Cooperatives

Cooperatives, voluntary cooperative organizations created as a supplement or alternative to capitalist competition. Robert Owen is generally regarded as the first cooperative theorist and credited with inspiring the Rochdale Pioneers, who in 1844 began the cooperative movement at Rochdale, Lancashire. However, Charles Fourier should also be mentioned as an important influence. The Pioneers established the first consumer cooperative, leading to a worldwide movement. They also experimented with a producer cooperative, which soon failed.

The word cooperative is now used to describe a wide variety of different ownership arrangements. For example, consumer cooperatives are owned by consumers; producer cooperatives are owned by their workers (labour force); marketing and buying cooperatives, common in the agricultural sector, are usually owned by private farmers; credit cooperatives are owned by savers; and so on. There are many possible hybrid arrangements.

Most countries, developed and developing, possess some cooperative law laying down the requisite characteristics of cooperatives. The statutes are all, in some way, informed by the original seven “Rochdale principles”, but even the International Cooperative Alliance (ICA)—the umbrella organization for cooperatives worldwide—has found it necessary to question the universal validity of these principles in search of those which are “essential to genuine and effective cooperative practice in modern conditions”. The 23rd congress of the ICA at Vienna in 1966 concluded that, “while there can be differences of opinion as to the emphasis of degree”, the following principles were to define a cooperative.

Membership of a cooperative should be voluntary and available without artificial restriction or any social, political, racial, or religious discrimination to all people who can make use of its services and are willing to accept the responsibilities of membership. (Open membership.)

Cooperative societies are democratic organizations. Their affairs should be administered by people elected or appointed in a manner agreed by the members and accountable to them. Members of primary societies should enjoy equal rights of voting (one member, one vote) and participate in decisions affecting their societies. In other than primary societies the administration should be conducted on a democratic basis in a suitable form. (Democratic participation: one member, one vote.)

Share capital should only receive a strictly limited rate of interest, if any. (Limited return to capital.)

The economic results arising out of the operations of the society belong to the members of that society and should be distributed in such a manner as would avoid one member gaining at the expense of others. (Income sharing.) This may be done by decision of the members as follows: (1) by provision for the development of the business of the cooperative; (2) by provision of common service; (3) by distribution among the members in proportion to their transactions with the society.

All cooperative societies should make provision for the education of their members, officers, and employees, and of the general public, in the principles and techniques of cooperation, both economic and democratic. (Cooperative education.)

All cooperative organizations, in order to serve the interests of their members and their communities best, should actively cooperate in every practical way with other cooperatives at local, national, and international levels. (Cooperative cooperation.)

Producer cooperatives have proved the most difficult type of organization to accommodate to these principles. Traditionally a producer or worker cooperative (PC) has been construed as an association of fellow “workers” who provide the initial risk capital themselves. Thus, provision of capital (often in practice at entirely nominal levels) entitles one to membership and to participate democratically in the running of the enterprise. According to an alternative view, the entitlement to membership and its associated rights and obligations is not tied to the provision of capital (even at nominal levels) but with the requirement that the member finds “work” within the cooperative. On this interpretation, the cooperative association hires loan capital on which it ideally pays a fixed limited rate of interest. The “risk” and “control” of the cooperative is then on either interpretation in the hands of the worker-members. Since in practice linking membership to capital is often merely nominal, the distinction between membership based upon “capital holding” and upon “work” is often only of academic interest. But it can have important repercussions—if membership is associated with capital holding then, unless there are specific laws to the contrary, PCs can possess external members (non-working members) with “voting rights”. Many of those who favour cooperatives feel that such membership is undesirable, the ideal situation being one where control (voting) is distributed on the basis of one person, one vote only amongst members working within the cooperative.

A contrary view would point to the need for cooperatives to raise capital from a variety of sources either to boost its absolute amount or to spread risk, and would therefore willingly embrace the idea of external members. It is of course possible to permit external members without voting rights, but limits on the return to capital might well make such an investment a rather unattractive proposition. The investor is, in effect, being asked not only to surrender control of the enterprise, but also to embrace at least some risk and, at the same time, only to expect a limited return on his or her investment. In a similar vein, it has also not infrequently been suggested that all those finding work in the cooperative should be members. Thus, when this principle is allied with the prohibition of external members, “working in the cooperative” becomes both a necessary and sufficient condition for membership. Again, whether or not this should be tied to capital holding is not of primary importance. It is this conception of membership that has come to be accepted as ideal in the self-managed enterprise in the context of socialized property relations. Here the capital is leased to the cooperative by the state. This system was widely practised in the former Yugoslavia prior to 1989.

The principle of “open membership” carries serious implications for producer cooperatives—indeed, if we are to believe many reports, this is also true for all types of cooperatives. Taken literally, it seems most at odds with producer cooperation. It is difficult to envisage a PC with a completely open policy, for situations can clearly arise when it is in the interest of established members to exclude interested potential members. If a potential member's value product (viewed as a package of worker-and-provider-of-capital) is below the average value product of the cooperative, then why should the established members accept him or her into their company? Many cooperative members seem to regard the principle of open membership as unreasonable, though they would presumably wish to retain the clauses concerning racial, political, and religious discrimination.