What Makes Cooperatives Successful?

R.M. Baseman, an associate researcher and advisor to the PROUT Research Institute of Venezuela, conducted a passive Internet survey to find worldwide consensus on the question of co-op success. First he found primary-source articles and publications in which authors expressed opinions and conclusions about the success and failure of co-ops. The sources reflected experience from all continents and more than ten countries, including ones by the International Labor Organization, the International Cooperative Alliance and the United Nations. Studying these, he located 175 factors for success that he grouped into 13 categories and prioritized according to the number of similar responses:

  1. Supportive environment
  2. Sound advance planning
  3. Real economic benefits for members
  4. Skilled management
  5. Belief in co-op concepts
  6. Grassroots development and leadership
  7. Financially self-sustaining
  8. Innovation and adaptation
  9. Effective structure and operations
  10. Networking with other co-ops
  11. Communications
  12. Common member interests
  13. Education

Co-ops, much more than corporations, closely reflect the lives and thoughts of the member-owners. If the common interests of the members and the interests of the co-op move apart, the co-op dies.

"Successful cooperative enterprises transform a community by establishing economic democracy."

All the basic factors for success in any business also apply to co-ops, as would be expected: there has to be a real demand for the product; planning has to be thorough and realistic; and the enterprise has to make money. There are also clear differences between consumer and producer co-ops, making their factors for success also somewhat different. For example, widespread community support of a consumer food co-op is essential, because without thousands of regular customers it will have to close. On the other hand, a co-op that manufactures custom automation solutions for industry is much less dependent on community support.[1]

Examples of Small-scale Cooperatives in Maleny[2]

Maleny is a small town of 5,000 people situated 100 kilometers north of Brisbane on the Sunshine Coast of Australia. Twenty successful cooperatives function there, linking every aspect of community life: a cooperative bank, a consumers’ food co-op, a cooperative club, an artists’ co-op, a cashless trading co-op, a cooperative radio station, a cooperative film society, four environmental co-ops, and several community settlement co-ops.

MCU Sustainable Banking (Maleny Credit Union)

The Maleny Credit Union was started in 1984 with the objective of creating an ethical financial institution which would foster regional financial autonomy by lending exclusively to local people and projects. Initially it was staffed by volunteers, who worked from rented rooms and entered deposits manually into a journal. On the first day of operations, local people deposited more than US$25,000.

Today MCU has grown to more than 5,500 owner members, and US$52 million in assets, including its own building. People from all over Australia invest their money with the Credit Union; about half its deposits come from outside the community.

The services MCU offers include savings, checks, loans, credit cards, term deposit accounts, ethical superannuation and insurance. Since its inception, the Credit Union has made many small loans to local people who would have been ineligible to borrow from major banks. These loans have helped them to buy land, build their own homes, and start more than 100 new businesses that create jobs. Despite some initial difficulties, today MCU is extremely successful, principally because it developed the right balance of financial expertise and cooperative spirit.[3]

Consumers’ Food Cooperative

In 1979 a small group of people, who wanted whole foods and produce grown by local farmers, formed the Maple Street Co-op. Today it oper- ates an organic health food retail outlet on the main street of Maleny, open seven days a week, with 1,700 active members. It has 40 employees and stocks more than 4,500 health products. Although it functions as a consumers’ cooperative, it also sells to the public.[4]

The co-op’s first priority is to provide organic food. It focuses on locally-produced food; if that is not possible, on Australian-grown products. It refuses to stock anything that contains genetically modified material, nor does it stock products from companies that it considers to be exploitive of people or of the environment. It operates on the principle of consensus decision-making.

At first, labor in the co-op was voluntary, but as it prospered, the number of paid workers slowly increased. During its 32 years of operation, it has overcome several major hurdles. At various times in its existence, the co-op dealt with problems such as lacking a viable business plan, operating at a loss, making poor investment decisions, lacking experienced financial management, and spending a lot of time resolving differences of opinion among its members.

Learning from experience, the co-op gradually evolved a sound stra- tegic and financial plan. For the last decade, the co-op has made a profit. However, it is structured as a non-profit enterprise, so the profits are either reinvested to expand the co-op’s services and develop its infrastructure, or are donated to community activities.

