From Rochdale to Ace Hardware

The evolution and potential of cooperatives

What is a cooperative?

Cooperatives are enterprises that are owned and governed by their members. They are democratically managed by the “one member, one vote” rule, meaning that members share equal voting rights regardless of how much capital they invest in the business. Profits are reinvested in the company or distributed to member-owners, not investors, so earnings stay in the community.

Cooperatives represent a radical departure from today’s expression of capitalism. When businesses are investor-owned, financial return is concentrated in the hands of a few people or institutions who are passively engaged. While there has been a lot of buzz around B-Corps, environmental and social responsibility, and triple-bottom line companies, they are all structurally accountable to investors, who, especially at large enterprises, control the Board of Directors. The Board of Directors is the nucleus of power for an enterprise, determining who sits in senior management, how those executives get paid, whether to raise capital and from whom, the strategic direction of the company, annual budgets, and other decisions of consequence.

In contrast, the cooperative structure rewards people who are actively engaged in the business either as suppliers, customers, or workers. The Board of Directors is elected by member-owners, creating structural, rather than just rhetorical, social accountability.

Cooperatives build collective power of groups uniting to compete with well-capitalized, investor-owned entities. They are able to organize the labor and capital of members in a way that allows the collective investments necessary to compete. For cooperatives to succeed, members must be driven by self-interest. Member-owners must recognize that the cooperative allows them to do something, such as acquire equipment or real estate, buy wholesale, distribute risk, secure a contract with a national retailer, or build an app, that they could not do on their own.

Who came up with the idea of cooperatives?

One of my favorite tote bags is from R.E.I., a camping goods cooperative, and reads, “The Earth is a Co-op.” Cooperatives have long been the natural order of things.

That said, the cooperative identity was formalized in 1844, by a group of 28 workers in England who launched the Rochdale Equitable Pioneers Society. Over 50 years into the Industrial Revolution, it became clear that hand production methods were giving way to mechanized production. Great Britain was the driver of the Industrial Revolution, leveraging steam and water power to mechanize production methods, especially in the textile industry. A mechanized cotton spinner could do the work of 500 men, the power loom that of 40, and the cotton gin that of 50.

When Rochdale was created, there was no doubt that labor was losing power to capital. This concentration of power for the few and recession for the masses drove Friedrich Engels, one of the founders of the Socialist movement, to author The Condition of the Working Class in England, which described the subhuman living conditions in mill towns in Manchester.

To counter the hunger stemming from the collapse of cottage industry, 28 workers from Rochdale’s textile mill banded together to open a store selling food items, starting with butter, sugar, flour, and oatmeal. Mill workers faced high prices and low quality when shopping for food. Tea laced with grass clippings was the norm. Furthermore, some workers were paid in credit that could only be used at company stores.

The Rochdale co-founders could not afford store rent and wholesale groceries individually, but they could collectively. Each co-founder contributed 1 GBP, or around 150 GBP in today’s value, to start the cooperative store. The shop mostly served fellow weavers working in textile mills, and every customer of the shop was invited to become a member-owner.

By the end of their first year, they had 80 members and over 180 GBP in capital and had expanded to stock higher-value products, like tea and tobacco. While a strike demanding higher wages and fewer hours the year before had been unsuccessful, the cooperative was taking off. When workers get sick of bosses saying “no” to better, they tend to say “fine, we’ll do it ourselves.”

