The Case for Cooperatives
10 Reasons Why Economic Development Agencies (EDAs) Should Support Co-ops
1. Cooperatives are “sticky” businesses
Rooted in communities due to the local ties of their member-owners, cooperatives are very unlikely to pick up and move to other communities, states, or countries, or, in the case of Limited Equity Cooperative (LEC) housing, to convert to market rate housing and displace low-income residents. This should be of great interest to governments who care about place-based approaches to investment.
See “What are GOLD Businesses?” Noemi Giszpenc, 2012
2. Cooperatives have strong multiplier effects
A study by the International Cooperative Alliance (ICA) found that, among other economic benefits, food co-ops had a multiplier effect of 1.6, compared with 1.36 for conventional grocers, meaning “For every $1,000 a shopper spends at their local food co-op, $1,604 dollars in economic activity is generated in their local economy”.
3. Cooperatives build wealth for low-income residents and communities
While the discourse around inequality once focused on income inequality, wealth has more recently been understood as the means to generate income and is therefore closer to the root of the problem. Owning a home and business is a way for workers to build up their personal assets, which can lead to greater income, educational attainment, wealth creation, and other positive social outcomes.
See Asset Building Through Cooperative Business Ownership, Jessica Gordon-Nembhard 2008
4. Cooperatives have the power to reduce income inequality
The pay differential between executive and non-executive workers is much narrower than in other firms, leading to a reduced gap between rich and poor. Because cooperatives are owned and governed by their members, the business form limits the degree to which profits are extracted from the business to benefit absentee investors and executives. Instead, profits benefit member-owners in the form of higher compensation, better benefits, retirement, and community investment and programming.
Worker cooperatives do a better job of reducing income inequality.
- The sector maintains a 2-to-1 pay ratio between highest paid and lowest paid workers. By contrast, the average large US corporation has a CEO-to-worker pay ratio of 303-to-1.
- The average wage paid at all reporting worker co-operatives is $19.67. This is more than $7.00 higher than the minimum wage in the 13 states with the most worker co-ops.
5. Cooperatives are resilient businesses
Worldwide, cooperatives had fewer business closures and fewer job losses than non-cooperatives, during the economic crisis that began in 2008. Cooperative and Mutual Enterprises (CMEs) are particularly resilient in adapting to crises, like Covid, due to the specific features of the cooperative model, including the values of democracy and solidarity, as well as the principles of cooperation among cooperatives and concern for the community. Strong partnerships between and within cooperatives and mutuals can be instrumental in enhancing the emerging role of the movement as a pivotal actor in transforming towards sustainable and resilient societies.
6. Cooperatives can operate at scale
In the same study, Pérotin demonstrates that co-ops are not, as some might think, smaller firms than conventional businesses. On the contrary, the evidence suggests that cooperative businesses tend to be larger and better capitalized than conventional firms and are capable of operating at scale.
7. Cooperatives are more productive than conventional firms
In a 2013 study of French cooperatives, researchers found that co-ops “use their capital and labor more effectively than conventional firms. With their current levels of inputs, cooperatives produce at least as much with the technology they have chosen as they would if they were using conventional firms’ technology. In contrast, in several industries conventional firms would produce more with their current inputs if they were organizing production as cooperatives do.” In other words, co-ops create greater economic activity with the same level of investment.
8. Cooperatives are socially responsible businesses
When a local business is owned by members of its own community, a mechanism for accountability is created that is impossible for absentee-owned companies. “Concern for Community” is actually ingrained in the very definition of a cooperative enterprise, as one of the 7 principles adopted by the International Cooperative Alliance.
9. Cooperatives address market failures that might otherwise fall to the state or federal government to address
In her 2014 survey of the benefits and impacts of cooperatives, Dr. Gordon-Nembhard points out rural electric co-ops, natural grocers, credit unions, affordable housing, child and elder care, and culturally specific products as examples of goods and services that conventional firms were not willing to provide – at least not until cooperatives demonstrated how to profitably deliver these services to the customers that need them.
10. Cooperatives extend the opportunity of entrepreneurship and worker/owner employment to many without the capital or resources to start a new business alone
In the same paper, Dr. Gorton-Nembhard cites a study by Bhuyan, Leistritz, and Cobia (1998), which found that, of 162 cooperatives surveyed, “44% of respondents said they could not have opened their business had it not been organized as a cooperative.” In US cities, co-op members are often workers with barriers to employment, such as a criminal record, that prevents them from re-entering the workforce.