Cooperative

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The old Co-operative building behind the Gateshead Millennium Bridge in Newcastle upon Tyne.

A cooperative (also co-operative or co-op) is defined as a business owned by the people who use its services. The cooperative movement emerged in the nineteenth century in Europe, particularly as a result of the Industrial Revolution. Robert Owen, generally considered the father of the cooperative movement, was the owner of successful cotton mills. He believed in putting his workers in a good environment with access to education for themselves and their children and attempted to establish "villages of cooperation" where workers would be able to rise out of poverty by their own efforts. Many took up Owen's ideas, modifying them and forming their own cooperatives.

Contents

Expanding throughout the world, cooperatives have been successful in a number of fields, including retailing, banking, energy, housing, and the processing and marketing of agricultural products.

Definition

A cooperative (also co-operative or co-op) is defined by the International Co-operative Alliance's Statement on the Co-operative Identity 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.[1]

A cooperative is a legal entity owned and controlled by its members. Alternatively, the term may be used loosely to signify its members' ideology. Cooperatives are based on the values of self-help, self-responsibility, democracy, equality, equity, and solidarity. The defining point in a cooperative is that the members have a close association with the cooperative as producers or consumers of its products or services, or as its employees. However, it is the principle of "one member—one vote" which separates it from capital stock corporations.

In the United States, cooperatives are generally organized according to state law. They are often organized as non-capital stock corporations under state-specific cooperative laws, which often restrict the use of the words "cooperative" and "co-op" to such organizations. However, they may also be organized as business corporations or unincorporated associations, such as Limited Liability Companies (LLCs) or partnerships; such forms are useful when the members want to allow some members a greater share of the control, which may not be allowed under the laws for cooperatives. Cooperatives do not generally pay dividends, but return savings or profits, sometimes known as patronage, to their members. Cooperatives can have special income tax benefits in the United States; however, because they are an unusual form of organization requiring specialized knowledge, legal and accounting costs are often very high and many choose to be taxed under less favorable corporate or partnership tax laws.

In the United Kingdom, the traditional corporate form taken by cooperatives is the "bona fide co-operative" under the Industrial and Provident Societies Acts. Since the 1980s, however, many have incorporated under the Companies Acts, limited either by shares or by guarantee. In a bid for sustainability, many cooperatives adopt the principle of "common ownership," and have a zero or nominal share capital, along with a clause stipulating altruistic dissolution. This means that the cooperative cannot be wound up and its assets distributed for personal profit. The facility to legally "lock" a cooperative assets in this way was brought into force in 2004.

In the European Union, the European Cooperative Statute provides a corporate form for cooperatives with individual or corporate members in at least two of the EU member states. Also, in the European Union and in large regions of America, cooperatives, with associations, foundations and mutual funds, are considered parts of the Social economy or Third Sector.

Philosophy

In the tradition of their founders, cooperative members believe in the ethical values of honesty, openness, social responsibility, and caring for others." Such legal entities have a range of unique social characteristics. Membership is open, meaning that anyone who satisfies certain non-discriminatory conditions may join. Unlike a union, in some jurisdictions a cooperative may assign different numbers of votes to different members. However, most cooperatives are governed on a strict "one member, one vote" basis, to avoid the concentration of control with the elite. Economic benefits are distributed proportionally according to each member's level of economic interest in the cooperative, for instance, by a dividend on sales or purchases. Cooperatives may be generally classified as either consumer or producer cooperatives, depending largely on the mutual interest that their membership shares. Classification is also often based on their function.[2]

History of the cooperative movement

The cooperative movement began in Europe in the nineteenth century, primarily in England and France. The industrial revolution and the increasing mechanization of the economy transformed society and threatened the livelihoods of many workers. The concurrent labor and social movements and the issues they attempted to address describe the climate at the time.

Robert Owen (1771–1858) is considered the father of the cooperative movement. A Welshman who made his fortune in the cotton trade, Owen believed in putting his workers in a good environment with access to education for themselves and their children. These ideas were put into effect successfully in the cotton mills of New Lanark, Scotland. It was here that the first cooperative store was opened. Spurred on by the success of this, Owen had the idea of forming "villages of cooperation," where workers would drag themselves out of poverty by growing their own food, making their own clothes, and ultimately becoming self-governing. He tried to form such communities in Orbiston in Scotland and in New Harmony, Indiana in the United States of America, but both communities failed.

Although Owen inspired the cooperative movement, others—such as William King (1786–1865)—took his ideas and made them more workable and practical. King believed in starting small, and realized that the working classes would need to set up cooperatives for themselves, so he saw his role as one of instruction. He founded a monthly periodical called The Cooperator, the first edition of which appeared on May 1, 1828. This gave a mixture of cooperative philosophy and practical advice about running a shop using cooperative principles. King advised people not to cut themselves off from society, but rather to form a society within a society, and to start with a shop because, "We must go to a shop every day to buy food and necessaries—why then should we not go to our own shop?" He proposed sensible rules, such as having a weekly account audit, having 3 trustees, and not having meetings in pubs (to avoid the temptation of drinking profits). A few poor weavers joined together to form the Rochdale Equitable Pioneers Society at the end of 1843. The Rochdale Pioneers, as they became known, set out the Rochdale Principles in 1844, which have been highly influential throughout the cooperative movement.

