution capacity. Many smaller producers lack the production volume to do direct business with wholesalers and retailers of their products. Producer coops thus enable individual producers to aggregate their products and gain more negotiating power in the market place. This coop model is particularly common in the agricultural and agro-industrial sectors. Another type of producer coop, the craft cooperative, has been particularly effective in helping low-income, low-wealth crafts people bring their products to a wider market." (http://www.policylink.org/EDTK/ROMcoop/)


2.

"Any economic activity can be conducted on the cooperative model. Cooperatives may be generally classified as consumer, worker, producer, credit or marketing cooperatives -- or by sector. Traditionally cooperatives have been divided into economic sectors of agriculture, banking and credit, consumer, fisheries, housing, insurance, and workers' co-operatives. Each of those eight sectors has its own global organization whose members are the corresponding national associations, and in turn their members are the individual co-ops of those types in the various countries. (A distinction is made between producer and worker cooperatives inasmuch as large corporations may join together in producer co-ops -- Welch’s and Ocean Spray are United States cases -- without practicing workplace democracy.)

Uniting these eight global organizations of cooperatives is the International Cooperative Alliance (ICA), in Geneva, a UN-recognized consultative NGO linked to the UN’s International Labor Organization. But cooperativism is expanding. It permeates many other activities, from car-sharing and child/elder-care, to health care, home and hospice care, funeral services, computer consultancies, orchestras, schools, tourism, utilities (electricity, water, gas, etc.), transport (taxis, buses, etc), and more." (http://www.globaljusticecenter.org/articles/coop_intro.htm)


3. Visualization by JASecon

The JASecon circle corresponds with how the articles on thejasecon.org wiki are organized, as well as 'life-cycle' of sorts for cooperative business. Click through to JASecon to see the visualization.

Example

  1. Bowman & Stone: Cooperativization on the Mondragón Model As Alternative to Globalizing Capitalism

Status

World

"Worldwide, roughly 750,000 cooperatives serve 730 million members, according to the National Cooperative Business Association."http://www.alternet.org/story/144969/the_growth_of_citizen_co-ops_is_a_positive_development_as_corporations_fail_us_in_every_way]

U.S.

"Here in this country, some 72,000 co-op establishments operate, providing more than 2 million jobs and serving 120 million members--that's four in 10 Americans. These establishments exist in energy, childcare, food distribution, health care, insurance, agriculture, telecommunications and other industries." [1]


by Elizabeth Bowman and Bob Stone:

"With 800 million members world-wide, co-ops are major economic actors. They provide 100 million of the planet’s jobs, 20% more than multinational enterprises! The ICA reports that in the most cooperativized continent, Europe, over 140 million are members of co-ops of all kinds. Over 10% of France’s employees work in co-ops - not extreme in western Europe. Surprisingly, in the US, as National Co-operative Business Association reports, co-ops of all kinds serve some 120 million members or 4 in 10 citizens. Included are: 10,000 credit unions, 1000 rural electric, 1000 mutual insurance companies, 6,400 housing, 3,400 farm, 270 telephone, and about 300 worker co-ops (a small percent compared to Europe). Worker co-ops are most frequent in Venezuela and Argentina, credit unions in Mexico, agricultural co-ops in Cuba and Brazil.

Since democratizing production can transform an economy, worker co-ops have attracted social change advocates. Surprisingly, most comparative studies show them to be more productive and profitable than similar capitalist firms. Given this pivotal advantage, a cooperative sector, not just the odd co-op or even co-op network, could out-compete traditional firms on their own criteria. Varied explanations have been offered for this advantage. It may be due to owner-members’ stakes in its success. And the pooling of knowledge that would otherwise go unshared may be important. Finally, worker co-ops, freed of the burden of costly managers and absentee shareholders, enjoy financial buoyancy and more options. Instead of being hired by capital for its ends workers would voluntarily join together to hire capital for their ends. If the current economic crisis matures, this taming of markets and narrowing of the wealth gap would bring welcome global economic security and balance.

