The growing global cooperative economy

The year 2016 will be the 60th anniversary of a relatively unknown experiment in socio-economic organising. It is a model that has shown that there are serious and sustainable alternative ways of organising the economic system. What started out as a single small collective enterprise producing heating stoves in the Basque country of Northern Spain, became, after a few years, a network of mutually supporting cooperatives producing a range of manufacturing, agricultural, retail, financial, and educational goods and services. Today it has become one of Spain’s foremost enterprises, operating as a cooperative corporation or conglomerate, consisting of 103 interconnected cooperatives and 154 non-cooperative businesses, with a total of 74,000 individual members/workers turning over €12.57bn a year.[i">

COOPERATIVES: THE EARLY YEARS

The earliest record of a cooperative – defined as a voluntary and autonomous association of persons set up to meet economic, social and/or cultural needs through a jointly owned and democratically controlled enterprise – was the Fenwick Weavers’ Society which was formed in 1761, in Scotland. It was originally set up to improve the quality of weaving, but later started the collective buying of food (initially oatmeal) and books.

The cooperative most revered among co-operators was formed almost a hundred years later in 1844 in Rochdale, England. Its members opened a shop to sell groceries. Prospective members were required to pay £1 to join, and at the end of every year some of the profit was distributed, in the form of patronage dividends, to those who had shopped at the store, and according to how much they had spent during the course of the year. The Rochdale Pioneers eventually ended up selling their enterprise to external investors who soon closed it down. Thus one of the core principles of cooperatives was formulated: there should be no ‘external’ investors.

Things took another novel turn in 1830 when the first worker-cooperative was formed not in Britain this time but in France, and spread to Italy in the 1860s. In the period between 1850 and 1950 cooperatives took root in Europe, the Americas, Asia and Africa. These were, however, mostly consumer cooperatives, or farmers’ agricultural cooperatives.

The formation of what was to become the Mondragon Cooperative Corporation began in 1956.[ii"> Its novelty was that it was a workers’ cooperative, that is, a business owned and managed by its workers, and it grew to become a formal network of many such cooperatives, active across a range of commercial activities embracing, industry, agriculture, retail, finance and education. It was started by a group of seven engineers who had recently graduated from the local polytechnic in the Basque country in Northern Spain.

The idea of a cooperative had been championed by their local Roman Catholic priest, Father Jose Maria Arizmendiarrieta, who was interested in socially inclusive and non-alienating forms of economic organising. Under his watchful eye the small cooperative of 7 people, grew in size and became increasingly successful, and took on more members. Gradually more cooperatives were formed, as off shoots of the original co-op. One of Arizmendiarrieta’s insights was not only to recognise that the cooperatives would not succeed unless they had some independent means of finance, but to provide a viable solution in the form of a cooperative bank to support the fledging cluster of cooperatives. In time other kinds of cooperatives were formed. These were so-called second tier cooperatives, that is, cooperatives whose members are other cooperatives. Among these was a social security fund for unemployment benefits and pensions, a research and development centre to take care of the research and innovation needs of the cooperatives in the group, and a university to train members of the cooperative. The cluster of cooperatives also added a number of first tier cooperatives in the areas of agriculture, retail, machine parts, and large-scale manufacturing. Today Mondragon presents itself as a formal network of cooperatives specialising in the areas of finance, industry, knowledge, and retail.

As a worker cooperative Mondragon is based on what became enshrined as the seven principles of cooperativism when the International Cooperative Alliance adopted them in 1995. These are that cooperatives should: 1) have voluntary and open membership; 2) be democratically controlled by members; 3) have members participate economically in the cooperative; 4) be autonomous and fully controlled by members; 5) support the continuing education of members; 6) promote cooperation among cooperatives; and finally, 7) have concern for the communities in which they operate. In short membership of a cooperative necessarily involves working and managing the cooperative, and growing and improving members, host communities, and the wider cooperative movement.

