Examples of big and old coops cooperating with small and new ones

20th August 2020
by Leo Sammallahti
Marketing Officer, Coop Exchange

It’s a distinctive characteristic in the DNA of cooperatives to cooperate with each other. Of the 7 Rochdale principles that all cooperatives have to abide by and that have largely remained the same since the first cooperative was established by the Rochdale pioneers in 1844, the 6th principle is “cooperation between cooperatives”. This article describes real-life examples and new ideas on how big and old cooperatives can cooperate with small and new ones.

Donations

The most direct and simple way for big and old cooperatives to support new and small ones is through donations. The most notable example is perhaps Edward Filene, the founder of American credit union movement. He was something of a paradox - a wealthy retail businessman who supported trade unions and pioneered better working conditions to workers. He donated large parts of his wealth, around $30 million dollars in today's money, to establishing credit unions. At the same time, many who knew him described a capability to very unpleasant behavior.

Regardless of who he was, what he did was launch a movement in America that has continued to expand rapidly in membership and resources ever since. He helped his employees organise the first credit union in the US, after which he continued to fund, lobby and mentor new ones until he died in 1937, by which time the membership of the movement had reached half a million. The credit unions who received funding and became economically successful would contribute to funding new credit unions, creating a virtuous cycle that gave birth to what is today Credit Union National Association (CUNA). Today CUNA is stronger than ever, representing a record 115 million members.

Through shifting costs and risks of starting a credit union from the founder members to himself, he helped alleviate one key disadvantage cooperatives have as opposed to conventional companies, the so called “collective action problem”. In a rough summary, this refers to the fact that in a cooperative, voting rights are equally shared and typically the surplus is distributed to the members according to how much they produce or consume - as in the co-op grocery stores where dividends are distributed according to how much groceries the member has bought. This means that founder members have to endure the costs and risks of starting the cooperative without being able to reap a larger share of the surplus or voting rights if the cooperative becomes successful. In the case of a conventional capitalist company, the profits and voting rights can be shared between founder members according to their initial effort and investment. This is perhaps the key reason why cooperatives are relatively rare, even though the research suggests they tend to be more productive and resilient than conventional companies. While they might work better, there is a lack of incentives for individuals to start one.

A similar, smaller and more recent example is the Start Coop project, where 8 co-operative start ups in the platform economy received 10,000$ grant each, alongside mentoring. The funding and organising was spearheaded by CCA Global Partners, a massive cooperative of 10,000 small carpeting businesses, alongside a few medium sized cooperatives. Like with Filene, the cooperatives that become successful will contribute to funding grants for new cooperatives. The difference however is that unlike Filene who focused solely on credit unions, this is an example of different types of cooperatives from various industries working together. The program was a success, with one of the ventures becoming the first cooperative in US history to receive venture capital investment, and another becoming the first worker cooperative in the country to have acquired a conventional company and converted it into a cooperative. This blog has an article about the two cooperatives here. The accelerator program is being repeated this year, with 6 new co-operatives receiving $15,000.

In the UK, the country's largest worker cooperative, Suma, donates £1/week per member to the Worker Cooperative Solidarity Fund (also known as Solid Fund), that is governed by a 618 members strong online community anyone can join. Solid Fund distributes the funding as charitable donations to worker cooperatives, and has contributed over £170,000 since its inception in 2015.

How these charitable donations work contrasts sharply with how the wealthy individuals and corporations typically donate. Instead of the donor having control over how the funds are used, such as through a foundation, the control is shared equally between members of the cooperatives benefiting from the donation. It is a rare but very direct way of practising a principle that has almost become a cliche in the world of charity - helping others to help themselves.

Cooperatives tend to give larger portions to charity than conventional companies. Perhaps they should consider if they would not only differ in the amount, but also the type of charity they engage in. One way to do so would be giving a portion of the charitable donations to fund new cooperatives. For example, if the Nationwide Building Society and the Co-op would both give 1% of their 2019 charitable donations, they could fund 25 cooperatives with 10,000£ each. That would be equivalent to 1 in 6 cooperatives founded that year in the UK, enough to create a substantial presence in each new generation of cooperatives. This puts into perspective how the size of these economic giants means that even a tiny move with no losses or risks to the members can create a substantial difference.

Procurement

Perhaps the most common and obvious form of cooperation between cooperatives is having them trade with each other. Many of the early consumer cooperatives were set up to sell goods from agricultural producer cooperatives, and maintain close ties to this day.

