“He that does good to another does good also to himself.” » Seneca
Maybe it’s a grocery store, or an apartment building, or even a daycare. Whatever type of cooperative lives in your neighborhood, you’ve probably caught yourself asking: what makes it a cooperative? What does it do?
Cooperatives have been around since the 18th century when societies transitioned from feudal to industrial economies. Groups of individuals banded together to buy and divide wholesale goods to avoid paying arbitrary store prices. But how has the concept of a cooperative business evolved over the past 300 years?
Here’s a run-down to answer some of the most common questions about this innovative business model and why you should support cooperatives in your community!
How does a cooperative work?
In their simplest forms, cooperatives are businesses that are co-owned, and usually co-operated, by a group of community members. They are inherently based on cooperative business philosophy; hence their name.
Each member owns a stake in the company so costs and benefits are shared equally across members of the cooperative. In the United States, cooperatives first became popularized during the Great Depression as a way to share limited resources within poorer communities. The concept was again revitalized during the 1960s as a business model which upheld the anti-capitalist cultural values of community, collaboration, and equality.
In cooperatives, members pay either a one-time or regular fee to cover the cost of operation of the co-op, and in turn, they receive a portion of the co-ops profits or discounted access to the business’ product.
Using the example of cooperative grocery stores, members usually pay a monthly fee which helps fund employee salaries and wholesale food purchasing. In exchange, members get discounted food, membership perks, and exclusive deals. In smaller cooperatives, members may also have to log a minimum number of hours working in a hands-on capacity at the cooperative.
What types of cooperatives exist?
Consumer co-ops are generally the most common and well known type, but cooperatives can take all different forms. In terms of structure, there are 5 main types of cooperatives.
- Consumer: As discussed above, these types of co-ops involve paid membership by consumers who then reap
exclusive discounts and opportunities from the co-op. Recreational Equipment Inc. (REI) is one of the best known consumer cooperatives.
- Producer: These co-ops are owned by a group of producers who have banded together to share the cost and distribution burden of one variety of wholesale good. SunMaid and OceanSpray are both well known producer cooperatives.
- Worker: These consist of owners who all co-own a business and share the responsibility of stocking and working the retail space. Alvarado Street Bakery is a bakery in Sonoma County that operates as a worker cooperative.
- Purchasing: In these cooperatives, retailers aggregate their purchasing power to reduce wholesale costs. These could be groups of small business owners with similar products or non-competitive needs. Examples include many government agencies, such as schools and hospitals, which operate separately but require similar supplies. ACE Hardware is one of the largest purchasing cooperatives. They are independently owned stores which source materials from bulk suppliers.
- Hybrid:Cooperatives are highly malleable systems. Many take the form of hybrids which combine two or more of the above systems. For example, producer-worker co-ops share the responsibility of production and distribution via a retail space. Many micro-breweries and bakeries take this form where production takes place on site and customer service is facilitated by the owners and producers.
In my own community, Isla Vista, there is a popular food cooperative as well as a housing cooperative, which was founded by students in 1976 to address rising housing costs. Today, it has five buildings and any student or staff member of UC Santa Barbara or Santa Barbara Community College is eligible to apply. There are also many informal living cooperatives. One cooks collaborative meals and non-members can pay $1 to join in on these community meals.
What industries do cooperatives exist in?
You’re probably most familiar with grocery store co-ops, but these innovative businesses exist in all industries. Day care, housing, energy, and artist cooperatives are all options for communal business models.
In energy co-ops, rural residents invest in solar or wind power and take on the shared cost of maintenance. They then reap the shared rewards of dependable, sustainable energy.
Housing cooperatives are owned by a corporation and, rather than buying property, you are buying shares in the company that owns the building. Residents pay a monthly fee for communal expenses such as maintenance and utilities. Housing cooperatives actually make up 75 percent of residential spaces in Manhattan. These options are generally more affordable and co-op decisions are made by a board of residents.
Cooperatives are more common than you probably know. In fact, they are responsible for 10 percent of global employment. Notable cooperatives include Dairy Farmers of America, Piggly Wiggly, and Land O’Lakes (yes, the butter manufacturer).
How do businesses transition to cooperatives?
Businesses can establish themselves as cooperatives initially, but many also make the transition from a traditional business model to a shared one.
Almost 40 percent of cooperatives are transitioned from traditional business models. These transitions often occur when business owners retire and sell their companies to employees, rather than another single buyer.
There are even organizations established to help facilitate these transitions. The Working World is a New York based organization which offers loans to employees for co-op purchases.
What is the role of cooperatives in the 21st century economy?
In our capitalist society, the cooperative business model can seem outdated or primitive, but in fact, these businesses excel economically. A study from Rutgers found that converting to employee ownership maintains or raises employee wages and can increase profits by as much as 14 percent.
Cooperatives also boost productivity rates because employees who are invested in their workplace are more likely to dedicate their full energy to its success.
You might ask, how many businesses really change hands each year? Well, a lot. Baby boomers own around 12 million businesses across the U.S. and as they prepare to retire, around 70 percent of their companies are expected to transition ownership. This “silver tsunami” of retirees creates an environment for large scale economic reforms. If these eight million businesses make the transition to cooperatives, our communities and economies would be stronger and more equitable.
How do cooperatives support communities? Food deserts and beyond.
Cooperatives give employees more autonomy over their work environment. On average, cooperatives have higher wages for employees and prevent businesses from being taken over by large companies.
Cooperative business models incorporate a “whole community” mentality and can even help alleviate food deserts. Food deserts are areas where communities do not have the purchasing power to support supermarkets. Because large corporate super markets
do not believe residents have the financial means to support a franchise, there is little to no access to fresh, healthy food in these neighborhoods.
In a study of 71 grocery stores implemented in food deserts, nearly half of commercial stores closed, but nearly 75 percent of the community or non-profit model stores remained open. As their research table shows above, of the 18 successful community stores, 16 were cooperatives.
So why should you support cooperatives?
Cooperatives not only employ locally and pay workers a living wage, but they also give these community members autonomy over their work and provide a sustainable economic system where money is invested and reinvested within the community. This money spent at a local cooperative stays in the community, rather than going to a large corporation, and helps resist gentrification.
Many cooperatives even go above and beyond this to address and rectify local concerns. For example, Mandela Co-op in West Oakland focuses on buying food from local farmers and food entrepreneurs of color to support marginalized members of the community and reduce their carbon footprint.
Co-op is a buzzword that gets thrown around a lot, but while public perception about this business model might be vague and nonspecific, their benefits for communities and local economies are real and tangible.
In an increasingly globalized world where large corporations make it tough for small businesses to survive, cooperatives are a form of local business that can resist this trend. Especially in the face of the climate crisis, many millennials are connecting back to the 1960s mentality of shopping locally and small. Cooperatives are providing a realistic alternative business model for citizens to collaborate towards sustainable and community-oriented economic empowerment. Now you know more about cooperatives, will you join one?
About the Author:
Amelia Buckley is a staff writer for the Optimist Daily and pursuing her undergraduate degree at the University of California, Santa Barbara. As a global studies major and lover of the outdoors, Amelia is passionate about crafting stories that focus on critical global issues that impact our environment and natural spaces.