The Rochdale principles

The Rochdale tradesmen wrote a set of principles, informed by the failures of other cooperatives, to govern their store. The language of these principles have evolved over centuries, but their spirit continue to guide the cooperative movement:

• Voluntary and open membership: Cooperatives are voluntary organizations, open to all persons able to use their services and willing to accept the responsibilities of membership, without gender, social, racial, political or religious discrimination.
• Democratic member control: Cooperatives are democratic organizations controlled by their members, who actively participate in setting their policies and making decisions. Men and women serving as elected representatives are accountable to the membership. In primary cooperatives members have equal voting rights (one member, one vote) and cooperatives at other levels are also organized in a democratic manner.
• Member economic participation: Members contribute equitably to, and democratically control, the capital of their cooperative. At least part of that capital is usually the common property of the cooperative. Members usually receive limited compensation, if any, on capital subscribed as a condition of membership. Members allocate surpluses for any or all of the following purposes: developing their cooperative, possibly by setting up reserves, part of which at least would be indivisible; benefiting members in proportion to their transactions with the cooperative; and supporting other activities approved by the membership.
• Autonomy and independence: Cooperatives are autonomous, self-help organizations controlled by their members. If they enter into agreements with other organizations, including governments, or raise capital from external sources, they do so on terms that ensure democratic control by their members and maintain their cooperative autonomy.
• Education, training, and information: Cooperatives provide education and training for their members, elected representatives, managers, and employees so they can contribute effectively to the development of their co-operatives. They inform the general public — particularly young people and opinion leaders — about the nature and benefits of co-operation.
• Cooperation among cooperatives: Cooperatives serve their members most effectively and strengthen the cooperative movement by working together through local, national, regional and international structures.
• Concern for community: Cooperatives work for the sustainable development of their communities through policies approved by their members.

These cooperative values are ratified by the International Cooperative Alliance, which was founded in London in 1895 by one of the co-founders of Rochdale, E.V. Neale, and Edward Owen Greening, a radical Quaker wire-cutter, to define and defend the Cooperative Principles. The Alliance was launched at the first International Cooperative Congress, with cooperatives from Argentina, Australia, Belgium, England, Denmark, France, Germany, Holland, India, Italy, Switzerland, Serbia, and the USA pledging to work together to build the movement. Just as the Industrial Revolution was a global phenomenon, the cooperative movement sought to make its presence known around the world.

Cooperatives today

You may be thinking, “This all sounds great, but do cooperatives actually exist today?” When most people think of co-ops, they think of the crunchy, overpriced grocery co-op that stocks six types of vegan jerky.

However, cooperatives are not just lefty neighborhood spots that operate on the margin of our economy. At least 12 percent of humanity is a cooperator in the over three million cooperatives around the world. Over 250 cooperatives generate over a billion in revenue globally.

In the United States, the founder of the first cooperative also happens to be a founding father: Benjamin Franklin. In 1752, he founded The Philadelphia Contributionship, a mutual fire insurance company, with his fellow firefighters (Did you know Ben Franklin was a volunteer firefighter, by the way? Would love to see that calendar, but I digress). In a mutual insurance company, policyholders come together to share risk, in this case, of one’s home burning down. The company continues to sell property insurance today and has over $500M in assets.

The cooperative sector in the United States has grown to over 29,000 cooperatives employing two million people with over $652 billion in annual revenue. One in three Americans are a member of a cooperative. The 100 largest cooperatives in the U.S. account for $226 billion in revenues and $867 billion in assets.

However, these billion-dollar cooperatives are concentrated in a few sectors: agriculture, finance, and energy. These sectors have federal protections and tax incentives for cooperatives, demonstrating the need for policy changes to scale the cooperative sector. You may know of a few success stories outside of these sectors, such as Ace Hardware ($7.8 billion in 2020 revenue) or camping goods retailer R.E.I. ($2.7 billion in 2020 revenue), but only five of the 100 largest cooperatives in the country are outside of the food, finance, and energy sectors.

To be honest, I have a love-hate relationship with cooperatives. I love their potential and promise of a just economy. I love how they are of the people, by the people. I don’t love how under-resourced they are. I don’t love how distributed ownership creates an agency problem — why would anyone assume the risk of starting a business they don’t own? I don’t love how distributed leadership can means lots of drama.

I want cooperatives with healthy cultures to earn a larger chunk of the economy. For this to happen, leaders need to remember that you need real financial assets to compete and self-interest always trumps ideology.