Cooperative efforts have occurred throughout history. Since early man cooperated with others to help kill large animals for survival, people have been cooperating to achieve objectives that they could not reach if they acted individually.Cooperation has occurred throughout the world. Ancient records show that Babylonians practiced cooperative farming and that the Chinese developed savings and loan associations similar to those in use today. In North America, clearing land in preparation for the planting of crops, threshing bees, and barn raisings all required cooperative efforts. In the United States, the first formal cooperative business is assumed to have been established in 1752, almost a quarter-century before the Declaration of Independence was signed. This cooperative, a mutual insurance company called the Philadelphia Contribution ship for the Insurance of Houses from Loss by Fire, was organized by Benjamin Franklin and others, and it is still in operation today (Cobia).
Cooperative as a modern business structure originated in 19th century in Britain. The Industrial Revolution had a profound effect on the way business was organized and on the working conditions and economic situations of many people. In response to the depressed economic conditions brought forth by industrialization, some people began to form cooperative businesses to meet their needs. Among them was a group of 28 workers who were dissatisfied with the merchants in their community. They formed a consumer cooperative known as the Rochdale Society of Equitable Pioneers in 1844. They began by opening a cooperative store that sold items such as flour and sugar to members, and the Society quickly grew to include other enterprises. The founders also established a unique combination of written policies that governed the affairs of the cooperative. Among these rules were: democratic control of members, payment of limited interest on capital, and net margins distributed to members according to level of patronage. Based on its success, the Rochdale set of policies soon became a model for other cooperative endeavors, and became known as the general principles that make a cooperative unique from other business structures.Cooperation dates back as far as human beings have been organizing for mutual benefit. Tribes were organised as cooperative structures, allocating jobs and resources among each other, only trading with the external communities. Post-industrial Europe is home to the first co-operatives from an industrial context.
Robert Owen (1771 - 1858) was a social reformer and a pioneer of the cooperative movement. In 1761, the Fenwick Weavers' Society was formed in Fenwick, East Ayrshire, Scotland to sell discounted oatmeal to local workers.]Its services expanded to include assistance with savings and loans, emigration and education. In 1810, Welsh social reformer Robert Owen, from Newtown in mid-Wales, and his partners purchased New Lanark mill from Owen's father-in-law David Dale and proceeded to introduce better labor standards including discounted retail shops where profits were passed on to his employees. Owen left New Lanark to pursue other forms of co-operative organization and develop co-op ideas through writing and lecture. Co-operative communities were set up in Glasgow, Indiana and Hampshire, although ultimately unsuccessful. In 1828, William King set up a newspaper, The Cooperator, to promote Owen's thinking, having already set up a co-operative store in Brighton.
The Rochdale Society of Equitable Pioneers, founded in 1844, is usually considered the first successful co-operative enterprise, used as a model for modern co-ops, following the 'Rochdale Principles'. A group of 28 weavers and other artisans in Rochdale, England set up the society to open their own store selling food items they could not otherwise afford. Within ten years there were over 1,000 co-operative societies in the United Kingdom.
Other events such as the founding of a friendly society by the Tolpuddle Martyrs in 1832 were key occasions in the creation of organized labor and consumer movements
Social economy In the final year of the 20th century, cooperatives banded together to establish a number of social enterprise agencies which have moved to adopt the multi-stakeholder cooperative model. In the last 15 years (1994–2009) the EU and its member nations, have gradually revised national accounting systems to "make visible" the increasing contribution of social economy organizations.
Organizational and ideological roots The roots of the cooperative movement can be traced to multiple influences and extend worldwide. In the Anglosphere, post-feudal forms of cooperation between workers and owners, that are expressed today as "profit-sharing" and "surplus sharing" arrangements, existed as far back as 1795.The key ideological influence on the Anglosphere branch of the cooperative movement, however, was a rejection of the charity principles that underpinned welfare reforms when the British government radically revised its Poor Laws in 1834. As both state and church institutions began to routinely distinguish between the 'deserving' and 'undeserving' poor, a movement of friendly societies grew throughout the British Empire based on the principle of mutuality, committed to self-help in the welfare of working people.