In the Mondragon model, there are in fact no shares for the members to own. Their financial interest or stake takes the form of what may be described as a loan that members make to the cooperative. This loan is a contribution to the reserve fund of the cooperative, which in effect creates in the cooperative a capital fund for each member. This contribution, in turn, entitles members to a share of the profits of the co-op. This arrangement serves to protect the cooperative from having its shares sold to non-members, since in effect there are no shares to sell.

The worker-owners receive two forms of income. The first is a wage or salary as remuneration for work done in the cooperative on the basis of hours worked and the rate of pay for the kind of work they do. However, the differential between the lowest and highest paid member is regulated, so that the highest paid member does not, in the beginning, receive more than three times what the lowest paid member received, irrespective of the job they do. In the intervening years that ratio has been allowed to increase to 1 to 6.

The second is in the form of ‘dividends’ paid at the end of every financial year when a portion of the profit for that year is distributed according to a set formula. The workers as a whole get no more than 70per cent, the cooperative at least 20per cent and the community within which the cooperative is based approximately 10per cent. However, only about 10per cent of the profit that is ring-fenced for the worker-owners is actually paid out to them each year. The remainder is retained in a fund held by the firm but in an interest bearing account in the worker’s name, and made available when they leave the firm. In the meantime it is available to the firm for investment purposes. This system allows the firm to grow quickly by reinvesting a sizable portion of the profits, while on the other hand providing the workers with a growing personal capital fund that is in effect their capital contribution to the firm.

Being a member of Mondragon comes with a commitment to engage in the governance of the cooperative, specifically to vote in the annual general assembly. This is the body that makes policy and appoints the general manager or CEO for four-year terms. A governing council, comprising members is elected also for four-year terms. The general manager appointed by the general assembly sits on the governing council. An audit committee is responsible for examining the financial reports of the cooperative. A management committee comprising managers and departmental heads reports to the governing council on the day-to-day operations of the cooperative. Finally a social council, with consultative rather than decision-making powers and representing different worker groups in the co-op, is responsible for scrutinising how the decisions of the governing council impact on the organisation of work and therefore the experience of workers. This sets up an interesting dynamic, between the worker appointed management, which is expected to manage, and the workers who every four years get to decide if the management should continue in their positions. When necessary the cooperative may borrow from the bank. Thus in this model it is the worker-owners that ‘employ’ capital, and management, and not vise-versa.

A COOPERATIVE BY ANY OTHER NAME

Cooperative activity encompasses a range of models. In consumer cooperatives members may own their shops and hence have the right to receive a portion of the profits made each year. The possibilities are many and diverse, and stretch to such things as electricity generating companies and distribution networks, or transport firms. A different form of consumer cooperative is the credit union, where members pool together their finances as the basis of extending to one another loans, which they most likely would not otherwise be able to secure.

In producer cooperatives sole proprietors or small firms, usually farmers, band together either to buy inputs or collectively own the supplier of their inputs, or band together to collectively market or process their produce or own the processors of their produce, such as milk in the case of dairies, or fruit and vegetables in the case of canning factories.

Worker cooperatives also come in different forms: centralised and decentralised. Essentially, however, members are on the one hand employees who are paid wages during the year, as well as providers of capital, and as such may be considered ‘internal’ shareholders, investors or ‘lenders’, hence their right to receive a share of the profits at the end of the financial year.

There is a lively debate, if not argument, among social activists and theorists about the exact nature of workers’ cooperatives. Some contend that they are, at best, merely vehicles for ‘collective capitalism’; in other words an opportunity for workers to ‘exploit themselves’, and therefore no different from investor-owned or capitalist enterprises. Others hold that they represent a new form of economic organising that is essentially different from state enterprise (socialism) on the one hand and from private enterprise (capitalism) on the other. Whatever the answer, cooperatives have shown that it is possible to build collective enterprises using a different set of principles and in so doing to survive, prosper, and provide secure and well-paying jobs to their members. Those who support the idea, contend that it is possible and desirable to fashion an economic system comprised predominantly of cooperatives as the units of production. Others disagree, arguing that some sectors are not suited to worker-owned enterprise, and therefore not sustainable in the longer term.

