Definition of a Cooperative
Cooperation at the end of the 20th century is a widespread social phenomenon. It is the basis for creating enterprises and their associations as well as for the accomplishment of everyday tasks at the national and international levels, such as space exploration, environmental protection, etc. Cooperatives in their traditional form (with written statutes, cooperative group property, elected representative bodies, legal recognition by the State) have been operating for about 200 years. Cooperative values and principles are at the core of the creation and operation of cooperatives. Wilson (2017, p. 1016) defines a cooperative as “a business entity that is owned and managed by its members – those individuals for whose benefit the cooperative was organized.” By its socioeconomic nature, cooperatives are both an association of individuals and a business enterprise.
Types and Organizational Structure of Cooperatives
Cooperatives can be classified into five main types according to their principal economic activity: consumer, producer, worker, purchasing, and hybrid. Consumer cooperatives are the cooperatives that satisfy mainly the personal needs of their members-consumers in terms of food, clothing, household goods, and footwear directly or in social, cultural, domestic, and other conditions. Consumer cooperatives are mainly organized as small groups of local business owners with the primary purpose of saving money by providing goods to the members at a low cost rather than generating profit.
Producer cooperatives are the associations of producers of goods or commodities who may work either together or as separate entities to help increase marketing possibilities and production efficiency. Members of producer cooperatives retain the ownership rights to their property while joining cooperative efforts to purchase supplies or equipment at a discount, produce goods, and market and distribute those goods as a group.
Worker cooperatives are one of the fastest-growing segments of jointly-owned businesses. These cooperatives are owned by the individuals who work there. Worker cooperatives are commercial entities aimed at generating income through productive joint labor activities. Worker cooperatives are mainly concentrated in the service and retail sectors and are gaining popularity as a means of creating more jobs and building a more inclusive economy. Worker cooperatives are usually governed by the board of directors elected based on one-member-one-vote.
Purchasing cooperatives are mainly composed of a group of privately owned entities that have joined the cooperative to improve their efficiency and competitiveness. Participation in a purchasing cooperative also allows its members to save costs on procurement, which is particularly crucial for smaller businesses that are not able to buy goods or services in large quantities. Democratic control is the basis of governing purchasing cooperatives, which means one member is allowed one vote. However, depending on the business size, the number of votes per entity may be increased to avoid the risk of small businesses being outvoted by larger entities.
There is also a 5th type of cooperatives – a hybrid, represented by producer and consumer cooperatives, where there is no dominant function. The hybrid cooperatives may have each class of members elects the representatives to a single board of directors, or in some cases give workers a formal role in governance.
Cooperative societies play an important role in social and economic development. Wilson (2017, p. 1072) asserts that the modern cooperative movement “explicitly recognizes public good and social values as principles inherent to the cooperative movement.” To a great extent, cooperatives are not aimed at generating profit but rather at helping and assisting their members. Co-ops have clear advantages, such as the high level of motivation resulting from the unity of labor and purpose as well as the equality involved in its management. On the other hand, cooperatives have fewer incentives for large investors, thus, making it harder to attract capital. These factors make cooperatives an ideal business option for businesses with low startup costs. All in all, cooperatives contribute a lot to socioeconomic development globally, providing jobs and benefits to the communities where they operate.
Reference List
Wilson, Elaine W. (2017) ‘Cooperatives: The First Social Enterprise,’ DePaul L. Review 66(4), pp. 1013–1080.