Friendly Societies established forums through which one member, one vote was practiced in organisation decision-making. The principles challenged the idea that a person should be an owner of property before being granted a political voice.Throughout the second half of the nineteenth century (and then repeatedly every 20 years or so) there has been a surge in the number of cooperative organisations, both in commercial practice and civil society, operating to advance democracy and universal suffrage as a political principle. Friendly Societies and consumer cooperatives became the dominant form of organization amongst working people in Anglosphere industrial societies prior to the rise of trade unions and industrial factories. Weinbren reports that by the end of the 19th century, over 80% of British working age men and 90% of Australian working age men were members of one or more Friendly Society.
From the mid-nineteenth century, mutual organisations embraced these ideas in economic enterprises, firstly amongst tradespeople, and later in cooperative stores, educational institutes, financial institutions and industrial enterprises. The common thread (enacted in different ways, and subject to the constraints of various systems of national law) is the principle that an enterprise or association should be owned and controlled by the people it serves, and share any surpluses on the basis of each members' cooperative contribution (as a producer, labourer or consumer) rather than their capacity to invest financial capital.
The cooperative movement has been fueled globally by ideas of economic democracy. Economic democracy is a socioeconomic philosophy that suggests an expansion of decision-making power from a small minority of corporate shareholders to a larger majority of public stakeholders. There are many different approaches to thinking about and building economic democracy. Both Marxism and anarchism, for example, have been influenced by utopian socialism, which was based on voluntary cooperation, without recognition of class conflict. Anarchists are committed to libertarian socialism and they have focused on local organization, including locally managed cooperatives, linked through confederations of unions, cooperatives and communities. Marxists, who as socialists have likewise held and worked for the goal of democratizing productive and reproductive relationships, often placed a greater strategic emphasis on confronting the larger scales of human organization. As they viewed the capitalist class to be prohibitively politically, militarily and culturally mobilized in order to maintain an exploitable working class, they fought in the early 20th century to appropriate from the capitalist class the society's collective political capacity in the form of the state, either through democratic socialism, or through what came to be known as Leninism. Though they regard the state as an unnecessarily oppressive institution, Marxists considered appropriating national and international-scale capitalist institutions and resources (such as the state) to be an important first pillar in creating conditions favorable to solidaristic economies. With the declining influence of the USSR after the 1960s, socialist strategies pluralized, though economic democratizers have not as yet established a fundamental challenge to the hegemony of global neoliberal capitalism.
Meaning Cooperatives as legal entities A cooperative is a legal entity owned and democratically controlled by its members. Members often have a close association with the enterprise as producers or consumers of its products or services, or as its employees.
In some countries, e.g. Finland and Sweden, there are specific forms of incorporation for co-operatives. Cooperatives may take the form of companies limited by shares or by guarantee, partnerships or unincorporated associations. In the USA, cooperatives are often organized as non-capital stock corporations under state-specific cooperative laws. However, they may also be unincorporated associations or business corporations such as limited liability companies or partnerships; such forms are useful when the members want to allow:
1. Some members to have a greater share of the control, or
2. Some investors to have a return on their capital that exceeds fixed interest,
Neither of which may be allowed under local laws for cooperatives. Cooperatives often share their earnings with the membership as dividends, which are divided among the members according to their participation in the enterprise, such as patronage, instead of according to the value of their capital shareholdings (as is done by a joint stock company).
Aspects of economic rationale If cooperatives/mutuals succeed, that success may reflect not the characteristics of the cooperative/mutual form itself but the existence of a long term regulated competitive environment that created the space and margins which allowed them to adopt welfare objectives different from those of profit maximising competitors. Llewellyn and Holmes (1991) argue that, in the absence of a clear efficiency advantage, mutual building societies, for example, would need to behave in a manner substantially similar to banks and mutual life insurers similarly to Plc life insurers: "Only if mutuals have a substantial efficiency advantage compared with their Plc competitors are they able to set objectives significantly different from their Plc competitors. In the absence of this competitive pressures force a convergence of behaviour and remove the major behavioural distinctions between mutuality and Plc's".
From this point of view, competition anjd narrow margins are inimical to the mutual form because they erode behavioural difference.
