Cooperative Advantage

Economists are well versed in the concepts of competitive advantage and comparative advantage, but could we be missing a trick by not putting more emphasis on what has been called ‘cooperative advantage’?

What if the economy was organized around cooperation instead of competition? What if the principles of shared ownership and community solidarity replaced the pursuit of profit and maximizing shareholder value?

It’s so far from our everyday reality that, for most of us, it is little more than a thought experiment.

First principles

In fact, the cooperative movement has a long, proud and global history of doing exactly that. Dating from 1844, and updated in 1966 by the International Cooperative Alliance, the ‘Rochdale principles’ set out the ideals for operating a cooperative enterprise. Central to these are open, voluntary membership and democratic governance on a ‘one member, one vote’ basis. For the most part, financial surpluses are reinvested in the coop, and the accumulated surplus belongs to all members. There is also a commitment to education of members and the public around cooperative principles, and to cooperation between cooperatives. Essentially, these core principles underpin the operations of cooperatives worldwide to this day.

Worldwide, there are some 3m cooperatives, numbering over 1bn members and employing 280m people – or one in ten paid workers on the planet. The Irish Cooperative Organisation Society (ICOS) claims more than 150,000 members and over 12,000 employees in its Irish co-ops. Many of these are producer co-ops in the agri-food sector. There are about 3.6m members of credit unions in Ireland, showing the enduring attractiveness of workplace and community-based co-ops. Since its establishment in 1973, Co-operative Housing Ireland has supported the provision of about 5,000 homes across the country, and currently manages a housing stock of about 2,000. In more recent years, cooperative communities have built up to deliver childcare services. As we can see already, co-operatives come in many shapes and forms, bringing together workers, producers, savers, borrowers, householders, social service users and consumers (like the long-standing Dublin Food Coop that reopened in new permanent in Kilmainham, Dublin 8, recently).

Concrete examples

One of the common arguments made against cooperatives is that they are difficult to scale up, particularly in the face of cut-throat competition from shareholder-owned firms. Certainly, achieving scale is not without its challenges. But, an example from the Basque country is instructive. With nearly €12bn in annual sales, more than 80,000 employees and operating through 266 federated entities and 15 R&D centres, Mondragon Corporation is the most famous example of a successful transnational cooperative. Operating in cutting edge industrial sectors, as well as in retail and finance, Mondragon has largely maintained its cooperative ethos while growing sustainably and competitively. Closer to home, John Lewis & Partners has blazed a trail in high-end retail.

The prosperous Emilia Romagna region of Northern Italy provides a slightly different example of scale, where a dense network of small and medium sized cooperatives is integral (accounting for 30% of GDP) to the fabric of an economy comparable in size to that of Ireland. Rather than a single behemoth corporation like Mondragon, which has yet to be replicated elsewhere on anything approaching that scale, in Emilia Romagna it is the cooperative ecosystem that is key. This networked ecosystem approach allows for economies of scale, without a need for centralization in – or the leadership of – a single ‘unicorn’ cooperative. Essentially financed through an early form of membership crowdfunding, the region’s Coop supermarket has since become the leading retailer countrywide. Emilia Romagna has also seen a significant growth in social co-ops, efficiently providing social services like childcare and eldercare.

Some have argued that worker-owned firms couldn’t possibly be competitive in a global market economy. But, why then has the private sector taken such a fancy to employee stock ownership plans (ESOPs)? Because, they know that employees will be more productive if they feel ownership of the fruits of their labours. It is precisely this impulse that underpins the cooperative ethos. Along similar lines, John McDonnell, Labour Party Shadow Chancellor in the UK, recently proposed the establishment of an Inclusive Ownership Fund to which corporations with 250+ employees would issue 1% of their equity capital every year, up to a maximum of 10%. Workers would then benefit by way of an annual dividend capped at £500, with surplus dividends going to finance public investment.

Similarly, some argue that worker control of firms is a recipe for chaos and unsustainable wage growth. On the contrary, Germany has at the same time one of the most competitive private sectors and most developed systems of worker representation in the world. Every firm with five or more employees must have a work council where this representation is guaranteed while half of the boards of directors of the largest corporations must consist of workers’ representatives. In Germany, as in workers cooperatives worldwide, it is more common during challenging economic times for workers to agree to wage moderation to avoid job losses.

Policy programme

Irish policymakers have for too long fawned over footloose foreign capital, to the exclusion of indigenous entrepreneurs and social movements. We need to do more to value and support our social entrepreneurs, including those in the cooperative movement who prove every day that other economic and business models are possible.

What would a policy framework conducive to growing the cooperative alternative look like? A twin-pronged approach is necessary. On the one hand, there is a need for further study and refinement of the cooperative model to adapt it to various sectors of the modern economy, including how best to align incentives of all stakeholders.

On the other hand, there is a role for national policymakers to play. In Italy, for example, undistributed profits of cooperatives have been largely exempted from corporation tax since 1977. Other reforms eased the restrictions on raising money from members and allowed unemployment insurance payments to be used instead as lump sum capital for workers to cooperatize their workplace rather than being laid off. A supportive framework could also be put in place to foster links between coops in different sectors, between workers and consumers for example, or by incentivizing credit unions to provide seed capital for industrial, housing or childcare coops. At a time when the price of housing and childcare is becoming unbearable for too many families, community-based cooperative models could point the way to a more sustainable alternative.