The Cooperative Movement

Globalization from Below

Richard C. Williams

• Publisher: Routledge
• Year: 2016
• eBook ISBN: 9781317037262
• Topic: Business
• Subtopic: Economic Theory
• Index: Business

Richard Williams surveys the history of the cooperative movement from its origins in the 18th century and deals with the theory of cooperation, as contrasted with the 'Standard Economic Model', based on competition. The book contains the results of field studies of a number of successful cooperatives both in the developed and developing world. It includes insights from personal interviews of cooperative members and concludes by considering the successes and challenges of the cooperative movement as an alternative to the global neo-colonialism and imperialism that now characterizes free-market capitalist approaches to globalization. The book considers democratic and local control of essential economic activities such as the production, distribution, and retailing of goods and services. It suggests that cooperative approaches to these economic activities are already reducing poverty and resulting in equitable distributions of wealth and income without plundering the resources of developing countries.

PART I
History and Theory of Cooperation

For more than two centuries the cooperative approach to democratic capitalism has attracted democratically minded people around the world. For the most part, cooperativism has flourished. Serious research has firmly established cooperation as a more productive and efficient approach to almost any task than competition. Yet the primary assumption driving modern global capitalism is the false assumption that the only way to establish an equitable economy is to foster competition—not cooperation. In this part, the two approaches to the “free” market, cooperative and competitive, are summarized and examined in the context of the Standard Economic Model and the cooperative movement as it has thrived in the developed and developing world.

Chapter 1
History and Theory of the Cooperative Movement

Not a collective
Controlled by a corrupt state
But something better

(Haiku by BL & BF)

The form of association…which if mankind continue to improve, must be expected in the end to predominate, is not that which can exist with capitalist as chief, and workpeople without a voice in the management, but the association of the labourers themselves on terms of equality, collectively owning the capital with which they carry on their operations, and working under managers elected and removable by themselves.

(John Stuart Mills, Principles of Political Economy)

The cooperative movement has changed the lives of millions of people around the world. The formation of cooperatives in the Midwestern United States saved thousands of family farms from the banking crisis of the 1980s. New cooperatives in Chiapas, Mexico, saved the economy and culture of thousands of Mayan families in the 1990s. Large cooperatives in India and Southeast Asia, with their emphasis on microfinance, have begun to rescue the lower castes from neo-colonialism and grinding poverty. Recreational Equipment Incorporated (REI), a cooperative in the United States, outfitted the first American team to reach the summit of Mt Everest; REI, with more than 300,000 members, is now one of the largest recreational companies in the United States. Cooperatives provide 86 percent of the dairy market in the United States. Sunkist, Land O’Lakes, and Ocean Spray, all familiar names in food distribution in the United States, are cooperatives. The Co-op Group is the largest convenience store distributor and retailer in the UK. Most communities in the world now contain at least one credit union, a type of cooperative, and at least one cooperative food market. Cooperatives have raised the quality of life of their members and their communities wherever they are. The extraordinary success of cooperatives is one of the world’s best kept secrets.

A commonly held myth concerning cooperatives is that they are more likely to fail than standard corporations. Actually, national records show that 60 to 80 percent of corporations in the US fail after their first year in business, and cooperatives fail only at the rate of about 10 percent after their first year (WOCCU, 2003). The initial success of a cooperative most likely arises from the fact that starting a cooperative requires a great deal of support from the community. Many people must be involved for the successful cooperative to file for incorporation or limited liability, so that few are likely to fail within the first few years of operation. Cooperatives are also more likely to survive in the long term. More than 90 percent of cooperatives are still operating while only 3-5 percent of standard corporations remain active after five years.

Origins of the Cooperative Movement

A fire insurance cooperative was organized in the UK in the early 1700s. In France, around 1750, a group of cheesemakers gathered to form a cooperative, undoubtedly the first consumer cooperative in the developed world. During this period, there were some attempts to initiate cooperative banking or credit institutions in Germany. By 1830 there were 300 cooperative societies officially recognized in the UK, and the first Congress of Cooperatives met in the UK in 1831. One of the first known cooperatives in the United States was the Philadelphia Contributorship, a mutual insurance company founded in 1752 by Benjamin Franklin. Contributorships were companies owned in equal shares by a large number of business people, merchants and professionals to indemnify each other in case of fire and other natural catastrophes which had plagued the large cities in Europe and in the New World. For a more detailed and very instructive timeline of early cooperative formation, see Jack Shaffer’s, Historical Dictionary of the Cooperative Movement (1999, 1-38).

