In honor of the great story this morning by Shaila Dewan in the New York Times, I’m pushing up in my order of attention an institution that Shaila focuses on and is a another reason the Free Market is a false concept: Cooperatives.
Cooperatives show the free market is a false concept because co-operatives are wonderful ways to organize an economy, or as part of an economy, yet they are nowhere in the standard free-market models of economics. Yet there is nothing fascistic or communistic about co-operatives; they are simply one of the many institutions or market structures an economy can include. Co-ops are an example of successful experimentation with market institutions, one that produces fairer and more stable returns. It’s an example of the type of experimentation we should always be doing with markets and economies. How can we make institutions and markets that produce better, fairer results?
In my book The Surprising Design of Market Economies, in Chapter Four, I travel to Minnesota, what some call the land of cooperatives, and profile how co-ops work there. It’s not unusual there for someone to be born in a cooperatively owned hospital, work on a farm that sells its products through a co-op, and receives telephone, electrical service, internet service and bank loans through co-ops. When this individual dies, he can be buried through a cooperatively owned funeral home. Particularly in health care, as in the large co-op Health Partners in Minnesota, co-ops have a wonderful way of cutting through or short circuiting the usual process of higher and higher costs for worse and worse care. Yet even in Minnesota, I learned, probably most citizens are ignorant of co-ops. Even if they do receive services through a co-op, they don’t realize it.
What exactly is a co-op and why is it in some ways better than a conventional corporation? Well, to really learn why, read my book and in particular Chapter Four. But in brief, it’s because co-ops are a kind of democratic capitalism. In co-ops, people vote, not money. If you own part of a co-op or do business through a co-op as a member, you have the same vote as the next person, whether you sell or buy (in a co-op you can be on either side of this fence) a million widgets or a dozen. Money does not have a voice. In most co-ops, there are no outside investors, or if there are outside investors, they have non-voting shares.
These crucial rules, along with others that I won’t go into here, keep the organization working in the interest of the small producers or workers as well as the larger ones. They also keep from happening what usually happens in a business environment, is that the larger producers gobble up the smaller producers, and turn the smaller producers into employees of the big producers.
Co-ops are used successfully particularly in the agricultural world, and include really big corporations, like Land O’Lakes, which is makes really good butter and other products and is a co-op. (Actually, it’s a cooperative of co-ops. More than a thousand smaller co-ops elect the board and manage the company that is Land O’Lakes.)
It’s illustrative to compare a farmer who sells his milk or butter to Land O’Lakes, and to a farmer in Virginia or Arkansas who sells his chickens to Perdue or hogs to Smithfield. The first farmer is an owner and his fortunes rise or fall with the company as a whole, and he or she has a relatively stable life, if that can be said about a farmer. The second farmer, who sells chickens to Perdue or hogs to Smithfield, is increasingly akin to a serf, an outside “consultant” who finds his prices, wages and working conditions dictated by a big company he has no say in.
There’s no reason we couldn’t have successful chicken or hog-raising co-ops. I think the main reason we don’t is cultural. Minnesota and Wisconsin, the land of co-ops, had a large share of Scandinavian immigrants, who have a history of co-ops and of working together. The South, where I hail from by heritage and where Perdue and Smithfield are based, had a large share of Irish, English and Scottish immigrants, who are known for their rugged individualism, not working together. There were also African-Americans brought against their will. None of these formed a successful breeding ground for co-ops.
While farming is ripe for co-ops, they can be used successfully in virtually any business. I have long thought that software would be a prime area for co-ops. A few software writers could pool their resources, and sell their services through the co-op. This would be a “producer co-op,” which I tend to focus on. Land O’Lakes is a producer co-op. But there are also worker co-ops, where workers own the business they work at, and buyer co-ops, like your local organic food co-op, where customers own the store they buy products from, and collectively set its prices and receive its discounts. There are co-ops that mix all three of these roles. It’s a big world, and I’m glad to see it getting attention. Sheila’s story this morning is the first mainstream publication I have seen pay attention to it. I hope it’s the first of many such stories.
Finally, another area ripe for co-ops is the delivery of broadband service, through fiber optic networks. There are many electrical co-ops, which managed, with the help of FDR and Congress in the 1930s, to bypass the big private power companies and set up their own electrical companies, where the households and businesses own the company that supply them with electricity. The same thing could happen, and to some extent already is happening, with broadband. Here’s a column I wrote about it in Governing Magazine.