The Resilience of the Co-op Business Model

June 10th, 2009

Overlooked by the mainstream media and only rarely discussed in the management journals is the resilience of the Co-operative business model.  The reason for this may well be the lack of management scandals, which have plagued the corporate and the nonprofit sectors over the past 20 years.

Co-operatives have also maintained a low profile in the current economic meltdown. There are almost 10,000 credit unions in the U.S. with 84 million members and assets in excess of $600 billion.  Not one of these defaulted or went to Washington for TARP money simply because they are close to their communities and know their customers.  Credit Union loans were not sliced and diced into ‘collateralized debt obligations’ by Wall Street, given triple a status by the ratings agencies and then sold to institutions worldwide.  These asset managers could not or did not check on the details of the underlying loans, a situation that is almost impossible to be replicated at a credit union.

What exactly is a Co-op?

The Co-operative Industry uses this definition:

“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 central role of Values is paramount in the Co-operative community:

“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.”

Those values have been firmly recognized by The United Nations with their designation of July 4th, 2009 as the International Day of Cooperatives.

“Driving Global Recovery through Cooperatives” is this year’s International Day theme and it focuses on recovery rather than crisis.  It aims to highlight the role that cooperatives have in not only promoting economic growth, but also in promoting ethical values - values that have been severely challenged during the financial and food crisis. It underlines that cooperatives can effectively contribute to global economic recovery and that they will do so in respect of the Cooperative Values and Principles, which guide their operations.

The Principles follow seven internationally recognized precepts:

•    Voluntary and Open Membership
•    Democratic Member Control
•    Member Economic Participation
•    Autonomy and Independence
•    Education, Training and Information
•    Cooperation Among Cooperatives
•    Concern for Community

A brief history:

Co-operatives started out as small grassroots organizations in Western Europe, North America and Japan in the middle of the last century; however, it is the Rochdale Pioneers that is regarded as the prototype of the modern co-operative society and the founders of the Co-operative Movement.

The Rochdale Pioneers:

In 1844 a group of 28 artisans working in the cotton mills in the town of Rochdale, in the north of England established the first modern co-operative business, the Rochdale Equitable Pioneers Society The weavers faced miserable working conditions and low wages, and they could not afford the high prices of food and household goods. They decided that by pooling their scarce resources and working together they could access basic goods at a lower price. Initially, there were only four items for sale: flour, oatmeal, sugar and butter.

The Pioneers decided it was time shoppers were treated with honesty, openness and respect, that they should be able to share in the profits that their custom contributed to and that they should have a democratic right to have a say in the business. Every customer of the shop became a member and so had a true stake in the business. At first the co-op was open for only two nights a week, but within three months, business had grown so much that it was open five days a week.

The principles that underpinned their way of doing business are still accepted today as the foundations upon which all co-operatives operate. These principles have been revised and updated, but remain essentially the same as those practiced in 1844.

In the US, since 1916 the National Cooperative Business Association was the first, and remains the only national organization for all types of co-ops in the country. Dedicated to developing, advancing and protecting cooperatives, for nearly 80 years the NCBA has been the national voice for U.S. cooperatives, helping them compete in changing economic and political environments.

Internationally the Association has worked in the developing world for over 60 years, helping to empower local communities through cooperative development.

A 100 years after the Rochdale Pioneers’ Co-op was founded in the UK, the NCBA formed the Freedom Fund in 1944, to help cooperatives recover in war-torn Europe.

The following year, it played an integral role in creating the Cooperative for American Remittances to Europe, which provided economic relief to war-torn Europe. NCBA President Murray Lincoln was the first president of that organization, now known and recognized worldwide as CARE.

Some interesting facts and figures:

# Worldwide, some 750,000 cooperatives serve 730 million members.

# U.S. cooperatives serve some 120 million members, or 4 in 10 Americans.

# 29 cooperatives have annual revenue in excess of $1 billion, including such well-known names as REI, Land O’Lakes, Inc., ACE Hardware, Sunkist and Ocean Spray Cranberries.

#The top 100 co-ops have a combined $117 billion in revenues.

# Cooperatives range in size from large enterprises, including U.S. Fortune 500 companies, to single, small local storefronts.

# 270 telephone cooperatives provide service to two million households.

# Some 250 purchasing cooperatives offer group buying and shared services to more than 50,000 independents businesses.

# Cooperatives operate in every industry including agriculture, childcare, energy, financial services, food retailing and distribution, health care, insurance, housing, purchasing and shared services, telecommunications, and others.

# About 30 percent of farmers’ products in the U.S. are marketed through more than 3,000 farmer-owned cooperatives.

# Approximately 900 rural electric cooperatives own and maintain nearly half of the electric distribution lines in the U. S., cover 75 percent of the land mass and provide electricity to 37 million people.

# More than 1,000 mutual insurance companies, with more than $80 billion in net written premiums, are owned by their policyholders.

# More than 6,400 housing cooperatives provide homes for 1.5 million households.

Throughout the World, cooperatives are providing co-op members with financial services, utilities, consumer goods, affordable housing, and other services that would otherwise not be available to them.

The U.N.’s conference “Driving Global Recovery through Cooperatives” in July will bring the Co-operative business model to the attention of a broader business audience, perhaps Wall Street can find time to listen to some inspiring success stories.

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Just announced:

The Global Co-operative Development Fund

UK credit card provider Co-operative Bank, in collaboration with Deutsche Bank, has launched the first development fund for co-operatives.

The bank believes that its customers wants it to play a part in tackling global poverty and the new fund is one of the ways that it can achieve this aim.

Head of structured and asset finance at the bank Richard Wilcox said: “Investing in co-operatives can contribute to the economic development of a country, helping to alleviate poverty and reduce economic vulnerability - while providing a competitive risk-adjusted return.”

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