- Introduction
- What is The Principles of Cooperatives?
- What Are The Merits and Demerits of A Cooperative?
- Organizational Structure of A Cooperative
- Types of Cooperatives
- Conclusion
Introduction
Cooperative Economics is simply the study and management of cooperatives. It’s the voluntary association of individuals with mutual economic, social, and cultural aspirations. Members own cooperative enterprises and each member have one vote in decision making. Moreover, cooperative is people first with idea sharing before profit. Also it’s the preservation of wealth and resources for the next generation. Members of cooperatives are thinkers of ways of transforming, controlling and having ownership of their communities together. Likewise achieve social goals by investing a part of the profits back into their communities. Cooperative help members secure wealth and future of the next generation.
The largest cooperative in the world is the Mondragon Corporation by José María Arizmendiarrieta (a Catholic priest). This cooperative is still in operation since 1956. In fact, in 2012 about one billion people in 96 countries belong to one cooperative according to Worldwatch Research. While the income of the largest three hundred cooperatives in the world is about $2.2 trillion. Cooperative enterprises are more viable than many other forms of enterprise.
What is The Principles of Cooperatives?
Cooperatives all over the world operate in line with the core principles of International Cooperative Alliance, ICA. We trace the roots of these seven principles to the first modern cooperative founded in Rochdale, England in 1844. In fact, cooperatives are common in the agriculture, retail, restaurant, healthcare and art and industries.
Open and Voluntary Membership
Membership in a cooperative is always open to all who can use its services and product. And joining the business is by choice. Cooperatives are creations to handle a particular need (s) of a given set of people. And these people are willing to accept membership responsibilities.
Democratic Member Control
Democracy is a crucial element of cooperatives. The management of cooperatives operate in an equitable and civil manner. In fact this democratic nature of a cooperative ensures that it serves the needs of members. Members participate actively in setting policies and making decisions. Members elect representatives among themselves, who are accountable to them. Every member have equal voting rights.
Members’ Economic Participation
There is equal contribution and control of cooperative capital and resources. However the cooperative retains part of the capital as common property. Members reserve surpluses for any or all of the following purposes. First, developing the cooperative. Secondly, setting up reserves. Thirdly, benefiting members in proportion to their transactions with the cooperative. Finally, supporting other activities approved by the membership.
Autonomy and Independence
Cooperatives operate as autonomous and independent organizations controlled by their members. If they enter into agreements with other organizations, they do so on terms that ensure their unique identity.
Education, Training, and Information
Sharing of cooperative economics best ideas among members. Training for members help them effectively contribute to the development of their cooperatives and communities. Public communications about the nature and benefits of cooperatives, help boost understanding of a cooperative.
Cooperation Among Cooperatives
By interaction and working together, cooperatives help people connect to each other. This enhance human integration and service delivery. Also it bolster local economies and effective management of social and community needs.
Concern for Community
The sustainable development of their communities through policies supported by the membership is the heart of cooperative. One of the core orientation of cooperatives is people first.
What Are The Merits and Demerits of A Cooperative?
Approximately 80% of top 300 largest cooperatives listed in 2007 by ICA operates in either agriculture, finance, or retail. And more than half of these cooperatives are in the United States, Italy, or France.
The largest cooperative housing development in the world Co-op City in The Bronx, New York City, with 55,000 people.
Advantages of a Cooperative
Democratic Organization
Democracy is a crucial element of cooperatives. Consequently the management of cooperatives operate in an equitable and democratic manner. This democratic nature of a cooperative ensures that it serves the needs of members. Members may come and go without necessarily changing the way things work. Moreover, it takes the entire members to decide on it, whenever change is necessary.
The amount of monetary investment does not affect member voting right, so no member can control the decision-making process. This philosophy of one vote to a member particularly appeals to smaller investors and encourage greater participation. Because each member of the cooperative have equal say. This makes the cooperative business more stable than a regular business.
Social Development and Interaction
Cooperative enterprises operate on the philosophy of mutual help and community responsiveness. They don’t just uplift the members economically, but also morally and socially. Membership of cooperative instills a spirit of community service, independence, cooperation and tolerance.
