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Are Co-operatives the Future of Business?

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Co-ops have an advantage over conventional businesses – they run essentially not-for-profit…

By Geoff de Ruiter Posted Jul 12, 2012

mountain equipment co-opCo-operatives are a largely overlooked and misunderstood business model. Even the name is suspect in our culture where the specter of socialism is considered a threat to our dominant business model, Capitalism. But the income inequality and resulting diminished middle class which have emerged over recent decades have been a result of unfettered Capitalism, and perhaps the time has come for us to take a closer look at the benefits of a business model which is competitive, adaptive and community-centric: Co-operatives.

So, what is a co-operative? Co-operatives are simply a type of business model. Like private companies, public companies, or state owned companies, it’s just a model of ownership. Multiple individuals, like a public company, have ownership in a co-operative but everyone has equal ownership and say in the direction of the company. Essentially you can think of it as a democratically held company where everyone has an equally vested interest in the success of the company. Some people get confused with how they work, but co-operatives can be almost any type of company that you can think of, and thus there are different types of co-operatives. I am going to switch to using the abbreviation for co-operatives (co-ops) now because for one it’s shorter and two it sounds cooler.

Essentially you can think of it as a democratically held company where everyone has an equally vested interest in the success of the company.

Generally, there are producer co-ops that produce products like machinery or food (growers co-op); there are service co-ops, which (you guessed it!) provide services such as housing retrofits; and there are consumer co-operatives, where people collectively consume or purchase items together. There is a 100% chance you have purchased or done business with a co-op. Have you shopped at Recreational Equipment Inc. (REI) or Mountain Equipment Co-op (MEC)? Bought some Sunkist oranges? Shopped at Ace Hardware, True Value Hardware or Home Hardware? Banked with a Credit Union? Or by default you probably have something in your house produced by Mondragón Cooperative Corporation, which had 15 billion dollars in annual revenue in 2011, ranking it beside the countries of Jamaica, Iceland, and Honduras in GDP. I won’t go into any more statistics on co-ops but you can read some more here (International), here (USA), and here (Canada) if you please, and here is an article on the world’s 300 largest co-ops.

You might be thinking, “That’s great, but how will co-ops kill capitalism, with citrus and recreational equipment??” Well, here’s how. Co-ops have one key business advantage over private or public businesses and particularly this applies to consumer co-ops. Many consumer co-ops run essentially not-for-profit. What this means is they may make a profit but that surplus, after paying the employees, lights, etc., is given back to the members (owners). Therefore products are purchased for as low as possible. This is something that a private or public company would probably never do. Ultimately this would allow a co-op to out compete a for-profit company on price point.

Co-ops have one key business advantage over private or public businesses and particularly this applies to consumer co-ops. Many consumer co-ops run essentially not-for-profit.

We all know mobile phone carriers are making very large profits from the service they provide us. Imagine if there was a large not-for-profit carrier. They would put the rest of them out of business and we would all pay a lot less! However, very few mobile phone co-ops exist, because generally it’s an industry with a very high capital investment to start, thus it’s a limitation at this time.

When considering producers/growers co-ops, they can sell their products collectively to obtain better pricing, as they make up larger segments of the supply. As a small child I remember helping my grandpa deliver raspberries to the Abbotsford Growers Co-op. I didn’t know why he brought them there at the time, but I know now. This is the exact same situation with Sunkist, they are a growers’ co-op, and hundreds of individual farmers sell their citrus together for a better price.

Another business advantage of companies with co-ownership is that they also tend to out-perform conventional businesses[2], and co-ops in the UK have outperformed their GDP by 21%![3] A good article was written on employee co-ownership in the Globe and Mail if you are interested, but the principle is the same with co-ops being owned by it’s members and employees. People have a direct interest in the success of their business! Additionally related to this is one key business advantage that I feel will be a deal breaker in the displacement of capitalism. That is, co-ops have a higher business survival rate of around 2 to 1.[4][5][6] That means that non-co-op businesses will fail twice as frequently, or co-ops will succeeded at double the rate. In genetics, if one gene out competes others at twice the rate it becomes the dominant, most frequently seen trait, such as black hair (sorry fellow Blondes and Reds!). Together, co-ops will preferentially become the dominant form of business in the future.

