Overview
Public policies are often designed for the benefit of profit-focused businesses and disadvantage co- operative enterprises. But legislation can—and in many places around the world already does—sup- port cooperatives and enable them to flourish.
Strengthening cooperatives is … an established way to empower people and local communities to take charge of their own development, putting people before profit.
— coops4dev.coop
Member-owned companies around the world are achieving great success in certain industries, from insurance and software to dairy and textiles. Studies repeatedly find that co-ops are as productive as—or even more productive than—their investor-owned counterparts. And they have proven more resilient than capitalist businesses during periods of systemic financial crisis. However, in most regions of the world, cooperatives comprise just a small fraction of all businesses. If co-ops are so beneficial, why aren’t they more widespread?
Government agencies, financial institutions, and the laws that spell out how enterprises must operate can help or hinder the cooperative sector, depending on how they are designed to understand cooperatives and promote their growth.
In many places, co-ops encounter financial and administrative obstacles that their investor-owned competitors don’t face. In markets designed to serve wealthy investors, co-ops can struggle to access the funding they need to flourish and grow. Conventional banks are often reluctant to give loans to co-ops that have a few members or have unconventional business models. To them, shared ownership can appear confusing or excessively risky. So-called impact investors rarely know how to work with cooperative startups and may demand a right to vote on and veto decisions in a manner that is incompatible with the interests of members. Therefore, co-ops often must seek alternative means of funding like subsidies, grants, tax exemptions, preferential procurement by public authorities, and more. Even regions that have laws allowing the formation of co-ops can make the process unnecessarily hard. For cash-strapped founders looking to create a business that prioritizes its social mission over its profit margin, these hurdles can be onerous enough to deter them from forming a cooperative.
Carefully crafted policymaking can help make co-ops a more accessible and attractive business structure. For instance, Italy has pioneered several strategies that make it easier to establish and grow co-ops. Italian law requires most co-ops to contribute a portion of their profits to solidarity funds, which are then used to support growth within the sector. There is also a separate legal framework that enables employees to pool their unemployment benefits and savings to buy shares in a traditional business when it is on the verge of closure and convert it into a worker co-op.
In the United States, a federal loan fund for rural electric co-ops in the 1930s enabled consumer-owned utilities to power most of the country’s farmland within a decade. In the 1970s, US Congress began providing tax advantages for owners who sold their companies to employees. During the same decade, the Swedish economist Rudolf Meidner proposed a model where a portion of corporate profits would go toward expanding employees’ ownership of companies and the economy at large. While not fully realized, his proposal—and the support it garnered from unions—galvanized the development of a more robust social safety net for workers in Sweden.
Other countries, such as Brazil and South Africa, take a more targeted approach to supporting co-ops through laws that require governments to prefer cooperative suppliers when buying certain things, like food and clothing for schools. In Bangladesh, national policies concerning rural development, women’s empowerment, and cooperative entrepreneurship seek to encourage women to form and contribute to cooperatives. To do this, the government disburses loans to members of women’s cooperatives and encourages saving through cooperatives. These policies have strengthened over 115,000 cooperatives with over 7.5 million members. In the US city of Cleveland and the UK city of Preston, “anchor institutions” like hospitals and universities enter into procurement contracts with co-ops, after competitive tender processes, which provide significant sources of regular income for the co-ops in the city.
Governments can also ensure that it is possible to incorporate cooperatives flexibly and creatively. Laws in Italy, Quebec, and France allow co-ops to have multiple stakeholders as members, pursue broad social interests (like employing folks from disadvantaged groups), and accept investment money from “supporter” members who don’t use the co-op’s products or services.
On the other side of the globe in South Korea, a law was passed in 2012 reducing barriers to co-op formation, most notably by reducing the number of required founding members to five. Within three years of its enactment, more than 7,000 new co-ops were registered—mostly by small entrepreneurs like freelancers and informal workers. Without this reform, thousands of people would not have benefitted from even the limited degree of job security that such co-ops provide.
A robust cooperative policy agenda need not be limited to cooperative law reform, but should also include economic policy on procurement, labor, securities, and competition. Governments can encourage business advisers, lawyers, and accountants to be educated about how co-ops work, so that they can help potential cooperative entrepreneurs navigate the financial and administrative hurdles to formation. Whether a co-op gets started through the pooling of worker or community member resources, or whether it is started with the help of funding from formal institutions and government support, policies have an important function in creating a favorable environment in which cooperative enterprises can thrive.
