A member cooperative is an enterprise that is owned and governed by its customers. The model has a long history, and many companies you recognize are actually cooperatives (Vanguard, Western Family, Land O'Lakes, Sunkist, Bob's Red Mill).
They tend to be created in industries where large fixed investments are needed to create basic infrastructure for the market to function at all. If such industries have many small companies, then it isn't reasonable or profitable for any of them to make those investments individually, and the market is vulnerable to some monopolistic company slowly capturing the entire supply chain.
Cooperatives remove the adversarial divide between producer and consumer, making them the same party. The fact that the cooperative exists for no other reason than to benefit its users, and they control it directly, means the decisions it makes are always directionally aligned with members' best interests (as long as good governance can control and prevent things like board corruption).
Cooperatives recapture profits for members. Cooperatives are an excellent fit for any situation where people want control of the institutions they rely on, and where there's a business model that's already proven and risk is fairly well understood.
So why aren't cooperatives everywhere?
There are three problems that keep cooperatives from spreading across the entire economy:
- Restricted access to startup capital.
- High friction membership rules.
- Slow and unaccountable governance systems.
Let's take them one at a time, and introduce Unbreaking Lab's solutions.
Restricted access to startup capital
In an economy like ours where most capital is held by profit-seekers, most capital will be deployed for profit-seeking. This isn't a problem for cooperatives that are already "started up" and self-sustaining. But getting started requires capital, and the people who currently control most capital won't invest it to create companies they won't then own.
The lack of startup capital additionally makes it much more painful for entrepreneurial people to create cooperatives. This is why many of the most prominent cooperatives were founded by absolute lunatics (John Bogle and Dee Hock come to mind). People who were driven by idealism (and maybe a bit of bitterness) rather than the promise of a huge payday.
(I happen to be a lunatic, which is why I care about cooperatives, and why I founded Unbreaking Lab!)
Historically cooperatives raise startup capital either with: government loans, which unfortunately are only available for cooperatives in certain industries; or raising funds from members. Raising funds directly from members makes a lot of sense! It certainly follows from the cooperative spirit of independence and teamwork.
But often cooperatives founded on member investment make the understandable mistake of requiring ongoing regular investments, which is very clunky for a consumer cooperative where the members are just normal people. To sand away this bit of friction we can use something like Cooperative Investment Pledges, where initial investment grants members increased voting weight and is repaid with nominal interest.
High friction membership rules
In any cooperative you need some rules for how members both join and participate over time. Ideally these rules create a situation where the cooperative is as easy to understand and participate in as competing for-profit businesses. If the cooperative is as frictionless and simple for members as other options, and the benefits of membership are clear to them, the cooperative will tend to succeed.
We can see this clearly in the case of credit unions. Since members are simply the people who have accounts, they interact with the credit union in the exact same way they would interact with any bank. They don't have to pay regular membership fees or regularly invest operating capital, they aren't required to help run the organization or attend governance meetings if they don't want to, they just keep their accounts and use the bank however they need to.
This is why I think there are so few examples of cooperative retailers: we all have extremely transactional and casual relationships with retailers! (I wish cooperatively minded people would have picked up the concept of club retail and competed with Costco etc. if they had we might live in a quite different world.)
What I'm ultimately trying to say is that cooperatives are just like any other business. Potential members have to understand how the cooperative works and membership has to be a genuinely good deal for them. If a cooperatives doesn't nail the basic business model and is clunky or opaque to potential members it won't do well.
The solution to this problem is less a system than an attitude. An Activist Entrepreneur runs a cooperative just like they would any other startup, but with a truly user-focused ownership and business model!
Slow and unaccountable governance systems
If I was for some reason dissatisfied with my credit union, I could choose to exercise my membership to try and change it. However in order to do so, I would have to:
- Wait until my credit union's yearly member meeting.
- Sign up for and attend the meeting, possibly traveling to do so in person.
- Vote for a board member I believe will advocate for the change I'm interested in.
- Wait for that board member to institute the change (if they're even elected at all).
It should be obvious why many of us don't even realize we are equal owners of our credit unions: it's difficult to actually exercise the rights of our membership! We still benefit from member ownership, since the institution is generally aligned with our interests. But the whole democratic process is just as stuck in the past as the government is.
We don't have to accept lousy governance! Cooperatives are private companies, which means they are ideal testing grounds for better systems of democratic control.
Combining all these systems, and many more I'm sure we'll invent as needed, I believe it's possible to make cooperative enterprise the dominant economic form. Especially in industries that are already trending towards commoditization, and where established business models mean there's less "uncertainty" and more mere "risk", then cooperatives would almost always produce superior results for consumers.
A better world is possible. I hope you'll join me on this mission!