Cooperative Principles Updated

"We have to do it this way. After all, that's what makes us a co-op."

"We only sell natural and organic foods. That's a fundamental principle of cooperatives."

"If we don't have member labor, we won't be a cooperative any more,"

"It's against the cooperative principles to earn a profit."

All these statements and more are heard in food cooperatives throughout the country when members, staff and directors describe their businesses. Well intentioned? Yes. Inaccurate? Often. Confusing? Yes. What is a cooperative? Who determines the nature of cooperative business?

The International Cooperative Alliance

Since its creation in 1895, the International Cooperative Alliance (ICA) has been accepted by cooperators throughout the world as the final authority for defining cooperatives and the underlying principles which give motivation to cooperative enterprise. Over 200 ICA members from more than 70 countries represent more than 700 million individual members of agriculture and fishery, banking, credit and saving, energy, industrial, insurance, tourism, housing and consumer cooperatives. One of the major purposes of the ICA is to "promote and protect cooperative values and principles."

The ICA has made three formal statements of the cooperative principles: in 1937, in 1966, and in September 1995. Each statement was carefully crafted to adopt and explain principles which had relevance and value for the contemporary world. The six cooperative principles which U.S. food cooperatives generally espouse are those adopted in 1966.

In the early 1980s, cooperators began to call for a reconsideration of the 1966 principles. Substantial changes in the global economy, in international political alignments, in the economic development of Asia, Africa and Latin America, and in the world-wide human condition brought new challenges and opportunities to cooperatives worldwide. Inevitably, the scope of problems being addressed and the extent of change throughout the world challenged some traditional cooperative assumptions, offered new interpretations of cooperative values and inspired a reconsideration of the role of cooperative enterprise in the 21st century. In its role as custodian of the cooperative principles, ICA was challenged to reevaluate the 1966 principle and determine whether they continued to provide useful guidelines for the future.

From the beginning, this remarkable international discussion and debate focused on fundamental questions. What, cooperators asked, is good, valuable, and worth striving for? At various times moral, ethical, social, cultural, economic and political motivations were each addressed. The goal was to clearly identify and achieve international consensus on what role cooperative enterprises should play in societies undergoing rapid change.

Last September, at its 100th anniversary meeting, the International Cooperative Alliance adopted a "Statement of Cooperative Identity." The Statement defines cooperatives, identifies shared values and restates and expands the 1966 principles. The 1995 principles are intended to guide cooperative organizations at the beginning of the 21st century.

 

The cooperative defined

The Statement of Identity defines a cooperative as "an autonomous association of persons united voluntarily to meet their common economic, social and cultural needs and aspirations through a jointly-owned and democratically~controlled enterprise." While intentionally crafted as a minimal statement which could embrace the vast array of cooperative organizations throughout the world, the statement emphasizes some important characteristics of cooperative enterprise. These include:

Autonomy:The cooperative is as independent of government and private enterprise as possible.
Association of persons:The definition deliberately does not read "an association of individuals" and embraces any legal definition of "person," which includes companies as well as individuals.
Voluntary:Members are free to join and leave at will, within the purposes and resources of the organization.
Meet needs:The central purpose of the cooperative is to meet member needs, which can be purely economic or social and cultural.
Joint ownership and democratic control:The members own the cooperative on a mutual basis. Decisions are made democratically by the members and are not controlled by capital or by government.
Enterprise:The cooperative is an organized entity that typically functions in the marketplace and engages in exchange of goods and services.

 

Cooperative values

Traditionally, the cooperative movement has had deep ties to the world's wide array of religions and ideologies. It has continuously explored its own belief systems and attempted to identify those personal ethics and social ideas, if any, that are shared by cooperators and motivate our future actions. The 1995 Statement articulates the best in our belief system, the ideals of personal and social conduct to which we aspire. In its background paper on the Statement of Identify, the ICA explains, "Any discussion of values within cooperatives must inevitably involve deeply-felt concerns about appropriate ethical behavior. Achieving a consensus on the essential cooperative values [within a rich array of belief systems among ICA members] is a complext but rewarding task."

Basic cooperative values are general norms that cooperatives, cooperative leaders and cooperative staff should share, and which should determine their way of thinking and acting. They are our statement of what we think is the right thing to do. Based on a book written by Sven Ake Book for the 1992 ICA conference, Cooperative Values in a Changing World, the discussion assumes every generation recreates and refines its basic values so that they are inspirational to contemporary society.  It is in our statement of values that we engage the hearts, conscience and loyalty of cooperative members.