Based on the premise that cooperatives are public goods – stimulating production and stabilizing demand - measures that would foster growth of a co-op sector in the U.S., for example, might include: community economic development (with neighborhood control of major pieces of municipal and county budgets); tax breaks and priority in government contracts; publicly funded co-op market research; establishment of revolving loan funds for cooperatives; widespread education in cooperative management and accounting; and letting workers themselves use their retirement funds for major buy-outs. Workers empowered in these ways would likely insist on democratizing not only production and investment but also distribution, yielding a viable cooperativized economy. Arguably, the weak effort in that direction made by the former Yugoslavia does not suffice as a counter-example, as we indicate below. Enterprise by enterprise the market in human labor would be abolished and collective decisions would displace “market forces.” (http://www.globaljusticecenter.org/articles/coop_intro.htm)


USA 2009

"a new study by the University of Wisconsin’s Center for Cooperatives points to a long-term gradual growth throughout the movement. There are now almost 30,000 cooperative businesses in the U.S., and they generate about $500 billion in revenue and $25 billion in wages. The Center also found 350 million co-op memberships, with all but 10 million of them in consumer cooperatives." (http://www.solidarityeconomy.net/2009/12/22/worker-co-ops-green-and-just-jobs-you-can-own/)

History

by Elizabeth Bowman and Bob Stone:

"The cooperative movement - born along with and within capitalism as its built-in but radically opposite smaller twin - has for at least 160 years presented itself as an alternative to the dominant system’s antagonistic relations of production. While the utopian community set up by Robert Owen preceded the Rochdale Society of Equitable Pioneers founded in England in 1844, Rochdale is usually considered the first successful co-operative enterprise. Its principles inform the modern movement. Of the following 7 principles of cooperativism, agreed to in 1995 by representatives of the global movement, four were initiated at Rochdale. Numbers one, two, three and five of today’s principles hark back to Rochdale: 1.voluntary and open membership; 2. democratic member control; 3. member economic participation; 4.autonomy and independence; 5. education, training, and information; 6. cooperation among cooperatives; 7. concern for community.

As mechanization was increasingly forcing skilled workers into poverty, a group of 28 weavers and other Rochdale artisans opened their own store in December 1844. They sold food items workers could not otherwise afford. In the four months prior to opening they had struggled to pool together one pound sterling per person for a total of 28 pounds of capital. The store opened with a meager selection of butter, sugar, flour, oatmeal and a few candles. Within three months, selection expanded to include tea and tobacco, and the co-op became known for providing affordable, unadulterated goods. When, to raise more capital, the Rochdale workers took on non-worker investor members, the new members outvoted the pioneers and set up a standard capitalist enterprise -- a trajectory that was to become all too common in future cooperatives.

Subsequent co-op history is a discontinuous tale of sudden upsurges and equally sudden collapses, followed by forgetting. By 1848 it was clear that capitalism could not deliver on humanistic claims of the French and U.S. revolutions. In that year of the first serious protests in Europe against capitalism as such, cooperativism as alternative often figured prominently. And again, in 1871, co-ops of all sorts flourished briefly under the Paris Commune before it was brutally repressed by the French army. Later, in France in May 1968, the re-discovered idea of “self-management” swept through the economy, democratizing factories, apartment blocs, even corporate offices. As the ferment of debate permeated occupied businesses radical change in a developed nation seemed possible. Opposed by the De Gaulle government and subverted by the Communist Party, however, the 1968 uprising was reduced to being yet another flash in the pan. In 1974 workers in the occupation strike at the Lip watch factory at Besançon, France re-started production under “self-management” and began selling their products – an important innovation over the 1968 struggle.

