Europe Report: The “Secret” of Finnish Cooperativism

According to the annual update for the World Happiness Report, Finland has been ranked as the happiest country in the world — for the fourth year in a row. (If you didn’t know, it turns out social happiness is actually a measurable thing.)

Perhaps it’s no coincidence that the country is also widely viewed as having the most cooperative economic system in the world. An astounding 90% of the population are cooperative members, and more than half have a membership in multiple co-operatives.

OP Financial Group, the leading bank and insurance company, is a consumer co-operative, as is the largest retailer, S-Group, which dominates the grocery sector by having a market share over twice as big as its next biggest competitor. Forestry has always been one of the main export industries, and over half of the privately-owned forests belong to the over 100,000 members of the Metsa Group cooperative, which is also leading the transformation towards environmental sustainability by providing 16% of the renewable energy in the country. S-Group is another major player in this area and has recently become the largest producer of solar energy.

There are no definitive answers as to why this distant and small country has provided such fertile soil to the cooperative movement, but looking at the first seeds planted might offer some clues. The first cooperatives were established in the late 19th century when the Russian Empire still dominated the country. During this period, few Finns had accumulated wealth over the generations while the elites consisted of Russians or Swedes, also previous colonizers. To reach independence, the Finns needed to first become economically self-sufficient. They soon realised that while individually poor, pooling resources collectively through cooperatives was the way to build economic power.

Cooperatives didn’t just build economic power. They also instilled confidence among the people in their ability to govern themselves democratically. Alongside trade unions, the cooperatives were laboratories of democratic experimentation that reached a critical mass in 1906, when Finland became the first country in the world to have a parliament where everyone had an equal right to stand and vote in the elections. It took another 11 years until Finland gained independence, but it could be that becoming accustomed to democracy before anyone else played a role in the success of the cooperative sector.

Finland’s parliamentary elections have historically been dominated by two parties: the Social Democratic Party, affiliated with the labour movement, and the agrarian Farmers Alliance. Both parties were formed as the political wing of a larger movement in which cooperatives and mutuals played an important part. Both had their own chain of grocery cooperatives, alongside other enterprises ranging from mutual insurance companies to savings banks and credit unions to purchasing and producers cooperatives.

The popularity of the parties was rooted in affiliated organisations that provided tangible economic benefits in the everyday life of the ordinary people who formed their mass membership.

Later on, these cooperatives largely lost their ideological affiliation, and in some cases, merged with their historical rivals. However, participation in the elections within the large cooperatives is still relatively high. Some 20–25% of S-Group members vote in the membership council elections, and 10–15% in the OP group board elections. This is much higher than in US cooperatives with a large membership, where the elections are rarely contested and participation rates are rarely above a few percentage points, even if there is an electoral contest.

While the cooperative movement had always been an important part of the economy, it was during a time of crisis when the strength of the co-operative model proved its value. In the 1990s, the country plunged into the worst economic crisis of its post-war history, caused by the collapse of its leading trading partner, the Soviet Union, followed by a bust of the banking system after a boom triggered by financial deregulation.

The OP cooperative bank was one of the banks that survived relatively unscathed. The S-Group made a series of reforms that proved successful, the most visible being a new dividend system, whereby the member receives a higher dividend percentage if they purchase more. Previously, the dividend was a fixed percentage. Currently, a member household spending 50 euros a month receives a 1% dividend, whereas a member household spending 900 euros a month or more receives a 5% dividend. It’s worth noting that S-Group does not limit itself to just groceries. The group also includes a chain of gas stations, restaurants, clothing stores, and numerous other businesses. Since the 1990s, the share of the Finnish population that are members of cooperatives has doubled.

The economic crises of the 1990s also created a vibrant culture of new cooperatives being set up. Nearly as many new cooperatives were formed in Finland as in the UK or Germany, despite having a population over ten times smaller. Many of these were worker cooperatives, which have increased in number almost 30-fold since the 1990s. The largest is Lilith, which has 400 worker-members across different creative industries.

As a result of this surge in new cooperatives, some unique adaptations of the old models have appeared. One of these is “inventor cooperatives.” In my next Europe Report, I will describe these cooperatives in more detail, so stay tuned!