In 2006, the Maple Street Co-op chose to share management with the Upfront Club, a cooperative restaurant, bar and entertainment venue located in the shop next door. The club is still operating as a welcoming and friendly “social heart” for Maleny. It regularly hosts film nights, open microphones, art exhibitions, fundraisers and game evenings along with a great variety of live music. Volunteers help in many areas of the Club, from washing dishes, to planning events and beautifying the grounds. The two co-ops together produce over US$2 million in cash flow yearly.

Other Maleny cooperatives

Maleny has one of Australia’s most successful Local Energy Transfer System (LETS) schemes. It functions as a cashless trading co-op whose members trade their products and provide services to each other without the use of money. Instead, they use a local currency: the Bunya, named after the local native pine nut. This allows people with little or no cash to participate in the local economy.[5]

The Maleny Community Kindergarten was built by a group of community volunteers in 1939. Today it still operates in the same premises with a beautifully-landscaped garden out front. The kindergarten is run by an elected board.

Maleny has three environmental co-ops. Barung Landcare is one of several hundred community-based landcare groups throughout Australia; it runs a successful nursery, provides environmental education, and promotes the sustainable harvesting of native timber. Booroobin Bush Magic runs a rainforest nursery, while the Green Hills Fund works to reforest the Maleny hinterland.

There are four community settlement cooperatives in Maleny, includ- ing the Crystal Waters Permaculture Village. Crystal Waters houses 200 residents on private one-acre lots. Two community lots that are owned by a cooperative of residents include buildings for community events, small businesses and a monthly market. The PROUT Community Settlement Co-op has ten families and uses half of their land for the River Primary School, with more than 200 students on 25 hectares of beautiful rainforest land.[6]

The Venezuelan Cooperative Experience

The first legal cooperative in Venezuela was a savings and loan associa- tion formed in 1960. By the end of 1998 there were 813 registered coop- eratives with 230,000 members. Most of these are still active, tough and resilient because they were created by the members with no government support or funding. For example, the Cooperatives of Social Services of Lara State (Cecosesola), founded in 1967, now includes producer and consumer food co-ops that serve 60,000 people each week, credit unions, health clinics and a network of cooperative funeral homes that is number one in the western region.[7]

When President Hugo Chávez took office at the beginning of 1999, he began to emphasize cooperatives in order to transform property into collective forms of ownership and management as a key to the Bolivarian Revolution. In 2005 he called for a “Socialism for the Twenty-first Century”. His job-training program for the unemployed, Mission Vuelvan Caras (“About Face”), included cooperative education and encouraged all graduates to form one. Co-op registration was made free of charge; they were exempted from income tax; micro-credit was made available; and laws were passed directing the government to give preference to cooperatives when awarding contracts.

The goal was to transform the profit-oriented capitalist economy into one oriented towards endogenous and sustainable social development by involving those who had been marginalized or excluded. The result was a phenomenal creation of 262,904 registered cooperatives by the end of 2008, but many of these never became active or collapsed. The national cooperative supervision institute, SUNACOOP, recognized about 70,000 as functioning,[8] which is still the highest total for any country after China.

The majority of cooperatives have few members who are unskilled. Because of the high rate of failure among the registered cooperatives, in 2005 the president shifted the government’s approach from cooperatives to socialist enterprises and worker takeovers of factories. In this way, the government pays the salaries, but keeps the ownership. PROUT on the other hand supports worker ownership as well as worker management.

The PROUT Research Institute of Venezuela designed two surveys, in 2007 and a follow-up one in 2010, to understand the problems and needs of 40 cooperatives in the rural district of Barlovento, a two-hour drive east from Caracas. More than 90 percent of the population there are Afro-Venezuelans, descendants of former slaves, who have historically suffered racism and discrimination. The district has high levels of poverty and unemployment, economic disparity and emigration to the cities.

The objective was to diagnose the problems and challenges that worker-owned enterprises are facing. The results show that:

  • Eighty-five percent of the cooperatives were still functioning three years after the first study, with little or no government support.
  • Those that closed as well as a few that survived were robbed by corrupt co-op managers.
  • Sixty percent of cooperative members have not had training in cooperatives.
  • The majority of workers believe they are receiving the same or lower wages than if they were working for private enterprises.
  • There is little inter-cooperation among cooperatives, and little support from the community in Barlovento.
  • The most stable co-ops are those in which the members provided at least part of the initial capital.
  • Clearly the cooperatives of Venezuela need practical training and professional consultants responsive to their needs.

