A New Cooperative Commonwealth

This speech by David Morris was origin ally presented at the National Cooperative Business Association’s Cooperative Development Forum in June 1997

It is an honor and a privilege to be able to address this group this morning. Especially about a subject so near and dear to my heart. Fifty-four years ago next month 130 delegates from around Canada gathered in Regina, Saskatchewan, to establish the principles for what they called a Cooperative Commonwealth. It was a moment in his tory when the every-man-for-himself ethic had led to dis aster. The free enterprise capitalist system was on the verge of collapse. Millions were hungry. Millions more were being forced off their farms or out of their houses. Economies were actually shrinking. The system wasn’t working. In the United States, at the same historical moment, Franklin Delano Roosevelt’s New Deal Congress had just finished up its first 100 days in office, a three-month frenzy of legislation that restructured much of our economy and and our national government.

The crisis was stark and deep, but the rhetoric was optimistic. There was a sense that by acting together we could right the system. A time when government was the solution, when collective decision making was encouraged, when the nation took responsibility for its own and cooperation was the touchstone and guiding principle of public policy.

Workers were given the right to bargain collectively, as a group. Rural electric cooperatives were rapidly expanded with the aid of substantial federal financing. Credit unions flourished under the new federal credit union laws. The savings and loan institution was reinvented as a community-based, community-owned and community-oriented institution. We all remember that lovely moment in the movie, It’s a Wonderful Life when Jimmy Stewart climbs up on the teller’s counter and tells the townspeople that their money isn’t in the vault because it has been lent to their neighbors.

The 1930s was a time when place and community mattered and government used its powers to create the conditions for cooperation.

But the government didn’t simply provide opportunities for cooperation. It also developed protections for those who took advantage of those opportunities.

Workers were not only given the right to organize but the National Labor Relations Board prevented employers from firing individuals who tried to organize their co-workers. Cooperatives and small businesses were not only helped but the unfettered power of large corporations to unfairly compete with these community-based and cooperative enterprises was reined in. For FDR private power was the enemy of the public interest. “Among us today a concentration of private power without equal in history is growing”, he warned America.

Congress enacted laws to stop electric-utility holding companies from manipulating markets and plundering the assets of individual utilities. Firewalls were constructed between the speculative and the asset based parts of the financial system.

To stop people from having to compete with each other at a time of when an oversupply of labor and productive capacity was driving prices and wages and living standards down, Congress established standards for a minimum level of decency for the entire community.

In 1938 the Fair Labor Standards Act established a minimum-wage and maximum-hour standard. The minimum wage was set at about 80 percent of the average wage. It was, in other words, a living wage. And that, according to the President of the United States, was only right. For as FDR declared, “No business which depends for its existence on paying less than living wages to its workers has any right to continue in this country.”

To get the people off the dole, Congress created a huge workfare system. But rather than pay the private sector to hire individual workers to do the work of private business, the federal government created a vast program to enhance the public realm. Public works programs brought water systems to rural America and trees to bare hillsides. Public arts programs brought murals to bare walls and theater to working class communities.

The government further tied the nation together and defined it as a caring community by establishing a social security system. To our everlasting regret, an accompanying proposal for a universal health system was defeated.

In the 1930s the economic crisis was fought by the community as a whole acting on behalf of individual communities of workers, of farmers, of neighborhoods.

The End of Community

More than 50 years later when I look around I have a sense of living in a science fiction story where the protagonist is thrown into hyperspace and comes out into a parallel universe where everything looks similar on the surface, but the behaviors and the rules that guide those behaviors are profoundly different.

Today unabashed capitalism sweeps all before it, seeming to have proven itself the superior economic system in virtually all parts of the globe. In this country, unemployment is at its lowest level in thirty years. The stock market continues to soar. The private sector is glorified. The public sector is vilified.

Today, the expansion of private power is considered not only inevitable but salutary. Public policy encourages the creation of larger, not smaller, aggregations of economic power. Of the top 100 economic units, 50 are now corporations, not nations. I picked up the paper today and read about a possible merger between American Express and Citicorp and, AT&T and Southwestern Bell. These are $50 billion mergers. It is as if nations themselves were merging.

Indeed, nations themselves are merging. In Europe 15 and soon 19 nations are merging their economies and abandoning their authority over domestic affairs in order to create an unregulated internal market large enough to attract the new planetary corporations.

Our confidence in our ability to establish rules to govern our commercial conduct has all but dis appeared. Indeed, we believe that when we act collectively we only make things worse. In rapid-fire fashion we have deregulated the transportation, energy, telecommunications, health, agriculture, and finance sectors.

Meanwhile, the spirit of mutual aid is fast dis appearing.

Sixty years after the Fair Labor Standards Act established an adequate minimum wage, the minimum wage has fallen to 40 percent of the average wage. No longer can it be called a living wage. And Congress is about to enact a law that will exempt workfare participants from the Fair Labor Standards Act. Millions of new workers may soon be legally paid a third of the already dismal minimum wage.

Congress is also considering a change in the tax laws which could transform millions of workers into independent contractors, cutting the already weak thread that ties the employer to the employee.

Two years ago, more than 50 years after the first proposal for universal health care was proposed in this country, the issue was laid to rest for at least the next generation by the rout of Bill Clinton’s health plan. Last year we ended our national commitment to help the needy and this year several state legislatures are discussing ending any state and local commitments to the poor

For those of us living in the upper Midwest, the response to the floods of 1997 is symptomatic of the larger breakdown of community. It has taken Congress longer to deliver aid to flood ravaged people in Grand Forks than it did for Congress in 1933 to remake the national economy. Why? Because it no longer believes in its heart of hearts that caring for one another should take precedence over other more selfish objectives.

The Decline of Governance

These are times that breed insecurity and ambition. As the New York Times succinctly put it, “the new order eschews loyalty to workers, products, corporate structure, businesses, factories, communities, even the nation.” The Chairman of Gulf and Western observed, “All such allegiances are viewed as expendable under the new rules. You cannot be emotionally bound to any particular asset.”

Indeed loyalty is considered such a threat to our prosperity that our governments are developing new rules and redefining existing rules in ways that actually outlaw loyalty. That is the essence of the new free-trade agreements which literally prohibit nations and communities from treating local ownership differently than absentee ownership or community-based institutions differently from those based half a planet away.

Indeed, our tendency to favor mobility over community has become so pronounced that today we are often required to treat those outside of our communities more favorable than those inside. A few weeks ago the World Trade Organization ruled that Europe’s ban on animal growth hormones violated free-trade agreements, even though it was applied equally to domestic as well as imported producers.

In the United States, the Supreme Court has handed down several decisions similar to those of the WTO. Last year the Supreme Court declared that California could impose limits on the fees charged by credit card companies who served California residents but only if those companies were based in that state. Those who served California residents from outside the state must be exempted from those standards. The year before, the Supreme Court ruled that states can impose sales taxes on companies that sell to in-state residents but only if the retail stores are inside the state. Mail order firms must be exempted from the tax.

We have lost confidence in our ability to govern. It was Ronald Reagan who took office in 1980 and promptly announced that “government is not the solution, it is the problem”. But it was Bill Clinton who in 1997 at the Philadelphia volunteer summit declared that governance itself was the problem. He announced to an astonished America, “I have come here today to redefine citizenship”. The President informed us that henceforth citizenship would mean, “paying taxes, working hard, studying hard, obeying the law and (serving) your community”. But citizenship inherently involves the authority to make the rules that govern our behavior. Bill Clinton stripped the concept of citizenship of its power.

The Cooperative: A Means and an End

This is a moment in history that screams out for an organizational form that can bridge the ethics of the 1930s and the 1990s, that can bridge the market and the community, competition and cooperative, stability and innovation. We need an organizational form that bridges the gap between, in Martin Buber’s words, the I and the Thou.

The cooperative in all of its manifestations may be that organizational form.

Albert Einstein once observed, “Perfection of means and confusion of ends seems to characterize our age.” Cooperatives marry means and ends. Their one person one vote principle and their local orientation build community and democracy while their business orientation allows them to offer high-quality and low-cost services and products. They allow us to become part of something bigger than ourselves but not so big that we lose a sense of ownership and participation.

More than 100 million Americans belong to cooperatives. This country boasts over 12,000 credit unions, some 3,000 municipally and cooperatively-owned utilities and over 4,000 agricultural cooperatives in the country. In a thousand companies workers have a substantial or majority control of the business.

