The world we live in is quite complicated. Being alone in this crazy, mixed-up reality can make this truth quite scary. However, even in the big, bad take-no-prisoners universe of globalized economics, there are tools that can be used to help improve one’s chances of successful navigation through these choppy waters. One of the most effective tools in this respect are cooperatives, which are defined in many different ways:
Barton (2000) define cooperatives as a private business owned and controlled by users and operated principally to provide benefits to users;
The International Co-operative Alliance (ICA) characterizes cooperatives as autonomous associations of persons united voluntarily to meet their common economic, social and cultural needs and aspirations through a jointly owned and democratically controlled enterprise;
The US Federation of Worker Cooperatives (USFWC) identifies cooperatives as business entities controlled by their members, the people who work in them.
There are many more definitions, but each indicates that it is the members who make a co-operative a co-operative. Therefore, there is a goal of maximized benefit for the members who comprise the constituency. This is in contrast to standard business models in which the ultimate goal is (almost) always maximized profit. Additionally, co-operatives are unique in that they are dual-natured – the serve both as a social group and business enterprise.
According to the ICA, co-operatives should adhere to several principles:
- Voluntary and open membership
- Democratic member control
- Autonomy and independence
- Education, information, and training
- Co-operative among cooperatives
- Concern among community
The USDA streamlines these qualities into 3 fundamental characteristics:
- User-owned: co-operatives are used by those who own it
- User-control: co-operatives should be controlled by those who use it
- User-benefits: benefits generated by the co-operative are allocated to its users on the basis of use
It is estimated that there are currently an estimated 1 billion co-operative members in the world and approximately 100 million individuals. The largest amount of revenue generated by co-operatives in the world is related to agriculture (28.85%), although there are many other types including banking/credit unions (26.27%), consumer retail (21.66%) and insurance (17.123%).
Within these various sectors, the size and composition of the co-operative vary greatly. Regardless of this fact, members are able to enjoy many benefits associated with their membership, including (but not necessarily limited to):
- Increased negotiation power
- Support for social causes (e.g., a green power co-operative)
- Economies of scale (decreased prices as a result of more production)
- Risk reduction (e.g., price stabilization)
- Product diversification
- Improved and/or new access to markets
- Better market conditions
- Patronage refunds
- BETTER COST EFFICIENCY (identified as the primary motivation)
The development and use of co-operatives can also help to destabilize oligopoly markets (those in which only a small number of businesses maintain a stronghold of power making market entry for newcomers or alternative economic methods virtually impossible), which is essential in a world where power and money continues to become more and more concentrated among only a few companies and individuals. Furthermore, when co-operatives provide better conditions for the members than traditional businesses can offer, traditional businesses must become competitive in order to avoid a scenario in which all members of a given sector join a co-operative. This phenomenon is known as the Yardstick Effect.
To ensure that co-operatives do not transform into entities that mimic the activities of their private firm counterparts (for example, charging too much), cooperatives are democratically controlled and designed to serve as economic “architects”, rather than economic “Napoleons”. (see Nourse, 1945)