Using Co-operatives to Tame Recessions, Reduce Inequality, and Protect the Environment

A GEO Interview with E. G. Nadeau, author of The Cooperative Solution

about expanding-and-leveraging the "co-operative difference"

Overview

The Cooperative Solution by E.G. Nadeau is a small book that sees significant possibilities for the co-operative¹ movement's impact on the whole national economy. He sees that now is an overall advantageous time to shift the economic system in the United States away from concentrated control by a small number of large corporations and wealthy individuals and toward greater cooperative ownership.

First, he reviews the impact of undemocratic, concentrated economic decision-making on American society. Then, he illustrates with data the surprising extent and diversity of co-operatives in the United States and their impacts on our lives. Finally, he assesses the ways in which specific kinds of co-operatives could impact their economic and social sectors directly and indirectly in the coming years.

From this assessment he draws the following conclusion: US co-ops may be able to build on their existing membership and credibility and have a significant impact on our economy and society in the decades ahead that could help transform our country into one that has less severe recessions, less concentration of wealth, and * a more sustainable environment.

Nadeau has a Ph.D. in sociology from the University of Wisconsin-Madison. He has been researching, developing, teaching, and writing about co-operatives² for 40 years. Among other publications, Nadeau co-authored Cooperation Works! with David Thompson. In addition to his domestic and international co-op consulting work, Nadeau is on the faculty of the Master in Management-Cooperatives and Credit Unions program at St. Mary's University in Halifax, N.S. He lives in Madison, Wisconsin.

Michael Johnson of Grassroots Economic Organizing Newsletter (GEO) interviewed Nadeau as the second of a series of GEO interviews exploring the advancement of alternative economic movements in the US. He is currently co-writing a book with Janelle Cornwell and Adam Trott that will be an introduction to worker co-operatives and an exploration of how various kinds of co-operatives can inter-cooperate^{3 to build a regional movement to harness the power of the "co-operative difference."4 It is based on extensive field research with the Valley Alliance of Worker Co-operatives project in Western Massachusetts and Southern Vermont.}

An Expand-and-Leverage Strategy

MJ: E.G., I love your little book, and it's great to have this chance to talk with you. Before going into my questions, I was wondering if there was anything you wanted to add to the kind of 'abstract' above that we're using as a lead-in to our interview.

EGN: Michael, thank you for the opportunity to talk with you about The Cooperative Solution. One comment to add to the lead-in is to emphasize that the underlying point of the book is that concentrated control of economic decision-making is not compatible with political democracy. Co-operatives embody economic democracy and, therefore, the greater the role of co-operatives in the United States, the more democratic we will become as a society.

What I set out to show in the book is that co-operatives represent a long-standing and robust tradition of economic democracy in the United States and that, as a result, co-operatives are uniquely and powerfully positioned to address many of the social and environmental ills associated with the anti-democratic economic conditions that predominate today. This is roughly what you refer to as the "co-operative difference."

The current dominant kind of business in the United States and in most of the rest of the world is based on ownership by investors, in which profit is the primary goal and the provision of goods and services are secondary goals. When push comes to shove, as in the recent Great Recession, profit-making trumps services.

As long as our economy is dominated by large, investor-owned businesses, our political democracy will be undermined and we will be subjected to periodic recessions, varying degrees of inequality, environmental degradation, and other problems.

MJ: There's one thing about Solution that impressed me a lot. In fact, it has changed my strategic thinking a lot. You have, for me at least, a strikingly new perspective on building a strong co-operative presence in our economy. Essentially, I've been more or less following a "more" approach, thinking how can we create an alternative economics, which would include co-operatives at the core, and that in time could eventually challenge the concentration of wealth and economic power in huge enterprises as the dominant economic paradigm⁵. You, however, seem to be proposing what I would call an "expand-and-leverage" approach that is more subtle and far more practical: Yes, let's take full advantage of the current opportunities to expand and strengthen that co-operative presence as much as we can, and then use that as leverage to, as your subtitle says, "tame recessions, reduce inequality, and protect the environment" by indirectly influencing other sectors of the economy. And you are suggesting that this indirect influence can be very powerful indeed. For me that emphasis opens up a new kind of movement thinking.

