How to give cooperative businesses more clout in the world economy

Can business do well by doing good? Certainly – but businesses that are structured as “cooperatives” are actually doing better by doing good.

Against a backdrop of sluggish economic growth, rising wealth inequality, and high unemployment, cooperative businesses – values-based, member-owned, and democratically governed – are telling an unexpected story of stability, growth, and value. And they are doing this at far greater scale and in more industries than many people realize.

The UN “Rio+20” conference on sustainability last June formally recognized the positive role of cooperatives. The conference declaration described them as  “contributing to social inclusion and poverty reduction” and encouraged the private sector to partner with cooperatives.

Cooperatives can have even more potential, if they are given greater political and public support.

These businesses play a much greater and more diverse economic role in the world than many realize. They employ more than 100 million people worldwide – 20 percent more than multinational corporations. In 2008, the largest 300 cooperatives generated $1.6 trillion in revenue – as much as the world’s ninth largest economy.

They include household names such as Land O’Lakes and Best Western in the United States, Canada’s Desjardins, France’s Crédit Agricole, India’s Amul Dairy, Germany’s REWE Group, Singapore’s NTUC Fairprice, and Britain’s Co-operative Group. And they include local enterprises such as Brooklyn’s famed Park Slope Food Coop, the Tibetan Handicraft Society, and Senegal’s Sine Zenith cooperative that produces hibiscus juice.

Cooperatives tend to weather crises more effectively than other businesses. According to the International Labour Organisation, cooperatives in all sectors survive better than their competitors. A Quebec government study concluded that more than 4 out of 10 cooperatives in Quebec and in Canada survive more than 10 years, compared to 2 out of 10 in the private sector.

They also regularly beat out other types of businesses in consumer surveys on measures of quality, service, price, and employee welfare. In France, cooperatives handle 60 percent of retail banking. In Norway, consumer cooperatives have captured 24 percent of consumer market share.

At a time of unprecedented wealth inequality, these uniquely modeled businesses not only spur economic growth – they share the wealth more broadly. A higher proportion of their loans go to small and medium-sized enterprises than do loans from traditional financial institutions. Between 2007 and 2010, “values-based banks” – including cooperatives – increased their lending by 80 percent, compared to just over 20 percent for mainstream banks such as JPMorgan, Barclays, and Bank of America, according to a study by the Global Alliance for Banking on Values.

And nearly 1 billion people around the world are owner-members in a cooperative, three times as many as the number of individual shareholders.
All this is by design. The first duty of investor-owned corporations is to maximize return on investor capital – which can lead to short-term thinking.

Cooperatives, on the other hand, exist in order to meet the needs of their members – freeing them to take a longer-term view and requiring them to focus on quality, service, and sustainable growth.

To be sure, the sheer size and political influence of investor-owned companies means they also have to play a role in sustainable growth. For instance, agricultural cooperatives can benefit from selling to multinational food manufacturers that have adjusted their supply chains to support local development or fairer trade.

But several steps must be taken to give the cooperative business model more influence in the 21st century economy.

First, cooperatives need a seat at global discussions on the world economy. As a business model that serves half of the world’s population, cooperatives should be represented when global bodies consider business advice. The G20, for example, seeks input from corporate businesses through the “B20” business advisory group, but not from cooperative enterprises.

Second, cooperatives need much better support for their specific legal and financial requirements. In many countries, a tangle of red tape and obscure, obsolete regulations make it difficult to start or grow this type of business.

Some governments are already taking steps. Just this past June, Chinese Vice Premier Hui Liangyu pledged to increase legal protection and policy support for China’s rural cooperatives. India recently amended its Constitution to make forming cooperative organizations a fundamental right, alongside the right to equality and freedom. Britain and South Africa are both considering legislation to simplify and encourage the growth of cooperatives.

Finally, business and law schools ought to teach the cooperative model and framework alongside corporate finance and law. A few universities conduct academic research on cooperatives, but the shareholder model still dominates the curricula of the institutions educating tomorrow’s business and political leaders.

As UN Secretary-General Ban Ki-moon commented earlier this year, “By contributing to human dignity and global solidarity, cooperatives truly do build a better world.” It’s time to recognize the cooperative advantage and to put the global economy at the service of people and the environment – not the other way around.

Dame Pauline Green is president and Charles Gould is director-general of the International Co-operative Alliance (ICA), the global voice for the values-based business model of the cooperative.