Starting with Rochdale itself, the cooperative movement has been consistently dogged by what has been called “the degeneration problem”: re-absorption of co-ops by capitalism. solved Part of that problem - vulnerability to buy-outs – was largely solved by the “individual capital accounts” invented in the 1950s by the Mondragón Cooperative Corporation in Spain’s Basque country. The Mondragón network became a movement model by demonstrating that a major producer of capital goods could go up against capitalist firms and prosper. However, MCCs choices to enter first the European and later the global markets resulted in centralization of management and sacrifice of much of the democracy that had distinguished it from its capitalist competitors. At the same time however, a long-term democratization of production in capitalism itself may reflect investors’ growing difficulty in exacting more labor and hence more profits without giving workers “a piece of the action” or a semblance of it." (http://www.globaljusticecenter.org/articles/coop_intro.htm)


The history of Cooperativism

History

John Restakis (ch. 2 of Humanizing the Economy):

"Stages of Co-operation:

The co-operative model, and the movement more generally, has always been in a state of evolution, adapting and transforming according to the conditions and contexts in which it finds itself. In its first stage, lasting from 1817-1840, co-operation was at the heart of a visionary social impulse. Philosophers and activists struggled to develop the co-operative ideal of the good society and to put this ideal into practice. It was a period when many were persuaded that co-operation was the gateway to a new millennium, a kind of paradise on earth. To this end, hundreds of co-operative communities were established in a grand social experiment spanning countries and continents to discover a model for a just and humane society. Robert Owen was one of these pioneers and his own efforts to create a functioning co-operative community became the model for others that followed in the United Kingdom, France and other parts of Europe, and the United States. Most of these efforts failed.

The second stage of the movement was marked by a shift from the ideal to the pragmatic and by the successful application of the co-operative idea directly to the market by groups like the Rochdale Society of Pioneers. This was in the period between 1844 and the turn of the century. It was at this time that large segments of England’s working and artisan classes felt the impacts of the international commercial systems that were to form the first wave of a globalization process that has today become the dominant reality of world markets. Then, just as today, capital sought the cheapest means of producing goods through automation and by locating production in low cost areas, close to cheap labor and resources. The effect of this process on the textile industry in England was profound and the displacement of skilled weavers by machine production, along with the destruction of craft traditions, was the spark that ignited the start of the consumer co-op movement at Rochdale. Prior to World War I the Raiffeissen movement in Germany also took root, creating the co-operative credit societies that became a model for credit unions that spread around the globe.

The third stage of the movement was the period from World War I to the 1960s when the co-op model took root in countries the world over and expanded to fuel the creation of thousands of co-operatives in every sector of national economies. In the Netherlands and Scandinavia large sections of agriculture were transformed through co-operative forms of production that to this day maintain a major share of agricultural production. In France industrial worker co-operatives finally established a bridgehead in manufacturing and a sizeable consumer co-op movement also arose. In Italy the co-operative movement developed a unique capacity to bridge sectors and to transform the manner in which the mainstream capitalist economy functioned across entire regions of the country. It was at this time too that the credit unions, consumer co-ops and agricultural marketing co-operatives took root in the United States, English Canada, and Quebec.

In most countries, the consumer co-op remained the most influential form of the model, followed by agricultural co-ops, credit unions, and worker co-ops. As the co-operative movements grew, however, and the co-op form became more and more adapted to the market realities of specific industries, the original vision of a co-operative community and the creation of a co-operative commonwealth became marginalized by the main currents of co-operative development. Co-op success in practical terms seemed to come with the sacrifice of the unifying and comprehensive vision of co-operation as a medium for a just economy on a societal scale. In many places, co-operative culture and practice reflected more and more the conventional attitudes and practices of firms in the industries where co-operatives operated. Instead of challenging and changing mainstream practice, many co-ops ended up borrowing from it. The regeneration of co-operative culture inside these organizations was stifled by the termination of co-op education programs, a mainstay of co-operative principles. In many industrialized nations, the co-operative movement entered a phase of conservatism.

