Wishtank
The State of Co-ops: A primer on the co-operative business model
by: Stephen Morris
There are several basic business models. Among them: a sole proprietorship, or a business that has no separate existence from its owner; a partnership, in which the owners share in the profits or losses of the business; a corporation, a legal entity which has a separate legal personality from its members; and, of course, the cooperative.
The International Co-operative Alliance defines a co-operative 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.
The cooperative movement got its start in Great Britain thanks to a Welsh cotton merchant named Robert Owen (1771-1858), who had the novel idea that his workers deserved decent working conditions with access to education for themselves and their children. An idealist and some would say a socialist, he envisioned “villages of cooperation,” where workers would grow their own food, make their own clothing, and self-govern. He started several such villages, but they failed.
His work was furthered by a Dr. William King (1786-1865), who started a monthly publication called “The Cooperator” that gave practical advice for running a shop using cooperative principles. The publication, which made its debut in 1828 offered a mixture of philosophy and practical advice applying cooperative principles. King advised people not to cut themselves off from society, but rather to form a society within a society, beginning with a store where they could shop for their everyday needs.
King’s guidelines gave cooperatives some uniform boundaries. These evolved into what was published in 1895 as the “Rochdale Cooperative Principles,” issued by the International Cooperative Alliance. The principles have been revised only three times over the past 100 years and still provide the foundation for cooperatives of all size and types.
The principles are widely printed in the literature (and now Web sites) of cooperatives worldwide.
Cooperatives are based on the values of self-help, self-responsibility, democracy, equality, equity, and solidarity. In the tradition of their founders, cooperative members believe in the ethical values of honesty, openness, social responsibility, and caring for others.
The Rochdale guidelines also specify that members contribute equitably to their cooperative. Members usually receive limited compensation, if any, on capital subscribed as a condition of membership. Members allocate surpluses for any of the following purposes: developing their cooperative, possibly by setting up reserves, part of which at least would be indivisible; benefiting members in proportion to their transactions with the cooperative; and supporting other activities approved by the membership.
Finally, the guidelines urge that education and training be offered to members, that members work to promote the cooperative movement and that they work for the economic and social improvement of their community.
Organic Valley
One example is Organic Valley, an agricultural cooperative that has been fueled by the rise of small family farms that embrace organic farming methods. Started only in 1988, it now boasts more than 1,100 farm members nationally who provide the raw product that the organization brings to the market under the Organic Valley brand. In its mission statement the organization states explicitly that profits will be split with 45 percent going to the farmers, 45 percent to the employees, and 10 percent to the community. Its members say that with the time and investment required for farms to convert to organic there was just no way that the burgeoning demand for organic dairy products could have been or could be met without a grassroots organization like the cooperative.
The engine behind the growth of Organic Valley are the retail outlets that emerged to fill the void left by supermarket chains. A prime example is the Ashland Food Cooperative, nestled in the beautiful Rogue Valley in southern Oregon. Their organization started as a buying club in 1971, and has evolved into a well-respected, full-service grocery with more than 4,700 member/owners.
Cabot Creamery
One of Vermont’s best known co-operatives, and oldest, is the Cabot Creamery Cooperative, which has been in operation since 1919. As with many cooperatives, Cabot came into existence to meet market challenges. In this case, it was the challenges faced by small-scale, decentralized, independent farmers who lacked the capital resources to collect, process, distribute, and market their dairy products to the urban markets “down country.” Each member put up $5 and a cord of wood to establish the equity of their organization, adopting as a slogan “There’s efficiency and strength when we work together.”
Cabot is now a leading national brand of cheese, a fact that Roberta MacDonald, senior vice president of marketing, says is a major factor in keeping local farmers in business. “Milk is a commodity, and our brands ... are the farmer’s hedge against the volatility of the milk market. Our farmers get paid for their milk, but they also get that 25th check at the end of the year which is their share of the cooperative’s profits.”
Cabot’s line of dairy products has expanded dramatically since 1919 and now includes such bedrock Vermont standards as Habanero Cheddar and Reduced Fat Jalapeno. What hasn’t changed, however, is their proud declaration of “Dairy Farmer Owned Since 1919.” Putting the farmers front and center is not just a feel-good gesture to members, it has proven to be a smart marketing method.
Success… wise?