Many studies have now documented the efficiencies of cooperatives. Farmer cooperatives achieve higher profits. Employee-owned firms achieve higher sales and profits. Municipally-owned electric systems have lower operating costs. Credit unions offer cheaper services.

We have quite an extraordinary base upon which to build and a powerful case to make that democratic ownership is efficient and competitive. But to make the case, to make more visible this remarkable form of business enterprise and expand it from the periphery of the economy to its core, we need to address several challenging questions.

How can cooperatives work together?

B ybringing together various kind of cooperative business forms–worker coops, producer coops, consumer coops, this conference has taken a significant step in building a cooperative movement that adheres to one of its founding tenets: cooperation among cooperatives.

Under what umbrella do we bring together the housing cooperative, the credit union, the worker-owned company, the consumer cooperative and the manufacturing cooperative? I recommend we adopt the term used in the Basque region of Spain, home to the remarkable Mondragon cooperative, to describe the wide variety of community and democratically-owned business enterprises: “social economy”.

Cooperatives need to come together to build the social economy. They do this not only sharing information but by assisting one another even when they are working in different sectors. This means demonstrating a solidarity around the principles and values of cooperatives. Right now housing cooperatives care about housing policy, energy cooperatives work on energy policy, agricultural cooperatives focus on farm policy. That isas it should be. But we should allocate a portion of our resources, of our time, to supporting democratic enterprises that work outside our sectors.

For example, all cooperatives should come to the aid of credit unions as they fight off the campaign by large banks to eliminate their tax benefits. I was glad to see that my own local food cooperative in Minneapolis in its recent newsletter informed its members of that campaign and urged its members to get involved.

An issue near and dear to those of us in Minnesota is ethanol, a fuel made from plant matter. Ethanol is produced in over 20 states and is sold in over 40 states. For many of you ethanol means ADM, a giant agribusiness company and I’m sure you’re wondering what it has to do with cooperatives. But whereas ADM did control over 75 percent of the ethanol market in 1987 today it controls less than half that proportion. In recent years, ethanol’s increase in productive capacity has occurred through the growth of locally-owned, modestly-scaled production facilities. In an increasing proportion of cases, these are farmer cooperatives. By the end of this summer, Minnesota will have 11 ethanol plants and 8 of the 11 will be farmer cooperatives. Over 8,000 farm families, 10 percent of all the farmers in the state, are owners of this new breed of biorefineries.

This year the ethanol industry is under attack, led by the oil-patch representative and Chair of the House Ways and Means Committee Bill Archer. Will other cooperatives perceive this as a threat to the possibility of cooperatively-owned transportation fuel production industry or will they see this as an issue foreign to their own concern?

How can we marry the strengths of cooperatives and the strengths of investor-owned enterprises?

Cooperatives value stability and rootedness and continuity. Investor owned firms value innovation and change. Both types of value systems are important in the modern era. How can we form partnerships between the two?

An interesting example of such a partnership is occurring within the value added sector of the agriculture economy. In the last few years farmers have realized that if they simply grow a raw material they will forever be getting a smaller and smaller piece of the economic pie. So they decided to invest in processing enterprises. These cooperatively owned manufacturing firms operate on the one person one vote principle of all cooperatives. The producer/owner furnishes the raw material to the manufacturing facility and shares in the profits. Over 30 cooperatively owned manufacturing enterprises have been started and financed by farmers in the upper Midwest alone.

While farmers have begun to establish their own manufacturing enterprises, private investors have also begun to establish enterprises that convert plant matter into high-value industrial products. One such firm is Phenix Biocomposites, located in southwestern Minnesota. The firm uses soy flour and recycled paper as its raw material and makes a hardwood-substitute product that looks a lot like granite yet can be sawed and nailed like wood. Currently it is sold as a substitute for very high-priced counter tops.

Phenix Biocomposites isa knowledge-intensive, research-intensive firm that is constantly developing new products. By the end of this year it expects to have three products on the market, including a new soybean stalk-based fiberboard. Last year the company decided to finance future manufacturing enterprises by establishing farmer cooperatives. Soybean farmers will invest in and own the manufacturing enterprise. Phenix Biocomposites will be responsible for R&D. What is unusual about this situation is the formal relationship between the two enterprises. The cooperative will own 30 percent of the investor owned firm and will share in future profits from that firm.

