The resilience of the cooperative model during the financial meltdown

“Available evidence suggests that, with few exceptions, cooperative enterprises across all sectors and regions are relatively more resilient to the current market shocks than their capital-centred counterparts,”

Excerpted from “Cooperatives and the crisis”, from the ILO website:

“Some of the available evidence he refers to comes from a recent study for the ILO by two university academics, Johnston Birchall from the UK and Lou Hammond Ketilson from Canada. Their study confirms the view that cooperative institutions have come through the recent crisis rather better than investor-owned businesses. It also suggests some reasons why this may have been the case, directly linked to cooperatives’ ownership structures: “The recent massive public bail-out of private, investor-owned banks has underlined the virtues of a customer-owned cooperative banking system that is more risk-averse and less driven by the need to make profits for investors and bonuses for managers,” Birchall and Hammond Ketilson write.

In other words, some of this resilience comes from the fact that cooperatives are not under the same pressures to increase investor returns. The International Co-operative Banking Association points particularly to the long-term perspective which cooperative financial institutions can practise: “Cooperative banks don’t have an obligation to maximise short-term profit to distribute it to their shareholders but can have a long-term strategy,” the Association’s chairman Jean-Louis Bancel says.

However, not all cooperative businesses have escaped from the financial crisis unscathed. In Germany, the central cooperative bank DZ suffered a one billion euro loss in 2008 as a consequence of high-risk investments. Cooperatives elsewhere have also had to cope with trading difficulties, particularly from unwise investment decisions.
Unglamorous business model

Nevertheless there is at present within the cooperative sector a certain sense of satisfaction that – a little, perhaps, like the Aesop fable of the prudent ant in contrast to the flighty grasshopper – their apparently unglamorous business model has proved its worth and sustainability in difficult times. In some cases for the first time in many years, cooperatives are strongly marketing their member-owned structures to potential customers, and emphasising their distinctiveness and probity.

For many cooperatives, this is linked with an emphasis on ethical banking and insurance practice. In the UK, for example, Cooperative Financial Services (part of the large multi-sectoral Co-operative Group) has been stressing its strongly ethical approach to lending and investment under the slogan ‘good with money’. Folksam is another business with a strong commitment to the investment of its insurance funds ethically. The Swedish firm took a lead role in advising the UN on the Principles for Responsible Investment adopted four years ago.

The cooperative movement points out that its commitment to social values (reflected in the principles of self-help, self-responsibility, democracy, equality, equity and solidarity formally endorsed as ‘cooperative values’ by the International Cooperative Alliance) does not prevent cooperative businesses for being profitable at the same time. For Hagen Henrÿ, these link well with ILO concerns with the creation of decent jobs and decent work. “Cooperatives are close to a democratic, people-centred economy which cares for the environment whilst promoting economic growth, social justice and fair globalisation. Cooperatives play an increasingly important role in balancing economic, social and environmental concerns, as well as in contributing to poverty prevention and reduction,” he says.
The role of ILO Recommendation 193

The ILO has long taken an interest in cooperatives, but ILO Recommendation 193, adopted by the International Labour Conference in 2002, has a particularly important role to play in helping governments worldwide create the laws, administrative systems and policies needed to enable cooperatives to develop in the coming century. Recommendation 193 helps to ensure that cooperatives have the modern legal frameworks they need. Its passing also marked a renewed emphasis internationally on the importance of protecting cooperatives’ internal democratic practices after a period when, in some countries, some ‘cooperatives’ were effectively little more than state-managed enterprises.

The need for appropriate cooperative legal structures may need to be reasserted in the aftermath of the global financial crisis, according to Hagen Henrÿ. He points to moves in a number of countries to harmonise cooperative laws and regulatory regimes with those applying for capital centred companies, a process which he says can bring benefits but which also brings dangers. “The homogenisation of cooperative law with company law helps cooperatives to become more competitive in the narrow economic sense. However this homogenisation transforms cooperative enterprises, being based on transaction relationships with their members, into enterprises that are based on investment relationships with their investors,” he points out. “It weakens the associative character of the specific governance structures of cooperatives”.

ILO Recommendation 193 specifically calls on governments to provide supportive policy and legal frameworks appropriate for the particular ownership structures and social values of cooperative businesses. Before the financial crisis, this could perhaps have seemed a fairly marginal area of activity. Today, however, the value of cooperatives can be more readily appreciated. “Capital-centred enterprises must not be the yardstick by which all enterprise types are compared and assessed,” Hagen Henrÿ says.

A chance for cooperatives to reassert their position in the global economy may come shortly: the UN has recently resolved that 2012 will be declared the International Year of Cooperatives.”

1 Comment The resilience of the cooperative model during the financial meltdown

  1. AvatarMark Rego-Monteiro

    I´m arriving at this post after a later one on coops. I was excited to see the ILO publication, and look forward to looking more at it following this post.
    ILO R-193 sounds good, though international agreements of this sort are hardly binding, unfortunately. The need for co-op organizing around legal advocacy appears to be a strong necessity. While numerous interest groups face this need, especially employees, low income, and consumers, co-ops would seem to be especially well equipped in some areas, such as Europe and Japan, perhaps even the U.S.

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