In our first blog series on cooperatives, we will introduce you to what they are and the different forms they take. Read on to learn more.
A cooperative (also known as co-operative or co-op) is a business that is owned by its members. These members can be normal people, other cooperatives, or workers who have a vested interest in the cooperative and how it is run.
Historically, cooperatives emerged to allow people to gain access to goods or services that would be otherwise out of the ordinary person or business’ reach. Cooperative insurances in the US emerged in the late 18th century offering collective fire insurance. Similarly, credit unions emerged in the early 1900s to provide ordinary people with access to banking and finance.
The general idea is to achieve economies of scale, bulk purchasing to lower prices, sharing the costs of new technology or providing credit under competitive but fair terms. Cooperative members band together to achieve greater bargaining powers, which grants them access to new markets, technologies and greater efficiency. Cooperatives elect their leadership. This is aimed at ensuring that the business continues to act in the best interest of its membership.
Different types of cooperatives
- Producer: Members make or extract goods – mining, farming, manufacturing etc. Tools, technology or raw resources are pooled so that members can extract goods and market their products collectively for a share of the profits.
- Consumer: Customers who need access to goods or services but would otherwise be unable to afford them own consumer cooperatives. A cooperative supermarket would fit into this category.
- Financial (Credit Union): They offer the same services as a bank but differ insofar as democratically elected members run them. A single member gets a single vote, thereby ensuring that the financial cooperative is operating in the best interests of all of its members. Membership is gained by depositing income or taking out a loan. Profits are returned to members in the form of higher rates of interest and lower cost of loans etc.
- Worker: Worker cooperatives are owned and democratically governed by employees. Workers run for or elect their board of directors, managers or are run collectively. Workers are empowered to vote on major decision such as changes to bylaws they have a direct impact on their workplace.
- Purchasing: Members band together to increase their purchasing power, thereby enabling bulk buying – broadening the scope of what they can afford.
There are other forms of cooperatives and many cooperatives are mixtures of the categories described above.
What they all have in common:
The core principle behind a cooperative is to achieve the greatest benefit to its members rather than the greatest profit. Profits are distributed among members according to the use of its services, not according to investment. Often profits are invested into expanding the scope of the cooperative or are invested in the local community.
In terms of voting, regardless of share size or investment size, members only receive one vote. This is to ensure that the coop is run with all of its members in mind.
Up next: The History of Cooperatives