E.G.Nadeau

EGN: Yes, I do try to make the point in the book that co-ops do not have to dominate an economic sector to have a major influence on it. Three good examples are credit unions in the financial sector, farmer-owned co-ops in the agricultural sector, and grocery co-ops in the food sector. Credit unions (which are financial cooperatives), farmer-owned co-ops, and grocery co-ops are by no means dominant in their sectors. However, by providing alternative, member-owned places where people can do business, they affect the way the entire sector does business.

MJ: I would like to shift the focus a bit here, and ask how you would see a best-case scenario regarding about what's possible for the co-operative movement. Right now the data says we are about one percent of the national economy. If movement folks are active and creative how far do you think this small section of our economy can grow over the next 30 years?

EGN: For me, the most important thing is to identify co-operative opportunities for growth and act on them. For example, I'm not willing to guess what percentage of the US gross domestic product will be represented by credit unions in 30 years, but wouldn't it be great to see credit union assets increased 10-fold or more over that time period. Credit unions now have about 94 million members in the United States. I could see this number increasing to well over 100 million by 2020. The issue, however, isn't just the number of credit union members. It's also the amount and diversity of financial activity that these credit unions provide their members.

Another example is worker-owned co-operatives. Many people in the co-operative movement are critical of Employee Stock Ownership Plans (ESOPs), because they do not usually provide democratic decision-making to workers. However, what if federal legislation was enacted sometime in the next decade that promoted democratically controlled ESOPs in the United States? That could have a dramatic impact on the percentage of the gross domestic product that was owned by co-operatives or similar entities.

This kind of sector-by-sector approach is the way I like to think about realizing opportunities for co-op growth.

MJ: We are now touching on a rather strong controversy within the co-operative movement and in movements that are supportive of co-operatives, such as solidarity economics: just what should be the co-operative movement's role in working for political economic changes that are so needed? Many within the movement argue that co-operatives should devote their energies solely or primarily to growing more co-operative enterprises. It seems the International Co-operative Alliance (ICA) has come out strongly for a co-op centric approach in its recent Blueprint for a Co-operative Decade. On the other hand, CICOPA⁶, one of the sectoral organizations of the ICA itself, responded by agreeing with the goal of the Blueprint but also called for co-ops to integrate its movement and its expansion into a broader effort of change that includes converting the dominant model for business enterprises into a more inclusive and ecologically sustainable model. That goes a long way from being a co-op centric strategy.

E.G., where does what I am calling "expand-and-leverage strategy" fit into this controversy?

EGN: I was excited to see that the international Cooperative Alliance has designated 2011 – 2020 as the Cooperative Decade. Celebrating the International Year of Cooperatives in 2012 was a great thing to do. But thinking in terms of a decade (or even a century) of cooperative development is far more important strategically to improve economic and social conditions around the world.

I think that we sometimes get hung up on political issues within the cooperative community. This isn't constructive and diverts energy from the broader goal of making our economies and societies more cooperative and democratic.

MJ: Staying on this line, Len Krimerman, a founder of GEO, and others have long argued that the seven co-operative principles by themselves actually tend to limit, isolate, and even marginalize the co-operative movement. They point to very successful co-operative enterprises such as Equal Exchange and Cooperative Home Care Associates, who have chosen "to step beyond their own membership, join forces across organizational boundaries, and work to transform an entire industrial sector and undo a systemic injustice."

Len himself has even proposed an "8th Co-operative Principle":

Co-operatives collaborate with a diverse range of other citizen groups to build, and share power in a fully democratic society whose institutions, resources, and opportunities are accessible equally by all, and where non-violent dialogue and conflict resolution are widely used to prevent and manage conflicts.⁷

What are your thoughts on this?