There are also an increasing number of examples of this happening on a global scale. Buying Arla yogurt from your local Co-op store would not be anything exceptional for an ordinary Brit, but from the perspective of the global cooperative commonwealth it’s an example of a UK based consumer cooperative buying from a Swedish-Danish dairy cooperative. A few days ago the central organisation of the 29 million members strong Japanese grocery cooperatives celebrated their 60th birthday by having the members voted for their favourite products. The second place was won by the Boneless Mackerel Simmered with Grated Radish, with the fish coming from Norway, much of it caught by the local fishery cooperatives. A significant phenomenon in this area has been the FairTrade movement, where goods produced mostly by small farmer cooperatives in the developing world are sold in wealthier countries. In many parts of the world FairTrade products were introduced by consumer cooperatives, who are also in many cases overrepresented in selling them.

One innovative example of big and old cooperatives supporting small and new ones through procurement happens where an internal team within a cooperative spins-off into an independent cooperative that continues to provide goods or services to the big cooperative. One example of this is the Webcooperative, which began as an IT team of the Midcounties Co-operative, a 600,000 members strong consumer cooperative with grocery retail as its core business. The team spun-off into an independent worker cooperative 12 years ago that today has 26 workers and maintains ties with Midcounties Co-operative. Another example is Kilon Osuusauto, a worker owned cooperative of truck drivers that began in 1987 as a group of workers in the logistics center of S-Group, a consumer cooperative that today holds the position of the largest retailer in Finland and is still the largest customer to Kilon Osuusauto.

Lending

More common than donations is lending. Large parts of the agricultural economy in the world is organised along producer cooperatives lending from financial cooperatives. For example, the US CoBank is a cooperative owned by cooperatives that are its customers, and has grown to become one of the largest private providers of credit to the rural economy, with more than $125 billion in assets. While this is a cooperative of farmer cooperatives starting a bank to lend to each other, lending can happen also between different mixes of cooperative industries. The UK Cooperative Loan Fund is a cooperative specialising in lending to all types of cooperatives, and received it’s seed-capital from the large retail cooperatives that continue to support it.

In Switzerland the consumer owned grocery cooperatives helped housing co-operatives purchase large swathes of land on the edge of cities such as Zürich. This happened with grocery cooperatives using their real estate property as collateral to guarantee loans. Guaranteeing loans is another example where cooperatives might have problems compared to conventional companies - if the founder members of cooperatives guarantee the loan, they take an initial risk without being compensated with a larger portion of future returns. Shifting this risk to a large number of members of a large cooperative might help reduce this problem. It could also be relatively costless - if 20% of the cooperatives would default on their loans after paying on average half of their loans, the big cooperative would lose 1£ for every 10£ of guaranteed loans. This would mean that a loss of 1 pence per year per Nationwide and Co-op member would be enough for the two giants to cover the losses from guaranteeing a 13,500£ loan for every cooperative founded in 2019.

Investment

While typically cooperatives do not receive investment apart from their members, it is not entirely unheard of. Indeed, one of the most recent examples comes from the UK, where three large retail cooperatives invested in a “community share” offering of a student housing cooperative. Community shares are a form of non-transferable shares that cooperatives in the UK can issue, and have become an important form of funding for new cooperatives, with over 100,000 people who have invested.

While this is a rather rare occurrence in the UK, this is not the case everywhere. For example, in Italy cooperatives have their own mutual self-financing mechanism, as they are obliged by the so called “Marconi Law” to dedicate 3% of their annual income to a collectively controlled fund that finances new cooperatives. The cost of this levy is compensated by tax exemptions. The largest of these funds, the CoopFond, has grown its assets from $150 to over $500 million since the early 2000s. One of the most exciting activities it has organised is the CoopStart up program, started in 2013. It provides support for young people that are expanding cooperatives new industries, with a focus on inventing new uses for the model in the modern and future economy.

In Canada, people have a choice to enrol in pension plans that invest part of the savings to cooperatives. However, the cooperatives must be only agricultural cooperatives. This plan should be adjusted to allow investment into different types of cooperatives and replicated in other countries. It could enable people to voluntarily opt-in to a pension plan that invests part of their savings to a diverse range of cooperatives. The cooperatives receiving the investment in turn could automatically enrol their employees into the same pension plan, that they could voluntarily opt out of. This could start a virtuous of cycle where initial critical mass of wage-earners would invest part of their pension savings to cooperatives, that would in turn employ people who would join the pension plan, which would fund more cooperatives that would lead to more employees enrolling to the plan, providing more investment for more cooperatives etc.