These issues are complicated in the case of UK building societies and mutual life insurers because they require judgement about whether they really have behaved differently in these two areas. If banks may be different from building societies, that may not be so in the case of, for example, the UK Plc 'Prudential' life insurer and its mutual competitors. But, what is clear is that building societies (like mutual life insurers) have operated in regulated areas where returns on capital are high, so that mutuals can choose different objectives. This discretion, of course, greatly complicates outcomes because mutuals can set objectives in terms of prices received or paid or in terms of market access to those who would be denied access or disadvantaged by other providers. There is also the complication that if (as in the case of building societies in the late-1980's), mutuals dominate the field, the behaviour of non-mutual competitors has to be conjectured.
Consumer attitudes and behaviour are also relevant when competition is weak. Consumers may prefer cooperatives/mutuals like building societies if they fear that surplus distributing banks might try to 'rip them off.' The point is made in the building society mutual context by Armitage (1991) in the following terms: "In theory, in a free market with well-informed participants, competition ensures competing services are priced according to their value to the consumer; if not they do not sell. Therefore, consumers are never 'ripped off'. However to the extent that a market is less than competitive in this sense, sellers have opportunities for exploiting customers., which their duty to shareholders should oblige them to take if they are companies, and their duty to members should oblige them not to take if they are mutuals. The mortgage and deposit markets are competitive, but not perfectly so. In particular, customers have incomplete information and face search costs. So there is scope for institutional policies to make a difference to customers' welfare without always paying or gaining in terms of loss or gain of custom".
The fact that most small depositors are ill-informed (as building society depositors certainly were) may also explain the importance of mutuals in the savings markets. The Uninformed Depositor Model of Rasmusen (1988) does appear to offer explanation for why small savers prefer mutuals. In banking markets, there is usually information asymmetry whereby managers are relatively informed as to risk, such as asset risk and maturity transformation/interest yield mismatch risk, and depositors are left relatively ignorant. In this case, the cost of virtually any monitoring by small savers is practically unsustainable. The 'free rider' effect in building societies is a manifestation of this kind of unsustainable monitoring cost where the cost of meaningful involvement in building society affairs (even attendance at the annual meeting) really quite outweighs benefits to be obtained through involvement, as Ingham and Thompson 4 point out. In earlier times, some building societies resorted to fining members for not attending annual meetings, in order to get the members to turn out. But once the roll was checked many promptly adjourned to the nearest pub ('bar'). Under these risk-monitoring circumstances, depositors will, according to Rasmusen,3 prefer a mutual where they perceive that what they understand to be moderate or no risk attaches, due to regulation, as compared to more risky less regulated banks. Also, they may understand that managers in mutuals are less motivated to take risk, as suggested by Rasmusen (1988) below and by Masulis (1987).
It could be claimed that part of the success of mutuals is due to simplified agency relationships resulting from the absence of external shareholders or to the ability to distribute surplus through product price (not 'Plc' dividend). These arguments are not conclusive, as the presence of external claimants may result in considerable pressure for cost economies, especially if there is a market for corporate control. It is doubtful that the operating cost leadership of UK building societies, which is so much a factor in the dominance of the mutual form in the savings banking and home mortgage financing market, has much to do with lower agency costs or efficiency. Before deregulation, the objective was not efficiency but growth through retained earnings which was in the management interest; and the finance directors attributed their funding cost advantage to the accident of mixed funding. Much of this detail may not matter to an uninformed depositor. As Rasmusen (1988) observes: "In the Uninformed Depositor Model the depositor does not have to distinguish motives: the advantage of the mutual is that the interests of depositors and managers roughly coincide, and whether managers are conservative to protect their perks or their depositors is a minor point".
Masulis (1987) also refers to the motivations of managers in relation to risk in the following terms with reference to American style mutual savings and loan banks where his references to 'owners' and boards of directors, in the MS&L [mutual savings and loan] context, are references to management: "Since MS&L owners (boards of directors) are only able to extract a portion of a S&L's current and accumulated earnings [through salary and perks], they have less incentive to take risks than the owners of stock companies [e.g. Plc banks] who can capture the entire stream of accumulated and expected future profits by selling their stock.
Identity Cooperatives are based on the cooperative values of "self-help, self-responsibility, democracy and equality, equity and solidarity" and the 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
7. Concern for Community