Another advantage of companies with co-ownership is that they tend to out-perform conventional businesses.

To take another perspective, we are living on a finite planet with finite resources. Some would say we have reached our ecological limit due to over population and consumption. It follows that there will be resource scarcities. It thus seems hard to imagine that we be able to live with such excess, waste, and wealth accumulation that we see today. Co-ops may help mitigate these imbalances, because everyone either gets what they need at a lower cost, or will benefit equally. In my opinion, the Occupy Wall Street demonstrations should have been advocating the shift to a co-operative economy from the first day, and so did others. The most successful outcome of the Occupy Wall Street demonstrations was an offshoot event called Bank Transfer Day. Literally hundreds of thousands of people, mainly in the US but also other countries, shifted their finances from large banks into credit unions and local banks. As I mentioned in the beginning, credit unions are also co-ops, and they are the most successful adaptation of the co-operative business model. I cannot help but wonder if the financial collapse of 2008 would have even happened if everyone held their money in credit unions.

Co-ops have a higher business survival rate of around 2 to 1.

My final assertion to why I think co-ops will displace large capitalistic business is because of the support and adoption they have across the political spectrum, right and left. Generally, people who are pro-democracy should want co-ops in their business models because it is democracy in a business! Conservative minded individuals love co-ops because they can have direct ownership over their business and financially benefit from lower costs. Rural individuals and farmers have traditionally been among the most adoptive of co-ops.

Additionally, as co-ops are democratically held, they tend to make progressive decisions and support community development. This helps lessen the need for government oversight and regulation. Socially minded individuals love co-ops because they are working together for a common goal and everyone benefits equally from the success of the company. And co-ops could be the future replacement for unions. I say this because having equally-shared worker ownership in a company performs the same job unions were originally needed for, to protect workers. Finally, the greens love co-ops because they help build greater community resilience through social and environmental good; two important priorities of many co-ops.

So how do you start a co-op?

Well you look for opportunity. Is there a business that is failing to meet the needs of community members? Is there a business that is taking advantage of their customers? Automotive repair shops are notorious for overselling repairs to unknowledgeable individuals. Is there a sector that is accumulating huge wealth from consumers? Is there a business where employees are lacking responsibility and interest? Once you have identified a potential need, find people that share your passion and start things up!

There is an active support network for those interested in starting a co-op! This is one of the 7 key Co-op principles and it shouldn’t be any harder than starting a conventional private company. But you don’t need to start a co-op to take part. Becoming a member at existing co-ops is even more helpful!

To be clear co-ops will not displace small businesses. This is because you need three or more members to start a co-op. So Jane the plumber will always have a place to run her one or two person business with her husband Joe. Co-ops can also be just as capitalistic as private or public companies if their constitution or members were to mandate it. This is not, however, what has been seen with co-ops. They benefit more, with equal share, and greater respect to people.

Co-ops offer a very human way of doing business, and with their inherent values, they may well become the dominant form of business in the future.

Thank you for reading my article, and if you have any comments or questions, please post a comment below. Also, if there is anyone that is adept at making apps, I am looking to make one for co-ops. Send Earth Easy an email (info@eartheasy.com) with your contact information and I’ll be in touch!

Best of luck and happy 2012, the International Year of the Co-operative.

References
[1] http://www.ica.coop/coop/statistics.html#members
[2] http://www.employeeownership.co.uk/news/whitehall-update/employee-ownership-index/
[3] http://www.uk.coop/pressrelease/co-operation-now-dominant-force-global-business-ownership
[4] http://www.coop.gc.ca/COOP/displayafficher.do?id=1232131333489&lang=eng
[5] http://auspace.athabascau.ca/handle/2149/3133
[6] http://auspace.athabascau.ca/handle/2149/3132
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Geoff DeRuiter
is currently pursuing a PhD in Bioenergy and Biocarbon Sequestration, Geoff is passionate about the outdoors and our environment. An expert on alternative energy and sustainability, he is always looking for new and innovative ways to reduce waste and increase every day efficiency.

