9 Facts On How Cooperatives Tackle Economic Inequality And Help Small Businesses

Leo Sammallahti

Leo Sammallahti

May 5, 2019

There are two great trends in the current economic system that are allocating resources away from those who need it the most.

Growth of economic inequality

The 26 richest billionaires now own as much wealth as the 3.8 billion people who make up the poorest half of the world's population, down from 46 in 2017. The very richest has seen 12% increase in their wealth, while the poorest half of the population saw a 11% fall in their wealth last year. This trend is tearing apart the social fabric keeping societies together: income inequality has been shown to have a detrimental effect on numerous indicators of social well-being, from crime to teen pregnancies.

Growth of market concentration

Market concentration has increased in three-quarters of U.S. industries during the 21st century, meaning that fewer companies have a larger market share. Similar trends can be found across the world. Indeed, some of the increase in income inequality can be explained by monopsonies (a reverse monopoly of only having one or few buyers). Fewer companies in a given industry make it easier for those companies to coordinate together to keep wages low.

One of the most perverse examples of market concentration can be found in the financial sector. The large Wall Street banks were bailed out because they were deemed ”too big to fail”. However, their market share has only continued to increase, partly due to the implicit assumption that they, unlike their smaller competitors, will be bailed out by the taxpayers.

Market concentration has coincided with decline in entrepreneurship. From 2007 to 2012, the share of small business owners aged less than 50 fell by 4.9 percent in the US. The same thing is also happening in other rich countries. Contrary to a common misconception of the start up economy, the start up share of all US businesses has declined from 14% to 8% between 1979 and 2014.

Economic equality is in the DNA of cooperatives

There are many reasons that cooperatives can tackle economic inequality. The simple fact that ownership is shared equally in a cooperative is the most obvious one. Not only is ownership shared equally within a cooperative, the ownership of cooperatives is more broad, as the fact below demonstrates:

Cooperatives reduce income inequality

Empirical evidence also supports the case of cooperatives reducing economic inequality.

Cooperative banks help small businesses

The evidence for the support of cooperatives towards small companies is also clear, as demonstrated by a growing body of research on the benefits of cooperative banks to small and medium sized businesses.

How small businesses can band together as cooperatives to compete

Not only do cooperatives such as cooperative banks support small businesses, small businesses can themselves use the cooperative model to survive and triumph in the marketplace.

Perhaps the most substantial example of this are purchasing cooperatives. In a purchasing cooperative small businesses pool their money together to make purchases at bulk prices. Each business owns one share of the purchasing cooperative, so the ownership is democratic. It is different from most commonly known forms of cooperatives in that its members are not individual people (such as customers in a coop shop or drivers in a worker cooperative of taxi drivers), but individual businesses. When you have 100 businesses buying their office papers together, they can bargain a cheaper price than if all of the businesses buy their paper individually. Purchasing cooperatives have been shown to be an effective way for small businesses to band together and compete against the industry goliaths. Three examples below demonstrate the power of purchasing cooperatives: