- 1 Definition
- 2 Principles behind cooperatives
- 3 Typology
- 4 Example
- 5 Status
- 6 History
- 7 Discussion
- 8 More Information
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
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
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.
"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/)
"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)
"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]
"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." 
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)
"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/)
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)
Separating Ownership from Voting Rights
Presented as a solution to the degeneration problem (i.e. coops turning into for-profit enterprises):
"The Mondragón co-ops avoid this degeneration by separating ownership, which varies in value, from voting, which is strictly equal. Instead of buying stock, new applicants advance labor to pay the membership fee. Roughly a year's salary, this loan by members starts an "individual capital account" (ICA) to which monthly and year-end profits and losses are credited or debited. (Thomas & Logan 1982, p. 136) Unlike stock shares, ICAs are neither accumulable nor sellable and carry only one vote. Being both individually recoupable upon leaving yet available meanwhile for collective investment, they constitute a sort of bank inside each co-op. Rights attach solely to membership and terminate when members retire or leave. There being no non-worker owners, co-ops remain whole solely in the hands of their active workforces, avoiding the Rochdale error. A co-op could be sold, but only by a hard-to-muster two-thirds of a general assembly vote, and this has never happened.
The "salary" spread from lowest to highest, currently 1 to 6, is based on an agreed job rating index. "Salary" is in scare quotes since members, not being employees, receive no wages or salaries. Rather, they have the following rights of owners and managers: 1) monthly and annual profit distributions; 2) 6% annual interest on their loans to the co-op; 3) a vote on undistributed funds; 4) access to all records; and 5) a vote on policy and managers.
Mondragón has outlasted Olympia as a co-op by 20 years, due partly to separating voting rights from ownership rights." (http://www.globaljusticecenter.org/papers/bowstone.htm)
Michel Bauwens, comparing p2p and cooperatives:
"1. P2P is based on cyberspace and therefore it has a global scale and cooperatives are designed for a physical (and therefore inherently more local) production system.
2. P2P belongs to all while cooperatives belong to an specific collective (workers or consumers)
3. P2P produces use value in a commons; while cooperatives run in the marketplace and, because of that, they are geared towards the creation of exchange value.
4. P2P is emerging as a phenomenon supported by online world, are emerging as more productive that other forms of production, while cooperatives have traditionally been marginalized in our capitalist world.
5. P2P is a system where anyone contributes but without any exigency of return and cooperatives are based on reciprocity.
6. They can be complementary in the following way: 1) globa-local Open Design communities create a Commons for the global development of the knowledge; 2) local cooperatives work in the marketplace, using the open designs, and are themselves contributing to it.
7. Cooperatives are a more equity-based approach to working with peer communities, than for-profit institutions, and therefore may be preferable as a format for the marketization of the exchange value that is derived from the P2P-commons"
More Discussion on this topic via the following Blog entries:
Data on the Higher Labor Productivity of Cooperatives
"As to the efficiency effects of greater worker participation, the HEW study of 1973 concludes, “In no instance of which we have evidence has a major effort to increase employee participation resulted in a long-term decline in productivity.” Nine years later, surveying their empirical studies, Derek Jones and Jan Svenjnar report, “There is apparently consistent support for the view that worker participation in management causes higher productivity. This result is supported by a variety of methodological approaches, using diverse data and for disparate time periods.” In 1990, a collection of research papers edited by Princeton economist Alan Blinder extends the data set much further and reached the same conclusion: worker participation usually enhances productivity in the short run, sometimes in the long run, and rarely has a negative effect. Moreover, participation is most conducive to enhancing productivity when combined with profit sharing, guaranteed long-range employment, relatively narrow wage differentials , and guaranteed worker rights (such as protection from dismissal except for just cause)- precisely the conditions that will prevail under Economic Democracy. 8
As to the viability of complete workplace democracy, we note that workers in the plywood cooperatives in the Pacific Northwest have been electing their managers since the 1940s, workers in the Mondragon cooperatives in Spain since the 1950s. There are some twenty thousand producer-cooperatives in Italy, comprising one of the most vibrant sectors of the economy. The Swedish cooperative movement is also large and impressive. Needless to say, not all self-management ventures are successful, but I know of no empirical study that even purports to demonstrate that worker-elected managers are less competent than their capitalist counterparts. Most comparisons suggest the opposite; most find worker self-managed firms more productive than similarly situated capitalist firms. For Berman, on the plywood cooperatives, states:
“The major basis for cooperative success, and for survival of capitalistcally unprofitable plants, has been superior labor productivity. Studies comparing square-foot output have repeatedly shown higher physical volume of output per hour, and others…show higher quality of product and also economy of material use.” 9
And Thomas on Mondragon:
“Productivity and profitability are higher for cooperatives than for capitalist firms. It make little difference whether the Mondragon group is compared with the largest 500 companies, or with small- or medium-scale industries; in both comparison the Mondragon group is more productive and more profitable.” 10
There is also the example of Weirton Steel. In 1982, following a mediocre year and facing bleaker prospects, National Steel offered to sell its Weirton, West Virginia plant to its 7,000 workers. The deal was completed in 1984. Weirton proceeded to post eighteen consecutive profitable quarters- at a time when many steel firms suffered steep losses, including two of Weirton’s competitors, who were forced into bankruptcy. 11 United Airlines, now majority owned by its pilots and technicians, has survived the intense competition that has brought down so many conventionally owned carriers." (http://trustcurrency.blogspot.com/2009/12/worker-cooperative-productivity.html)
8. Citations in this paragraph are from US Dept of Health, Ed, and Welfare, Work in America(Cambridge, Mass: MIT Press, 1973), 112; and Derek Jones and Jan Svenjar, eds., Participatory and Self-Managed Firms: Evaluating Economic Performance (Lexington, Mass: Lexington Books, 1982), 11. See also Alan blinder, ed., Paying for Productivity: A Look at the Evidence (D.C.: Brookings, 1990), especially the contribution by David Levine and Laura Tyson.
9. Katrina Berman, “A Cooperative Model for Worker Management,” in the Performance of Labour-Managed Firms, ed. Frank Stephens (New York: St. Martin’s Press, 1982), 80.
10. Hendrik Thomas, “The Performance of the Mondragon Cooperatives in Spain,” in Participatory and Self-Managed Firms, ed. Jones and Svenjar, 149.
11. For more on Weirton, see James Lieber, Friendly Takeover: How an Employee Buyout Saved a Steel Town (New York: Viking, 1995).
Cooperatives, Productivity, Innovation
Kevin Carson's fifteenth draft chapter of Organization Theory goes into a detailed comparison of the productivity of cooperatives vs. business enterprises. It shows, how the meta-system is skewed against the cooperative format, despite their higher productivity.
One subsection discusses the issue of Innovation:
"Critics of worker cooperatives frequently charge that they skimp on capital investment in order to maximize employment. But to put it in less value-laden terms, that simply means that cooperatives economize on capital at the expense of labor efficiency. Capitalist enterprises, on the other hand, do just the opposite: they pursue a strategy of capital substitution in order to maximize labor efficiency, reduce labor costs, and minimize agency problems associated with labor--even when it means relying on the relatively wasteful use of large capital and energy inputs.
What's happened in the United States is that we have displaced those ways of producing goods which are efficient in using energy, efficient in using capital, and inefficient in using labor with the reverse, and the upshot is that we tend to waste energy, to run out of capital, and to run out of jobs.
What's the difference between the two approaches? The difference is that we are conditioned to see the maximization of utility by owners of capital as the normal purpose of economic activity, but to dismiss maximization of utility by labor as "malingering."
Barry Stein, as we have already seen, argues that incremental improvements in the production process, cumulatively, have more of an effect on productivity than do generational changes in production machinery.
Jaroslav Vanek makes the distinction between major and minor innovations. While major technological innovations,
"if profitable, will generally find outlets into productive application whatever the economic system, the minor ones may or may not depending on the environment in which they are made. ....[T]he labor-managed form of productive organization is highly conducive to minor innovative activity within the firm...."
Probably the best way of distinguishing between what we have termed major and minor innovations is that the latter generally cannot be the subject of a full-time professional occupation. Rather, they will arise as an externality... of an activity whose primary purpose is something else than to innovate--generally to produce or contribute to the production of some good or service. More concretely, ...a repeated act of production will stimulate reflection on how that act could be facilitated, or done more efficiently....