The first sentence of the values statement addresses our convictions about how to achieve a better society and what form that society should take. The values include:

Self-help:  People have the will and the capability to improve their destiny peacefully through joint action which can be more powerful than individual effort, particularly through collective action in the market.

Democracy:  Members have the right to participate, to be informed, to be heard and to be involved in making decisions. Members are the source of all authority in the cooperative. "The basic unit of the cooperaitve is the member....This basis in human personality is one of the main featurels distinguishing a cooperative from firms controlled primarily in the interests of capital."  (ICA Background Paper)

Equality:  Equal rights and opportunities for people to participate democratically will improve the use of society's resources and foster mutuality, understanding and solidarity.

Equity:  Fair distribution of income and power in society and its economic life should be  based on labor, not ownership of capital. Within the cooperative, rewards for active membership in the cooperative will be distributed equitably, be it through patronage dividends, allocations to capital reserves, increases in services or reduction charges.

Solidarity:  Cooperatives are based on the assumption that there is strength in mutual self-help and that the cooperative has a collective responsibility for the well-being of its members. Further, individual cooperatives strive to create a united cooperative movement by working with other cooperatives to improve collective well-being.

The value statement also articulates values of personal and ethical behavior that cooperators actualize in their enterprises.  They describe the kind of people we strive to be and the traits we hope to encourage -- honesty, openness, social responsbility and caring for others --through cooperation.

From the earliest days of the Rochdale Pioneeers, cooperatives have emphasized the importance of honest dealings in the marketplace: accurate measurements, reliable quality and fair prices. Members have insisted that their enterprises have honest dealings with them. This in turn has led to honest dealings with non-members and a unique level of openness throughout the organization. And many cooperatives have manifested the values of social responsibility and caring for others, reflecting concern for the health and well-being of individuals within communities and a commitment to help them help themselves.

 

The 1995 cooperative principles

Principles are guidelines for how to put ideals and values into practice. They rest on a distinct philosophy and view of society that helps us judge our accomplishments and make decisions. If successful, principles are incorporated into the organizational culture of the cooperative; they are the broad vision statement for cooperatives and cooperators individually and collectively. Shared and actualized principles allow cooperatives to be distinguished from other forms of organization. As the ICA puts it, "Principles are not a stale list to be reviewed periodically and ritualistically; they are empowering frameworks through which cooperatives can grasp the future."

Given that the ICA has adopted a new set of principles and, implicitly all of the world's cooperatives have agreed to uphold them, there is no more important visioning work for your cooperative to do than to become familiar with the new principles, discuss them and understand what impact they may have on your business and your members. They give each of our businesses an oppportunity to re-energize and recommit itself to the general goals of cooperation and to attract new people to the cooperative movement.

Voluntary and open membership

This principle has changed little from the 1966 version. It implies that individuals must not be coerced into cooperative membership. Rather, their participation as active and responsbile members should be based on a clear understanding of the values for which cooperatives stand and support for those values. At the same time, while membership is open, the principle assumes the member is able to use the services provided and is willing to take on the responsibilities of membership. This language recognizes that some cooperatives may restrict membership based on ability to use the cooperative or on a limit to the number of members the cooperative can effectively serve. The important idea here, however, is that cooperatives do not discriminate against potential members based on their inherent characteristics (social, racial, political, religious, or gender). Particularly important is the addition of gender as a category in the 1995 principles. The ICA Women's Committee worked long and hard to have gender added to the list and to ensure that the organization's expectations for cooperative enterprises are clearly expressed.

As U.S. food cooperatives learn to survive in intensely competitive markets, the membershp principle and associated principles of education and member control take on critical importance. Members value their cooperatives only when they believe that the cooperative understands and services their needs well. The membership cannot carry out its unique cooperative responsibilities if it is uninformed, nor if it is unable to be heard by its elected representatives. The open membership principle obligates elected leaders, managers and staff to elicit information from the entire membership body (not just a subset of organized opinion) and to understand their members and potential members fully regardless of religious or political beliefs, gender or sexual preference, or cultural or social background. The special relationship between the cooperative and the people it serves is a unique characteristic of cooperative business.