Also in the mid-eighteenth century, a group of French, English, and German social and political activists designed and initiated a number of cooperative communities. Phillipe Buchez, Etienne Cabet, and Francois Marie Charles Fourier in France experimented with cooperative communities founded mostly on utopian principles. Later Robert Owen and William Thompson, social reformers in Britain, both tried their hands at organizing cooperative communities. Hans Crüger in Germany wrote and worked on cooperative ideals with the strong conviction that society ought to be designed not with self-interest as its base but with faith in the “ideal good” in human nature. In 1825 Owen established his ideal utopian community of New Harmony, Indiana, in the US. Even though New Harmony failed, probably due to financial mismanagement, the idea caught on and cooperatives were formed by the thousands.

In 1844, toward the end of the industrial revolution and almost 100 years after the first fire insurance and cheesemaking cooperatives were formed, a group of 28 weavers in the industrial town of Rochdale, England, established a small cooperatively owned store that sold a few necessities and, later, entire shelves of weavers’ supplies, food, and agricultural products. Spurred on by having been relieved of their jobs by their local manufacturing company and after an unsuccessful strike, the 28 weavers pooled 140 British pounds and began purchasing oatmeal, sugar, butter, and flour. They codified their experience in the “Rochdale Principles of Cooperation” that have been amended over time and are now the “Principles of the International Cooperative Alliance (ICA).”

At about the same time as the Rochdale experiment in England, the New England Protective Union in the US, also called John Beck’s Buying Club, failed because of poor business practices and internal contention. In Rochdale itself, problems arose in 1849. A prominent mill owner and trustee of the Rochdale Bank embezzled funds which nearly forced the cooperative out of business. Then, a much more serious problem, the Rochdale Cooperative threatened to degenerate when, to finance the purchase of a new mill, it took on investors called “investor members.” In 1869, these new members outvoted the worker members and began to convert the co-op into a conventional firm. Some years later, however, these new investor members reconsidered and decided to reconstitute the bank and the cooperative under a new name, Rochdale Pioneer Society, with a total of 3,500 members. The Rochdale Pioneer Society then reorganized as a cooperative and continues today under the original Rochdale principles.

The early success and popularity of the Rochdale group led to the increased number of cooperatives on the European continent, notably in Belgium and Germany between 1848 and 1869. By the 1930s, consumer co-ops became some of the largest retail businesses in northern Europe. Following the Second World War, consumer cooperatives in Scandinavian countries continued to grow and now represent over a third of the retail trade there. In Germany, Netherlands, and England consumer cooperatives declined to fewer than 10 percent of the retail trade by the middle of the twentieth century because of opposition from the strong Social-Democratic and Labor movements during those decades.

Some of the first literature on cooperatives and cooperative theory was heralded by the work of Charles Gide, one of the founders, along with Edouard de Boyve and August Fabre, of the Ecole Nimes in France in 1886. He had earlier contributed to L’Emancipation—Journal d’education cooperative and in 1883 published Principles of Political Economy. In 1900 he published his landmark work, La Cooperation, in which he tied his cooperative philosophy to the Rochdale Principles. Popularity of the cooperative principles stimulated a number of academic groups dedicated to teaching those principles and inspiring the formation of more and different kinds of cooperative enterprises in Europe and North America. A “Chair of Cooperation” was founded at the Universidad Nacional in El Salvador, in 1896, and the International Cooperative Alliance was founded and began meeting in the UK in 1898.

Today France, Spain, and Italy see a rising strength of the cooperative movement, where thousands of worker cooperatives employ over 200,000 worker-members. In Italy, cooperatives now account for up to 30 percent of total trade. In France, coops are the fastest growing type of business. In Spain, cooperatives lead all other enterprises in national productivity (ICA, 2002). The most impressive cooperatives in Europe are the Mondragón Cooperatives in the Basque Country of northern Spain. Mondragón integrates over 100 firms in high growth and high technology industries and solves the capital formation problem by operating a cooperative bank with more than 50 branches all over Spain (holding over a billion dollars in deposits). Caja Popular Laboral (the co-op bank), co-op universities, a co-op medical system, cooperative housing, and a large portion of all agriculture form a single cooperative network in over 40 communities in northern Spain. The Mondragón Cooperatives will be dealt with in great detail in Part II, Chapter 6.

In Britain, following World War II, there were only 50 cooperatives. In spite of the sharp decline during two or three decades, interest in the cooperative movement accelerated during the 1980s and 1990s, and at the beginning of the twenty-first century, there were over 500 new cooperatives. A new (June, 2004) UK Cooperative Development Agency has made cooperatives a government priority. The new United European parliament is currently considering measures to encourage the formation of cooperatives and worker-owned firms all over Europe.