EGN: Michael, we need constructive dialogue regarding the future development of co-operatives. That is what democracy, including economic democracy, is all about. I interpret Mr. Krimerman's proposal for an eighth cooperative principle as a constructive one, not undercutting the other seven principles, but expanding on them. At the same time, I question whether a protracted process to add another principle is worth the effort. The 6th principle, "Cooperation among cooperatives," and the 7th principle, "Commitment to community," are already interpreted by many co-ops to support the kinds of issues proposed in Mr. Krimerman's "eighth principle."

MJ: One of your themes is that right now we can be moving toward forms of "greater cooperative ownership" what does this include? Just co-ops or other kinds of enterprises?

EGN: I'm mainly thinking of co-operatives, but my approach is inclusive rather than exclusive. There are other organizations that adhere to many of the co-operative principles. If a condo board is elected on a one unit, one vote basis, why not refer to it as a co-operatively elected board? In the public policy arena, there are many opportunities for housing co-ops and condominiums to work together to promote mutually beneficial decisions, particularly in the areas of affordable housing. Nonprofit childcare centers that are run democratically by parents and/or teachers are another example. As nonprofits, the members don't own the childcare centers, but in terms of their decision-making, they operate like co-operatives. I think there are thousands of nonprofits in the US that fit this model.

Internal Challenges to Expanding-and-Leveraging the Co-operative Difference

MJ: In The Cooperative Solution you describe what is possible for co-operatives at this point in our country's history about as well as it could be done. So I would like to explore the challenges facing the cooperative movement in taking advantage of these new possibilities. That is, given that there is an abundance of opportunities, what evidence is there that co-ops will "strategically make use" of their businesses to effect positive economic and social change.

An overarching question throughout the movement has to do with how committed and faithful the largest and most powerful co-operatives in the movement are to the Co-operative Principles⁸, which are essential to advancing the "co-operative difference." Basically it's the problem of them following the corporate model that concentrates wealth and decision-making. Moreover, much of your case for the potential of co-operatives in influencing our whole economy in a democratic way hinges on the role of these big co-ops in many of the economic sectors.

Let's look at what is going on in some of those co-op business sectors and how serious the problems are there. Let's start with credit unions. They play an important part in your vision of the more dynamic role that co-operatives could take on in our overall economy. In 2009 Cliff Rosendale, former executive director of the Federation of Community Development Credit Unions^{9, said that many of the large organizations of Credit Unions suffered like the financial giants of Wall Street because they had been following the same path as the big Wall Street banks rather than staying strong with the Co-operative Principles. How serious is this problem as we enter 2013, and how much of an obstacle does it pose to the potential that you see for the movement?}

EGN: I agree that some co-ops and credit unions have gotten into trouble because they have tried to act like investor-owned businesses, rather than member-owned businesses. But I think these are the exceptions that prove the rule. The large majority of co-ops and credit unions adhere to the seven cooperative principles. In some of them, the members do not play as active a role as they should, and managers and boards of directors don't actively encourage member participation. Part of "the cooperative solution" will be to make co-ops themselves more democratically run organizations.

MJ: And, E.G., you use examples of co-ops such as Ace Hardware and Land o' Lakes, and mutual insurance companies such as StateFarm as significant examples of the co-operative difference. Indeed, they operate at a scale that could provide a lot of leverage. However, I am also wondering how deep is their awareness and commitment to the co-operative principles? For example, in my experiences of going into an Ace Hardware store I never got any indication of their co-operative nature as I do when I go into a food co-op, or a worker co-op.

Are their co-operative commitments deep enough to do the heavy lifting you are envisioning?

EGN: Michael, let's make a definitional distinction here. The most common definition of a producer co-op is one that is owned by farmers or artisans, not by a group of independent businesses. These distinctions, however, get blurred, because, for example, many farms are in fact well-established businesses. But I don't think we should use the phrase producer co-op to characterize co-ops that are owned by a group of independent businesses like Ace Hardware, etc. It's better to refer to them as "business co-operatives."¹⁰

Now, back to the issue in your question. It is true that many co-ops, credit unions and mutual insurance companies are imperfect in their adherence to co-operative principles. As I mentioned in response to the previous question, we can either emphasize these flaws or concentrate our energies on reducing them and strengthening the co-op movement as a whole. For example, one of the largest mutual insurance companies in the world is Nationwide. This mutual has provided support for the co-operative movement in the United States for decades. Its television ads are now emphasizing the fact that the company is owned by its policyholders not by outside investors. To me, although Nationwide is still a large corporation without much policyholder decision-making, these actions differentiate Nationwide from investor-owned companies.