Thousands of co-operatives were also created in countries like the Ukraine, Poland and Hungary before state socialism extinguished their autonomy and usurped the co-op model for state purposes. With the rise of centralized socialism in the USSR, Eastern Europe, Asia and parts of Africa, co-operatives became the instrument of choice to implement state policies for production and economic development. Voluntary co-operation was replaced by mandated co-operation. And so it came about that centralized socialism became far more damaging to the integrity of the co-op idea and the realization of its potential than capitalism itself. To this day co-operatives in many of these countries signify little more in the minds of the populace than instruments of state coercion. It is a tragedy of economic and human misuse whose negative effects are still being felt.

During the 1960s and after, the dominance of the consumer co-operatives was being challenged by the ascendance of new co-op forms such as producer co-ops, and the vision of a new world order of a co-operative commonwealth was gradually receding. In Canada, a new openness to social intervention on the part of the state resulted in the creation of a co-op housing movement through the skillful and determined lobbying on the part of Canadian co-ops and their allies in the labour and social justice movements. The co-operative movement experienced a new wave of growth as popular attitudes in the West become more open to alternative ways of viewing and being in the world. The rise of the New Left rejected orthodox socialist ideas and pushed for the creation of more democratic and inclusive alternatives in politics, economics, culture and social life. National co-operative movements became more diverse. In Canada and the US co-ops sprung up like mushrooms to open the way to whole new industries in health food, organics and housing, and the original ideal of the co-operative community was recast in the form of communes, co-operative farms and the rise of the environmental movement. It was an era of experimentation and new divides opened up within the traditional co-operative movement that were both generational and attitudinal. At an institutional level, the lack of attention to new and emerging forms of the co-operative model slowed the development of co-operative theory and its relevance to changing times.

Beginning in the eighties a new stage emerged for the co-operative movement. It builds on the visionary roots of its founders, while moving beyond the industrial and retail models that had conditioned the growth of co-operatives as an alternative for the organization of enterprises. In the West, with the retreat of many governments from the support of public services that followed in the cost-cutting and privatization decades of the eighties and nineties, co-operatives arose to fill the gaps in human and social services. The provision of social care emerged as one of the fastest growing areas for new co-op development all across industrialized societies.

But the most significant feature of the current stage of the co-op movement’s evolution is the rediscovery and reinvention of co-operatives in developing countries, often as a direct response to the destabilizing effects of globalization. Today, the co-operative vision is contending at a global level with factors that in many ways mirror the conditions of the early co-operatives of newly industrialized England. Like then, a single worldview in the form of the free market doctrine has come to dominate both the theory and practice of economics and public policy. Like then, individuals, communities and entire nations are subjected to the narrow interests of tiny elites with catastrophic consequences to individual lives, the environment and the well-being of societies. And like then, the effects of globalization are forcing communities and nations to seek alternatives that can make the market work for the many, not just the few. With the global economy in crisis and the old financial order in disarray, with the free market idea in disrepute and with the corruption bred by the absence of democratic institutions in the political and the economic arenas, viable alternatives to the free market myth have never been more urgently needed than they are now."


see, also: the history of Rochdale and Rochdale Principles


Discussion

See: Cooperatives - Discussion


On the Private Nature of Cooperative Property

"although the indivisible reserves are indisputably collective property, it is still private from the point of view of people outside of the cooperative"


By BENOÎT BORRITS:

"Company buy-outs and transformation into cooperative enterprises are often presented as a step in the construction of commons, as the various stakeholders – workers and users – are involved in the process of preserving and developing a resource. However, even though the cooperative form departs from the traditional rules of capital, it still remains essentially private in nature, which leads to frequent capitalist drifts when the cooperative is successful. What changes to the cooperative form would permit a better construction of the commons?

While realising the construction of commons is a co-activity between a number of stakeholders managing a resource, cooperative ownership remains private in nature. Not all stakeholders can be represented in a cooperative and similarly, every person who participates in the life of the cooperative is not necessarily a member of it, as applications can sometimes be rejected. Likewise, to become a member of a cooperative a share must be bought, an investment made, albeit often minimal, and this constitutes ownership. In addition, cooperative shares cannot be freely transferred; they are generally bought back by the cooperative itself. Although all these elements are obvious deviations from traditional private ownership of a capitalist nature, it is still true that cooperative shares do belong to a clearly defined natural or legal person.