Is the cooperative movement thriving, as the success of Cabot might suggest, or languishing by institutional indifference as many, including Lushin, now fear? Even more puzzling, if cooperatives are such a good option, why aren’t there more and why aren’t they the dominant business paradigm across America? Are they the wave of the future or a vestige of the past?
Paul Freundlich has founded several cooperatives, most notably Co-op America, which he describes as a “tri-partite cooperative, with business members producing goods; consumer members purchasing, and worker members staffing the operation.” This national organization boasts over 60,000 individual members. Freundlich says: “Cooperatives are a legitimate third option falling midway between capitalism and communism. With the establishment of ESOPs (Employee Stock Option Plans), housing and food co-ops, and the National Co-op Bank in the late 1970s, it looked like cooperatives in the USA were finally ready to take off.”
But what happened. Freundlich shakes his head. “Enter Ronald Reagan and a decade of dedicated greed,” he says. “Reaganomics (an economic model featuring reduced growth of government spending, reduce marginal tax rates on income from labor and capital, and reduced regulation) was great for Wall Street, but it took the wind out of the sails of the cooperative movement.” It is difficult to focus on issues of democratic governance, Freundlich says, when the headlines are about such things as ‘green mail,’ the acquisition strategy that so characterized the ‘80s, in which one company acquires another and then immediately sells it in component parts.
Others take exception to Freundlich’s assessment, pointing out that the National Consumer Cooperative Bank, privatized by the Reagan administration in late 1981, has seen its endowment grow from $60 million to $1.829 billion in 2006. Freundlich’s assessment, however, seems to be echoed by Art Jaeger of the Communications and Public Affairs office of Watson/Mulhern, a Washington, DC-based law firm that delves into cooperative issues. Assessing the state of the cooperative in the United States is not simple, says Jaeger.
“You have to look at individual sectors,” he says. “The number of credit unions has been declining for years due to mergers, but the number of members of credit unions has been growing dramatically. Electric co-ops are holding steady but, again, membership is increasing. Food co-ops are slowly expanding despite intense competition from companies such as Whole Foods and Trader Joe’s.
“Co-ops boomed in the first half of the 20th century and then leveled off. For much of the last 30 years co-op principles and values were ‘out of fashion’ in America, yet they did manage to survive. Now, the pendulum is swinging back the other way, and co-ops are poised for a new era of expansion as people get more frustrated with impersonal big business and again value the concepts that are at the core of the co-op model.”
The state that has the most enlightened statutes governing cooperatives, says Lushin, is Washington State. Cooperatives also appear to be flourishing in the small state of Vermont. According to the fledgling Co-op Alliance, there are approximately 75 cooperatives operating in VT today, a number that includes three agricultural co-ops, 35 credit unions, seven daycares, three energy co-ops, 11 food co-ops, eight housing co-ops, two insurance co-ops.
The explanations are partly anecdotal ("Vermonters get it,” says Mad River’s Friedman), but compelling. Yvonne Garand, business development director for the Vermont State Employees Credit Union, says simply: “Vermonters like protecting their homeland, and we like doing business with neighbors. We just do business differently. Think of it as a matter of form versus function. We’re not serving our customer base for the benefit of our outside shareholders, but for the common benefit of our members. They are the recipients of any benefits we create.” Jim Schley, he of seven co-op memberships, agrees. “I love the social aspect of cooperatives. I can’t think of a negative experience I’ve had customer and member of a co-op.”
Democratic, social, fun… So why not still more cooperatives? Michael Potts, a cooperative member and consultant to new paradigm businesses offers this blunt assessment: “The spirit of individualism runs deep in the American soul. Plural ownership, may be like the idea of plural marriage, while cool in the abstract, can be a nightmare in practice. Our government, which runs on tax dollars, has a harder time finding those dollars in an organization of multiple ownership, and therefore, does nothing to encourage the creation of more cooperatives. They’d rather provide tax loopholes to traditional corporations.”
Roberta MacDonald of Cabot Creamery tacitly acknowledges an anti-establishment aspect to cooperatives. “When there is a semester course on cooperatives at Harvard Business School, we’ll know we’re reconnecting with people who mistrust big business for all the reasons common sense would suggest. •
Stephen Morris is the founder of The Public Press and Editor of Green Living Journal.
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