Cooperatives

Description and History

According to the International Cooperative Alliance, a cooperative is “an autonomous association of persons united voluntarily to meet their common economic, social and cultural needs and aspirations through a jointly owned and democratically-controlled enterprise” (ICA 1995). Unlike traditional businesses which are owned by an individual, or a corporation that is owned by their shareholders—often at the expense of other stakeholders—cooperatives have a more democratic ownership structure. By following the “one member, one vote” model, cooperatives are owned by their members be they workers, consumers (e.g. credit unions or insurance, utility, food and grocery, and housing cooperatives), producers (i.e. a retail/purchasing cooperative), other businesses or organizations (e.g. hybrid or platform cooperatives) or a combination of multiple stakeholders (in the form of what is called a “multistakeholder cooperative”). 

Cooperatives can be structured in a variety of legal forms—from sole proprietorships to limited liability companies (LLCs) to S corporations (Weber 2024)—but they are all committed to the following seven cooperative principles: 

  1. Voluntary and Open Membership; 

  2. Democratic Member Control; 

  3. Member Economic Participation; 

  4. Autonomy and Independence; 

  5. Education, Training, and Information; 

  6. Cooperation among Cooperatives; and

  7. Concern for Community (ICA 2024). 

Most researchers trace the origins of cooperative firms to the Industrial Revolution in Europe in the mid-18th century (Pitman 2018). Scholarship from Jessica Gordon Nembhard also showcases the long history of mutual aid and cooperative economics in Black American communities, particularly in the face of intense racial inequality and subjugation in the United States (2014). Indigenous communities have also been informally cooperating to meet their needs for centuries. 

Indeed, cooperatives have often been a sought after alternative to business-as-usual, particularly during times of crisis. For example, state and public support for cooperatives surged during the Great Depression (Pitman 2018). Before that, agricultural movements—particularly in the American West—relied on cooperatives to help stabilize an otherwise volatile sector (Perryman 2022). In 2023, there were approximately 30,000 cooperatives in the United States, providing an estimated $700 billion to the economy (Wadsworth 2023). 

Cooperatives, Inclusive and Democratic Enterprise, and the Community Wealth Building Wedge 

Cooperatives, as one of the most common examples of an alternative (i.e. a more inclusive and democratic) ownership model of enterprise, are critical to economic transformation. 

First and foremost, with their distributed ownership structure, cooperative firms challenge shareholder primacy, individual ownership, and extractive profit-making, intentionally centering  purpose and economic, social, and/or ecological well-being at the center of their business model (Novkovic 2023). Indeed, with a diversity of vested, place-based stakeholders working together to solve a common problem through business innovation, actualizing values of mutuality and solidarity towards bottom-up development is more possible (2web 2017).

Second, cooperatives—particularly purchasing cooperatives, common in the agriculture and retail sectors—increase affordability by assuming collective responsibility for resource costs and, thereby, access to goods and services. This lowering of costs is especially important for firms led by underrepresented populations, including women and entrepreneurs of color (Theodos 2021).

Next, cooperatives provide a clear and intuitive example of a democratic economy in action: because they are real businesses operating under real market and capital constraints, cooperative firms both educate and empower their member-owners to play a significant role in the democratic management of our economy. Through broad-based governance, cooperatives can also reduce transaction costs by engaging those tasked with implementing a plan in its development from the beginning, thereby increasing buy-in and pre-empting possible challenges. They can also increase the resources, skills, and networks available to a firm by drawing upon a larger pool of stakeholders.

Finally, cooperatives—especially those that are worker-owned—keep money circulating locally, as they provide good quality jobs with profits often going directly to workers and their communities. Indeed, “cooperatives can be local and regional anchors, promoting economic growth through stable jobs, high industry standards, consistent services, and economic multiplier effects through increased community investment, local jobs, and local procurement” (Theodos 2021). In this way, cooperative firms build community capacity and wealth (DAWI n.d.). 

