After a decade of crisis and another decade of growth the cooperative sector is finally being given the attention it deserves. But its impact does not reside purely in the numbers that mainstream economic analysis provides.

 

BY MICHAEL PALMIERI | THURSDAY, OCTOBER 27 

After a decade of crisis and another decade of growth the cooperative sector is finally being given the attention it deserves. But its impact does not reside purely in the numbers that mainstream economic analysis provides.

Cooperatives like any other organizational form embedded within differing societies are diverse in character. This includes their mission (social, economic, cultural), what sector (finance, agriculture, insurance, construction) and geographic region (urban or suburban, rural) they are located in. It also includes the services or goods they produce, their relationship to the market (producer, consumer, worker) and the kinds of membership (secondary, tertiary, higher level) which often informs the internal governing structures that shape the decision-making process within each cooperative. Nevertheless, even with these sundry characteristics, the assumption that something called the ‘cooperative sector’ or in other instances the ‘cooperative movement’ exists is not only made but widely accepted. There will be no argument to that such an assumption is misplaced here. However, one important question to ask is on what grounds does this assumption lie?

To state that there is a cooperative sector is to implicitly believe that there are factors that differentiate it from other sectors. But what are they? Immediately, definitional questions arise. How should one define and thereby differentiate what the cooperative sector is? One logical way to answer this elementary question is to engage in a not so simple action; agreeing on what a cooperative is. 

Providing a strict definition of what is or is not a cooperative, though an important task, has always been a site of contention. However, such a definitional construct is important. First, at an academic level, being clear on how cooperatives are differentiated from typical capitalist firms is central to carry out research aimed at measuring the size, scope and impact of the cooperative sector. If a definitional construct and thus the variables that distinguish cooperatives from typical firms are not established, it becomes extremely difficult, if not impossible, to test theories or assumptions pertaining to cooperatives and their benefits.

Second, having a solid definition of what a cooperative is allows for members of and advocates for cooperative organizations to have a framework for understanding and educating themselves and the public. It is only when those who support and are part of the cooperative sector can clearly articulate and demonstrate (empirically) the benefits of cooperatives that public officials will begin to construct favorable public policy. Both above points relate directly to a third, perhaps more difficult to measure but no less important benefit of defining cooperatives: identity formation. Forming broad support around a definition of what a cooperative is foundational to creating advantageous conditions within both the legal and cultural contexts.[1]

The three points outlined above are by no means an exhaustive survey of the benefits of creating an agreed upon definition of a cooperative. Instead they are a few key areas where the movement would clearly benefit in material ways. But, as stated in the onset, though creating such a definition is important, the diverse characteristics that differentiate individual cooperatives within the movement demonstrates just how hard it would be to ascertain a working definition. Thankfully, the difficulty of the process need not be thought about as a mere academic exercise in abstract theory. Nearly 20 years ago the question of what a cooperative is struck the heart and minds of those within the international movement. The importance of a definition was, of course, at the heart of the issue. Digging into how that problem was addressed is instructive.

 

REMEMBERING THE COOPERATIVE CRISIS

“Are cooperatives able to become breeding grounds for democracy [as theory suggests], or is the cooperative institution irremediably associated with authoritarianism.” [2]

The importance of having a definition for a cooperative was made apparent as the twentieth century drew to a close. Beginning in the late 1970s, but coming clear by the end of the 1980s, changes within the global economy, international political relations, and developments taking place in Asia, Africa, and Latin America demanded that the definition and principles of what it means to be a cooperative be reevaluated. The situation was dire in the developed world cooperatives, which were for so long instruments of government control rather than independent, member controlled organizations, and are now faced not only with a public perception problem but also funding cuts in the midst of structural adjustment programs.[3] Likewise, the fall and then swift privatization of the Soviet Bloc threatened the whole sale demutualization of cooperatives to the private sector. Globally, low membership of women raised the question of if cooperatives were truly inclusive. Finally, in the industrialized world the drift away from democratic principles towards a business ethic where the gulf between members and management resembled that of a typical capitalist firm was taking place.[4]

It was in this landscape that international institutions like the United Nations Food and Agriculture Organization published reports titled Cooperatives: Has Their Time Come – or Gone?, that included the chapter title The Cooperative Identity Crisis. The centrality and importance of getting a grip on a cooperative definition was made clear through a question used as a title of a brief in the report, “When is a Co-op not a Co-op?”[5]  The report observed, “Nearly everywhere, cooperatives are living through a crisis which could, in some cases be mortal.” Just how uncertain the future identity of cooperatives were at this moment was captured by the last sentence in the executive summary of the same FAO report, “Are cooperatives able to become breeding grounds for democracy [as theory suggests], or is the cooperative institution irremediably associated with authoritarianism.”[6]

