Cooperative Myths & Realities

Permanent link to this article:  http://geo.coop/node/436

By Sonia Pichardo, Ph.D.

In training residents of the South Bronx and New York City about worker cooperatives through our Green Worker Coop Academy, we have been repeatedly asked what makes worker cooperatives or cooperatives different or preferable to other businesses. To answer these questions, we have had to do some research to distinguish fact from cooperative lore. These cooperative myths and realities were presented at the Fair Work Symposium hosted by the Center for Family Life [1] at the CUNY Murphy Center in 2009. In the audience were people knowledgeable about worker cooperatives including researchers, lawyers and worker-owners of worker cooperatives. During the symposium's question and answer session, there was a lively discussion about the nature of cooperatives. Thus, it is appropriate that we present our findings in the GEO education issue. 

Myth 1. All cooperatives are organized similarly.

REALITY:  This myth is false. All cooperatives are NOT organized similarly. Cooperatives are enterprises that are owned and democratically controlled by their members. The general classes of cooperatives are marketing, worker, consumer and hybrid cooperatives.  A marketing (or producer) cooperative is an organization owned and operated by a group of members who produce similar products. A high profile example of a marketing cooperative is Land O'Lakes, the producer of dairy-based food products. A worker cooperative is a cooperative in which workers own the business and make decisions adhering to the principle of one worker, one vote [2]. South Bronx based, Cooperative Home Care Associates [3] is the largest worker owned cooperative in the U.S. A consumer cooperative is a business that belongs to the members who use those goods and/or services. Buying clubs, food cooperatives and credit unions are examples of consumer cooperatives. Hybrid cooperatives are enterprises started for the mutual benefit of their members but may overlap two or more of the general classes of cooperatives. Weaver Street Market in Hillsborough, North Carolina is a cooperative owned by both the consumer members and worker members. Within cooperatives, democratic governance can be organized in many ways. Cooperative management can occur via a flat structure, with no or few hierarchical levels.  Other cooperatives choose a hierarchical structure to manage decision making within their cooperatives.

Myth 2. During economic hardships, cooperative businesses don't layoff employees.

REALITY: As of this article being written, this author knows of no U.S. study that has collected data to verify this statement about cooperatives. Anecdotally, worker-cooperatives do have layoffs, but because of the nature of the decision-making structure in cooperatives, owners make these decisions together. For example, faced with a mark decline in sales due to the current economic crisis, Select Machine Cooperative, a machine shop worker cooperative in Brimfield, Ohio, had to cut their work force.  Due to decreasing demand for services over the last year Select Machine has reduced its workforce from 15 to 5 workers. Todd Brewster, a worker-owner, recounted, "The first workers laid off were the non-coop members who were part-time, but ultimately most non-coop full time employees were let go." Even, several worker-owners were furloughed. The worker-owners of Select Machine decided to retain members with the most desired skills as active workers within the business. There are seven worker-owners of Select Machine. At this present time, only five worker-owners are working in the machine shop. Brewster states, "All the coop members, regardless if you are working or not, have the right to vote on business decisions. Basically, the fact is that we want to stay in business. The [furloughed] worker-owners know they are not working but that they own the place. The attitude is that the guys who remain on the job are working, so that there will be a coop to come back to. Many of the folks do not want to restart their careers somewhere else."
Select Machine's focus on maintaining the health of the business so workers can return when the economy improves mirrors that of the Mondragon Cooperative network. Mondragon, a network of worker cooperatives in the Basque region of Spain, is a model for many worker cooperatives globally. In the Mondragon cooperative network, "loss-making co-ops can be closed, but members must be re-employed within a 50km (30-mile) radius of their former site" [4].

Myth 3. Cooperatives businesses are not as profitable as corporations.

REALITY: Cooperatives do and can make large profits. Producer cooperatives such as Ocean Spray [5] and Land O'Lakes [6] are billion-dollar enterprises. The South Bronx's Cooperative Home Care Associates [3] and Oakland's Arizmendi Bakery [7] are two examples of worker cooperatives that have generated millions in revenue.  The most recent study of the revenues of U.S. Cooperatives can be found in the 2009 USDA's report, Research on the Economic Impact of Cooperatives. This report examined the revenues of a variety of different types of cooperatives, from those legally incorporated as cooperatives to those loosely using a cooperative structure. The USDA's report estimated that during 2006 cooperatives in the U.S. earned $500 billion in revenues. However, a study directly comparing corporations to cooperatives, based upon size and industry has yet to be published.

