Are cooperatives a promising model for the future?

By Alexander Ellebrecht | December 10, 2013


Recently the United Nations officially closed the International Year of Cooperatives (IYC). Throughout 2012 the UN had been promoting the cooperative model as one possible solution to the economic, social and environmental challenges of our time, especially in developing countries. It promoted awareness, stimulated research and urged governments to legally enable this form of governance.


Why cooperatives?

If there is one thing that has driven human civilization during the past 3.000 years it is probably the division of labour, where the production process is broken down in successive stages and everyone is assigned to the stage that best matches his talents (ideally). But with the division of labour came the need for coordination (the development of plans: who will do what, when and how) on the one hand, and incentive and control (how to get people to stick to the plan) on the other. For that purpose humanity came up with two great inventions: the hierarchy and the marketplace. And ever since, people have been discussing about what governance structure is best suited to what kind of tasks and conditions. But this is not the only choice we have.

The 2009 Nobel Prize winner O.E. Williamson sees the hierarchy and the market as two extremes on a unidimensional continuum, that differ on several characteristics like ownership, incentive, authority, coordination and contract forms. In between, several hybrid forms are possible, combining attributes of both markets and hierarchies. The cooperative, in all its various forms, is a good example of a hybrid organisation, as are networks, partnerships, franchise agreements and (collaborative) supply chains.

The cooperative today

Although most people do not associate cooperatives with the 21st century, they still play a vital economic role, especially in the agricultural industry and especially in Europe, where cooperatives have their historic roots, and Japan, where 91 per cent of farmers operate as part of a cooperative. The Global300 Report 2010 of the International Co-operative Alliance states, that "in total, about 1 billion people are involved in co-operatives in some way, either as members/customers or as employees/participants, or both." The world's largest 300 cooperatives generated revenues of USD 1.6 trillion (1,600 billion).

New opportunities

However, for a long time cooperatives seemed to have no role to play in modern societies. Poverty, for which the cooperative had long been seen as the remedy, had largely disappeared and these democratically controlled organizations were, compared to firms, at a disadvantage concerning their time-to-market and obtainment of foreign capital. Nevertheless, many experts see new opportunities for cooperative governance to manage the challenges of our time. The cooperative, they say, not only protects the economically weak, as they can develop more market strength together, but can also protect nature by collaboratively developing and producing more sustainable products.

Moreover, this form of participative governance seems to correspond more to the views of the highly educated, socially conscious and increasingly autonomous citizens of the modern world. In fact, some say that for that reason both markets and hierarchies tend to take on attributes of these hybrid forms. So I would agree that cooperatives are a very promising model for the future!


Posted in united nations, supply chain collaboration, cooperatives

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