Cooperatives more resilient in the meltdown

Via the Solidarity Economy blog, with Hagen Henry, chief of the ILO’s Cooperatives Branch:

“ILO Online: Why does the ILO promote cooperatives?

Hagen Henry: The ILO views cooperatives as important in improving the living and working conditions of women and men globally as well as making essential infrastructure and services available even in areas neglected by the state and investor-driven enterprises. Moreover, values that are at the heart of the cooperative movement are central to creating decent jobs. Cooperatives are close to a democratic, people-centred economy which cares for the environment, while promoting economic growth, social justice and fair globalization. Cooperatives play an increasingly important role in balancing economic, social and environmental concerns as well as in contributing to poverty prevention and reduction.

ILO Online: What is the impact of the current global economic crisis on cooperatives?

Hagen Henry: Available information 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. However, as for other enterprise types, the situation of cooperatives with regard to the crisis varies with the degree of dependency on demand and external financing, the degree of their diversification and also with the sector. We just commissioned a study, which will provide us with further, more in-depth information.

ILO Online: Can you give us a concrete example?

Hagen Henry: At the peak of the crisis cooperative banks were faced with an increase in membership and savings deposits and found it difficult to respond to this sudden growth in demand. So far cooperative banks have not announced any significant losses due to this crisis. Nevertheless, losses incurred by the German central bank of cooperatives (DZ), itself a stock company, show how cooperative banks could put themselves at a financial risk. In this reported case, cooperative specific control mechanisms were either not in place or failed. However, most cooperative banks have lessened their vulnerability and increased transparency mainly by investing in their proximity and in the real economy. Ethiopian coffee growers seem to be less affected by world market fluctuations than coffee producers who are not part of cooperative specific value chains.

ILO Online: Cooperative banks are more resilient to the financial crisis?

Hagen Henry: No cooperative bank seems to have applied for state aid so far. As the German example shows, this may not be interpreted as them not having been impacted negatively by the crisis. But self-help mechanisms, like member liability to further call, inter-cooperative bank guarantees, or reserve liabilities are being used before applying for external support. Both in the US American credit union system and in the German cooperative banking system these mechanisms have prevented member customers from losing any money ever since the Great Depression was over. What’s more, bankruptcies of cooperatives due to the crisis have not been reported, nor have employee lay offs.

ILO Online: Do the financial crisis and the new perception of cooperatives represent an opportunity for the ILO and its constituents?

Hagen Henry: Cooperatives are not “just” another form of business, they are not enterprises “en miniature”, but a specific, value-based business model for all sizes and activities. Just to mention famous examples like KPMG, the London Philharmonic Orchestra, Best Western hotel chain, AP, which are all cooperatives. The crisis has led to a self interrogation about the right business model. Cooperatives are one interesting alternative model. They put a premium to longer term sustainability and profitability, to sharing benefits between their members who are the capital owners and the main users (lenders, borrowers); they factor in the needs of the local community, are highly transparent and – fundamentally – have a social agenda which does not prevent them from being sustainable and profitable at the same time.

ILO Online: What is the economic and social impact of cooperatives worldwide?

Hagen Henry: The top 300 cooperatives in the world in terms of turnover are of the size of the GDP of Canada. In Colombia, Saludcoop, a health co-operative, provides health care services for 15.5 per cent of the population. In Ethiopia, 900,000 people in the agriculture sector are estimated to generate part of their income through cooperatives. In France, 9 out of 10 farmers are members of agricultural co-operatives; co-operative banks handle 60 per cent of the total deposits and 25 per cent of all retailers in the country are co-operatives, while in Japan 9.1 million family farmers are members of cooperatives who provide 257,000 jobs. In India, the needs of 67 per cent of rural households are covered by cooperatives, and in Switzerland, the largest retailer and largest private employer is a cooperative.”

On the same blog, Bruno Jossa has an interesting theoretical piece on coops as a transitional strategy towards a post-capitalist society.

An excerpt:

“To start with, let us spend a few words on the reasons why the new production mode generated by a system of producer cooperatives can be said to be in keeping with the principles of socialism. This system does not assume a planned command economy, nor does it require, of necessity, the nationalization of production means. All the same, provided it is entirely composed of LMF-type producer cooperatives (firms which, in Vanek’s definition, segregate wage incomes from capital incomes), it can be equated with socialism because it literally reverses the usual capital-labor relationship (see Vanek, 1971a and 1971b). Hence the question: what can spark off the transition from capitalism to a system of producer cooperatives?

Modern theorists of producer cooperatives from Ward (1958) and Vanek (1970) onward have inadequately tackled this issue. As a rule, they have simply examined possible working modes of cooperative firms in capitalistic systems without asking themselves if a quantitative growth of cooperative firms with corresponding gains in efficiency may further the turn from capitalism to the new system. (Exceptions include Schweickart, 2002 and Dow, 2003).