Business co-ops such as Ace are simply emphasizing some of the co-op principles over others. They are owned by local store owners, who are engaged in, and even exemplify, the 4th Co-operative Principle: "Autonomy and Independence." The fact that the corner hardware store still exists and is independently owned is a direct reflection of the broader co-op's ability to maintain its independence in the face of tremendous competition from the likes of Home Depot. And the 4th Principle is not the only one at play here. Among the reasons for individual Ace store's succeeding is their adherence to the 7th Principle: "Concern for community."

So my main point is that different kinds of co-ops contribute to the cooperative economy in different ways.

MJ: Okay, E.G. Let's move on to my next concern. In The Cooperative Solution you say that "0rganic Valley [Cooperative] should become a model for other farm co-ops because of its "quadruple bottom line": economic stability, healthy products, commitment to community, and environmental stewardship." However, the Organic Consumers Association (OCA) have raised an outcry against Organic Valley and Stonyfield Farm for going along with Whole Foods Market, capitulating to Monsanto and the USDA on the issue of no longer opposing the mass commercialization of GE crops. If this is so, it seems like a major environmental setback. Meanwhile others have called for a boycott of Organic Valley for its decision to "ban the farmers which make up its 1600 small farm co-operative from selling raw milk to consumers on the side" because, allegedly, it threatened the large cooperative's profits.

Apart from the specifics of these two situations, do these two issues—corporate commercialization and profits non-democratically trumping the well-being of members—represent major problems for the co-operative agricultural sectors contributing to the "cooperative solution" you call for? If so, to what degree?

EGN: Michael, I can't defend every individual action that a co-operative or similar organization makes, and I don't know the backstory behind the GMO positions. However, I can address the "raw milk" issue.

One thing about Organic Valley's decision on raw milk is that it was made by a board of directors elected by the farmer members to act in the best interests of the co-operative rather than a board of directors elected on a one-dollar, one-vote scheme to represent the profits of its shareholders. Will every decision made by a democratically elected co-op board be environmentally sound and economically wise? No. The vote on the raw milk ban, for example, was highly contested and ended in a 4-3 vote. The upshot is that farmer members, including those banned from selling raw milk, have the opportunity to elect a new board, and even run for the board themselves, and if the membership sees the raw milk issue as a mistake that trumps the other decisions made by the board, they each have equal votes.

There's a story from the 70s, which may be apocryphal, regarding a Michigan-based grocery wholesale co-operative. As the story goes, the co-op almost went under because of a rift between members who wanted to carry carob chips and those who didn't. The opponents argued that carob chips had sugar in them and therefore were inappropriate items for the co-op to carry.

Michael, the cooperative movement will never become the dominant business paradigm in the United States, if we focus on all of the divisive issues within the movement, rather than strategizing together on how to address the major problems in our economy, society, and environment. This is a major message in my book.

This is not to say that there are not substantive issues which may divide people in the co-operative, environmental and health movements. But I would much prefer addressing these differences in constructive ways rather than through bans, boycotts, and badmouthing.

MJ: Here's my last concern about a major co-op. In August 2011 the American Crystal Sugar Company (ACS), the largest sugar beet processor in the US and a farmer co-operative, locked out 1,300 union workers instead of bargaining with them over contract terms. On December 1, sixteen months later, workers at ACS rejected the company's contract demands for the fourth time. Those demands would grant it the ability to replace union workers with contract workers, dismantle seniority, redefine which workers are entitled to full benefits, and cut health care benefits for union workers compared with non-union workers. The CEO of American Crystal Sugar draws over $2 million in yearly compensation. Is this a typical 'corporate' case of "my way, or the highway," or is it more complex? If a typical case, how large of a problem does the co-operative movement have with 'corporate mistreatment' of workers?

