Our economies are complicated and fragile systems that require a great level of care and understanding to maintain. One of the most significant aspects of our economy is cash flow. When a large amount of cash is flowing through a community, it can grow, create more jobs and diminish the poverty rate. While many factors influence cash flow, the main aspect is how the businesses in the community are handling their portion.
When a member of the community purchases a product or service from a business, their money flows from them to the business. For-profit businesses will typically take a fraction of the profit and invest it back into the enterprise to keep it running. However, most businesses will also take a majority of the money and use it to pay the owners and investors of the company. If the owner doesn’t live and spend their money in that community, the money exits the cash flow. As that happens more and more, communities lose their income and ability to spend, which can lead to increased unemployment, a higher poverty rate and a lack of job security.
Luckily, the cooperative business model offers a solution to this problem. Instead of using the profit to line the pockets of wealthy owners or investors, cooperative businesses, or co-ops, invest the money back into the business and the community it serves.
The Role of Cooperatives in Economic Development
Even though cooperative businesses have been a part of the global economy for decades, they have only recently started gaining traction. As of 2015, there were over 64 thousand co-ops in the United States alone. Co-ops all over the world continue to serve and better their communities, bringing more jobs, lower poverty rates and even wealth distribution. Co-ops can do these things for their communities because they follow a specific list of principles, known as the Rochdale Principles, which provide guidelines for co-ops to put their values into action.
The seven cooperative principles are:
- Voluntary membership
- Democratic member control
- Member economic participation
- Autonomy and independence
- Education, information and training
- Cooperation among cooperatives
- Concern for community
However, some members of the cooperative community believe that an eighth principle belongs on the list. They believe that cooperatives should work together with other citizen-run groups to create a genuinely equitable, inclusive and democratic economy. If co-ops adopted this new principle, they would have an even more substantial impact on the larger economy. While this principle encourages co-ops to influence their economy intentionally and directly, co-ops have already been playing an important role for decades.
Cooperative enterprises are owned and operated by the individuals who use and benefit from the services or products the company provides. Since the members of the co-op are also members of the community it serves, it can make decisions that are most beneficial to the community. The members of the co-op can decide how many people to employ, how much the employees earn and how much the goods or services will cost.
Cooperatives can create more jobs than a traditional business model, and they also ensure that wealth distributes more evenly. Since most co-ops are not-for-profit enterprises, the members will re-invest most of the money it earns. For example, when someone from the community purchases a good or service from the co-op, it will then use that money to pay its employees a fair, living wage, which increases the income of the employees, who are also members of the community. Instead of the money going from the member of the community to the owner of the company, it circles back around to more members.
When the money stays in the community, it circles around to other members and steadily increases the wealth of everyone evenly. When more people have more money, they spend it on other businesses in the community. This amplified, cyclical cash flow promotes economic growth and improves the quality of life for everyone in the community.
The sixth principle, cooperation among cooperatives, means that co-ops should work together to create a network of regional, national and global cooperatives to further the movement. However, this principle doesn’t simply spread the cooperative business model — it also spreads the economic growth that comes with it. Global adoption of the business model would have long-lasting effects on the global economy. It has the potential to eliminate poverty, boost employment rates and nurture a bustling, equitably wealthy economy.
While a stable and equal global economy might seem like a utopian fantasy, it is entirely possible if the cooperative business model can become as common as traditional business models. Even without the eighth principle, cooperatives play a critical role in our current economy and have the potential and power to solve many of the problems that will plague our future.
Ways Co-ops Improve Economic Growth in Both Rural and Urban Communities
Cooperative economic growth is possible in any environment. From rural to urban, big to small, or wealthy to impoverished, cooperative businesses can operate successfully and flourish into a critical asset of the community. Not all business models can accommodate the same level of versatility co-ops offer. To better understand how co-ops work so well for their communities, we need to understand how they can fit into any environment.
Co-ops can improve economic growth in both rural and urban communities because they:
1. Offer Flexibility
The flexible nature of cooperative businesses is the primary reason they can adapt and thrive in any size or type of community. Co-ops can tailor their products or services to the needs of the community and find a way to make them both useful and affordable. While co-ops can exist in any industry, they are most common and successful in agriculture, making them an ideal option for rural communities. Rural communities typically have a shortage of people and jobs, but rarely have a shortage of food and farmers. A co-op can provide an excellent way to collect and sell produce and encourage the producers to work together. When more producers become involved with a co-op, they can get wholesale prices from their suppliers and keep costs low for their customers.
In urban communities, the flexibility of co-ops allows them to customize their services and products to whatever the community needs. Since co-ops can operate in any industry, it makes it easy for the members to assess the community and fill any gaps in the market.
2. Circulate Money
Both rural and urban areas face issues with money circulation. Since traditional, for-profit businesses dominate most communities, money cannot circulate properly. With traditional businesses, the money goes from the community to the pockets of whoever owns the company. With co-ops, the money stays within the community because any profit goes back into the business, which then uses the money for purposes that benefit the community — like lowering prices and hiring new employees.
