Cooperative

A cooperative (also co-operative or co-op) is an association of persons who join together to carry on an economic activity of mutual benefit.

Meaning[]

The term may be used loosely to signify its members' ideology (as in 'jazz coop') but a mainstream cooperative comprises a legal entity owned and democratically controlled by its members, with no passive shareholders, unless they hold non-voting shares. It thus combines the equal control characteristic of many partnerships with the legal personality conferred on corporations. 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 in an 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 their membership. Classification is also often based on their function or trade sector.

In the United States most cooperatives are corporations or limited liability companies (LLCs) but other legal entities may also be used. Cooperatives may be for-profit or non-profit. In for-profit cooperatives any surplus may be returned to members by way of a rebate or bonus on their activity with the cooperative, or a dividend on their shareholding in the cooperative.

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's assets in this way was brought into force in 2004.

In the European Union, the European Cooperative Statute will come into force in October 2006, to provide a corporate form for cooperatives with individual or corporate members in at least two of the EU member states.

In the European Union and in large regions of America, cooperatives, with associations, foundations and mutual funds are considered parts of the Social economy.

Worldwide, some 800 million people are members of cooperatives, and it is estimated that cooperatives employ some 100 million people. The cooperative movement often has links and associations with Green politics or Socialism, with ethical investment, and with the Social Enterprise movement.

History of the co-operative movement[]

Robert Owen (1771 – 1858) 'fathered' 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 co-operative store was opened. Spurred on by the success of this, he had the idea of forming "villages of co-operation" 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, USA, but both communities failed.

Although Owen inspired the co-operative 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 co-operatives 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 co-operative 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 form the basis of the cooperative movement today.

Co-operative communities are now widespread, with one of the largest and most successful examples being at Mondragón in the Basque Country of Spain (see link below). Co-operatives were also successful in Yugoslavia under Josip Broz Tito where Workers Councils gained a significant role in management.

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

In the UK, co-operatives formed the Co-operative Party in the early 20th century to represent members of co-ops in Parliament. The Co-operative Party now has a permanent electoral pact with the Labour Party, and some Labour MPs are Co-operative Party members. 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.

Types of cooperatives[]

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 co-operative'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 three basic equity structures. In market-rate housing co-ops, members can sell their shares in the co-op whenever they like for whatever price the market will bear, much like any other residential property. Market-rate co-ops are very popular in New York City. Limited Equity co-ops, 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. Provisions are often made for inflation, or improvements made on the building. The purpose of this is to prevent co-op members from using their share in the co-op to speculate on rising real estate prices, and to keep the price of a membership share affordable to future members. In the third structure, called "Shared Equity" by the North American Students of Cooperation (NASCO), one of the proponents of this model, individual members do not build up equity in the co-op - the co-op is not owned by its members, but by itself.

Housing cooperatives may occupy various types of physical structure. Co-ops can be structured as individual housing units grouped together, such as in an apartment building, or they can be groups of people living together in one housing unit, as an alternative to the traditional family structure.

Building cooperative[]

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

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

The term also refers to workers' co-operatives in the building trade.

Retailers' cooperative[]

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 supermarkets, hardware stores and pharmacies. In this case the members of the cooperative are businesses rather than individuals.

The well-known Best Western hotel chain is actually a giant cooperative, although it now prefers to call itself a "nonprofit membership association." It gave up on the "cooperative" label after the courts kept insisting on calling it a franchisor despite its nonprofit status.

Utility cooperative[]

A utility cooperative is a public utility that is owned by its customers. It is a type of consumer cooperative. In the US, many such cooperatives were formed to provide rural electrical and telephone service as part of the New Deal.

Worker cooperative[]

A worker cooperative is a cooperative that is wholly owned and democratically controlled by its "worker-owners". There are no outside, or consumer owners, in a worker's cooperative - only the workers own shares of the business. Membership is not compulsory for employees, and only employees can become members. Probably the best known example of worker co-operation is the Mondragón Cooperative Corporation (MCC) in the Basque Country.

Social cooperative[]

A particularly successful form of multi-stakeholder cooperative is the Italian "social cooperative", of which some 7,000 exist. A "type A" social cooperative brings together providers and beneficiaries of a social service as members. A "type B" social cooperative brings together permanent workers and previously unemployed people who wish to integrate into the labour market.

Social co-operatives are legally defined as follows:

the objective is the general benefit of the community and the social integration of citizens
type A co-operatives provide health, social or educational services
those of type B integrate disadvantaged people into the labour 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 50% of members), financial investors and public institutions. In type B co-operatives at least 30% of the members must be from the disadvantaged target groups
the co-operative has legal personality and limited liability
voting is one person one vote
no more than 80% of profits may be distributed, interest is limited to the bond rate and dissolution is altruistic (assets may not be distributed)

A good estimate of the current size of the social co-operative sector in Italy is given by updating the official ISTAT figures from the end of 2001 by an annual growth rate of 10% (assumed by the Direzione Generale per gli Ente Cooperativi). This gives totals of 7,100 social co-operatives, with 267,000 members, 223,000 paid employees, 31,000 volunteers and 24,000 disadvantaged people undergoing integration. Combined turnover is around 5 billion euro. The co-operatives break into three types: 59% type A (social and health services), 33% type B (work integration) and 8% mixed. The average size is 30 workers.

Consumers' cooperative[]

The term co-operative also applies to businesses owned by their customers: a consumer cooperative. Employees can also generally become members. Members vote on major decisions, and elect the board of directors from amongst their own number. A well known example in the US is the REI (Recreational Equipment Incorporated) co-op.

The world's largest consumer co-operative is the Co-operative Group in the United Kingdom, which has a variety of retail and financial services. In reality the Co-operative Group is actually something of a hybrid, having both corporate (other cooperative businesses) and individual members.

Japan has a very large and well developed consumer co-operative movement with over 14 million members; retail co-ops alone had a combined turnover of 2.519 trillion Yen (21.184 billion U.S. Dollars [market exchange rates as of 11/15/2005]) in 2003/4. (Japanese Consumers' Co-operative Union., 2003). As well as retail co-ops there are medical, housing, insurance co-ops alongside institutional (workplace based) co-ops, co-ops for school teachers and university based co-ops.

Around 1 in 5 of all Japanese households belongs to a local retail co-op and 90% of all co-op members are women. (Takamura, 1995). Nearly 6 million households belong to one of the 1,788,000 Han groups (Japanese Consumers' Co-operative Union., 2003). These consist of a group of five to ten members in a neighbourhood who place a combined weekly order which is then delivered by truck the following week. A particular strength of Japanese consumer co-ops in recent years has been the growth of community supported agriculture where fresh produce is sent direct to consumers from producers without going through the market.

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)[]

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 USA, 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 'de-mutualised' into conventionally-owned banks in the 1980s & 1990s).

The UK Co-operative Group includes both an insurance provider Co-operative Insurance Society and the Co-operative 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 (i.e. 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 1 million members via 13,000 branches, and is larger than the country’s largest conventional bank.

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 hire, run on a members-only basis. It is most prevalent in Switzerland (where the Mobility Car-Sharing cooperative has some 50,000 clients), but is also common in Germany, Austria, and the Netherlands, and is fast growing in popularity in other European countries. Car sharing operations may be for-profit or non-profit organizations. Zipcar and Flexcar are examples.

In Britain, where the term 'car sharing' has also been used for carpools or ride-sharing, some people prefer the term 'car clubs'.