The third principle of the cooperative is that the company’s reserves cannot be disbursed. When a company makes a profit that is not distributed as salaries or dividends, it is accounted for as reserves which increase the value of the company’s equity. In the classic regime of a capital company, shareholders have a right to the equity commensurate with their holdings. This means that the sales price of a share always includes this portion of the reserves. In cooperative law, due to the limited remuneration of the contributions, the profits made cannot be distributed to members and therefore become indivisible, which means that they belong exclusively to the cooperative and not to its members. This is why transactions are always done at the nominal value of the share. Do these indivisible reserves presage the construction of a common? This is far from certain.

Reserves build up as soon as the company turns a profit. In the competitive environment of today’s economies, these reserves, like the price of members’ shares, are a force driving the development of the company. Just like any capitalist shareholder, cooperative members do not want to see their shares depreciate. Nor do they want to divest themselves of reserves, once built up, as they represent both a security net for their shares and a way of developing the cooperative further. When a cooperative grows economically, it can often be observed that the cooperative spirit that powered the organisation at the beginning gives way to typically capitalist behaviour. One of the most obvious examples of this is the cooperative group Mondragón.

At the peak of its growth, the group was made up of 125 cooperatives linked through second level cooperatives and the governing body elected by a group assembly made up of representatives of the various cooperatives. Mainly comprising industrial cooperatives, the group had to face the issue of globalisation after Spain joined the European Union in 1996. To do so it introduced a policy of acquiring foreign companies which remained subsidiaries of Mondragón cooperatives and were not turned into new cooperatives. The workers of these subsidiaries kept the status of employees, reporting to the company management and did not become members like their counterparts in Spain. So the question is, why didn’t these employees become members? A number of different explanations have been mooted (legal difficulties, membership reserved to the Basque Country, etc.) which remain unconvincing. There is, however, another reason which is far more prosaic.

At the end of 2012, the group’s equity amounted to €3.95 billion, composed of 2.05 billion of shares and 1.9 of billion indivisible reserves. Unlike French workers’ cooperatives (SCOPs), the shares in Mondragón cooperatives are revalued. One might think that this fact would facilitate the entry of new members as they join the cooperatives on the basis of a share that is revalued every year. But it is not a full revaluation, as we can see from the existence of indivisible reserves which almost equal the number of shares. Even if these indivisible reserves do not belong to Mondragón members individually, they do represent a safety net for them and the potential for investment and development. So it is easy to understand that they are attached to them and want to keep them. From a strictly financial point of view, a new member of a Mondragón cooperative benefits from a discount of approximately 50% to access the group’s equity simply due to the build-up of these reserves. There is no doubt that current members are happy to introduce new people in the general and every day running of the cooperative, but doing so on a large scale and integrating employees of the subsidiaries bought is another problem entirely.

In other words, although the indivisible reserves are indisputably collective property, it is still private from the point of view of people outside of the cooperative. The reserves are indivisible due to the third pillar of cooperatives: limited remuneration of the capital. This does not resolve the issue of ownership linked to the existence of equity. A new approach could be tested, that of an equity-free company that is financed by debt alone. This would be an unprecedented political revolution that would pursue the idea of creating common property: power would no longer be defined in terms of holding company shares, but one’s place in relation to the production unit. Co-activity would grant the power to decide. Workers would manage production and users would be able to have their say on the direction and quality of production. But is this credible? Is equity really avoidable?

The world of finance justifies the existence of equity by stating that lenders need to see that owners have more to lose than lenders do: a loan entails a commitment to repay, regardless of how the company performs financially. It is, however, the shareholders who suffer first from a fall in activity or shrinking margin, provided that the capital is significant and the shareholders have something to lose. This is why financiers always check the amount of equity in the company before granting any credit to a capital company, often of the opinion that a ratio of one to one is reasonable. In the world of workers’ cooperatives, however, we can see that the approaches are much more aggressive.