 

 

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  • angieinohio

    I work for a small bakery coop and I can tell you feeling a sense of ownership is another reason to support coops. There is a small franchise food outlet next door and they have high staff turnover, but our team is together now for almost two years. We don’t make big paychecks (yet!) but our pride in the business and feeling we each are important are worth a lot too.

  • rand

    people don’t understand what a co-operative business is about. most business follow the queen bee, worker bee model and don’t get how a different model can be better. when all the wealth is concentrated in a few hands is that success of capitalism?

  • Mattia Campagnano

    I think the future is toward cooperation in all fields of human life. Life is becoming more and more social and circulation of ideas among individuals is something healthy for our society. More persons sharing their resources and know-how can respond better to consumers’ needs than big companies.

  • uno58

    Thank you for your great article. Really Cooperatives are the future of business. Global economy doesn’t think about humanity and environment. But the media still doesnt show their bad face enough in the world.

  • Heuristics

    The author shows a narrow understanding of cooperatives. To state that a cooperative business for instance masks the fact that all businesses need to make a profit, including co-ops. If a co-op doesn’t make a profit then it makes a loss, and the members of that co-op have to shoulder that loss. Try instead to think of co-ops being profit-conscious.

    Except of course those that are owned by the workers. They have every reason to profit maximise like any investor-owned capitalist firm, and that is to share the profits among the shareholders, in this case the co-op members.

    Looking at ownership and governance, while some co-ops are one member one share and one vote, other co-ops, such as those owned by dairy farmers, generally ask their members to buy shares in proportion to the business they put through the cooperative. In this case, there’s generally a cap on voting rights so that the larger members aren’t able to outvote the smaller ones. To see the relationship as an equitable one than an equal one makes more sense.

    Your three kinds of co-ops leaves out the fourth kind: purchasing and shared services co-ops, which is a better description of co-ops such as Ace Hardware.

    To state that co-ops are not as “capitalistic” (whatever that means) as private or public companies (surely a cooperative is a privately owned company, isn’t it?) is not borne out by the facts. Look at the largest 100 co-ops in the USA (www.coop100..coop) and you’ll see few that offer significant benefit to those outside their immediate membership.

    Now, in my view, if you want to look for inspiration among co-ops you should examine first the small but growing number of multistakeholder co-ops (such as Oklahoma Food Co-op) in which different groups with (often) opposing interests are members, and second CROPP Cooperative, which is known to the public as Organic Valley. CROPP rewards not just its farmer members but allots a proportion of profits to staff and gives a proportion to causes nominated by people who buy its products.

    • Geoff de Ruiter

      Hi There,

      Thanks so much for the comment. You are absolutely right there are more types of co-ops and they are obviously not as simple as I have portrayed. This article was written to stimulate the conversation that co-ops have potential advantages over traditional businesses and that may lead to a co-operative succession.

      With your point about profits, there is a difference between profits and revenue and yes your are correct that in some co-ops they are in the business to make a profit. Others also make profits but they are returned to members or invested back into the business, that is why I used the general term essentially not-for-profit.

      I would like to kindly mention, that to say I have a narrow understanding of co-ops does not include my situation in writing this article and my considerations, i.e. length limitations, depth of details, and breadth of reach to others that may need an introduction to co-ops, but that may not be ready for all the details. I hope you can understand :)

      I am extremely happy that you are also helping to progress co-operative business and that you have a great understanding of the intricacies. I will look up the co-ops you mentioned because I am always interested in what others are doing and which successful businesses are out there! Best of luck with your ventures.

      Kind Regards,
      Geoff

  • John Stevens

    WoW! what a wonderful blog you have. this will help on my future business and to my co-workers.thank you again and hope to work with you in the near future.

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