 

A NEW IDENTITY

“The co-operative values and principles are difficult masters but they can be wonderful allies; they are the means of their own success.” [7]

It was in this context that The International Cooperative Alliance (ICA), a non-governmental organization established in 1895 to unite, represent and serve co-operatives worldwide, looked out and agreed that an ‘identity crisis’ indeed existed. This recognition began a long and arduous process of creating and then adopting what is termed “the revised Statement on the Co-operative Identity” thus reformulating what it meant to be a cooperative. In the simplest form the document had three important contributions. First, it supplied a basic definition of a cooperative. Second, it outlined the general values of cooperatives. Third, it provided seven cooperative principles to actualize those general values.

The definition agreed during the revision process defined a cooperative 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.”[8] This was an important moment within the cooperative movement as such a revision had only occurred 2 times prior in the years of 1937 and 1966. Add that the ICA has been accepted by the cooperative sector, according to cooperative specialist Dr. Ann Hoyt, as the “the final authority for defining cooperatives and determining underlying principles,” and you begin to understand what a watershed moment this was.[9] Indeed, it was the first time in the history of the ICA that it was able to agree on such a definition.[10]

In addition to the general definition, or what is sometimes referred to as the ‘cooperative identity’, the ICA also provided a clear list of what they term "cooperative values." These include the values of self-help, self-responsibility, democracy, equality, equity and solidarity as well as the ethical values of honesty, openness, social responsibility and caring for others. The first set of values are best understood as those which underlie the organizational structure of cooperatives, while the second set of ethical values capture the commitments the cooperatives members have tried to bring to their organizations over the years.

Finally, both the definitional identity and values were coupled with co-operative principles that, according to the ICA, “put their [co-operative] values into practice.”[11] Below is a list of those seven principles

1. Voluntary and Open Membership
2. Democratic Member Control
3. Member Economic Participation
4. Autonomy and Independence
5. Education, Training and Information
6. Co-operation among Co-operatives
7. Concern for Community

Though the definition, values and the seven principles can rightly be described as both vague and unenforceable “guidelines,” it must be understood that this was done so intentionally. The role of the definition, values and principles was not to create a constraining framework rather one with “inherent flexibility,” which, “demands a form of minimal behavior from every co-operative.” Thus, the whole of the revision process created, “guidelines that indicate minimal standards of organizational behavior” that, “continuously suggest further possible actions.” Even with assumed continuous change, when one takes all aspects outlined by the ICA in the mid-1990s, a concrete framework that allows researchers, activists and cooperators to distinguish what is and is not a cooperative indeed emerges.

The process of reevaluating what it meant to be a cooperative was not merely a definitional exercise. It demanded the beginning of a long overdue conversation within the movement that not only centered around institutional features of cooperatives, their structure, membership etc. but also into their identity, what norms, values and principles breathe life into those structures. Recognizing that this moment of crisis was dealt with not by refusing to recognize its existence but by deeply analyzing it in a collaborative way is pivotal on two counts. First, it demonstrates how cooperatives are indeed different than conventional firms. Second, knowing the history of this process allows us to better understand the gains that the cooperative movement made in the two decades that followed.

 

NEW CENTURY NEW IDENTITY

“Cooperatives, in their various forms, promote the fullest possible participation in the economic and social development of all people”[12]

Much has happened since the dark days of the mid-1990s. To say that the cooperative sector has recovered a positive identity in the eyes of many would be an understatement. Examples of how cooperatives could both deliver services that were lacking and augment market power inequalities, though uneven in their development, abounded across the globe, from Argentina to China, and India to Spain. Looking out from the 1990s, very few would have been able to predict what cooperatives would achieve over the next 20 years. Even fewer would have thought that the cooperative sector would assume a leadership role at both the national and international level. Then again, even fewer anticipated the historic and catastrophic event, roughly in the middle of those 20 years, where the power and benefits of cooperatives became evident to a growing number of people: the global financial meltdown of 2007-08.

As multinational giants within the financial sector crumbled under the shock waves of a crisis born out of careless lending practices and the pursuit of short-term profit from populations across the world were, for the first time in many decades, forced to confront the shortcomings of capitalist production. This confrontation led to corresponding questions. How did we get here? How can we do better? And perhaps most important for those in the cooperative movement, what are the alternatives?