Discounts

A rarely used but in my opinion perhaps the most fascinating example however is through providing members of big and old cooperatives discounts on goods and services provided by small and new cooperatives. The only example I could find of this happening is from the Korean iCoop. A consumer cooperative founded in 1998, iCoop has ever since seen impressive growth, reaching 300 000 members in 2019. The cooperative has been an exemplar in practising the 6th principle - it has supported new cooperative start-ups with seed-funding, buys goods from agricultural cooperatives and has allowed its employees to set up their own cooperatives. It’s members also receive discounts in at least four other smaller cooperatives.

One way for cooperatives to gain competitive advantage is to have members who want to participate more than is required to engage in activities that increase the economic value of membership for those who participate only to access economic benefits. Coupons could be a great way to do so in a way that would form mutually beneficial ties of the big and old cooperatives with small and new ones.

For example:

- 100 members of a big and old credit union would be willing to contribute an average of 20$ to a fund to support a new worker owned restaurant.

- The credit union distributes coupons worth a 10$ pizza to randomly chosen members until 200 of these coupons would be used.

- The credit union buys the coupons from the restaurant for 10$ each using the fund.

As a result, credit union membership becomes one pizza more valuable to 200 credit union members through a fundraising effort by 100 members, while the restaurant gains new customers.

Coop Exchange and VME

Coop Exchange will be a new platform cooperative that enables co-operatives to issue a new type of share: investor shares. These shares give a dividend of the profits, but no voting rights. The members have full and democratic ownership, but they can accept investment from anyone across the world and reward the investors. Those who invest in cooperatives using Coop Exchange will become member-owners of Coop Exchange, itself a cooperative. This provides countless opportunities for cooperation - imagine for example that everytime you make a purchase with your credit union or building society credit card, the price would be rounded up to the nearest dollar or a pound, with the difference invested in a diversified index fund of cooperatives. For example, if you would buy a bottle of milk for 0.8£, the payment would be rounded to 1£ and in addition to the milk, you would buy investor shares from numerous cooperatives for a total of 0.20£.

One of the ventures that will be listed in Coop Exchange is VME Retail Systems, a software company that provides point-of-sale software to most of Britain's grocery cooperatives. The company is in a process of converting into a cooperative co-owned by both the employees and the customer cooperatives. This is perhaps the largest conversion of a software company into cooperative ownership ever, and embodies the principle of cooperation between cooperatives.

Members For Cooperation Between Cooperatives

These are just a few of the endless examples, which could be replicated. There are countless new ideas that could be tried out through low-risk experimentation would enable accumulation of best practise, that could then be gradually scaled. One way to support the process of replication and scaling would be to organise within cooperatives to increase cooperation between cooperatives.

This is the reason I set up a new democratically governed global network “Members For Cooperation Between Cooperatives”, or “Members4Cooperation” for short. The focus is especially to increase cooperation between big and old cooperatives with new and small ones, consumer cooperatives with worker owned ones, those in industries where cooperatives are common with those that seek to adapt the cooperative model to harness unexplored opportunities. One way to do so is to mobilise the rank-and-file to use the existing democratic mechanisms within big and old cooperatives, such as petitions for member resolutions and campaigning in board elections.

For example, in the 16.5 million strong Nationwide Building Society only 500 members' signatures are required to put forward a member resolution that is then voted in the next annual general meeting, where all members have one vote and they can use proxy-vote through mail. In 1998, the members approved a resolution to donate 1% of pre-tax profits to charitable causes with a landslide 87% win, which meant £8.3 million in 2019. What if a resolution was put forward to use 1% of the charitable donations to fund new cooperatives? While it would not cost the institution or the members anything, it would enable the building society to fund a 10,000£ grant for 8 new cooperatives, enough to replicate the Start Coop accelerator program in the first chapter and have 3000£ left to pay for organising the program.

As an example of using board elections to advocate for cooperation between cooperatives, last year I stood in the board elections of the leading Finnish retailer S-Groups Helsinki branch. One of my campaign proposals was for the retailer to try to recruit its temporary staff from Tulos, a Finnish worker cooperative staffing agency. In 2021, the leading Finnish bank, the OP cooperative, will have its board elections, where I will be campaigning for similar proposals.

Joining Members For Cooperation Between Cooperatives is easy - just fill out this questionnaire with two required questions. You can also join our Loomio and Facebook group group, and follow the network on Twitter. I have also committed to donating the equivalent of $1000 to the first big cooperative to fund a coupon scheme comparable to the one described in the chapter 5 of this article. Bringing together a global network of people willing to sign petitions, vote and stand in elections to coordinate a common agenda pursued across cooperatives and countries has the potential to be a valuable form of activity in cultivating a cooperative commonwealth.

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