The success of worker-cooperatives depends on a number of factors. Foremost among the non-economic factors are arguably mutual trustfulness and trustworthiness, a willingness to embrace democratic decision making, a commitment to collective endeavour and reward, and a long term vision. These are not easy things to come by and require considerable investment in time, effort, and emotional and psychological fortitude.

For those who are able to summon what is required to join and remain in a cooperative of the Mondragon kind, the positives, which come under the name ‘cooperative advantage’, are many. Within a formally networked cooperative there is employment security, if not job security, in the sense that you can, (or may have to) change jobs within the cooperative network. Worker members may have to be moved from a cooperative within the group that may be facing reduced demand for its goods or services and join one that is doing better. There is also social security, since it is common for there to be a social security fund financed by regular contributions from members. There is the opportunity for personal development, and the opportunity to learn new skills and take on new responsibilities. When successful, cooperatives have shown themselves able to raise the standard of living of their members, not only taking them out of poverty, but making them producers and retainers of the wealth they have produced. In part this is because of the fact that the highest paid may only receive a small multiple of the lowest paid. In cooperatives in the USA plywood sector, members often agree to receive equal pay irrespective of the job they actually do.

For some, however, such an arrangement must be hell on earth. There may well be people who do not wish to take on the responsibility of ownership, and want to have some other people to whom they hand over responsibility, and hence the power of control, and the right to receive the residual income, or profits from the operation of the businesses in which they work.

THE GROWING COOPERATIVE FOOTPRINT[iii">

Around the world, cooperatives contribute varying amounts to GDP. In Europe the country with one of the largest cooperative sectors is Finland where cooperatives contribute about 21 per cent of GDP. The corresponding figure for Sweden is 13 per cent, Switzerland 16 per cent, and Italy 10 per cent. The most recent figures for 2014 suggest that in the UK the cooperative sector turns over £37 billion per year or less than 2 per cent of the UK Gross Domestic Product. In South America the countries in which the contribution of cooperatives to GDP is significant include Brazil 8 per cent, Argentina 10 per cent, and Uruguay 3 per cent. In New Zealand, cooperative enterprises were reported in 2007 to be responsible for 3 per cent of that country’s gross domestic product.

Many societies rely on cooperatives to provide employment to a large number of members. So according to the International Cooperative Alliance (ICA), the UN estimated in 1994 that nearly three billion people or a half of the world’s population was made secure by cooperative enterprise. Of Norway’s 4.8m people, 2m or nearly 42 per cent are members of cooperatives. According to the ICA in 2010, France had 21,000 cooperatives that provided more than one million jobs to 2.3 per cent of the economically active population. In the USA it is estimated that some 30,000 cooperatives of various kinds provide more than two million jobs. The ILO reported in 2009 that 63 per cent of Kenyans relied on cooperatives for their livelihoods, while a quarter of a million people were members of cooperatives. In 2004 the Indonesian ministry of cooperatives and SMEs reported that cooperatives provided employment to about 300,000 people.

Around the world, cooperatives are significant in particular sectors. In Japan, for example in 2007 91 per cent of all farmers were members of agricultural cooperatives and produced USD 90bn worth of output. In the same year consumer cooperatives in that country reported a total turnover of $34.048bn, accounting for 5.9 per cent of the share of the food market. In New Zealand 95 per cent of the domestic dairy market and 95 per cent of dairy exports come from producer cooperatives. The Amul cooperative in India involves more than three million milk producers in around 10,000 cooperative societies, who together have made India the largest producer of milk in the world. Similarly, in Uruguay cooperatives produce 90 per cent of milk, 30 per cent of honey, and 30 per cent of wheat output, and 60 per cent of cooperative production is exported to over 40 countries around the world. However, in Denmark in 2007, consumer cooperatives accounted for 36.4per cent of the consumer retail market. In Mauritius, co-operators are important in the production of sugar, vegetables, fruits and flowers, milk, meat and fish. In addition nearly 50 per cent of sugar-cane planters are grouped in cooperatives. In Côte d'Ivoire in 2002, cooperatives invested $26m building schools, rural roads and maternal clinics. As a matter of fact, the largest global cooperatives sector is insurance. The Mondragon Cooperative Corporation is the largest enterprise in Spain and is involved in agriculture, retail, research, manufacturing, tertiary education, banking and finance, research and development.

