Are You Feeling Cooperative Yet?

The United Nations has declared 2012 to be the Year of the Co-op and around the globe people are celebrating. In fact, with 800 million members, cooperatives now employ more people than corporations worldwide. According to the UN, a co-op is defined 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.” The International Cooperative Alliance (ICA) estimates that the top 300 co-ops in the world account for over $1 trillion in economic activity annually. For instance, there are 49,000 credit unions in 96 countries, and in the U.S. over 100 million people have now opted to place their money in credit unions rather than banks. In 2008 at the height of the financial meltdown, U.S. credit unions actually increased their lending by $35 billion, while banks reduced theirs by $31 billion. Better yet, no credit union required any taxpayer bailout.

According to the 2009 UN Secretary General’s report titled “Cooperatives in Social Development, cooperatives “offer a model of enterprise that is particularly relevant in difficult economic times and instances of market failure. As a self-help group, a cooperative organization is widely accessible, especially for the impoverished and the marginalized. Where private enterprise or government is weak, particularly in remote rural areas, cooperatives enable local people to organize and improve their conditions.”

Humanity has come a long way since 1228 when Gruyere cheese makers in Switzerland organized the first producers’ cooperative. Porters in Aberdeen, Scotland formed the first workers’ co-op in 1498, and the first consumer co-op emerged in 1761 in Fenwick, England when weavers pooled their pennies to procure bulk oatmeal. The Rochdale Principles of International Cooperation, which appeared in 1844 in England, still guide the worldwide co-op movement today.

Cooperatives have historically dominated agriculture in many parts of the world and are becoming an even more popular economic alternative today. For instance, the largest farmer co-op in West Africa—Kuapa Kokoo in Ghana—boasts over 45,000 members in 1,100 villages, and is a leading force in fair trade through its well-known Divine Chocolate. In India, the world’s largest dairy producer, over 100,000 co-ops collect milk from 12 million farmer members each day. According to the International Labor Organization (ILO), cooperatives account for 70 percent of the fish caught in South Korea and 75 percent of coffee production in Ethiopia. In Denmark, co-ops control 86 percent of all wind energy, while in the U.S. co-ops market 80 percent of fluid milk. Worldwide, over half of all agricultural production passes through the hands of a co-op on its way to market.

The first producer co-ops in the U.S. were founded by dairy farmers in Connecticut and New York in 1810 and by 1820 farmers in Ohio had established the first marketing co-op. Farmer-owned co-op breweries, grain elevators, and irrigation systems soon followed. When the National Grange was formed in 1867, it included “cooperation in all things” as part of its mission to restore friendship between the North and South after the Civil War and membership in the Grange soared during the economic downturns of the 1870s and 1880s when rural people saw the tangible value in the mutual aid that co-ops offered. By the end of the 19th century, the Grange was operating 500 consumer co-ops nationwide. Co-ops were also promoted as part of FDR’s New Deal to rebuild rural America after the Great Depression and by 1935 there were 10,500 farmer-owned co-ops across the country.

Co-ops are part of the economic bedrock sustaining many people. For instance, in Wisconsin there are 844 co-ops statewide serving 2.7 million members and generating $5.6 billion in sales annually. Madison alone has many longtime worker co-ops—from Community Pharmacy, Lakeside Press, and Nature’s Bakery to Just Coffee, Isthmus Engineering, and Union Cab.

Through cooperatives, farmers can achieve economies of scale, reducing cost for inputs and services, and also help level the playing field in commodity markets that are often dominated by corporate cartels. Farmers are stuck as “price takers,” but co-ops give them a better chance at receiving a parity price and a living wage for their efforts. Pooling one’s economic power with others is always a good strategy to leverage fresh assets, reach new markets, and ultimately alleviate poverty. As the picket signs proudly carried by Union Cab drivers during the 2011 Wisconsin uprising proclaimed, cooperatives also have principles. Being member-owned and member-controlled, the primary purpose of co-ops is to provide benefits to their own members—their goal is not to simply generate more profit for outside investors. Democratic decision-making, financial transparency, environmental stewardship, and social responsibility are other hallmarks of cooperation.

Of course, these ideals are not always reflected in practice, which is why it is so important to hold cooperatives accountable for their behavior. Members bear the biggest burden when it comes to defending co-op integrity. As the 2009 UN report notes, “A vigilant membership base, bound by the democratic one member/one vote principle, is essential to addressing weak or unethical management.... The sound governance of cooperatives depends upon a well informed and active membership base.” In the case of the U.S., there are also federal and state laws that bolster certain cooperative principles.