We can refer here to the example of the Ceralep SCOP, based in Saint Vallier in the French department of Drôme. A manufacturer of very high tension electrical insulators, this company was liquidated in 2004 by its owner, an American group. The employees put together a plan to turn the company into a cooperative in order to save jobs. Funding of €900,000 was needed. All the banks, with the exception of Crédit coopératif, refused to finance the project. The cooperative movement - risk capital organisms from the SCOP movement and the Crédit coopératif - put up €800,000 in loans and quasi equity funding (shares). The employees were asked to contribute €100,000 which they did not have. In the end, they contributed €51,000 and the rest came from subscriptions from locals in support of employment. This enterprise has just celebrated its 10 year anniversary, during which the enterprise has increased salaries while still taking on additional staff, all this with an initial contribution of just 5.67% of the necessary operating costs, a ratio which is absolutely unimaginable in classic finance.

More recently a tech company was turned into a SCOP by its employees: SET. The company, which belonged to a bankrupt Swiss start-up, had been put up for sale. An American-Singaporean group, K&S, put in a bid. The staff, fearing they were going to lose the technology they had developed over a number of years30, wanted to put in a takeover bid. With only limited funds at their disposal (€160,000), they did not manage to find classic financial partners. Although they had not intended to turn the company into an SCOP, it was the cooperative movement that found the solution by issuing shares to build up equity so that the enterprise could borrow from the banks Crédit coopératif and CIC (a subsidiary of Crédit Mutuel). Out of a total €2 million, the staff only contributed 8% of this amount. After two years of being in business, the company is doing very well and continues to innovate and increase turnover.

These two examples – we could look at hundreds of others – show us that the cooperative movement and the world of finance have different approaches. It is not the equity that serves as a guarantee but the desire of workers to keep their jobs. In fact, if the legal form of the cooperative did not require members and therefore shares, cooperatives could work just as well without any financing from workers. If this can often be established (without claiming that this is always the case) can enterprise in practice work with debt as the only method of funding?

Debt financing means that workers are not doing any self-financing31 and that they therefore get the full market value for whatever they produce32. At a first glance this looks tricky as equity is subject to discussion and applying different accounting standards results in different equity evaluations. The difficulty is evaluating the shares33. But rather than trying to give them a value, shouldn’t we accept that all assets, whether tangible or intangible, must be financed? This is already the case for long-term tangible investments. A company that wants to invest in a piece of equipment that will be used for 20 years would, for example, finance the purchase by means of a bank loan for the same length of time34. The same should be done for any intangible asset such as research and development or a publicity campaign. A research and development programme must first be quantified and would be funded on a risk capital basis with variable rates depending on the business outcomes of the research. Similarly, a marketing campaign must be funded in advance for the period of time over which the company hopes to see results, probably with a repayment schedule that would quickly repay the bulk of the campaign then with smaller repayments corresponding to the staggered publicity achieved during the campaign. Finally, a large part of assets rely on short-term elements such as stocks, client receivables less short-term debts. This is a classic assessment of the running costs requirement. The idea is therefore that banks give companies lines of credit commensurate with this running costs requirement, which will be continuously re-evaluated based on each accounting statement.

Debt financing social enterprises is therefore technically possible. It would allow the creation of enterprises without equity that would not belong to anyone specifically but would be at the disposal of its users, workers and clients alike. Under this format, and unlike cooperatives that only differ from the capitalist way of thinking partly, the entity would not accumulate profits for itself. This means that workers would be remunerated at the exact market value of their work, perhaps enhanced or adjusted by subsidies or deductions. This presupposes the existence of a banking and financial services sector that would permit collective ownership of manufacturing means at different levels and represent the commons at higher levels in the company. In this context, investment decisions would be taken jointly by the company’s workers and users and a socialised credit agency that would agree to a funding proposal, thereby heralding an instance of commons held by them with a view to creating a federation of commons." (http://www.workerscontrol.net/authors/cooperative-and-common-ownership)


Are Cooperatives Rooted in the Commons?

