What’s the Problem with Co‑ops?
When I first encountered the solidarity economy, I was thrilled with the potential of bringing together our core values with the current production system. Democracy, solidarity and cooperation can be powerful economic drivers beyond typical financial greed.
Then I discovered a mismatch between the mounting benefits listed by the co-op literature and what law professor Peter Molk described as the “puzzling lack of cooperatives.” I wondered why there are relatively few cooperative businesses operating in the U.S. market today compared to conventional for-profit businesses. Why do co-op revenues only add up to a small percentage of the global GDP and the world’s total employment? Is there anything inherently wrong with cooperative ventures?
Despite the long history of cooperative enterprises, their significant economic impact, and the substantial data available about these institutions, their vast potential has not been fully explored.
On the one hand, cooperativism gradually became a substantial force in some sectors, notably the agriculture and food industries, wholesale and retail sales, insurance, banking, and financial services, health, education, and social care in countries such as the USA, France, Germany, Japan, Netherlands, and Italy.
On the other hand, the presence of cooperatives is still very modest when compared to large corporate conglomerates. The choices for cooperatives are meager in most endeavors and there is a profound lack of understanding about what this option truly represents among entrepreneurs, investors, consumers, and policymakers. How can the crawling pace of cooperative initiatives be explained in the larger picture?
The diagnosis is far from obvious. The minimal scale of cooperative ventures in the market seems to be more a confluence of factors rather than a single isolated motive. Among the reasons why cooperatives have not reached their full socio-economic potential, we can cite the following:
- Financial constraints
- Lack of awareness regarding the co-op model among the general population
- Misconceptions about the co-op model
- Institutional incongruities
- Lack of public policies encouraging cooperative development
- Conventional market incentives pushing towards profit-maximizing forms of production
- Shortage of co-op-savvy service providers (lawyers, accountants, banking professionals)
- Operational costs associated with high levels of transparency and democratic decision-making processes
- Restrictive ownership mindset among investors and entrepreneurs
- Image of cooperatives as small local ventures
- Preconceptions about growth potential for cooperative companies
These factors have inhibited co-op development, especially in systematically taking advantage of growth strategies. The multifunctional nature of cooperatives in different sectors, sizes, and scope, rule out any generalist response to their problems. When we talk about cooperatives, we are not talking about just one universal well-defined legal form because there is no single co-op identity.
Despite efforts at cross-jurisdictional harmony, this lack of a standard framework (along with numerous market challenges) has led cooperatives to evade a rigid organizational model in order to adapt to recurrent challenges. Their unclear identity and institutional incongruencies have created an identity crisis, largely inhibiting their ability to grow and thrive alongside their non-cooperative counterparts.
We need to better understand this flexibility of the co-op model and how it can adapt across multiple legal systems. Co-op diversity and malleability also allow for greater creativity in the search to overcome constraints on growth. Through this analytical lens, I suggest that cooperative growth and scalability cannot be viewed in the same way as understood in non-cooperative corporations: co-ops must be allowed to reflect their historic and more comprehensive values system.
Because authentic cooperatives are grounded principles and social goals, their full impact can’t be measured with purely financial metrics. Cooperatives must continue to design adaptive strategies to overcome poor legal frameworks and the market’s competitive logic, with strategies to support individual cooperative growth as well as inter-cooperation between coops (the famous Principle Six!).
Cooperatives can attempt to avoid being confined by market forces. Our challenges are usually more about our current economic environment rather than reflective of any real drawbacks of our model.
In fact, rather than “the model,” I prefer to think of the co-op form as an umbrella for shared ownership and governance models. We might remember that overcoming the obstacles to the flourishing of coops is deeply connected to ICA’s Principle 5 (education, training and information). That means our job is to clarify and communicate how cooperatives work, grow and can spawn innovation. Even in this economic environment.
Resources for further study:
- Antonio Fici, “Cooperative identity and the Law,” European Research Institute on Cooperative and Social Enterprise (Euricse) Working Paper n. 023/12, 1-27 (2012)PDF downloadable from Euricse (gratis)
- Jason Spicer, “Cooperative enterprise at scale: comparative capitalism and the political economy of ownership,” Oxford Socio-Economic Review, Vol. OO, No. 0, 1-37 (2021)PDF downloadable from Oxford Academic (payment or institutional access required)