Myth 4. Cooperatives have a more diverse membership and workforce than standard businesses.

REALITY: We'd like to think so but the author knows of no studies investigating this hypothesis. The emergence and development of cooperatives are accelerated in communities where inequalities or disequilibrium of social class, race, ethnicity, or gender exist [8]. Dr. Fairburn, the Director of the Centre for the Study of Co-operatives, has documented that historically many cooperatives have arisen from social movements involving "groups that have been marginalized or excluded. [9]" A quick online search is enlightening as there is a notable absence of cooperative organizations publishing publicly searchable documents describing cooperative diversity in workplaces. Consequently, it is incumbent on the cooperative movement to define "diversity" in the context of democratic work and develop transparent measureable plans for implementing "diversity." Also, the cooperative movement must agree that diversity, as it will be defined, is an issue cooperatives wish to address and examine within cooperative workplaces.

Myth 5. All cooperatives are non-profits.

REALITY: This is a myth. In general, cooperatives are governed under Subchapter T of the federal Internal Revenue Code of 1986. Cooperatives can be for-profit or non for-profit corporations or limited liability companies under the "Business Statutes" of each respective state law [10]. Thus, an entity may be a "cooperative" for federal tax purposes even though it is organized under a state business corporation or trade association statute [10]. Consultation with legal and accounting professionals knowledgeable about the advantages of incorporation within the particular state in which the cooperative will be formed should take place before starting a business.

Myth 6. There are not many cooperatives in the United States.

REALITY: This is a fact. According to USDA report, Research on the Economic Impact of Cooperatives, there are 29,284 businesses identified as cooperatives. Cooperatives are 1% of the businesses in the U.S economy [2]. Although the number of cooperatives is quite small, these businesses contribute $3 trillion in assets, $500 billion in revenues, 2 million jobs and $25 billion in wages to the economy.

[Editor's Note:  Much is determined by definition.  For instance, credit unions are considered financial cooperatives, and there are 30,000 of them alone in the U.S. See the National Cooperative Business Association's Co-op Stats below.]

In order to have greater dialogue about what cooperative facts and myths exist, please share yours. Please e-mail me at sonia@greenworker.coop. Perhaps, through this process we can initiate a collaborative worker cooperative research project in which we come to better understand the current state of the worker cooperative movement and what we need to maximize the liberating potential of democratic work.

Sonia Pichardo is the incoming training coordinator for Green Worker Co-op Academy.  She can be reached at sonia@greenworker.coop.

When citing this article, please use the following format: Sonia Pichardo (2010). Cooperative Myths & Realities. Grassroots Economic Organizing (GEO) Newsletter, Volume II, Issue 5, http://www.geo.coop/node/436.

1. Center for Family Life. http://www.cflsp.org/ Web. February 21, 2010.
2. Deller, Steven. (2009). Executive Summary. Research on the Economic Impact of Cooperatives. [Online] from http://www.uwcc.wisc.edu/REIC_FINAL.pdf
3. Cooperative Home Care Associates. http://www.chcany.org/. Web. February 21, 2010.
4. The Economist. (2009) All in this together: How is the co-operative model coping with the recession? The Economist (Print edition) Retrieved from http://www.economist.com/business/displaystory.cfm?story_id=13381546.
5. Ocean Spray Careers. Retrieved from http://www.oceanspray.com/careers/.  February 21, 2010.
6. Land O Lakes Company News. Retrieved from http://www.landolakesinc.com/utility/news/company/ECMP2-0094810.aspx. Web. February 21, 2010.
7. Maria, Janis. (2007) Everyone Can Be An Owner: Worker-owned co-ops growing. Retrieved from http://www.ourbiz.biz/. Web. February 21, 2010.
8. Fairburn, Brett. Cooperative Heritage: Where We've Come From. A Discussion Course on Cooperatives. East End Food Co-op. Pittsburgh, Pennsylvania 2007. p 23.
9. Fairburn, Brett. Social Movements and Cooperatives. A Discussion Course on Cooperatives. East End Food Co-op. Pittsburgh, Pennsylvania 2007. p 51.
10. Beane, D. (1999) Topic: Issues relating to Taxation of Subchapter T Cooperatives. Retrieved from http://www.dsbcpas.com/faqtechnical/0001_subt.html. Web. February 21, 2010.