Reduction in Taxation
Cooperative enterprises exempt members from income tax, up to a point. Those that are incorporated normally are not taxed on surplus earnings or patronage dividends similar to a Limited Liability Company. Therefore, cooperative members are only taxed once on their income from the cooperative and not on both the cooperative and individual level. Cooperatives that have profit orientation are taxed just like regular businesses. But, they can limit their exposure to taxation by paying their members in the form of patronage dividends. This patronage dividends come in form of discounts and refunds on products and services.
Access to Funding Opportunities
Cooperatives receive financial assistance in the form of grants and loans from the government. There are a variety of government sponsored grant and aid programs for cooperatives. For example, the USDA Rural Development program offers grants to new and existing rural development cooperatives.
Reduction of Costs of Products and Services
Cooperatives leverage their size to easily obtain discounts on supplies and other materials and services. There are cost reduction of products and services by suppliers because they are dealing with a customer of more substantial size. Consequently, the members of the cooperative access these services and products at cheaper rate.
Perpetual Existence
A cooperative structure encourages continuity and less disruption to the business. Members in a cooperative can join or leave the business without causing dissolution unlike other business model. Cooperatives are considered as an individual legally. Therefore a cooperative takes responsibility for its own debts than relying on the employees, directors or regular members. Liability of cooperative member is only limited to her respective investment.
Economic Advantage to Members
A cooperative enterprise gives her own set of economic advantages to its members. For example, members of consumer cooperatives receive dividends for their patronage. How much members spend on the products of the cooperative determine these dividends. But employees who are members of the cooperative also receive discounts on merchandise.
Discourages Monopoly and Unhealthy Competition
Cooperatives are people driven rather than profit driven like capitalism. The idea of growing and succeeding together is a core value of cooperatives. The is room for you to start small and be a part of something big. This makes cooperative an ideal business model for those with low startup capital.
Disadvantages of a Cooperative
Securing Capital through Investors
Cooperatives may sometimes encounter obstacles getting debt capital from financial institutions unlike other business models. Cooperative enterprises have fewer incentives to attract investors with large capital. The philosophy of one vote to a member may not be appealing to larger investors. Because the size of their investment in the cooperative does not translate to greater decision-making power.
Lack of Membership and Participation
When members do not fully participate and perform their responsibilities then the business will not operate at full capacity. It could risk losing members if a lack of participation persist.
Delay in Taking Decision and Lack of Professionals
When occasion arise for fast decisions, a cooperative may run into some issues. Because all members should be involved, which consumes time. Every member voice must be heard.
Many cooperative enterprise may not have professionals because they are just too expensive. They do not attract skilled professionals unless those professionals are members of the cooperative.
Organizational Structure of A Cooperative
Members are the users and purchasers of the services and products of a cooperative. These organizations operations cover a wide range of products and services. Cooperatives model their structure after corporations. However, the rights and responsibilities of the investors reflect the member-ownership nature of cooperatives.
Membership
Individuals join by buying goods and services because investing gives membership rights. While some cooperatives accept members who buy stock in the entity. Members vote for the board of directors but each member gets a single vote. Moreover cooperatives pay out profits to the members in the form of patronage. This patronage is proportional to your purchases. In the event of a dissolution, members share the property remaining after the cooperative pays its creditors.
Directors
The directors are members that oversee the entire operation of the cooperative. The board drafts the cooperative’s policies, membership criteria, expenses and decide membership patronage. Directors are the ones that acquire land, buildings and other property for the cooperative. As representatives of members, directors assess their needs with the ability of the cooperative to meet them. In addition, directors appoint managers and officers to carry out the plans and agendas of the cooperative.
Officers
The president is an intermediary between the board and the professional managers. Moreover the president presides over the meetings and affairs of the cooperative. But in his absence, the vice president assumes these duties. While the secretary keeps records of the meetings, bylaws and activities of the cooperative. Bylaws serves as the operating manual of the cooperative. Finally the treasurer accounts for the income and outflow of money.
Managers
The board of directors appoint a professional manager to carry out in details the policies of the cooperative. The manager oversees the daily operations of the cooperative. This may include recruiting, training and supervising employees. While ensuring proper stores inventory, adequate operation of physical facilities and equipment. Also he interfaces with new and prospective members. The manager must be current on developments and changes in laws and regulations that affect the cooperative.
