The Case for Co-ops as a Local Economic Development Strategy

The case for cooperatives as smart economic development strategy:
Why should economic development agencies be interested in co-ops?

  • Cooperatives are “sticky” businesses.  Rooted in communities due to the local ties of their members, cooperatives are very unlikely to pick up and move to other communities, states, or countries, and so should of great interest to city and state governments, as well as other investors who care about a place-based approach to investment.  (“What are GOLD Businesses?” Noemi Giszpenc, 2012)
  • Cooperatives have strong multiplier effects.  A recent study of food cooperatives by the ICA Group found that, among other economic benefits, food co-ops had a multiplier effect of 1.6, compared with 1.36 for conventional grocers, meaning “For every $1,000 a shopper spends at their local food co-op,  $1,604 dollars in economic activity is generated in their local economy”.
  • Cooperatives spread the wealth around.  While the discourse around inequality once focused on income inequality, wealth is more recently becoming understood as the means to generate income and therefore closer to the root of the problem.  Owning a business is a way for workers build up their personal assets, which can lead to greater income, educational attainment, and other positive social outcomes.  (Asset Building Through Cooperative Business Ownership, Jessica Gordon-Nembhard 2008)
  • Cooperatives are resilient businesses.  The Basque region in Spain, home to a network of hundreds of cooperatives, had a 15% unemployment rate in 2012, compared to 25% nationwide, according to a BBC report. A 2012 study by CICOPA, the international organization of worker cooperatives, found that worldwide, cooperatives had fewer business closures and fewer job losses than non-cooperatives, during the economic crisis that began in 2008.  
  • Cooperatives are socially responsible businesses.  When a local business is owned by members of its own community, a mechanism for accountability is created that is impossible for absentee-owned companies.  “Concern for Community” is actually ingrained in the very definition of a cooperative enterprise, as one of the 7 principles adopted by the International Cooperative Alliance.  
  • Cooperatives are more productive than conventional firms.  In a 2013 study of French cooperatives, researchers found that co-ops “use their capital and labour more effectively than conventional firms. With their current levels of inputs, cooperatives produce at least as much with the technology they have chosen as they would if they were using conventional firms’ technology. In contrast, in several industries conventional firms would produce more with their current inputs if they were organizing production as cooperatives do.”  In other words, co-ops create greater economic activity with the same level of investment.
  • Cooperatives have the power to reduce income inequality.  In “What do we know about worker co-operatives?”, Virginie Pérotin reports that, worker co-ops, the pay differential between executive and non-executive workers are much narrower than in other firms, leading to a reduced gap between rich and poor.  
  • Cooperatives are large and well capitalized.  In the same study, Pérotin demonstrates that co-ops are not, as some might think, smaller firms than conventional businesses.  On the contrary, the evidence suggests that cooperative businesses tend to be larger and better capitalized than conventional firms.  
  • Cooperatives address market failures, that might otherwise fall to the state or federal government to address.  In her 2014 survey of the Benefits and Impacts of Cooperatives, Dr. Gordon-Nembhard points out rural electric co-ops, natural grocers, credit unions, affordable housing, child and elder care, and culturally specific products as examples of goods and services that conventional firms were not willing to provide – at least not until cooperatives demonstrated how to profitably deliver these services to the customers that need them.  
  • Cooperatives extend the opportunity of entrepreneurship to many without the capital or resources to start a new business alone.  In the same paper, Dr. Gordon-Nembhard cites a study by Bhuyan, Leistritz, and Cobia (1998), which found that, of 162 cooperatives surveyed, “44% of respondents said they could not have opened their business had it not been organized as a cooperative.”  In US cities, co-op members are often workers with barriers to employment, such as a criminal record, that prevent them from re-entering the work force.