Cooperatives and Philanthropy

by Amy Stansfield

Definition

A cooperative is a type of business model 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” (International Co-operative Alliance). Cooperatives are deeply rooted in “the values of self-help, self-responsibility, democracy, equality, equity and solidarity. In the tradition of their founders, co-operative members believe in the ethical values of honesty, openness, social responsibility and caring for others.”(International Co-operative Alliance ) This business model is heavily focused on the community in which it serves. “Cooperatives are enterprises owned by their members who come together to satisfy a need—usually to address market failure like lack of rural electricity, lack of healthy food, affordable housing or access to financial services,”( Nembhard 2014, 107). Members of cooperatives are by nature problem solvers and social innovators. These are individuals who generally see a need or problem in a community and take the action to fix it.

Cooperatives have a large international impact on business, communities, philanthropy and commerce. According to The International Co-operative Alliance (ICA) there are approximately 30,000 cooperatives in the United States that employ 2 million Americans. “Co-operative enterprises worldwide employ 250 million people, and generate 2.2 trillion USD in turnover while providing the services and infrastructure society needs to thrive.” (ICA) Examples of business cooperatives include Ace Hardware stores, Nationwide Insurance, rural electric cooperatives, Ocean Spray, Whole Foods and Sunkist Growers. “Co-operatives contribute to sustainable economic growth and stable, quality employment, employing 250 million (indirect and induced employment not included). Within the G20 countries, co-operative employment makes up almost 12 percent of the total employed population.” (ICA) It is clear that the impact of this business model and this lifestyle is substantial especially in the international community. In Japan, the agricultural co-operatives report outputs of USD 90 billion with 91 percent of all Japanese farmers in membership according to the ICA.

Cooperative business models are unique in that they are founded on a set of core principles in which all ideals eventually return to. “Co-ops require democratic member control of decision-making, a feature of agricultural co-ops in most countries and one of 7 governance principles. The other six ICA principles are: open and voluntary membership; member’s economic participation; autonomy and independence; education, training and information; cooperation among cooperatives; concern for the community” (Saunders 2012, 328). These principles are member focused and always the center of the business model. Choices from customer interaction, daily operation, staffing and everything between eventually return back to one or more of the seven cooperative principles. Cooperative employees and members often refer to the cooperative “lifestyle” and or “the cooperative family” as it is a way of living and not just a way of working or interacting with a business. This makes cooperatives unique and different from other business organization entities.

Historic Roots

Historically cooperatives can be traced to Europe. “The earliest record of a cooperative comes from Fenwick, Scotland where, in March 14, 1761, in a barely furnished cottage local weavers manhandled a sack of oatmeal into John Walker's whitewashed front room and began selling the contents at a discount, forming the Fenwick Weavers' Society” (ICA). Cooperatives began to gain more popularity in the 19th century. The Rochdale Pioneers created what was the first “modern” cooperative society according to the International Co-operative Alliance as a result of meager working conditions. “They decided that by pooling their scarce resources and working together they could access basic goods at a lower price… The Pioneers decided it was time shoppers were treated with honesty, openness and respect that they should be able to share in the profits that their custom contributed to and that they should have a democratic right to have a say in the business. Every customer of the shop became a member and so had a true stake in the business” (ICA). From these humble beginnings a movement began that lead to the cooperatives that we see in today’s society.

During the 1930s Rural America faced these same issues in regards to electricity. At this time according to the National Rural Electric Association (NRECA) as many as 90 percent or rural homes and farms did not have electricity because it was not advantageous for investor owned utilities to extend their lines out to the rural areas because they would see only a small return on their investment. As a result President Franklin D. Roosevelt took action in 1935. “On May 11, 1935, Roosevelt signed Executive Order No. 7037 establishing the Rural Electrification Administration (REA). It was not until a year later that the Rural Electrification Act was passed and the lending program that became the REA got underway. Within months loan applications from farmer-based cooperatives poured in and REA soon realized electric cooperatives would be the entities to make rural electrification a reality”(NRECA). Today electric cooperatives own nearly 42 percent of American electric distribution lines and electrify nearly 40 million Americans. America’s electric cooperatives also contribute heavily to international work that helps to electrify parts of the world that is still left in the dark. These countries include rural areas of Bolivia, Guatemala and Honduras according to NRECA; soon they will be lit up due to the philanthropic efforts of the rural electric cooperatives.