Types of Cooperatives
Purchasing Cooperative
This type of cooperative aggregate demand to get lower prices from selected suppliers. A form of purchasing cooperative is retailers cooperative. Examples include CCA Global Partners, Best Western and ACE Hardware.
Credit Unions, Cooperative Banking and Cooperative Insurance
Credit unions are cooperative financial institutions. Members own and control the credit unions. Credit unions offer similar financial services as banks but are not-for-profit organizations but adhere to cooperative principles.
World Council of Credit Unions (WOCCU) 2016 report shows that 68,882 financial cooperatives exist in 109 countries. And they have 235 million members with total assets exceeding 1.7 trillion dollars.
Producer Cooperative
Producer cooperatives have producers as their members. They provide services involved in moving a product from the point of production to the point of consumption. But unlike worker cooperatives, they permit businesses with multiple employees to join. Agricultural cooperatives and fishery cooperatives are examples.
Consumers Cooperative
Consumers own and operate a consumers’ cooperative business. Moreover, members vote on major decisions and from among themselves, elect board of directors. In 1844, 28 weavers formed the first consumers cooperative in England. Because they want to sell food at a lower price than the local shops.
Retail cooperative
Retail cooperatives are retailers such as grocery owned by their customers. This is different from retailers’ cooperatives, because members here are consumers rather than retailers.
Housing Cooperative
A housing cooperative is a legal strategy for housing ownership. However residents either own shares or membership and occupancy rights in a not-for-profit cooperative.
Utility Cooperative
Another type of consumers’ cooperative is utility cooperative. They provide public utility such as electricity, water or telecommunications services to its members. Cooperatives distribute profit to members in form of patronage. Secondly they reinvest some part into infrastructure.
Worker Cooperative
Workers own and control a worker cooperative or producer cooperative. No outside owners in a true worker cooperative but only the workers own shares of the business. But hybrid forms exist in which consumers, community members or capitalist investors also own some shares.
Business and Employment Cooperative
These are subset of worker cooperatives that represent a new approach to providing support to the creation of new businesses. They enable newbies entrepreneurs to experiment with their business idea while benefiting from a secure income.
Volunteer Cooperative
This type of cooperative is run by and for volunteers, for the benefit of members or the public. The structure determines whether it is a collective or mutual organization, operating according to the principles of cooperative. Examples are; a voluntary association, a lodge or social club.
Agricultural Service Cooperatives
These provide various services to their individual farming members, and to agricultural production cooperatives. Also they pool resources such as equipment or land together and members farm jointly.
Agricultural Supply Cooperatives
These cooperatives unite purchases, storage, and distribution of farm inputs for their members. Moreover the take advantage of volume discounts and economies of scale, to bring down members’ costs. Additionally items like seeds, fertilizers, chemicals, fuel, and farm machinery becomes cheap.
Agricultural Marketing Cooperatives
These operate interconnected activities that includes production, growing and harvesting, grading, packing, transport, storage, food processing, distribution and sale. However to promote specific commodities is why most of them are in place.
Successful agricultural marketing cooperatives include Diary Farmers of America (dairy products) and Malaysia’s FELDA (palm oil).
Platform Cooperative
This cooperative establishes a computing platform, and uses a protocol, website or mobile app for selling of goods and services. But they are an alternative to venture capital funded platforms. Because the workers, users, and other relevant stakeholders own and govern the business.
Conclusion
The members of a cooperative use the services and products of the cooperative. This business is different from other types because they operate for the benefit of their members. But members share the profit according to the shares they hold or their participation. User-owner is another name of members of a cooperative.
These businesses run across different sizes. But ome are small buying societies owned by members of local communities. Others are large Fortune 500 companies. There are more than 42,000 cooperatives in United States. They own and control assets worth above of $3 trillion together, making them American major economy contributor.
We can trace cooperative economics roots in the United States to first generation black Americans. In fact, they used this strategy to survive because of the level of difficulty they faced as individuals. However through cooperative economics they purchase lands, farming machineries, liberated others from slavery and wealth created. Therefore cooperative is a great platform to pool resources together, for social integration and wealth generation. For a true prosperous and healthy society, cooperative economics may be the answer. Great things most times start small!