Perspective: Now Is the Time for Cooperatives

October 31, 2012 07:05 AM

Cooperative businesses have historically been formed by necessity. Private enterprise had no interest in remote locations or marginal ventures, so groups formed to provide needed goods and services. Rooted in cultural ties and focused on the common goals of similar patrons, cooperative efforts have often been the supporting backbone for many regions and purposes.

Co-ops have struggled to compete at times. Privately held businesses, with more capital and  aggressive management, responded with fierce opposition in the marketplace. Sometimes the  very principles upon which co-ops were formed hampered them in the battle to attract and keep customer loyalty.

"The co-op structure
might be on the cusp of
outgrowing its historic role
of self-help group for
underserved sectors."

Outside the Norm. Co-ops have countered in various ways. The Farm Credit System garnered success by seeking out special regulatory status as a government-sponsored enterprise, acquiring capital cheaper than banks. Other co-ops have broadened their business plan to enter more  markets. Until recently, fairly stable market shares were the status quo. That might change in  favor of co-ops, given the new global market forces at work. In many sectors, especially  agriculture, the future is ripe for co-op expansion at the expense of publicly held companies.

What was once seen as their Achilles heel is now a benefit: less entanglement with Wall Street.
(This also applies to closely held companies such as Cargill and Ferrero Rocher.)

Too many public companies have been forced to concentrate on quarterly reports to meet  shareholder expectations. As volatility and money flow increase, few boards or CEOs have the incentive to think even medium-term. "Outside" money demands "outside" goals, which center on "What have you done for my portfolio this week?"

Well-run co-ops can withstand market pressure to effect strategies that might return huge  dividends, not to mention stability.

The success stories are evident. Consider how State Farm (mutual) and Allstate (public) have  handled "Flo," the omnipresent spokesperson for Progressive. She, along with Geico and other Internet sellers, has shaken the world of auto insurance.

Allstate has struggled, cutting costs and agents in an effort to pump up its stock price, while State Farm has transitioned to meet the new competition with much less turmoil. In hard times, longstanding relationships can provide an atmosphere of patience virtually unknown in the abstract world of hot money.

University of Massachusetts economist Nancy Folbre believes co-ops are ahead of the game  because of their mastery of teamwork. As public companies struggle to get parties together, co-ops are built on cooperation.

Values Favor Success. Another good example is DLG, the Danish ag co-op. By making long-term promises when others were focused on short-term profits, it has grown to be one of Europe’s largest ag firms.

Additionally, co-ops offer trust. Adhering to membercentered principles, co-ops stand out as trustworthier in an indifferent, if not hostile, marketplace.

Sadly, many member-owned ventures don’t understand the opportunities, which is why co-op mergers and failures are as frequent as those of public companies. Cooperation can leverage competence, but not replace it.

The co-op structure might be on the cusp of outgrowing its historic role of self-help group for underserved sectors. By acknowledging common goals and a shared future, co-ops have positioned their businesses and patrons to avoid many modern business headaches. By keeping ownership "in the family," they avoid whiplash from the whims of skittish investors. In the process, a step is taken to rebuild the foundations of efficient business practice by offering a stark alternative to examples such as Enron and MF Global.

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