In the latter part of the twentieth century, there has been a huge increase in cooperative activity in India, building on earlier credit cooperatives founded in 1906 and 1907 and with the passage of the Cooperative Society Law, expanded and amended in 1912. By 1991, India’s movement was the largest in the world, reporting 401,139 cooperatives with over 166 million members (nearly 20 percent of the population). In 1989 the Central Committee of the International Cooperative Alliance (ICA) held its first meeting in the developing world in India. India is rapidly becoming an economic leader in the world, and leads all of Asia and Southeast Asia with its commitment to globalization from below.

Cooperative Principles

The seven principles of the Rochdale Cooperative, as adopted by the International Cooperative Alliance (ICA) in 1995, provide that a true cooperative will:

1. offer voluntary and open membership,

2. govern by democratic member participation (one member, one share, one vote),

3. operate by equal and “fair” investment by the members,

4. remain free of intervention from governments or any other outside power (for example, corporations),

5. educate its members and the community about the nature, principles, values, and benefits of the cooperative,

6. encourage cooperation among cooperatives, and

7. protect the environment and contribute to the sustainable development of the community.

The first six of these principles are essentially the original Rochdale principles; the seventh merely clarifies and extends the cooperative’s responsibility to the community. These seven principles are now strongly recommended to all cooperatives around the world by the International Cooperative Alliance (ICA). In practice, cooperatives around the world have found it necessary to modify one or more of the seven principles to fit local cultural or legal constraints.

The first principle, voluntary and open membership, has often been circumscribed by law in the United States. While membership, participation, leadership, and benefits have been available regardless of race, creed, gender, sexual orientation, or other social boundaries, the corporate and financial communities have ensured that the benefits of cooperatives are confined to employees of specific corporations, government entities, or neighborhood residents. Every year various corporations and the banking community introduce bills into federal or state legislatures attempting to curtail cooperatives, especially credit unions, claiming that extension of cooperative rights will give them unfair advantages in pricing and market appeal.

The second principle of democratic member control ensures that no member has a greater voice in the operation of the cooperative than any other member. The basic principle is “one share, one member, one vote.” This principle is frequently modified in the case of networks of cooperatives where the principle could actually result in inequities. For example, the members of a smaller cooperative may end up with more decision-making power than members of larger cooperatives, or of the umbrella cooperative itself. The specific roles of non-members remain unclear in most cooperatives. Degeneration inevitably follows opening share-owning memberships to outsiders.

The third principle, of “fair investment” of common ownership, often makes the task of generating the necessary equity very difficult. Some cooperatives solve this problem by encouraging large loans with promissory notes of repayment with interest. Such loans are not shares nor do they imply a greater voice in the development or operation of the enterprise. The incentive of wanting the cooperative to succeed because of its value to the community and to individuals often inspires members to provide large interest-free loans. For others, a fair interest rate is a sufficient incentive to individual lenders both inside and outside of the membership. Loans and grants can then help to keep membership fees at reasonable rates so as not to hinder community members with fewer resources.

Like the first principle, the fourth principle of complete autonomy and independence can create legal difficulties, especially in the United States, and often cannot be followed absolutely. Each state of the US provides corporation laws that vary in their limitations on corporate structure. At present the federal government encourages as broad a definition of “cooperative corporation” as possible. Current law defines the cooperative as “a corporation or association organized for the purpose of rendering economic services without gain to itself, to shareholders or members who own and control it” [United States Grocers, Ltd. V. United States, 186F. Supp. 724,733 N.D. Cal. 1960]. A few nation states, mostly in the Near East, have completely outlawed cooperatives, fearing the loss of control and the threat of competition with government sponsored companies, notably state-sponsored or owned airlines and oil extraction companies. Others such as Spain, Sweden, Norway, and India provide much broader legal umbrellas for cooperative corporations than exist in the United States.

The fifth principle of educating members and the community has seen success in some co-ops but not others. One of the challenges of this principle is to avoid setting up a huge “marketing” program under the aegis of “education.” At the same time, effective membership must be based on effective education about the mission and values of cooperation. For co-ops to succeed, education ought to extend to youth and to others in the community for a broader understanding of the nature and benefits of cooperation.

The sixth principle is largely self-evident. As cooperatives of various types proliferate within a community, a need arises to link them in some kind of network. People in the community need to know about the existence of...

Table of contents

• Cover Page
• Half Title Page
• Title Page
• Copyright Page
• Dedication
• Contents
• List of Figures
• List of Tables
• Foreword
• Preface
• Acknowledgments
• Introduction
• PART I History and Theory of Cooperation
• PART 2 Cooperative Case Studies
• PART 3 Analysis and Implications for the Future
• Appendix A Credit Union Statistics
• Appendix B Measuring Effect Size
• Appendix C The IMF “Merged Model”
• Appendix D Interviews: Protocol and Summary Data
• Index