Data from international sources indicate that this footprint is growing. During the 2014 International Cooperative Congress revised estimates of the growth of the cooperative sector were provided. The headline figure regarding growth was that the turnover of the largest 300 cooperatives had grown by 11.6per cent over the last three years to 2014 to reach $2.2 trillion.

Arriving at this state of affairs involved initiatives in a number of countries. In Britain, for example, there was a decline in the cooperative movement from the beginning of the 20th century onward. But since the 1970s, a new wave of cooperative formation began, as a result of the British parliament’s passing in 1976 the Common Ownership Act. Under this act a cooperative development organisation, the Industrial Common Ownership Movement (ICOM) was set up with £100,000 of seed money to support the development of cooperatives in England and Wales. In addition, a separate Scottish cooperative development body was provided with a further £50,000 to support the development of cooperatives in Scotland. Overall, the UK cooperative sector in 2014 had about 15 million members and generates around £37 billion a year.

In 2001 Venezuela passed a cooperative law, which, among other things, gave preference to cooperatives in government procurement. Significant efforts were made by the Venezuelan government to promote cooperatives. When six years later in 2006 SUNACOOP, the agency responsible for cooperatives carried out an audit it found that some 50,000 cooperatives were functioning, a number only exceeded in China.

The decision by the United Nations that 2012 would be the International Year of Cooperatives on the one hand reflected the growing significance of cooperatives of various kinds in the day-to-day lives of many people around the globe, but also gave the cooperative movement a boost. In 2014 Oxfam set up a fruit processing workers’ cooperative in Armenia, and has plans to set up another.

WORKERS’ COOPERATIVES

Within the growth of cooperatives, workers’ cooperatives are becoming more important. In the almost 60 years since the establishment of the first Mondragon Cooperative, the ooperative movement in general and increasingly the worker cooperative form has been taking root in a number of countries around the world. While a great deal of attention has been directed to the Mondragon model, other parts of the world have also seen a strengthening of the worker cooperative presence.

The Democracy at Work Institute estimates that there are between 300 and 400 ‘democratic workplaces’ in the USA, employing about 7,000 people and generating $400m in annual revenue. In recent years in the USA important initiatives have been taken to promote cooperatives in general, but especially workers’ cooperatives often under the banner of ‘economic democracy’. In 2014 New York State voted $1.2 million to assist in the formation of 20 new workers’ cooperatives in that state. In 2015 Wisconsin voted $5 million over five years to support the formation and development of workers’ cooperatives there. California and Oakland have also taken initiatives during 2015 to promote worker cooperatives. Interestingly the largest worker cooperative in the USA has 2,500 members and is run by African-American and Latina women under the name Cooperative Home Care Associates, providing home health care.

Cuba’s parliament, in 2012, voted to create 200 workers’ cooperatives in the non-agricultural sector, by turning former state enterprises over to the workers. One can only guess if this was done to try to provide a greater level of protection to the collective enterprise model in readiness for the onslaught from the private enterprise, one that will accompany improved relations with the USA. Workers’ cooperatives cannot be privatised unless the workers vote to disband.

In the UK there are about 500 workers’ cooperatives; the largest worker or employee owned (but not managed) business is the world famous John Lewis Partnership, which, in 2013, had 84,700 partners and recorded gross sales of £9.54bn. Its shares are held in trust and managed for the benefit of the employees. Other more directly worker-managed and controlled firms include Suma Wholefoods, which has about 125 members and a turnover of about £40m a year. Leading Lives is another workers’ cooperative and has about 450 members and turned over £11m in 2012. Leading Lives came into being in July 2012 to provide social care support in a mid-England local government area. While agriculture retail and care are growing areas a new and up-and-coming one is energy provision. Cooperative UK the association of cooperatives reports that while in 2010 energy cooperatives generated £18 million; by 2013 they generated £260 million.