One need not have looked too hard to see the cooperative difference in the financial sector in the aftermath of the 2008 crisis. While most commercial banks in America cut back on lending in 2009, the Wall Street Journal pointed out that American credit unions increased loans to $35 billion while conventional bank loans declined $31 billion in the same period. In the United States nearly 1.5 million people joined credit unions.[13]  Similar trends became evident in other developed countries as cooperatives proved over and over again that there was a difference, no longer definitional but empirically based. To take one example, a United Nations 2009 report noted that at the time of publication, “not a single credit union anywhere in the world has received government recapitalization as a result of the financial crisis and they remain well capitalized.”[14]

Similar reports were issued by the ILO which demonstrated that cooperatives, in all their forms, had a long history of thriving in times of crisis and the recessions that typically follow.[15] But perhaps what was most important for cooperatives during this period was how the global crisis put in stark relief how cooperative enterprises of all kinds operated with a very different set of values and principles than their counterparts, which led to very different outcomes, many deemed positive.  

It was in this context that some three years and three months after the fall of Lehman Brothers, the same institution that called into question the role of cooperatives back in 1996 now proclaimed that 2012 would be the ‘The International Year of Cooperatives’. By adopting resolution 64/132 the United Nations General Assembly on 18 December 2009 recognized, “that cooperatives, in their various forms, promote the fullest possible participation in the economic and social development of all people including women, youth, older persons, persons with disabilities and indigenous peoples… and contribute to the eradication of poverty.”[16] As the United Nations’ Secretary General Ban Ki-moon stated after its passage, “Cooperatives are a reminder to the international community that is possible to pursue both economic viability and social responsibility.”[17]

One of the main purposes of the International Year of the Cooperative was to increase public awareness about cooperatives and their socioeconomic achievements of both the past and present, encourage governments to establish policies to further their growth and formation and, finally begin to take stock of cooperatives worldwide in a systematic way. One tangible result of this effort was the creation of a global census on cooperatives that provides, “clear, concise and reputable data on the number of cooperatives globally and per country, their number of members/clients, turnover, employees and assets.”[18] The census, the first of its kind, drew on data from 145 countries and looked at cooperatives regardless of sector or membership in regional and global associations. Once completed, it comprised the “most comprehensive data set on cooperatives.”[19]

With that said it is worthwhile to list a few of its general findings. In addition to demonstrating that cooperatives reach nearly 14% of the world’s population in some way or another (roughly 1 in 6 people), the report also finds that the 2.6 million cooperatives worldwide employ 12.6 million people (more than all multinational corporations combined) in over 700,000 offices, possess US $20 trillion in assets, generate US $3 trillion in annual revenue and are found in sectors as diverse as banking, utilities, housing, agriculture and insurance. Put differently, if the cooperative economy was a united country it would be larger than France and assume the position of the 5^th largest economy in the world.[20]

As evidenced by the above statistics, the “cooperative sector” makes up a substantial part of the global economy. Yet, the very fact that such a census was never conducted until nearly a decade into the twenty first century, and only after a large public relations campaign undertaken by the United Nations and other international organization such as the ICA and ILO, demonstrates the dearth of systematic attention they have received in past.

Nonetheless, in the last two decades datasets like the UN’s Global Census and similar national level analysis are becoming more common and available as interest in alternative business structures grow. These datasets are allowing researchers to demonstrate using mainstream analysis that cooperatives can indeed perform as well, if not better, than capitalist firms. One such recent study was a report written by Virginie Perotin, a leading economist at Leeds University’s Business School. The report titled “What do we really know about worker co-operatives” systematically demonstrated with damning clarity and rigor how many of the arguments against cooperatives are no more than myths when applied to empirical evidence. Major findings of Perotin include that cooperatives on average are larger than conventional businesses, survive at least as long as other businesses, have more stable employment, are more productive, retain a larger share of profits and have much small pay differentials between executive and non executive pay.[21]

In the United States researchers at the University of Wisconsin Economics Department published a report in 2009 titled “Research on the Economic Impacts of Cooperatives,” the purpose of which was to fill the enormous gap in the field. According to the authors, before the 2009 study was completed, “no comprehensive set of national-level statistics had been compiled about U.S. cooperative businesses, their importance to the U.S. economy, or their impact on the lives and businesses of American citizens.”[22] The report in its final form identified over thirty thousand cooperatives and measured both direct and indirect economic impacts of cooperatives. It found that these 30,000 cooperatives operate 73,000 places of business, own US $3 trillion in assets, generate more than 500 billion dollars in revenue, roughly 25 billion in wages, and have over 350 million memberships.[23]