Examples

Whether in nascent industries, essential services, with precarious workforce environments, and/or heavily resource dependent, the following sectors are especially primed for cooperative ownership: cannabis, care work, digital, food, housing, energy, financial, manufacturing, and retail (Theodos et al 2021). By pursuing a sectoral approach to a cooperativization strategy, advocates of the cooperative movement are able to rapidly scale their impact. The examples below illustrate two of these sectoral examples in the form of a worker-owned as well as a multi-stakeholder-owned cooperative. 

Namaste Solar

Founded in 2005, Namaste Solar is a solar design and installation company offering services across Colorado. In 2011, Namaste transitioned to a employee-owned cooperative, with the intention of all workers both co-owning the losses and sharing in the profits of the company. At the end of 2022, Namaste Solar was a $40 million company, with 64 co-owners, 15 candidates, and 130 employees (Namaste Solar 2022). 

Unlike a traditional firm, Namaste employs holistic profit measurement considering customer satisfaction, employee morale, involvement in community, and impact on the environment in addition to dollars and cents (Namaste Solar 2017). To date, Namaste Solar has installed 29,522 solar panels, designed 21,546 systems, and serviced 613 projects across residential and commercial properties (Namaste Solar 2022). With a six-to-one pay ratio between highest- and lowest-paid employees, Namasté has consistently been recognized as a “best workplace” (B Lab 2024).

Zingerman’s Deli

Zingerman’s Delicatessen, familiarly known as Zingerman’s Deli, is a Michigan-based multi-stakeholder cooperative of 18 food businesses in the Ann Arbor area (Zingerman’s n.d.). Employing over 750 local workers with annual sales of $78 million (Shuman 2023), Zingerman’s leverages the multi-stakeholder model—of producers, consumers, and workers—to ensure direct control and ownership of the supply chain, truly operating as a farm-to-table enterprise! 

For decades, the company has practiced open book management—the cooperative idea and practice that when employees understand the relationship between their role and a company’s bottom line, they are more likely to have a sense of ownership at work and, by consequence, make better decisions for themselves and the organization—which contributes to both its organizational and cultural success (Plachynda and Gregory 2013). 

Challenges and Limitations 

The most common challenge among cooperative members is democratic governance. In a culture where democracy is not a common daily practice, it can be especially difficult to translate into an organization as a business strategy. Additionally, the education and time needed to democratize an enterprise are not accessible to all, particularly to those of minoritized backgrounds. 

Next, like many small businesses, including other alternative ownership enterprises, cooperatives are not immune to the capital constraints of business development. Further, because of the unique—and oft complex—legal and financial needs of both setting up and maintaining a successful cooperative enterprise (NCBA CLUSA 2022), these IDEs sometimes find it difficult to compete in traditional economic markets (Armeni et al. 2023). As a result, in some circumstances, cooperatives can develop into narrowly profit-focused businesses at the expense of larger commitments to community and solidarity. 

Scaling up access to mission-oriented sources of capital, developing more robust networks of mutual support, and implementing co-op-friendly public policy are all critical success factors for the continued growth of the cooperative sector. 

Taking It Forward

A major opportunity to scale the sector stems from the so-called “silver tsunami”—the impending retirement of millions of baby boomer business owners, many of whom lack a robust succession plan for their firms. Conversion to worker cooperatives offers a job-preserving pathway, and one that is explicitly supported by regional and national cooperative ecosystem support organizations like the Democracy at Work Institute (DAWI) and Project Equity. In 2023 for example, over a third of cooperatives originated as conversions from traditionally owned enterprises (USFWC 2023). 

Another opportunity for broad scale legislative change is the introduction of the National Worker Cooperative Development and Support Act (HR 7721) in early 2024. Championed by RepresentativesRo Khanna (D-CA-17), Jamaal Bowman (D-NY-16), and Rashida Tlaib (D-MI-12), the bill intends to expand the cooperative business sector in the United States by endowing the Small Business Administration (SBA), Internal Revenue Service (IRS), Department of the Treasury, Department of Commerce, United States Department of Agriculture (USDA), and Department of Labor (DOL) with the authority to implement initiatives to better support worker cooperatives (USFWC 2024).

Additional Resources