Nonetheless, tracing the successive steps of a workable transition to a system of democratic firms is a subject of major interest.3 To start with, there can be little doubt that democratic firms will never outnumber capitalistic firms by a spontaneous process, for history has taught that no such process has ever been recorded to-date (see inter alia., Putterman, 1982 and 1984; Pagano 1991 and 1992; Gunn, 2000, pp. 451-55; Jossa and Cuomo, 2000, chap. XV). Many authors who have inquired into the reasons why democratic firms have difficulty asserting themselves in their own right have, however, provided conclusive evidence that the main obstacle to their spontaneous growth is by no means lesser efficiency.

As theoretical studies have shed light on numerous advantages of cooperative firms over their capitalistic ‘twins’, it is possible to argue that democratic firms are ‘merit goods’ which are capable of generating ‘external economies’ and would hence well deserve incentives from the public hand. Provided this is true, a parliament sharing the view of democratic firms as merit goods could be assumed to enforce a wide spectrum of benefits in favor of cooperatives and thereby encourage their proliferation with intent to spark off a transitional process.

A second possible scenario is a transition fuelled by a normal competition process. As is well known, firms are newly established and closed down day after day, and in capitalistic systems they face winding up whenever they prove unable to work at a profit. However, in contrast with the widely shared assumption that firms that do not report profits waste wealth, from our perspective this is only true of firms that fail to produce value added and it is a fact that firms can generate considerable value added even though they simply break even without reporting profits. On this assumption, when a firm faces insolvency in the ordinary course of business in a capitalistic market it could actually be in the best interests of the community to keep it going and have it run by its workers (see Engels, 1886, p. 389).

This is what might have happened in the so-called ‘red biennium’ in Italy, when Sen. Agnelli declared that he was prepared to transfer responsibility for the management of FIAT to the workers’ council. As times were not ripe for such a solution, this project came to nothing because of the opposition of trade unions. Salvemini (1928, p. 22) blamed this decision on “stout opposition from risk-averse leaders of the General Labor Confederation and the Socialist Party to a communist and anarchist design aimed to sharpen the crisis and give it a revolutionary spin”.

Gramsci also shared this view: “Union members – he argued – are attuned with a society founded on competition; they are no communists. No unions will ever endorse a radical overthrow of society: although they can provide the proletariat with able bureaucrats or industrial experts, they will never become the mainstay of proletarian power” (Gramsci, 1919-1920, p. 36).

In fact, one reason why history records no systematic transfer of insolvent firms to workers is that left-wing parties have never pro-actively worked towards this goal. It remains to be established if this is mainly due to lack of confidence in this solution or to the fear of a back-lash from industrialists. For our part, the assumption which is at the basis of this paper is that the findings of modern producer cooperative theory are providing clear evidence that a system of democratic firms can function properly provided it is organized in accordance with principles of economic efficiency.

Thus, there are reasons to assume that unions, left-wing parties and the greater part of the electorate and intelligentsia will gradually espouse both the equation of a self-managed firm system with “true socialism” and Lenin’s belated insight that cooperation “nearly always coincides fully with socialism”. And the moment when the cooperation/socialism equation becomes a hegemonic notion (along with the idea of the feasibility of the process), a systematic takeover of firms in financial crisis by workers is likely to start a transition to socialism.

But there is also a ‘third road’ towards ‘true socialism’. No major political shift – Hayek argued – is obtainable through mass propaganda; the problem is just to persuade intellectuals (Hayek, 1983, p. 192; see, also, Keynes, 1936, last page). If this is correct and intellectuals are won over to the idea of a system of democratic firms as a major advancement over capitalism, this far-reaching political shift could be set off by a majority vote in parliament abolishing wage labor in ways and to the extent deemed appropriate in the circumstances prevailing from time to time.

In line with Hayek’s and Keynes’s suggestion, once intellectuals have fully interiorized this notion, the general public would gradually assimilate the beliefs of their leaders and, sooner or later, a parliament would probably be in a position to pass the legislative provisions required for implementing socialism by democratic means. From our perspective, the most effective measure would be an act of parliament simultaneously converting equities of joint stock companies into bonds of equal value and limited companies into firms run by their own workers.

Following the enactment of such a revolutionary parliamentary measure, the managers of one-time limited companies might remain in office unless the workers’ councils of the cooperatives established by operation of law should otherwise resolve.”

1 Comment Cooperatives more resilient in the meltdown

  1. AvatarMary Hoyer

    Worker co-op conference July 31st – August 2nd Duquesne University in Pittsburgh. If you send me your email, I’ll send you a flyer and brochure.

    Mary Hoyer, Lead Organizer/Amherst, MA/413-256-0726

Leave A Comment

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.