Heather Menzies:

"Twice in recent speeches (one at the College of Sustainability in Halifax, the other at the West End Well food Co-op in Ottawa) I have argued that the roots of modern-day cooperatives lie in the commons: in their practices of self-organization, self-governance and doing everything in shares. Back in the day (of my ancestors), this doing through shares didn’t involve money. It involved contributing your share of labour into work bees, to repair stone fences, called dykes, or digging drainage ditches for the shared infield. It involved sharing out that infield, with each family getting a strip, and sharing out access to the common pasture, through stints or quotas on the number of sheep, cows and goats any one family could send there, to guard against over-grazing. (And there were commons-appointed field officers, including ‘poindlers’ ready to impound any animals exceeding the quota, thus jeopardizing the common good vested in maintaining the common pasture as healthy shared habitat).

The key difference today is that modern cooperatives are corporations; their terrain of shared space and self-governance stops at the door. With a commons, dating from before the nature-culture divide, the sidewalk, the roads, the local parks and streams, even the ones hidden beneath the pavement, are included in the frame. The social and natural habitats intertwine." (http://www.heathermenzies.ca/blog/?p=319)

Cooperatives Are Not a Viable Strategy Against Capitalism

Sam Gindin:

"If state ownership is rejected as a proxy for the commons and if ownership in worker-controlled enterprises is in the hands of the workers, then these groups of workers essentially become their own capitalists. They have ownership rights, mobilize their own finances, and control and reinvest “their” surplus for their own advantage.

The significance of having legally authorized property rights was driven home in the aftermath of Argentina’s 2001 economic crisis. While workers took over shuttered factories, they needed the clear collateral of property rights to avoid being denied financing and credit to purchase components and supplies in advance of sales.

The state gave into this demand, but only on the condition that the workplaces become co-ops, meaning workers inherited the debts of the “recuperated” factories and were also responsible for their losses.

The most militant workers balked at such an arrangement. They wanted a role in managing the workplaces, but argued the state should legally take them over, finance their renewal, and link them together in a plan across workplaces. Those demands were generally defeated.

So workers ended up with co-ops and were triply undermined as competitors within capitalism: they started with facilities capitalists had left undercapitalized and uncompetitive; they were saddled with debt; and they had to put their own savings into the facilities or accept lower wages to address the issues of debt and new investment.

The case of Argentina casts doubt on the notion that having more worker-controlled workplaces or co-ops readily translates into an increasingly egalitarian social order.

Without an alternative institutional mechanism for coordinating productive activities, competitive markets — which Hahnel described as “the cancer of socialism” — transform differences in assets, skills, locational advantages, and product valuation into stark inequalities between workers and communities.

The negative impact of such inequalities on social solidarity was made painfully evident in the former Yugoslavia, which had implemented full market socialism. The uneven distribution of historic and geographic advantages meant that inequalities across firms were also expressed regionally.

Where this overlapped with ethnic and clientelist political structures, it dangerously aggravated ethnic tensions. And as northern Yugoslavia developed closer economic ties with Europe, these inequalities were amplified." (https://www.jacobinmag.com/2016/03/workers-control-coops-wright-wolff-alperovitz/)

More Information

Cooperatives: A Brief Introduction to their Types, History & Social Change Prospect. by Elizabeth Bowman and Bob Stone. December 2007


Also:

  1. See http://www.ica.coop/calendar/ga2005/birchallkey.pdf
  2. “Cooperative Alternatives to Capitalism,” Special issue of Humanity & Society, Vol. 28, No. 3, August 2004, edited by Frank Lindenfeld
  3. Website of International Cooperative Alliance (ICA) -- “Uniting, representing and serving cooperatives world-wide,” www.ica.coop
  4. Website of National Cooperative Business Association (US), www.ncba.coop

"The Partnership" by Graeme Doel has an extensive relevant bibliography of writings before 1980.