EGN: I was very disappointed to hear this story as well. Co-ops are not perfect and they never will be. In the book, one of my underlying arguments is that they are "less imperfect" than investor-owned companies. Co-ops are not immune from problems, ranging from bad investment decisions to corrupt directors, to environmental insensitivity. The main point is that by their democratic structure, co-ops are better insulated from doing harm to their members and their communities than their profit-first counterparts.

MJ: Finally, I want to raise a major concern of my own about the movement's capacity. And I feel I am part of a very small minority on this. Face-to-face cooperation and communication pose major challenges to building any kind of co-operative enterprise much less an alternative political economic movement. Accountability, transparency, democratic control, and self-empowerment are absolutely critical to expanding-and-leveraging the co-operative difference. However, expanding and sustaining them are a big challenge. Rivalries, jealousy, envy, not being able to work out negative feelings, etc. are enormous drains on our energy, attention, trust, and empowerment (both individual and collective).

E.G., do you have any thoughts about these kinds of challenges?

EGN: Any joint actions, whether involving co-operatives, investor-owned businesses, nonprofits, sports teams, or political parties are going to encounter interpersonal conflicts. One of the Co-operative Principles, the Fifth one, refers to the need for member education. For me, member education not only refers to making sure members understand and participate in their co-operatives, but also that members learn how to listen and participate in consensual decision-making.

MJ: I couldn't agree more. But in my limited exposure to co-operatives I don't see it being given a lot of priority.

External challenges to realizing co-operative possibilities MJ: E.G. I appreciate you responding to all of the concerns I've raised, especially in noting how there is no escape from tensions, conflicts, and just plain struggling with all the challenging factors we have to live and work with. Even with these kinds of problems, and several others, I would still agree that yes, the opportunity for big change is now here for the co-operative sector of our economy.

E.G., there are also some very serious external challenges to building a stronger co-operative movement, whatever strategies we may be using. Let me start with one that impacted me very strongly recently. I live in an intentional community in Staten Island, NY that is very ecologically minded. We just went through Hurricane Sandy—or maybe I should say it went through us. In dealing with this extraordinary example of climate change, we had to scramble for gasoline to run two generators to sustain 75 people with food, heat, and light for almost a week. Chasing fossil-fuels to endure in a fossil-fuel driven crisis. That experience acutely highlighted the kinds of contradictions all of us are embedded in throughout every aspect of our lives.

But let's just stay with fossil fuels and climate change. In The Cooperative Solution you claim that "because of their unique values, principles, and organizational structure, co-operatives can play a lead role in mitigating the harmful impacts of global warming in the United States and in other countries." More specifically: "Energy co-ops are well situated to speed up the rate of energy conservation and the shift to renewable energy in the US because they are member-based, grass-roots organizations."

So, my question: in the face of the overwhelming role that fossil-fuels play throughout our lives, I am wondering what significant impact can we realistically expect energy co-ops to have over the next 30 years.¹¹

EGN: This is a tough question to answer, because so many issues related to climate change will need to be addressed by international, national, regional and local governments. Public policy at all of these levels will determine whether or not the world develops and implements effective strategies for reducing carbon and other greenhouse gas emissions or not.

For example, in January 2013, the State of California began a carbon trading program, one of the provisions of which is to allow carbon credits based on increasing forest-based carbon storage. In the next two years, it is likely that groups of forest owners will be able to aggregate their forest land and enter into carbon credit agreements – not just in California, but across the United States. Co-ops are an excellent way to aggregate land. Therefore, depending on next steps in California and in other states, it is possible that there will be a major increase in the number of forestry and farm co-operatives engaged in carbon sequestration. But, without appropriate public policies, this won't happen.

