The Cooperative Principles

DATELINE: Rochdale, England, December 21, 1884. The Rochdale Equitable Pioneers Society, twenty-seven men and one woman, opened a store on a warehouse-lined street called Toad Lane. The Rochdale Pioneers had formed their society a year before they opened their store.

At the end of an unsuccessful weavers' strike in 1843, these 28 textile workers had been black-listed and were unable to find work. In discussing how their political beliefs could be translated into action, one member suggested that they could start by organizing people as consumers of goods, so they could buy at fair prices. Their ultimate goal was a people's state, whose economy was democratically controlled by those who produced its wealth.

Co-ops modeled on Rochdale spread throughout England. By 1863, there were 427 of them, and they established their first wholesale society. In ten years its volume was so great that it began making its own products. Today the operating principles developed by the Rochdale Pioneers are used as the organizing basis for consumer cooperatives all over the world.

The Principles of Cooperatives

Like other businesses, cooperatives need capital to work with. Members invest money in their co-op to provide it with the capital it needs to serve their consumer needs effectively and to support an organization whose goals they believe in. Such share capital should receive a strictly limited rate of interest. The basic premise of this principle is that cooperatives are in business to provide services to their members.

This contrasts with many capitalist businesses whose raison d'etre is profit, the value of the products and services they provide being secondary. The purpose of limiting the interest on share capital is to avoid investment for the purpose of speculation. The common practice has been that member capital, if it receives interest at all, receives no more than a fixed percentage, not exceeding the minimum prevalent rate. The original Rochdale Society's bylaws read:

Returns on member investments shall not be more than the prevailing bank interest rates; dividends do not fluctuate; and co-op stock is not to be speculatively traded.

Co-ops which develop systems for member capitalization are more likely to be able to provide the services their members expect. The stronger the structure of member ownership, the stronger the guarantee that the co-op will have a long and healthy life.

That's the wording approved by the International Cooperative Alliance. To put it in common terms, "economic results" means net savings, financial surplus, or the bottom line; "society" means co-op; and "distribution among the members in proportion to their transactions with the society" means a patronage refund.

In most businesses, "economic results" would be called "profit." Why don't we call it profit in co-ops? Because profit is a financial surplus which goes to shareholders in proportion to their share of the business' capital. Principle 4 says that it's fine to have a financial surplus, as long as it's only used in the following ways: to build the business of the co-op, to provide common services to co-op members, or paid as a patronage refund.

The cooperative form of ownership is different from the prevailing forms business ownership, and assumptions about how businesses operate are not always appropriate to cooperatives. In most businesses, ownership is separate from participation in the business; control is not democratic, but based on the amount of invested, at-risk capital; and the financial return, like the control, goes to the owner of capital.

Capitalization is not the only area in which co-ops are different, and co-op education important. Co-ops frequently hire as managers or elect to their board of directors, people with good business training but no co-op experience. A retail consumer food co-op needs good merchandising, for example, but must make sure a person hired for the position understand the importance of consumer education in a co-op.

When a co-op is honest and informative about the products it sells, it provides a valuable service to its members and at the same time establishes its own credibility as their buying agent.

Another reason that co-op education is important is that co-ops are democratic organizations. If there aren't enough members who know how the co-op works, its underlying philosophy and where it's going, then the members can't provide the appropriate leadership to run the co-op well.

Co-op education is also important to build more cooperatives and to foster co-operation between co-ops. Consumer education is often met by the excellent newspapers and newsletters offered by co-ops. Attempts at consumer product protection, food advocacy, and education about the whole cooperative movement are just a way in which Cooperative Principle 5 is acted on by co-ops.

The sixth co-op principle is a relative newcomer on the list, having been presented and approved for the first time at the 1966 Congress of the International Cooperative Alliance, whereas the ICA was formed in the late 1800's and drafted the first set of principles at the 1937 Congress. The commission that drew up this principle saw it as reflecting the need for cooperatives to coordinate their actions in order to be effective in an economy dominated by large-scale corporations. Implicit in this principle is a vision of unified cooperative sector in the world economy.

Local co-ops often form cooperative links with one another, forming buying agreements or information networks. Newsletter editors share articles, regional gatherings are held for fun and education, and cooperative growers have been encouraged to market together.

Interconnections among co-ops in different industries have been particularly difficult to develop in this country. Worker cooperatives, housing cooperatives, food cooperatives, health cooperatives, energy cooperatives, credit unions, and other types of cooperatives all seem to go their separate ways, often totally unaware of each other.

This is in contrast to cooperatives in a country like Sweden, where there is a great deal of national coordination among co-ops in different sectors. This coordination has enabled the Swedish co-ops to push down the prices of some products that were manufactured by firms with monopoly control of a certain industry.

Another example of the potential value of co-ops co-operating with other co-ops is Mondragon in the Basque section of Spain. Mondragon's coordinated system of cooperatively run banks, businesses, housing, and social services has allowed a poor region, largely devastated by Franco's forces during the Civil War, to build itself into a center of prosperity.

There is much to be learned from co-operation between different businesses and magazines like Communities and Building Economic Alternatives as well as our own co-op publications to keep us in touch with each other.