Likewise, think tanks and policy innovation groups such as MIT’s Co-Lab, Democracy at Work Institute, and Democracy Collaborative are now regularly using cooperatives not only to respond to market failures but as a model for community development. That cities across the country and the activists and planners within them, when designing community wealth building plans turn to the cooperative model as is the case in Cleveland, Philadelphia, The Bronx, Detroit and the Bay Area, is a testament to how influential and inspiring cooperatives have become. Leaders of national parties in developed nations are now championing the role cooperatives can play in transforming society, as was the case with Bernie Sanders in the United States--who sponsored bill S. 1081, also known as the Worker-Ownership Readiness, and Knowledge Act (WORK) which is focused on, “providing education and outreach to inform employees and employers about the possibilities and benefits of employee ownership.”[24] In the UK Jeremy Corbin has announced that the Labour government would give workers the right of first refusal to buy their company if it came up for sale with regional banks helping to finance the deals if workers do not have the enough cash in hand.[25] 

However, as the cooperative model is implemented in this way (as a policy tool first and member based organization second) it is certainly worth paying close attention to how this may contribute to muddying the waters of what it means to be a cooperative and what it means to use ‘cooperative models’ in community planning and development. One case in point is the Evergreen Cooperative based in Cleveland. Created to address the very real issue of concentrated poverty and unemployment within downtown Cleveland, Evergreen also serves as a lesson in the importance of member participation in the development of the cooperative itself, as the early stages of Evergreen resembled more of a top-down approach to planning leaving management very much in charge of the most important decision-making processes within the cooperative, and mirroring many community development plans used in marginalized communities.

Yet, when one takes stock of the cooperative movement today, it is hard to walk away without a general sense that the movement is not in retreat but is maturing. It is not enough however to simply have a ‘general sense’ of where the movement is going, especially if supporting legislation and building a movement to transform our economic lives is the end goal. Here, the question of measurement becomes central. To make a case for cooperatives is to be able to demonstrate how cooperatives are not only viable but, in some cases, superior to typical capitalist firms. Such an argument and the undergirding assumptions can only be demonstrated, tested and disseminated if we are able to measure them, but how we go about measuring cooperatives is just as important as the question of what we decide to measure.

  

MEASURING THE COOPERATIVE SECTOR

“The true value of the International Movement is only partly explained when we accumulate statistics and refer to impressive market shares. The full value is only apparent when we understand the importance of co-operatives for their members and within their communities.”[26]

To be clear, the groundwork of establishing economic impact studies and cooperative censuses are more than worthwhile endeavors. They are essential. However, when one demonstrates the benefits of cooperatives strictly though mainstream economic metrics, the values, ethics and identity so integral to the cooperative movement can be is lost in the translation. As the researchers at the University of Wisconsin noted in their 2009 report, “cooperative firms are fundamentally different from other forms of business organizations.” Thus, the measurement of, “business activity [alone] provides an incomplete perspective on the total impact of cooperatives.”[27] It is imperative that this perspective be further expanded and built upon.

There are two problems that are immediately encountered when measuring cooperatives which are particularly acute in the United States but can be generalized to some extent. First, living in a society that is dominated by capitalist firms produces a society where the dominant tools and models used for measuring those firms are, as expected, laden with assumptions applicable to capitalist firms. Take for example the most widely used analysis to measure the economic impact of any sector or industry: the input-output analysis.

One of the most popular models used to conduct input-output analysis is called IMPLAN. IMPLAN is great for measuring job numbers, wage, salaries, total income, tax flows and transactions between industries, households and other institutions. However IMPLAN is not able to, “account for the unique relationship cooperatives may have with local economies.”[28]

Why is this? The IMPLAN input-output model is based upon standard surveys that are conducted by the Department of Commerce. Within the model businesses with similar product mixes, production techniques and income distribution factors are grouped together under a single industrial sector, or what is known as the North American Industry Classification System (NAICS). Thus, all businesses deemed to be in the same sector are assumed to have the same production and expenditure patterns.