The same principles that started with the weaver cooperatives in Scotland in the mid-1700s are still alive today in rural electric cooperatives and suburban credit unions where they thrive serving their members. The founding principles and the concern for the members and community stand the test of time for organizations like Do it Best Hardware, Land O Lakes and CoBank. “Today the sector is estimated to have around 1 billion members. Co-operatives employ, directly or indirectly, 250 million people around the world. The world's top 300 co-operatives by themselves have an estimated global turnover of 2.2 trillion USD, as revealed by the 2014 World Co-operative Monitor” (ICA). Cooperatives are continuing to evolve in the 20th and 21st century. “The term “new-wave” cooperative describes consumer cooperatives formed primarily during and after the 1960s in mostly urban areas. It is generally used by consumer cooperatives that support liberal or progressive political agendas concerned with participatory democracy, consumer health and environmental protection. Most new-wave cooperatives directly associate themselves with the original principles of the Rochdale Pioneers” (Burlingame 2004, 100). Current cooperatives are seen in multiple fields such as but not limited to utility, housing, child care, consumer goods, purchasing and food.

Importance

Cooperatives play an important role in society and often contribute indirectly to everyday life in subtle ways. Credit unions are a great example of this business model because many just think of credit unions as another type of banking institution when they often play a larger role in the community they serve whether it is rural, urban or suburban. Credit unions “help members own and maintain their assets, they also re-circulate money around the community (the community of members as well as the physical local community surrounding the enterprise). Their activities create economic multipliers. By hiring local people, buying local products, and using local service providers as much as possible the money they spend re-circulates around the community, making other community-based activities possible, keeping resources in their community and helping community-level activity and resources to increase in value” (Nembhard 2014, 111).

Cooperatives also give their members an opportunity to become engaged in leadership opportunities through board election opportunities. As previously stated, members of cooperatives are member owners. As a member owner each individual has a democratic voting right and the opportunity to become civically engaged in their cooperative. By exercising this interest in leadership they have the opportunity to influence new and exciting opportunities for innovation. “When a community establishes a cooperative, its board of directors is obliged to create economic activities that benefit its members” (Mohamad 2013, 325). This could mean opportunities for new business ventures, networking, international partnerships or extending into a different industry. An example of this would be the electric cooperatives extending broadband Internet service to their electricity customers in order to enhance the quality of life for rural consumers. Just like in the 1930s when investor owned utility companies did not see the value in extending electricity to rural America- the same issue exists today with broadband service; “Our electric cooperatives believe they have an obligation to economic development, so it was very natural for them to leverage the systems they have to also provide broadband,” (Kang 2016).

A multitude of different types of cooperatives exist throughout the United States and internationally; this greatly impacts the size and scope of the economic and individual participation for each member according to Avner Ben-Ner. “Numerous past and present organizations correspond to the definition or producer cooperative suggested and therefore fall within the scope of investigation… The plywood cooperatives in northwestern United States, with workforces ranging in the few hundreds, are owned by their workers though not by all of them since they employ hired wage laborers as well. …Members participate in management directly on a one man-one-vote basis or via elected representatives” (Ben-Ner 1987,435). Here again we can see the seven cooperative governance principles (member’s economic participation and democratic member control of decision-making) woven through. Many cooperatives vary in their construction, their establishment theories and employment models but overall they all center on the same overarching cooperative business model foundation.

Ties to the Philanthropic Sector

Cooperatives are tied to the philanthropic sector through their founding principles. The principles of “concern for community” and “cooperation among cooperatives” are obvious ties but all of the seven principles have loose ties to philanthropy when combined with the overall business model. Cooperatives almost always have a desire to make communities better simply because they are part of them; “Cooperatives have a vested interest in and are more likely to promote community growth than conventional commercial companies, because most cooperatives are owned and controlled by local residents” (Nembhard 2014, 111). Often cooperatives encourage members to build social capital by engaging in their community, taking part in civic leadership/ engagement with a goal of staying and becoming a lasting member of that community.

A credit union is a great example that shows multiple ties to the philanthropic sector. “Having such a business in one’s community, again develops community wealth because worker co-ops often buy locally, their employee owners use their good salaries to buy other things in the community and to secure housing in the community, etc. The worker-co-ops existence may help spin off other businesses. The co-op also may offer their space for community meetings; donate money to community efforts etc.” (Nembhard 2014, 111).

Rural electric cooperatives are extending the idea of community to include not only the service territories that they electrify but also the global community as well with their current international work. Targeting areas of the world that still live without power and extending the skills is an important philanthropic endeavor that is beyond the idea of “charity” because they are encouraging the formation of cooperatives in order to abide by founding principles and also teaching the foundation rather than simply providing the service. This allows that individuals in receipt to continue the work and help contribute toward their local economy. By adopting the same principles they will in turn continue to give back to the community and remain engaged.

Consumer cooperatives are cooperatives owned by their consumers. “A consumer cooperative is inherently philanthropic in that in order to attract and retain membership it must provide some selective incentive that cannot be more easily obtained through individual consumer actions or from organizations. This incentive might take the form of lower prices for goods purchased by members, forms of personal interaction made possible when conduction actions of collective behavior or the personal satisfaction obtained when the organization provides benefits and services to those beyond its membership,” (Burlingame 2004, 99). In short cooperatives that are founded the cooperative principles are vested in communities and giving back because they are vested in those communities and making sure that they thrive and prosper.

Key Related Ideas

• Credit unions - are member owned financial cooperatives that are democratically controlled by its members and operated for the purpose of promoting responsible consumer practices and providing credit at low / competitive rates. Credit unions often also provide other financial services to their members and support various local community endeavors.
• Governance - is the process of providing leadership to an organization and how they are held accountable to their members or outside stakeholders. The process of governance often includes the leadership functions of setting direction, making policy and/ or strategy decisions, overseeing and monitoring organizational performance and ensuring overall accountability.
• Board of directors- most nonprofits and cooperatives operate under an elected governing board or a “Board of Directors” who serve as the governing body for the organization. These boards are generally mandated via the bylaws of the organization and the individuals who serve on the boards are elected members who serve predetermined terms (that are determined via elections) as outlined in the organizations bylaws.
• Mondragon Worker Cooperative Corporation - is a large collaboration of worker cooperatives based in Mondragon Spain that started in 1956 by graduates of a local technical college. Its first product was paraffin heaters and small household appliances. It is now the tenth-largest Spanish company and the leading business group in Spain. At the end of 2014, it employed 74,117 people between 257 companies and four organizations areas of activity: finance, industry, retail and knowledge. It is essentially a self-contained community. Mondragon cooperatives operate in accordance with Statement on the Co-operative Identity maintained by the International Co-operative Alliance (Understanding the Mondragon Worker Cooperative Corporation 2014).

Cooperative Types - There are five distinct types of cooperatives:

• Producer: owned by producers of commodities or crafts who have joined forces to process and market their products.

• Consumer: owned by consumers who buy goods or services from their cooperative.

• Worker: owned and democratically governed by employees who become co-op members.

• Purchasing: owned by independent businesses or municipalities to improve their purchasing power.

• Hybrid: a combination of co-op types, where people with common interests band together.

(Independent Welding Distributors Cooperative)

Important People Related to the Topic  

Avner Ben-Ner (1954- present) is professor at the University of Minnesota. Avner Ben-Ner’s current research centers on determinants of organization design and decision making in for profit, government and nonprofit/ cooperative industries. He also examines the relationship between social preferences and organizational, economic and social behavior. He is attempting to unite these strands by examining the dynamic relationship between preferences, organization design and group diversity. (University of Minnesota 2013)

Howard Brodsky (1971- present) is Co-Founder, Chairman and Co-chief executive officer of CCA Global Partners, one of the largest cooperative entities in the United States. CCA is comprised of 13 affiliated companies with aggregated sales of over 10 billion.