This circulation is beneficial to any type of community, but it is especially helpful to communities that lack a strong cash flow. When members of a community don’t have much money, they don’t have a lot to spend. When they don’t have a lot to spend, the entire community’s cash flow is weaker, resulting in a weaker economy. Co-ops combat this problem by inserting more cash into circulation.
3. Create Jobs
In almost every community, an increase in job opportunities is a positive thing. Even though unemployment rates in the United States are steadily decreasing in both rural and urban areas, they could go back up at any time. There is a wide range of co-op variations, but each offers a different and effective way of creating new jobs.
Worker’s co-ops are a great way to create job security and living wages since each employee gets a vote in every decision the co-op makes. Alternatively, producer co-ops help create better jobs and job security because it allows all the producers to work together, share resources and buy in bulk.
4. Strengthen the Community
The main purpose of a cooperative business is to serve the community. Co-ops provide jobs, products, services and wealth distribution, and they also strengthen the community as a whole. Co-ops teach the members of the communities in which they operate invaluable leadership and professional skills that will help them in all aspects of their lives. They also encourage people to further the cooperative movement by creating and supporting other co-ops, hoping that the economic benefits will continue to spread.
How to Encourage Cooperative Development in Your Community
Whether you’re an individual looking to support a local co-op or a cooperative business owner looking to better the movement or assist others, there are several things you can do to help. In a movement like this, every little bit of support helps. If you’re looking to learn more about how to grow the cooperative economy, some things you can do to help include:
1. Sharing Information
Information and knowledge are two of the most powerful tools you can use to encourage development. Cooperative business is a new concept for many individuals and communities. The more information you can spread, the further the movement will grow. Of course, change cannot happen with information alone — but any action has to start with information. By using your understanding of cooperative business to help educate others, you are laying the foundation upon which change can occur.
2. Contacting Your Representatives
Another great way encourage cooperative development is to make your feelings known to the people who can impart real changes to our society and economy. By contacting your local representatives, you can help them become more aware of the wants and needs of the people they represent. One successful example of this is the story of Senator Kirsten Gillibrand, Representative Nydia Velázquez and the Main Street Employee Ownership Act.
After members of their communities had brought it to their attention, Gillibrand and Velázquez noticed that less than 15% of small business owners who were planning to retire in the next decade had no exit plan in place. So, they passed the Main Street Employee Ownership Act, which made it easier for employee-owned companies to thrive. This way, if those small business owners had no one to pass the business on to, they could give it to their employees.
3. Building Alliances
Forming alliances with unions and nongovernmental organizations, or NGOs, is a great way to spread information, pool resources and collaborate with like-minded individuals. Cooperative businesses and trade unions have similar goals for their employees, including improved job security, wages and working conditions. NGOs in fields such as social development, rural development, health and education also have similar goals as cooperatives, as they both serve the communities in which they operate. When you build an alliance with these organizations, your co-op will get stronger and have access to the information and strategies of that organization.
4. Developing New Standards and Strategies
Since economies, societies and communities are constantly changing, co-ops have to learn how to adapt. By following the latest developments of the cooperative movement and constantly challenging yourself to come up with new strategies and standards, you can make sure your co-op stays afloat. A good way to stay updated on the recent news and trends is to follow any publications that cover stories about your industry or cooperative business in general.
5. Helping Others Organize
One of the most significant principles of cooperative business is educating, assisting and supporting other cooperatives in your industry or community. As long as the co-op business model remains in the minority, it runs the risk of big business squashing it. To help local co-op economic development, we need to support others on their journey towards their cooperative goals.
How NCBA CLUSA Advocates for and Approaches Economic Development
Our approach to economic development is founded on growing income and stable business models.
NCBA CLUSA can help you every step of the way on your journey to a cooperative business model and beyond. We’ve worked with every type of business, from small, farmer-owned co-ops to government entities. Our goal is to help farmers, agribusinesses and entrepreneurs realize their potential for lasting economic growth.
Together, we grow new markets and increase existing opportunities. With support from NCBA CLUSA, you can improve product quality, increase your productivity and connect with people worldwide. Out collaborative and collective approach means stronger business relationships, better policy environments and enhanced institutional capacity, all working together to support sustainable, inclusive and equitable economic growth.
We can help empower you to work within existing markets and raise your standard of living through investment in and cooperation with your community.
How to Get Started
Learning how to create economic growth with cooperatives is an ongoing process. Co-ops are multi-faceted, complex businesses, but if we can run them efficiently and resourcefully, they can drastically improve our economy. If you’re looking to learn more about cooperative business and how you can join the movement, the best thing to do is learn the facts.
NCBA CLUSA is a fantastic resource for information on co-op business practices, movements and news. Keep browsing our website to learn more about co-ops, NCBA CLUSA and how we advocate for cooperatives around the world.