In the early 20th century many co-ops were attacked by corporate competitors under the 1890 Sherman Anti-Trust Act, claiming that “marketing in common” was an illegal form of trade restraint. Farmers and their allies mobilized and soon won passage of the Capper Volstead Act in 1922—the Magna Carta for co-ops—that basically gave them the same right to collectively bargain enjoyed by private companies and labor unions. Under Capper Volstead, though, there are some specific rules cooperatives must fulfill in order to enjoy their exemption from anti-trust enforcement, including that the co-op must produce agriculture products (not just process them), that the majority of revenue must stem from production by the co-op’s own members, that the co-op must operate for the mutual benefit of its own members (not just be serving the interest of others), and that the co-op cannot conspire with other non-member entities to engage in illegal market activities (like price fixing).

Unfortunately, as most farmers can tell you, there are co-ops in the U.S. that don’t know about the Rochdale Principles and routinely violate Capper Volstead. For example, Dairy Farmers of America (DFA)—along with two of its top executives—was fined $12 million in 2008 by the Commodity Futures Trading Commission (CFTC) for illegal manipulation of the Class III milk market at the Chicago Mercantile Exchange (CME). In 2010, the U.S. Department of Justice blocked a bid by Deans Food to buy out Foremost Farms, another “corporate” co-op, which would have created a quasi-monopoly on fluid milk in parts of the Midwest. Land O’ Lakes’ website gushes with feel-good rhetoric about the UN Year of the Co-op, yet some question its true commitment to cooperation, especially when it prefers to import milk protein concentrate (MPC) from abroad rather than pay its own farmers a fair price, while also promoting dangerous biotechnologies like rBGH and RR alfalfa that jeopardize the marketability of its own products.

Similarly, Crystal Sugar has crawled into bed with Monsanto with its heavy-handed lobbying for RR sugar beets and is now engaged in a vicious union busting campaign, having locked out 1,300 workers at 5 processing plants in the Red River Valley. Apparently, some co-op managers and shareholders have forgotten that farmers and workers joined together long ago to win the very same collective bargaining rights.

There are other serious challenges facing today’s co-ops. One threat is demutualization, a fancy term for basically opening the doors for a takeover of a co-op (and its assets). This happened to Minnesota Corn Processors, lauded as part of a new wave of farmer co-ops, but then sold out and gobbled up by ADM in 2002. Governments, corporations, and multilateral institutions like the IMF often see co-ops as “cash cows” for liquidation and/or privatization. Another problem comes with the profit-driven corporate mentality that can pervade co-op managers. Rather than looking out for their own members, they prefer to grant themselves bloated compensation packages and guarantee hefty dividends for their outside investor friends. Other countries have rules limiting such abuses. For instance, within the Mondragon co-op federation in Spain the salary/wage ratio between the highest and lowest paid employee is set at 5:1. In Italy, co-op law stipulates that at least 80 percent of any surplus must be reinvested and not given away to either members or non members.

A true spirit of cooperation valorizes a deeper belief in the human capacity to care about others and there are all sorts of reasons to be part of growing the cooperative movement. For example, you’ll save more as a consumer and earn more as a worker, since there is no middleperson siphoning off the surplus. Being a member of a co-op also makes you an owner and that gives you a democratic voice in determining its future trajectory. Your chances of falling victim to such capitalist “market failures” as overseas outsourcing, environmental contamination, and workplace exploitation are much less. Many people also appreciate the opportunity to foster social change as part of a broader cooperative community. When you join a co-op, you’re not just a hapless farmer, mindless consumer, or throwaway worker anymore—you’re part of a living breathing vibrant alternative to business as usual.

In 1844, the Rochdale Pioneers in England created a set of principles intended to guide the activity of cooperatives throughout the world. In 1966, the International Cooperative Alliance modified the original Rochdale Principles, identifying six central co-operative principles and in 1995 a seventh principle was added.

1st Principle – Voluntary and Open Membership. Cooperatives are voluntary organizations 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. Cooperatives are democratic organizations 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. Cooperative members have equal voting rights (one member/one vote) and cooperatives at other levels are also organized in a democratic manner.

3rd Principle - Member Economic Participation. Members contribute equitably to, and democratically control, the capital of their cooperative. Part of that capital is the common property of the cooperative. 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 cooperative, possibly setting up reserves, part of which would be indivisible; benefiting members in proportion to their transactions with the cooperative and supporting activities approved by the membership.

4th Principle - Autonomy and Independence. Cooperatives are autonomous, self-help organizations, controlled by their members. If they enter into agreements with other organizations, including governments, or raise capital from external sources, they do so on terms that ensure democratic control by their members and maintain their cooperative autonomy.

5th Principle - Education, Training and Information. Cooperatives provide education and training for their members, elected representatives, managers, and employees so they can contribute effectively to the development of their cooperatives. They inform the general public—particularly young people and opinion leaders—about the nature and benefits of cooperation.

6th Principle - Cooperation. Cooperatives serve their members most effectively and strengthen the cooperative movement by working together through local, national, regional, and international structures.

7th Principle - Concern for Community. Cooperatives work for the sustainable development of their communities through policies approved by their members. 

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John E. Peck is the executive director of Family Farms Defenders.