In such an arrangement, milk processing cooperatives are treated like typical milk processing firms just as a construction worker cooperative is similarly treated as a typical construction company. Immediately a problem emerges as cooperative theory has demonstrated because cooperative owners and members alike are more likely to both sell and purchase locally more than other firms.[29] 

In the same vein ,one of the defining features of a cooperative of how they handle profits are simply not taken into account. The US Department of Commerce collects survey data on dividends for firms however, cooperatives, whose a patronage refund instead, are not collected. This doubly skews any impact study of any cooperative sector regardless of size (local, state, sectorial, national). First, because patronage funds are outright different than shares which bear a market value and can be bought and sold making them a very different sort of financial instrument with a very different geographic dispersion. Second, even if patronage refunds were accounted for in the IMPLAN model and combined with dividends, they would be lost in the aggregate as typical firms far outnumber cooperatives. Finally, because such parsing of data is not made, cooperatives when analyzed through the IMPLAN are assumed to have ‘revenue leakage’ outside the region, as is the case with most typical capitalist firms who issue stock and dividends. However, it can very well be the case that a cooperative’s patronage refund is returned in full at the local level. Such an assumption can very easily undercount the impact of patronage refunds thus limiting the measurement of a cooperative’s impact on the local economy.[30]

The second issue surrounding the measurement of cooperatives’ impact is that many of the assumed benefits of cooperatives are qualitative in character, as they are found within the social relations between members and their cooperatives, and those cooperatives and their surrounding communities. Hence, even if the technical economic assumptions within the heavily used input-output analysis were corrected by better data, gathering the input-output analysis would still not capture the benefits of cooperatives which flow from their values, identity, and structure.

It is worth remembering that cooperatives, from an economic perspective, have historically formed in response to two kinds of market failure, 1) to counteract unequal market power (as is the case with producer cooperatives in the agricultural sector), or 2) to provide missing services (as was the famous case of the 1930s rural electric cooperatives in the United States). Thus, to truly understand the impact of a cooperative, especially if it has existed within a given community for some time, is to imagine, “what local economies would be like in the absence of [those] cooperatives.”[31] This thought experiment demonstrates that to truly understand the local impact of cooperatives, one must move beyond the input-output analysis which, to be sure, is simply a snapshot of transactions of a given firm, or particular industry or group of firms, to an analysis which takes into account social relations.

To be clearer, such social relations would include investigations of how cooperatives contribute to economic stability in the form of long term, stable growth and what that means not only for income generation but for human development within. Such investigations by their very nature fall outside the reach of the IMPLAN model as they demand temporally longer windows of study. Measuring how long an employee has worked at one firm and comparing it to another tells us very little about how that stability contributed to that employees social, cultural and psychological development.

Likewise, the often-cited predilection of cooperatives to stay in a given community longer than investor owned firms can be viewed in the same way. Measuring how strong this theory is would demand not only quantifying and comparing different cooperatives with typical firms to see how much longer they stay. It would also demand a different measure of analysis altogether. To truly test such a theory one would have to ask cooperative owners why it is that they have not left a given community and ask the same community what they have gained from that cooperative staying there for so long.

Finally, because input-output analysis is not made to measure social relations, perhaps the most compelling argument for cooperatives; increased workplace participation though the democratic decision-making process, is left completely untouched. There are already ways to quantify the productivity or efficiency gains of having a workplace based on democratic principles and working groups (such studies often reveal that more worker participation corresponds with higher productivity and efficiency) as the cooperative principles put out by the ICA demand.[32] But, it is quite another matter to measure how contributing to decision making processes within the workplace may translate into becoming involved in decision making processes at home or in the larger local, state, or national community. At a time when electoral participation is at one of its lowest points in history, such questions should not go unasked.

Though viability will inevitably be measured by the familiar mainstream economic metrics (jobs, incomes, tax flows, and wages), it would be a disservice to rest the case for cooperatives on the mantel of economic impact analysis alone. As one member of the cooperative movement stated in the midst of the 1996 ICA revision of cooperative principles, “The true value of the International Co-operative Movement is only partly explained when we accumulate statistics and refer to impressive market shares. The full value is only apparent when we understand the importance of co-operatives for their members and within their communities.”[33] Certainly, some of the most compelling arguments for cooperatives are not exclusively economic in nature but social. To understand the impact that cooperatives have on communities demands that communities and the social relations that define them be better understood. This is no small task but it is important to the goal of forming a body of evidence that can better inform members, academics, activists, and the wider public on the benefits of the “cooperative difference."

For the cooperative sector, the past twenty years have been marked by crisis, serious reflection and renewed interest and growth. The story is complicated and in no way linear. The diversity of experiences, organizational forms, sectors, and hundreds of millions of members that make up the so-called 'cooperative movement' is immense. But even with these myriad differences when one views the movement as whole it is hard to ignore that a particular historical moment has arrived. The renewed interest in alternative business models driven by deepening inequality, precarious labor markets, crises of democracy and market failure across the globe present cooperatives with an opportunity to demonstrate how they are indeed a viable alternative.

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Michael Palmieri is the co-host of a new podcast "Left Out" (a d@w production) which creates in-depth conversations with the most interesting political thinkers, heterodox economists, and organizers on the left.