It is perhaps worth ending this descriptive survey of workers’ cooperatives by looking briefly at a different kind of worker cooperative model, that of the Emilia-Romagna region of northern Italy. The region, with Bologna as its capital, is home to about 7 per cent of Italy’s population, but is responsible for about 9 per cent of the country’s GDP; its GDP per capita in 2009 (31,045 €) was 132 per cent higher than the national average of (23,500 €). Although it was considered one of the poorest regions of Italy in 1945 it is today among the 15 richest and most innovative parts of the EU. Wealth and innovation in the region is produced mainly within small and medium size enterprises. The average size of firm is just under five people. Ninety per cent of businesses have fewer than 50 people. Historically, Emilia Romagna has been active in manufacturing, agriculture, food, the motor industry, building and construction, but today is also involved in health industry, biotechnologies, genomics, ICT and nanotechnologies. Overall mechanical engineering and the motor industry account for 50 per cent of regional employment. Nevertheless, its retail sector is reportedly so efficient that Coop-Italia, the local retail chain store, has to date kept Wal Mart out of Italy.

This is another feature of the Emilia Romagna economy. Within the region of Emilia Romagna there are estimated to be about 8,000 cooperatives. Given the population of about four million this makes the region one of the most densely populated areas for cooperatives in the world. It is estimated that two out of every three citizens is in a cooperative, and together they account for about 40 per cent of the region’s GDP. Unlike the Mondragon cooperative those in Emilia Romagna are not a formal network permanent but a flexible network that is capable of quick response to market signals. They attain high levels of efficiency by continually regrouping to bid for and deliver contracts, that none of them could deliver on their own. From 1970 to 1990 the regional president of Emilia Romagna came from the Communist party of Italy. A member of the Socialist Party was president from 1990 to 1993, and from 1993 to 1999 the Democratic Party of the Left provided the president. In the 15 years from 1999 to 2014 a coalition of the Democratic Party of the left and the Democratic Party has been in power. The present president is from the Democratic Party. It has ben a policy of the regional government, however, to encourage and support the development of cooperatives in the region. Under state law cooperatives are required to make available 3 per cent of annual profits to support cooperative development.

SO WHAT?

There is a growing body of work to indicate that cooperatives in general and worker cooperatives in particular are capable of competing with investor-owned firms in a number of areas important to corporate survival and competitiveness. If this is so, and the evidence of Mondragon and Emilia Romagna do not contradict this, why do cooperatives, and especially workers’ cooperatives, not have a greater presence in economies around the world? What accounts for the differences in the size of the cooperative economy in different parts of the world? Will the current growth in the global cooperative economy continue, or are there limits to the number of cooperatives in an economy? Why are consumers’ and farmers’ cooperatives more numerous than workers’ cooperatives? Are there any sectors of the economy that cannot be organised within the framework of worker cooperatives?

How does the performance of cooperatives compare to investor-owned firms with respect to employment, efficiency, innovation, job satisfaction, and income distribution? Would a stronger cooperative economy make it easier for countries to exercise more sovereignty over decisions about the sectors they seek to promote, support for local entrepreneurs, especially those in infant industries? Do workers’ cooperatives constitute an economic system significantly different from capitalism? With respect to Africa, historically, what has been the role of cooperatives in Africa and the African Diaspora? What possibilities are there for worker cooperatives in the African context going forward? What advantages, if any, do cooperatives, especially workers’ cooperatives, have over investor owned, or capitalist firms?

In the second and third parts of this essay, these questions will be discussed.

* Adotey Bing-Pappoe is a development economist and lecturer at the University of Greenwich, Department of International Business and Economics, in South East England.

END NOTES

[i"> http://www.mondragon-corporation.com/eng/
[ii"> William Foote Whyte and Kathleen King Whyte (1991) Making Mondragon
[iii"> World Cooperative Monitor of the International Cooperative Alliance (various years); Dave Grace and Associates report (2014), United Nations.

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