Looked at from the outside, there isn’t much difference between a cooperative and a commercial business. The main difference lies in the way a cooperative works. A cooperative business is set up by those whom it serves and is controlled directly by them.
The earliest American cooperative businesses, the mutual fire-insurance companies, attempted only to meet costs after a fire occurred. Each member was assessed for his share of actual fire losses. Members of the early mutual irrigation companies shared the cost of irrigation services in the same way—after the bills were in.
Service cooperatives still operate largely in this way—for instance, mutual telephone companies, rural electrification associations, health and burial associations, and cold-storage locker service plants. But such cooperatives now, instead of assessing their members at the end of a period, generally estimate costs and make charges in advance. This provides current funds to support the organization and meet expenses as they occur. If the amount of assessments exceeds costs, the assessments for the following year are reduced, or the excess is refunded to members proportionately. Thus, these associations operate on a nonprofit basis.
Many marketing cooperatives operate through “pooling.” The member delivers his product to the association, which pools it with products of like grade and quality delivered by other members. After doing whatever processing is necessary, the co-op sells the products at the best price it can get and returns to the members their share of total proceeds, less marketing expenses.
A marketing cooperative, sometimes known as a producer cooperative, allows its members, who produce the same or similar products, to cooperatively market and sell the products. Producer/marketing cooperatives are most commonly found in the agriculture industry; 30 percent of total agricultural production is marketed by co-ops. (
Is cooperative business a new idea? Are co-ops a cure-all for our economic problems? Do they stifle free enterprise? This is a hot question among farmers, merchants, and consumers. What are the facts? This pamphlet gives both sides of the question. Read it and have your say.
Back in early colonial days, and later on the western frontiers of this country, neighbors used to help each other on many kinds of jobs—building their cabins, raising the roofs of their barns, harvesting their crops, shucking their corn, and all kinds of things that needed many hands.
That kind of informal cooperation was part of pioneer life, and it continues to this day in such farm activities as threshing.
Cooperative business doesn’t go back quite so far, but it is nothing new in America. The first cooperative in this country began operations in 1752, twenty-four years before the American Revolution. A mutual insurance society, it was called the “Philadelphia Contributionship for the Insurance of Houses from Loss by Fire,” and Benjamin Franklin was one of its founders. It is still in business, and so are seven other mutual insurance companies that started before 1825.
Farmers’ mutual fire-insurance companies made their appearance about 1820. The members of these cooperative societies simply agreed in advance to split the costs of any fire loss that one of theta suffered. If any of their property burned, the members assessed themselves enough to cover the damage. No fires—no assessments. Nowadays most such mutual insurance companies don’t wait for the fire. They collect in advance from each member a fixed amount, called a premium, enough to cover all likely losses.
Mutual irrigation companies were another early form of co-operative business. When the Mormons migrated to Utah in 1847, they soon found that they had to irrigate the land—and so farmers pooled their labor and shared the cost of bringing water to the crops.
By 1860 there were 83 mutual irrigation associations in Utah and 3 in California. Such companies are credited with having started “scientific irrigation” in this country.
Most American farmers in the early days were self-sufficient, living off the produce of their own land. But as they began to produce more cash crops for the markets, they also began to try out cooperative methods for selling their surpluses.
Modern ideas of doing business cooperatively are often traced back to the founding of a tiny shop in the English town of Rochdale in 1844.
In that year a group of twenty-seven men and one woman, mostly textile workers, handed together to buy a few staple supplies for themselves. They called themselves the “Rochdale Society of Equitable Pioneers,” and before long both their membership and their business volume began to grow rapidly.
The Rochdale store wasn’t the first cooperative venture in England, but it was the first one to gain a permanent foothold. Its success has usually been credited to the soundness of the operating principles laid clown by the founders. This set of rules, worked out a hundred years ago, is followed by cooperatives throughout the world today:
Now, against this background of history, it is about time to define cooperative business. How is it carried on? What are its central principles? How does it differ from ordinary commercial business?
There are four main ways in which a cooperative business differs from a commercial business:
In other words, the chief aim of cooperative business, as contrasted with other kinds of business, is to provide goods and services to its members at cost. A cooperative does not engage in buying and selling in order to make a profit for its members. Although it may buy and sell from the general public in order to carry on its own business, this is incidental to its chief aim—serving its members. “Co-ops”—to use the familiar nickname—are private enterprises and therefore are part of our American system of private enterprise just the same as an individually owned business, a partnership, or a corporation.
Cooperatives can be grouped according to what they are set up to do
Some cooperatives perform more than one kind of job at a time. For example, inane do both marketing and purchasing, or provide other services in addition to their plain activity. Most cooperatives, however, can be conveniently fitted into one of the four pigeonholes we have described—producing, marketing, purchasing, and servicing.