The number of cooperatives in South Korea has exploded

13th July 2020
by Leo Sammallahti
Marketing Officer, Coop Exchange

The importance of cooperatives to the South Korean economy

Before going into the details of a revolutionary change that happened in 2012, it is good to note that cooperatives have played an important part in the Korean economy for generations.

One industry where the movement has gained a particularly large foothold is agriculture. The dominant player in the industry is The National Agricultural Cooperative Federation. Established in the 1960s to uplift the still largely rural economy, it has grown to include nearly all rural households as its members. Alongside farmer owned producer cooperatives the federation also runs a banking network which is the second-largest financial group in South Korea in terms of total asset value. It is also not the only cooperative in the financial sector - the around 900 credit unions in the country boasted 5.9 million members in 2012, an increase of over one million members, compared to 5 years ago.

Co-operatives have shown promising growth in other sectors as well; one notable example is the consumer cooperative iCoop which was launched in 1997. It had around 11,645 members in 2002 but by 2012 the membership had grown over 13-fold to 156,000. The membership has continued to grow reaching 294,000 in 2019 according to the latest estimate.

The 2012 explosion

Cooperatives were previously limited to only a few industries, each with their own specific legislation but this changed following the passing of the 2012 Cooperative Framework Act. Cooperatives could now be established in almost any sector, and requirements to launch one were drastically reduced.

For example, the previous laws required at least 1000 founder-members to form an agricultural coop, 300 for a consumer coop and 100 for a credit union. The passing of the new law reduced the minimum number of members to establish a cooperative to 5. Other substantial changes included recognising worker cooperatives as a specific legal entity, and making them eligible for conventional bank loans for small and medium-sized businesses they were previously denied access to.

Support for cooperatives among the political leadership has been substantial - every major political party included cooperatives in their party manifestos in the previous two elections and the mayor of Seoul stated that his goal was for every resident in the city to be a member of at least one cooperative.

The results of the act have been dramatic with over 15,585 cooperatives being formed between its passing in 2012 and 2019, meaning that on average, over 2000 cooperatives are formed every year. Compare this to Germany and the UK, both with more than twice the population, that saw 187 and 150 cooperatives established in 2019.

Happy Bridge Cooperative

One reason for the dramatic growth is a boom in conventional businesses converting into co-ops.

Perhaps the most notable example of this is Happy Bridge, which converted from a conventional company into a worker cooperative almost immediately after the 2012 law was passed. Its 94 worker-owners help aspiring entrepreneurs to set up franchise noodle and steak restaurants by teaching them the skills of the trade, such as recipes. The restaurants, in turn, buy their raw materials from the cooperative. The founders of the business came from labour and student activist backgrounds and were the ones who initiated the conversion; it wasn’t a hostile takeover of a business being sold or facing closure, but rather, the result of a sympathetic management realising the model could enable their already successful business to harness its potential.

It proved to be a smart move - 5 years after the conversion, the sales had doubled to $53 million, making it the largest worker cooperative in the country.

The future of South Korean cooperatives

The South Korean economy has distinct features - in proportion to the GDP, it spends more on R&D and has a larger ICT sector than any other country in the world. Our movement is increasingly grasping the exciting opportunities this economic environment offers - numerous cooperatives of scientists and software developers have emerged in recent years, as well digital platforms owned by the drivers, cleaners and other workers whose labour is exchanged in these platforms.

I have written about the huge potential of global digital cooperatives numerous times before on this blog (here, here and here). Only a handful currently exist, with Coop Exchange joining the ranks once we launch. It might be that there only needs to be a single country in the world that makes it easy enough to establish global platform cooperatives for the whole sector to explode. In Estonia, the goal is for everyone in the world to be able to start a conventional business in the country online in a day. What if South Korea made it as easy to establish digital cooperatives with global membership? The country could be in an ideal position to do so. It might very well be that it would allow the Facebooks and Amazons to be replaced with Korean based user-owned platform cooperatives, with masses of members spanning across the globe.

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