Recently, I've been thinking about another way in which co-operatives could address energy problems in the United States. Co-ops are a great way to help consumers and small businesses buy goods and services of good quality at low cost. Why not apply this ability to home and business energy efficiency and renewable energy. We could start off with pilot Energy Co-op Stores in a few communities and, after fine-tuning the model, take it nationally. The affiliated co-ops could be structured as multi-stakeholder businesses with workers, consumers and, possibly, small businesses as members. NCB Capital Impact¹², a non-profit subsidiary of the National Cooperative Bank¹³, would be an excellent organization to help launch such an initiative.

MJ: And my final concern. In the past, whenever co-ops, unions, etc. started to make headway, Wall St., corporations and traditional business organizations didn't lay back and let this happen. They have actively crushed whatever they could. The stories are legendary and the pattern very consistent. In the New Deal it shifted a bit because the so-called "1%" was relatively weak. Roosevelt and company gave co-operatives major roles in rural economic development, but, as John Curl has pointed out, this was blocked from happening in the cities. So, E.G., have you taken this kind of opposition into account in your thinking?

EGN: Wall Street has dollars, and the co-operative movement has people. So the question is: Will dollars or people win? That's the fundamental question, Michael. The answer right now is: "We'll see."

However, I'm betting on people. For decades, credit unions have successfully fended off attempts by the bankers to squash them. They have been able to do this by mobilizing credit union and other cooperative members to lobby on their behalf.

Further, co-operatives are woven into the fabric of our economy and touch the lives of almost every American. Increasing awareness of the role of co-ops in people's everyday lives is an ongoing and important aspect of fostering economic democracy. If, in fact, co-operatives are a better way of doing business, as many of us believe, then the goal is to show that this is in fact the case in as many economic sectors as possible. In a long-term way, we are asking people to "vote" on the businesses they want to be involved with as consumers, workers, producers, and small business members. If we do have a better business model and are effective at promoting it, that will provide the answer to your questions, and our economy and society will gradually become more based on co-operative principles.

MJ: And those are challenging "if's." E.G. Thanks so much for your time and energy in exploring these issues and the best of luck with your great little book.

EndNotes

• There are two variations for referring to co-ops: "cooperatives"  and "co-operatives."  GEO prefers using co-operative, as it is more distinct that the other.  Where "cooperative" is used in other texts, like Nadeau's book, we follow that usage.
• The international movement adheres to a set of Co-operative Values and Principles. “Inter-cooperation” refers to the 6th of seven Co-operative Principles: “Cooperation among co-operatives,” http://ica.coop/en/what-co-op/co-operative-identity-values-principles
• The phrase “co-operative difference” refers to the potential and actual positive impact—economic, social, and political—that co-operatives have on their communities and their regions as well as their impact nationally and internationally.

• There's an emerging global collection of movements for economic autonomy, justice, and self-determination that is referred to by various names: solidarity economy, sacred economy, new economy, shared economy, to mention a few. The World Social Forum and the recent Occupy movements are a major part of this dynamic. Many outside the co-operative movement look toward co-ops as not only being active participants in this global push for new kinds of economies, but as model institutions.

• The International Organization of Industrial, Artisanal and Service Producers' Cooperatives, or CICOPA, is a sectoral organization of the International Cooperative Alliance (ICA). Its full members are representative organizations of producers' cooperatives from different sectors: construction, industrial production, general services, transport, intellectual skills, artisanal activities, health, social care, etc. Its associated members are support organizations promoting cooperatives in those sectors.
• Len Krimerman, "Fuel to the Fire: Reflections on an Amazing Conference" GEO Newsletter Vol 1, No. 74 on GEO Website
• See Endnote 3 above.

• This is Johnson's recall of what Rosendale said at the Solidarity Economy conference at the University of Massachusetts, Amherst in March of 2009.

• See Note 1 above.

• Some links to GEO articles by Johnson: The C-Paradigm: Learning Self-empowerment and Cooperation , Face-to-Face Communication and the Unexplored Potential of Cooperation , and Taking the cooperative advantage to scale: 1.

• See http://www.ncbcapitalimpact.org/

• See www.ncb.coop/