Cooperative communities are now widespread, with one of the largest and most successful examples being at Mondragón in the Basque country of Spain.

In many European countries, cooperative institutions have a predominant market share in the retail banking and insurance businesses.

Types of cooperatives

Cooperatives are classified as consumer or producer cooperatives. Consumer cooperatives are owned by the people who buy the goods or use the services of the cooperative. They operate in areas including retailing, energy, financial services, health care, and housing. Producer cooperatives are owned by producers of farm commodities or crafts, who band together to process or market their products.

Housing cooperative

A housing cooperative is a legal mechanism for ownership of housing where residents either own shares (share capital co-op) reflecting their equity in the cooperative's real estate, or have membership and occupancy rights in a not-for-profit co-operative (non-share capital co-op), and they underwrite their housing through paying subscriptions or rent.

Housing cooperatives come in two basic equity structures:

  • In Market-rate housing cooperatives, members may sell their shares in the cooperative whenever they like for whatever price the market will bear, much like any other residential property. Market-rate co-ops are very common in New York City.
  • Limited Equity housing cooperatives, which are often used by affordable housing developers, allow members to own some equity in their home, but limit the sale price of their membership share to that which they bought in for.

Building cooperative

Members of a building cooperative (in Britain known as a self-build housing cooperative) pool resources to build housing, normally using a high proportion of their own labor. When the building is finished, each member is the sole owner of a homestead, and the cooperative may be dissolved.[3]

This collective effort was at the origin of many of Britain's building societies, which developed into "permanent" mutual savings and loan organizations, a term which persisted in some of their names (such as the former Leeds Permanent). In modern times, such self-building may be financed using a step-by-step mortgage which is released in stages as the building is completed.

The term may also refer to worker cooperatives in the building trade.

Retailers' cooperative

An annual general meeting of a retail co-operative in England, 2005.

A retailers' cooperative (often known as a secondary or marketing co-operative in the UK) is an organization which employs economies of scale on behalf of its members to get discounts from manufacturers and to pool marketing. It is common for locally-owned grocery stores, hardware stores, and pharmacies. In this case, the members of the cooperative are businesses rather than individuals.

Social cooperative

A particularly successful form of multi-stakeholder cooperative is the Italian "social cooperative," of which some seven thousand exist. "Type A" social cooperatives bring together providers and beneficiaries of a social service as members. "Type B" social cooperatives bring together permanent workers and previously unemployed people who wish to integrate into the labor market.

Social cooperatives are legally defined as follows:

  • The objective is the general benefit of the community and the social integration of citizens
  • Type A cooperatives provide health, social or educational services
  • Those of type B integrate disadvantaged people into the labor market. The categories of disadvantage they target may include physical and mental disability, drug and alcohol addiction, developmental disorders and problems with the law. They do not include other factors of disadvantage such as race, sexual orientation, or abuse
  • Various categories of stakeholder may become members, including paid employees, beneficiaries, volunteers (up to fifty percent of members), financial investors and public institutions. In type B co-operatives at least thirty percent of the members must be from the disadvantaged target groups
  • The cooperative has legal personality and limited liability
  • Voting is one person one vote
  • No more than eighty percent of profits may be distributed, interest is limited to the bond rate and dissolution is altruistic (assets may not be distributed)
A supermarket run by a consumer cooperative in the port of Leith, Edinburgh.

A good estimate of the current size of the social cooperative sector in Italy is given by updating the official ISTAT figures from the end of 2001, by an annual growth rate of ten percent (assumed by the Direzione Generale per gli Ente Cooperativi). This gives totals of seven thousand one hundred social cooperatives, with over two hundred fifty thousand members, over two hundred twenty thousand paid employees, over thirty thousand volunteers and nearly twenty five thousand disadvantaged people undergoing integration. Combined turnover is around five billion euro. The cooperatives break into three types: Fifty-nine percent type A (social and health services), thirty three percent type B (work integration) and eight percent mixed. The average size is thirty workers.

Farmers' grain Co-op in Crowell, TX.

Agricultural cooperative

Agricultural cooperatives are widespread in rural areas.

In the United States, there are both marketing and supply cooperatives. Agricultural marketing cooperatives, some of which are government-sponsored, promote and may actually distribute specific commodities. There are also agricultural supply cooperatives, which provide inputs into the agricultural process.

In Europe, there are strong agricultural/agribusiness cooperatives, and agricultural cooperative banks. Most emerging countries are developing agricultural cooperatives. Where it is legal, medical marijuana is generally produced by cooperatives.

Cooperative banking (credit unions and cooperative savings banks)

The Co-operative Bank's head office, 1 Balloon Street, Manchester. The statue in front is of Robert Owen, a pioneer in the cooperative movement.

Credit Unions provide a form of cooperative banking.