Robert Owen (1771-1858) – often referred to as the “father of cooperatives” in the United States.

Related Organizations

The International Co-operative Alliance (ICA) is a nonprofit international association established in 1895 to advance the co-operative social enterprise model. “The Alliance unites co-operatives worldwide and is the custodian of the co-operative values and principles and makes the case for their distinctive values-based economic business model which also provides individuals and communities with an instrument of self-help and influence over their development.” (ICA). https://ica.coop/en

National Cooperative Business Association is the business association for cooperative business associations. It is the oldest not-for-profit cooperative development and trade association in the United States with a goal of promoting cross-sector collaboration, and promoting and protecting cooperative businesses and principles.  Internationally, their mission is to alleviate poverty through economic and social empowerment. https://ncbaclusa.coop/

National Rural Electric Cooperatives (NRECA) is the national association that represents the approximately 900 consumer-owned, not-for-profit electric cooperatives, public power districts, and public utility districts in the United States. https://www.electric.coop/

Community Wealth: a project of The Democracy Collaborative; their commitment is “to advance a new understanding of democracy for the 21st century. They believe that practitioners, policy makers, academics and the media need solid information and tools that can help them understand and support the expansion of community wealth-building institutions. Community Wealth is a great resource for information the cooperative business model. http://community-wealth.org

Reflection Question - With economic uncertainty being a constant unknown factor- does the cooperative business model approach bring about a unique opportunity and steadiness to each situation it exists within? What industries would benefit from the cooperative approach?

Bibliography

• Community Wealth. Cooperatives (co-ops). 
• Hansmann, Henry. "All Firms Are Cooperatives – and so Are Governments." JEOD Journal of Entrepreneurial and Organizational Diversity 2, no. 2 (January 7, 2014): 1-10.
• ICA: International Co-operative Alliance. 
• "Co-operative Identity, Values & Principles." ICA: International Co-operative Alliance. 
• Independent Welding Distributors Cooperative. 
• Kang, Celia. "How to Give Rural America Broadband? Look to the Early 1900s." New York Times, August 17, 2016..nytimes.com/2016/08/08/technology/how-to-give-rural- america-broadband-look-to-the-early-1900s.
• Mohamad, Nor Haniza, and Amran Hamzah. "Tourism Cooperative for Scaling up Community‐ based Tourism." Worldwide Hospitality and Tourism Themes 5, no. 4 (2013): 315-28. doi:10.1108/whatt-03-2013-0017.
• Nembhard, Jessica Gordon. "Community-Based Asset Building and Community Wealth." The Review of Black Political Economy 41, no. 2 (April 08, 2014): 101-17. doi:10.1007/s12114-014-9184.
• NRECANews. "History - America's Electric Cooperatives." Americas Electric Cooperatives. 
• Ben-Ner, Avner . “Producer Cooreratives: Why Do They Exhist in Capitalist Economies?” Powell, Ed. Walter. The Nonprofit Sector: A Research Handbook, 1987.
• Saunders, Max, and David Bromwich. "New Model Rural Cooperatives in Gansu: A Case Study." Journal of Enterprising Communities: People and Places in the Global Economy 6, no. 4 (May 17, 2012): 325-38.
• “Understanding the Mondragon Worker Cooperative Corporation.” Dir. Amy Goodman. Workplace Democracy, 2014. www.youtube.com/watch?v=8bcNfbGxAdY&t=621s
• University of Minnesota. Avner Ben-Ner. https://netfiles.umn.edu/users/benne001/www/index.htm

This paper was developed by students taking a Philanthropic Studies course taught at the Lilly Family School of Philanthropy at Indiana University in 2017. It is offered by Learning to Give and the Center on Philanthropy at Indiana University.