Guidelines for Successful Cooperatives

The successes of the Maleny cooperatives have been achieved through great struggles over the last two decades. Proutists there, in consensus with other members of the management committees, have drawn up guidelines they consider important in building successful cooperative enterprises:

  1. Fulfill a need. People have to come together in order to fulfill a genuine need in the community. No matter how good the idea, if there is not a community need, the enterprise will not succeed.
  2. Establish a founding group. A few committed people have to take on the responsibility of developing the initial idea through to inception. Usually, however, one person will need to provide the leadership.
  3. Commit to a vision. Commit to the ideals and values implicit in cooperative enterprises, and try to ensure that both the members and the management are honest, dedicated and competent.
  4. Conduct a feasibility study. Objectively evaluate the perceived need, and determine whether the proposed enterprise can fulfill that need by conducting a feasibility study.
  5. Set out clear aims and objectives. The members of each enterprise must formulate clear aims and objectives through con- sensus. These will help direct everything from the founding group’s initial focus to promotional strategies and budgetary processes in the years to come.
  6. Develop a sound business plan. The enterprise will require capital, have to manage its finances efficiently, and at some point will have to make effective decisions about loan repay- ments and profit allocation.
  7. Ensure the support and involvement of the members. The members own the enterprise–at every step their support and involvement are essential.
  8. Establish a location. Secure adequate operational premises for the enterprise, in the best possible location in the community.
  9. Get skilled management. From within the community, bring into the enterprise people who have the necessary management, business, financial, legal and accounting skills.
  10. Continue education and training. Ideally, the members will have the skills–particularly the communication and interpersonal skills–necessary to run the enterprise successfully. If not, they will either have to develop such skills or bring in new members who have them.

Golden Rules for a Community Economic Strategy

  • Start small, with the skills and resources available within the community.
  • Make use of role models, those with experience in community development, whenever possible.
  • Make sure the enterprise involves as many people as possible.

Community Benefits

Cooperative enterprises benefit a community in many ways. They bring people together, encourage them to use their diverse skills and talents, and provide them with an opportunity to develop new capabilities. They strengthen the community by creating a sense of belonging, fostering close relationships amongst different types of people, and empowering people to make decisions to develop their community.

All this fosters community spirit. Working together, a community is able to accomplish much more than when individuals go their separate ways.

On an economic level, cooperatives foster regional economic self-reliance and independence from outside control, empowering local people. They create employment, circulate money within the community, and offer a wide range of goods and services. Because cooperative enterprises are owned by the members themselves, profits stay in the local area. Cooperatives thus increase the wealth and build the strength of the community.

In essence, successful cooperative enterprises transform a community by establishing economic democracy. Cooperative enterprise is the socio-economic system of the future. With global capitalism terminally ill, developing cooperatives as independent alternatives makes a lot of sense. In Mondragón, in Maleny, and in Venezuela, that future is unfolding now.

Notes

1 The complete article and database are available at: http://priven.org/publications/
2 See Jake Karlyle, “Maleny Cooperatives”. New Renaissance, Volume 12, No 2 (Winter, 2003-4) and the excellent documentary by Alister Multimedia, “Creating Prosperous Communities: Small-Scale Cooperative Enterprises in Maleny” http://alistermultimedia.nhlf.org/creating-prosperous-communities/
3 http://www.malenycu.com.au
4 http://www.maplestreetco-op.com
5 http://www.lets.org.au/qlets.html
6 http://www.amriverschool.org.
7 Carla Farreira, “A cooperative where there are no positions, only tasks to be done: Cecosesola, Venezuela”. http://priven.org/262/
8 Dario Azzellini, “Venezuela’s Solidarity Economy: Collective Ownership, Expropriation and Workers Self-Management.” WorkingUSA: The Journal of Labor and Society. Volume 12, Issue 2, June 2009, pp. 171-191.

Excerpted from After Capitalism: Economic Democracy in Action by Dada Maheshvarananda (Puerto Rico: Innerworld Publications, 2012): www.aftercapitalism.org

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