In North America, the caisse populaire movement started by Alphonse Desjardins in Quebec, Canada, pioneered credit unions. Desjardins wanted to bring desperately needed financial protection to working people. In 1900, from his home in Lévis, Quebec, he opened North America's first credit union, marking the beginning of the Mouvement Desjardins.

While they have not taken root so deeply as in Ireland or the U.S., credit unions are also established in the UK. The largest are work-based, but many are now offering services in the wider community. The Association of British Credit Unions Ltd (ABCUL) represents the majority of British Credit Unions. British Building Societies developed into general-purpose savings & banking institutions with "one member, one vote" ownership and can be seen as a form of financial cooperative (although many "demutualized" into conventionally-owned banks in the 1980s and 1990s). The UK Cooperative Group includes both an insurance provider CIS and the Cooperative Bank, both noted for promoting ethical investment.

Other important European banking cooperatives include the Crédit Agricole in France, Migros and Coop Bank in Switzerland, and the Raiffeisen system in many Central and Eastern European countries. The Netherlands, Spain, Italy, and various European countries also have strong cooperative banks. They play an important part in mortgage credit and professional (farming) credit.

Cooperative banking networks, which were nationalized in Eastern Europe, work now as real cooperative institutions. A remarkable development has taken place in Poland, where the SKOK (Spółdzielcze Kasy Oszczędnościowo-Kredytowe) network has grown to serve over one million members via 13,000 branches, and is larger than the country’s largest conventional bank.

In Scandinavia, there is a clear distinction between mutual savings banks (Sparbank) and true credit unions (Andelsbank).

Carsharing

Carsharing is an arrangement by which individuals and groups share vehicles, which are stored in convenient common locations. It may be thought of as a very short-term, locally-based car rental, run on a members-only basis. It is available in most major cities in Europe. In Switzerland, Mobility Car-Sharing cooperative has more than 50,000 clients, but is also common in Germany, Austria, and the Netherlands, and is fast growing in popularity in other European countries, Asia, and North America. Car sharing operations may be for-profit or non-profit organizations.

Federal or secondary cooperatives

In some cases, cooperative societies find it advantageous to form co-operative federations in which all of the members are themselves cooperatives. Historically, these have predominantly come in the form of cooperative wholesale societies and cooperative unions.[4] Cooperative federations are a means through which cooperative societies can fulfill the sixth Rochdale Principle, cooperation among cooperatives, with the ICA noting that "Co-operatives serve their members most effectively and strengthen the co-operative movement by working together through local, national, regional and international structures."

According to cooperative economist Charles Gide, the aim of a cooperative wholesale society is to arrange “bulk purchases, and, if possible, organize production.” The best historical example of this were the English CWS and the Scottish CWS, which were the forerunners to the modern Co-operative Group.

A second common form of Co-operative Federation is a Co-operative Union, whose objective (according to Gide) is “to develop the spirit of solidarity among societies and… in a word, to exercise the functions of a government whose authority, it is needless to say, is purely moral.” Co-operatives UK and the International Co-operative Alliance are examples of such arrangements.

In some countries with a strong Co-operative sector, such as the UK, Co-operatives may find it advantageous to form a Parliamentary Political party to represent their interests. The British Co-operative Party and the Canadian Co-operative Commonwealth Federation are prime examples of such arrangements.

In the UK, cooperatives formed the Co-operative Party in the early twentieth century to represent members of co-ops in Parliament. The Co-operative Party now has a permanent electoral pact with the Labour Party, and has 29 Members of parliament who were elected at the 2005 General Election as 'Labour and Co-operative' MPs. UK co-operatives retain a significant market share in food retail, insurance, banking, funeral services, and the travel industry in many parts of the country.

Examples

Canada

The Netherlands

United Kingdom

United States

  • Associated Retail Stores based in Salt Lake City, Utah is a retailers' cooperative.
  • Group Health Cooperative based in Seattle, Washington, is a consumer-governed nonprofit healthcare system.
  • True Value Company is one of the world’s largest retailer-owned hardware cooperatives with approximately 5,800 independent retail locations worldwide.

Notes

  1. International Cooperative Alliance, Statement of the Cooperative Identity. Retrieved December 19, 2007.
  2. Jeff Madura, Introduction to Business (South-Western College Publications, 2006). ISBN 978-0324407112
  3. John Berry and Mark Roberts, Co-op Management and Employment (ICOM Publications, 1984). ISBN 978-0946776047
  4. Charles Gide, Consumer's Co-operative Societies (Knopf, 1922). Retrieved December 19, 2007.

References

  • Adams, Frank and Gary Hansen. 1993. Putting Democracy to Work: A Practical Guide for Starting and Managing Worker-Owned Businesses. Berrett-Koehler Publishers. ISBN 978-1881052098
  • Berry, John and Mark Roberts. 1984. Co-op Management and Employment. ICOM Publications. ISBN 978-0946776047
  • Greider, William. 2003. The Soul of Capitalism: Opening Paths to a Moral Economy. Simon & Schuster. ISBN 978-0684862194
  • Madura, Jeff. 2006. Introduction to Business. South-Western College Publications. ISBN 978-0324407112

External links

All links retrieved June 19, 2013.

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