Thus the manufacturing facility remains locally owned and rooted to the community while sharing in the profits generated from a very entrepreneurial R&D enterprise.

How do we handle the issue of scale?

Cooperative membership is growing rapidly in this country, but the number of cooperatives is declining. Cooperatives are consolidating, merging, getting bigger. This provides them a greater capacity to compete in an increasingly globalized economy dominated by planetary corporations. But it also moves them further away from their members. As John Maynard Keynes observed 60 years ago, “Experience is accumulating that remoteness between ownership and operation is an evil.”

A principal feature of industrialized societies is the separation of those who make the decisions from those who feel the impact of those decisions. Cooperatives must fight this tendency. If we develop branches we need to give those branches not only significant autonomy but also a significant say in decision making at a higher level in the enterprise. We might learn from the governance structures of federated cooperatives here at home or of cooperatives like Mondragon in Spain or even from the governance structures of nations.

We need to develop governance structures that allow for increased scale while maintaining real and meaningful citizenship and ownership by members.

How can we view our members as citizens of the cooperative community and not simply as customers or suppliers?

Too often the only significant difference between a cooperative and an investor-owned corporation is in their mission statements. Otherwise, how does an ADM operate differently from Land O’Lakes or Cooperative Power from Northern States Power? Do the cooperatives relate to their customer/owners differently than investor-owned enterprises relate to their customers? Do the cooperatives support public policies that are different from their investor owned colleagues?

Let me offer you an example from the energy sector to illustrate this point.

In the electricity sector a new concept gaining increasing popularity is”green pricing”. Here’s how it works. The utility invites individual customers to pay a premium of 20-30 percent on their electric rates in order to pay for the utility expanding the production of green power usually in the form of wind turbines.

The utilities that have initiated these programs often note that a majority of their customers want renewable energy and are willing to pay a little extra for it. But if the utility is a cooperative or is municipally owned, then its customers are its owners and if a majority of the owners want green power then shouldn’t the utility then aggressively expand green power on behalf of all of its owners? If it did so then every customer/owner would have to pay a small premium and the utility could build significant amounts of new renewable-fueled electricity capacity. This would be far more effective than having a few customer/owners paying substantial premiums for small increments in green power.

Regrettably, to my knowledge no cooperatively owned utility has yet to put the issue to a vote of its members. In this regard it is treating its customers the same as an investor-owned utility does.

There is one utility which has approached green pricing in a much more creative way. I offer its experience to you both as an example of governance and of leadership.

The enterprise is the Sacramento Municipal Utility District (SMUD). This municipally-owned utility has established an innovative program to expand the use of photovoltaics or solar cells. Its program works this way. The participating household must pay a 15 percent or so premium on its electricity rates. This covers only a fraction of the additional costs of solar cells. The vast majority of the additional cost comes from all the customer/owners of SMUD. In this way SMUD has developed a green pricing program that marries individual risk and community involvement.

How can cooperatives become a force to change society?

Cooperatives have buying clout, financial clout and political clout. How can they use this clout to benefit the entire society? The glib answer is to use their clout to increase membership in cooperatives and that is part of the answer. But there are other creative ways to make America see that this type of business enterprise has social as well as economic goals.

Let me return to SMUD’s solar cell program to illustrate this point.

The scientific term for a solar cell is photovoltaics, meaning the use of the photon, or the sun’s energy, to create a voltage, or electricity. The first workable solar cell was invented in the mid 1950s. The solar cell is not a solar collector, which is a box with plumbing inside. A solar cell is a semiconductor device with no moving parts. When sunlight hits the paper thin wafer a trickle of electricity is generated and by wiring together many cells a substantial amount of electricity can be produced.

Solar cells were first used to power space satellites in the 1960s. The cost of the cells did not matter. They were a very small part of the overall launching cost of the satellite. In any case, the only alternative was the longest extension cord in history!

In 1973 the first solar cells were manufactured for use on earth. They were very expensive but the solar cell has one enormous competitive advantage: it is extraordinarily reliable. Install it and forget it. The result is that the solar cell from the very beginning had significant markets: mountaintop radio repeaters, remote ocean lighting systems on buoys.

