Sunday, December 21, 2008

Introduction to Cooperatives

I have worked in the coop world now for five years and it’s been a really illuminating experience. By working for a coop and being an active director of a coop board for three years as well as attending the CCMA, an annual conference for Food Coops, I have learned about a great alternative business model that stands tall in comparison to the corporate model. The corporation is basically handicapped from the start by the emphasis on profit as the end all and be all. Profit is the bottom line of most business enterprise and that does not, most of the time, translate to social or environmental responsibility. It’s also about a few getting rich on the labor of the many.

Coops on the other hand are organized in an equitable fashion: one share equals one vote and equal responsibility. They are democratic organizations where profit is not the bottom line. They have a set of guiding principles, first drafted in 1844 by the Rochdale Equitable Pioneer Society in Rochdale, England, that were revised in 1994 by the International Cooperative Alliance. These principles are standard throughout cooperatives whether they are wholesale and supplier services, food retailers, credit unions, or employee owned cooperatives like Equal Exchange, the Fair Trade company.

The Seven Cooperative Principles
The co-operative principles are guidelines by which co-operatives put their values into practice.
Principles taken from The International Cooperative Alliance web site.

1st Principle: Voluntary and Open Membership
Co-operatives are voluntary organisations, open to all persons able to use their services and willing to accept the responsibilities of membership, without gender, social, racial, political or religious discrimination.
2nd Principle: Democratic Member Control
Co-operatives are democratic organisations controlled by their members, who actively participate in setting their policies and making decisions. Men and women serving as elected representatives are accountable to the membership. In primary co-operatives members have equal voting rights (one member, one vote) and co-operatives at other levels are also organised in a democratic manner.
3rd Principle: Member Economic Participation
Members contribute equitably to, and democratically control, the capital of their co-operative. At least part of that capital is usually the common property of the co-operative. Members usually receive limited compensation, if any, on capital subscribed as a condition of membership. Members allocate surpluses for any or all of the following purposes: developing their co-operative, possibly by setting up reserves, part of which at least would be indivisible; benefiting members in proportion to their transactions with the co-operative; and supporting other activities approved by the membership.
4th Principle: Autonomy and Independence
Co-operatives are autonomous, self-help organisations controlled by their members. If they enter to agreements with other organisations, including governments, or raise capital from external sources, they do so on terms that ensure democratic control by their members and maintain their co-operative autonomy.
5th Principle: Education, Training and Information
Co-operatives provide education and training for their members, elected representatives, managers, and employees so they can contribute effectively to the development of their co-operatives. They inform the general public - particularly young people and opinion leaders - about the nature and benefits of co-operation.
6th Principle: Co-operation among Co-operatives
Co-operatives serve their members most effectively and strengthen the co-operative movement by working together through local, national, regional and international structures.
7th Principle: Concern for Community
Co-operatives work for the sustainable development of their communities through policies approved by their members.

To participate in a cooperative by buying a share and becoming an owner is to take a certain amount of control. You are no longer passive. When I opened my account with my local credit union I became an owner of that business equally with all other shareholders, even if they had more money in their account than me, because the share amount is exactly the same. I have the same vote as every other credit union member.

Cooperative history is rich and goes back a few hundred years. The oldest surviving coop in the United States is the Philadelphia Contributionship for the Insurance of Houses from the Loss by Fire. Benjamin Franklin founded it in 1752, and while a cooperative it operates a little differently than cooperatives formed after the Rochdale Equitable Pioneer Society. Coops are equally important for their contribution to the Civil Rights movement, the electrification of rural America under the New Deal, and they continue today with their work in the arenas of Fair Trade, both internationally and domestically, as well as social equality.

Learn more about coops here: Go Coop.


Paul said...

Longfellow: Where did you obtain your statement of the principle of member economic participation with respect to capital credits? I'm wondering if that is your language or the language of a recent statement of the principles by a cooperative organization. Thanks

Longfellow said...

Paul, are you referring to the Principles as I posted them? I copied those from a cooperative's web site, but they should be identical to all other copies of the Principles. Of course I read them quickly! I'll go sift through all the pages I browsed.

Longfellow said...

Hi again! It was from Barron Electric and I'm actually going to edit my post to the more widely accepted version of the Principles. Thanks for pointing that out to me.

Shows what happens when you go too quick.

Paul said...

Thanks for explaining. I'm a lawyer working on this issue and wondered if I had missed something with respect to the most recent statement of cooperative principles by the ICA or a similar organization.

Longfellow said...

Paul, it's good to know someone is paying attention and reading! I plan to post more about cooperatives on my blog. I hope to continue to work in the cooperative sector even though I have given notice at my present job.

Are you specializing in coop law?

Paul said...

Yes, I am working almost full time at present on co-op issues. How about contacting me off-line at to continue the discussion in a more private way. Thanks, Paul