Clearly... the situation most conducive to the application of minor innovations is one of an individual self-employed producer, provided that he is not constrained by financial limitations. As far as conduciveness--or the incentive--to innovate goes, the labor-managed firm is the second-best solution.... First of all, the self-management structure... provides an excellent channel of communication, unparalleled in any other firm, between those who have innovative ideas, those who decide on an procure the capital implementation, and those who incorporate the innovation into the income-distribution scheme of the firm. Second, the innovator in the labor-managed firm need not worry that the capital owner will exploit the innovation and leave him with only a small part of the gain.
The reference to developing ideas for minor innovation as a side-effect of production, by the way, is reminiscent of Jane Jacobs' theory of technical innovation as finding new uses for the waste materials of an existing production process, or spinning off production techniques from existing products (for which the new techniques may not even be suitable) to new product lines. A good example is 3M (originally Minnesota Mining and Manufacturing) corporation's lines of adhesive tape (including Scotch tape), which were an offshoot of an unsuccessful experiment in developing adhesive backing for sandpaper in their primary business line.
According to Barry Stein, the cumulative effect on productivity of small, incremental innovations (i.e., Vanek's "minor innovations") is as great as that of generational leaps in technology. He cites a 1965 study of DuPont rayon plants by Samuel Hollander, which found that "'minor' technical changes--based on technology judged relatively 'simple' to develop... and usually representing 'evolutionary' advances... accounted for two-thirds of the unit-cost reductions attributable to technical change at most of the plants considered."
Such incremental changes made it possible "to incorporate within a given structure sufficiently productive technology to permit an older plan to produce almost as efficiently as a newly built plant"--and "the sum total of the outlay needed to accomplish the alterations at the older plant [would be] relatively small."
Stein echoes the insights of Vanek and Jacobs about innovation as the byproduct of the production process.
It has already been noted that much of the technological progress within a firm is the result of a series of small innovations.... The primary source of all innovations is derived from the recognition of a need, rather than from technical opportunity, as such.... In one study, only 21 percent of the successful innovations stemmed from technical sources; 30 percent were a response to perception of a need/opportunity in manufacturing; and fully 45 percent were due to market factors. Such recognition of a need, whether within the firm or with respect to the outside market, becomes possible only under conditions in which workers... are more generally knowledgeable about the organization, its operation, and its relationship to its environment.
Likewise, the most successful product innovations often result less from generational changes or fundamentally new technologies than from tinkering with existing products.
Tom Peters, in his observation of the corporate world, found numerous examples of the phenomenon.
As we already saw in Chapter Five, Hayek argued for the role of the distributed knowledge of those engaged in the production process in making such incremental process and product improvements. Let's repeat his earlier quote: To know of and put to use a machine not fully employed, or somebody's skill which could be better utilized, or to be aware of a surplus stock which can be drawn upon during an interruption of supplies, is socially quite as useful as the knowledge of better alternative techniques....
Is it true that, with the elaborate apparatus of modern production, economic decisions are required only at long intervals, as when a new factory is to be erected or a new process to be introduced? Is it true that, once a plant has been built, the rest is all more or less mechanical, determined by the character of the plant, and leaving little to be changed in adapting to the ever-changing circumstances of the moment?
The fairly widespread belief in the affirmative is not, so far as I can ascertain, borne out by the practical experience of the business man. In a competitive industry at any rate--and such an industry alone can serve as a test--the task of keeping cost from rising requires constant struggle, absorbing a great part of the energy of the manager. How easy it is for an inefficient manager to dissipate the differentials on which profitability rests, and that it is possible, with the same technical facilities, to produce with a great variety of costs, are among the commonplaces of business experience which do not seem to be equally familiar in the study of the economist.
Innovation in an economy where self-employment and worker ownership predominates would likely include efficiencies which presently go unrealized because of the special agency problems of absentee ownership and hierarchical authority." (http://members.tripod.com/kevin_carson/sitebuildercontent/sitebuilderfiles/Chapter15.pdf)
Cooperatives: A Brief Introduction to their Types, History & Social Change Prospect. by Elizabeth Bowman and Bob Stone. December 2007
- See http://www.ica.coop/calendar/ga2005/birchallkey.pdf
- “Cooperative Alternatives to Capitalism,” Special issue of Humanity & Society, Vol. 28, No. 3, August 2004, edited by Frank Lindenfeld
- Website of International Cooperative Alliance (ICA) -- “Uniting, representing and serving cooperatives world-wide,” www.ica.coop
- Website of National Cooperative Business Association (US), www.ncba.coop