In the last 20 years the price of solar cells has dropped by 80 percent. They are now within shouting distance of becoming competitive with traditional power plants. Yet the solar cell is anything but a traditional power plant. It has virtually no economies of scale. That means one can produce electricity for the same cost, or even lower cost, from one’s rooftop as from a central facility. The solar cell isa truly democratic power plant.

It is in this context that SMUD’s solar cell initiative should be viewed. By aggregating demand, a few months ago SMUD was able to purchase one quarter of the country’s photovoltaic capacity. In return for that purchase, SMUD attracted a manufacturer who will produce those solar cells in Sacramento. Thus the solar cell initiative becomes not only an environmental initiative and a democratizing initiative but an economic development initiative as well.

Imagine if the cooperative community were to join SMUD in expanding the solar cell industry and driving its prices down. If 20 housing cooperatives or credit unions or cooperative utilities joined SMUD they might work out a collective agreement with solar cell manufacturers. The cooperating communities would purchase X number of solar cells in year one, 2X in year two, 4x in year three and so on in return for the suppliers agreeing to reduce the price of the solar cells by 20 percent per year. That is in line with what expanded manufacturing scale does to semiconductor devices. When the price becomes competitive with conventional power, probably in 6-8 years, the manufacturer would pay the original cooperating communities a royalty to repay them for their willingness to invest upfront.

This enterprise would allow cooperatives to demonstrate not only their commitment to the environment but their commitment to decentralizing power, both literally and figuratively. Cooperatives would be using their collective purchasing power to transform their individuals into producers as well as consumers.

The collective buying power of cooperatives provides them an opportunity to effect significant social changes. Their collective political power offers a similar opportunity.

To further their social and economic goals, cooperatives need to come together to change the rules. For to a large degree the structure of our economy and our society is a result of the rules we made, rules that have channeled investment capital and entrepreneurial energies and scientific genius in a certain direction. We make the rules and the rules make us. It is essential that cooperatives begin to identify rules that can enable a more democratically and community oriented economy.

Let me offer an example of one such rule.

Back in the 1930s a number of states introduced a new kind of tax, the branch store tax. The tax increased as the number of branches in the chain increased. The legislatures knew that the bigger the chain, the more removed the owner was from the customer and the worker, the more power the owner could exercise over the community, the more remote the person making the decision was from the person feeling the impact of that decision. The legislatures had no authority to ban chain stores so instead they tried to internalize the true social and economic cost of chain stores. The branch store tax was an attempt to penalize concentrated power and elevate the community to position of primacy.

A branch store tax is as good an idea in the 1990s as it was in the 1930s. I recommend it for your consideration.

I expect there are many such rules that marry community and economy. Indeed, the Institute for Local Self-Reliance has embarked on a new initiative, The New Rules Project. Its objective is to answer the question, what would the rules look like if we designed them as if community mattered?

Every historical period has its strengths. Our challenge is to take the strengths of each period and render them into a something that speaks to the needs of our own era. The cooperative movement in America grew out of the crisis of the 1930s but in some ways it is more needed than ever in the high flying 1990s.

Let me end by saying a few words about a topic favored by our pundits and our politicians: change. We are told again and again that we live in an era of rapid change. That is unquestionable. Many commentators suggest that the way to cope with the tidal wave of change washing over us isto learn how to body surf. That recommendation assumes that we can do nothing to influence the future. I think that proposition is wrong.

As Bertrand Russell once noted, there is a difference between change and progress. Change, he observed, is inevitable whereas progress is problematic. Change is scientific whereas progress is ethical. We will have change whether we want it or not but progress will occur only if we participate, if we will it, if we get involved in making the new structures, the new organizational forms, the new rules that channel investment capital, and entrepreneurial energy and scientific genius ina certain direction. That is the challenge and the opportunity for cooperatives in the 1990s.

This speech by David Morris was originally presented at the National Cooperative Business Association’s Cooperative Development Forum in June 1997

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David Morris

David Morris is co-founder of the Institute for Local Self-Reliance and currently ILSR's distinguished fellow. His five non-fiction books range from an analysis of Chilean development to the future of electric power to the transformation of cities and neighborhoods.  For 14 years he was a regular columnist for the Saint Paul Pioneer Press. His essays on public policy have appeared in the New York TimesWall Street Journal, Washington PostSalonAlternetCommon Dreams, and the Huffington Post.