Democratic member control

Building on the principle of open and voluntary membership, the principle of democratic member control defines the way in which members will make decisions. It assumes that members will participate in setting policy and giving broad direction to cooperative activities in a way in which no member has a greater "voice" than any other member. This principle is closely related to the "one member, one vote" principle of the 1966 version. The new principle, however, gives specific attention to the potentially different voting structures that may be put in place in secondary cooperatives. When cooperatives are members of secondary cooperatives, the one member, one vote rule may result in substantial inequities for the individual members of member cooperatives. For example, if a cooperative of 1,000 members and a cooperative of 25 members each has one vote in the affairs of their cooperative distributor, the 25 members of the smaller cooperative clearly have a much stronger proportional voice than do the 1,000 members. The principle addresses the possible need for different voting procedures at the distributor level in order for voting to be democratic.

Member economic participation

This principle deals directly with the very difficult problem of capital acquisition by cooperatives in amounts large enough to compete effectively with vast global industries. Throughout their history, cooperatives have been built on the premise that capital is a servant of the enterprise, rather than the master. Cooperative activities are organized to meet member needs, not to accumulate capital in the hands of investors. In the past, the principle of capital as servant led to a belief that resources geneated by profitable cooperative enterprises should be retained by the cooperative, rather than being concentrated in the hands of owners of capital, by strictly limiting returns to invested funds.

It has not always been clear what role, if any, is played by non-member capital investment, or investment by members beyond the "fair share" required. Although members own millions of dollars that they might invest in cooperatives, the previous restrictions on dividends to be paid on capital did not encourage them to invest beyond the required amounts. Consequently cooperatives have repeatedly been unable to generate equity for capital intensive projects; and they have been unable to maintain the value of invested capital during inflationary times. The strict limitation on dividends to capital has been lifted in the 1995 principles, which now imply that cooperatives compensate capital and labor fairly.

In order to retain the democratic nature of the enterprise, members of cooperatives are expected to contribute capital equitably and to democratically control the capital of the business. To retain the community centered nature of the enterprise and the belief that strength comes from pooling resources to engage in mutual self help, there is an underlying expectation that a portion of the cooperative's capital should be owned collectively by all members. Finally, the principle also gives guidance to members on possible uses for surpluses generated by the enterprise, specifically mentioning cooperative reinvestment and reserves, patronage rebates, and other activities approved by the members.

Autonomy and independence

In the thirty years since the passage of the 1966 Cooperative Principles, numerous third world countries have used cooperatives as an intentional part of their social and economic development strategies. While there are many instances of successful development through cooperatives, government initiation and support was necessary to begin the cooperative ventures. Unfortunately, many of the governments, especially in centrally planned economies, were unable to withdraw from the cooperatives. Instead, cooperatives, closely controlled by government functionaries, became inefficient and poorly managed, a haven for government bureaucrats. Independence and autonomy was often never realized.

The new principles emphasize that cooperatives must be free of intervention from governments or other sources, so that members are able to control their own destiny.

Education, training, and information

Education continues to be a priority of the cooperative movement in the new Statement of Identify. The background paper on the principles emphasizes that cooperative education is more than advertising product or distributing information. It is critical to the effective and informed participation of members which lies at the core of the cooperative definition. "It means engaging the minds of members, elected leaders, managers and employees to comprehend fully the complexity and richness of cooperative thought and action." The rewritten principle also highlights the importance of educating the young and opinion leaders about the nature and benefits of cooperation. If cooperatives are to be part of the solution to many of the world's problems, people must be not only aware of the concept, they must appreciate it and be willing to participate in it. Such active involvement will not occur if people do not understand cooperative enterprise.

Cooperation among cooperatives

This principle is virtually unchanged from the 1966 Principles.

Concern for community

Grounded in the values of social responsibiity and caring for others, this new principle articulates the cooperative interest in making contributions to a better society at large. By taking ownership of portions of the economy, cooperative members are saying, in effect, "We can meet our needs and the needs of others better than they are currently being met." Because the effort is a mutual one, cooperaitve members understand that to provide for any member is to provide for all members.

Interestingly, much of the writing and debate that evolved into this principle was centered on environmental protection as well as sustainable development. Much of the development of the Statement of Identify was presented to the 1992 ICA Congress by Sven Books' report Cooperative Values in a Changing World, which emphasized the tie between cooperatives and the environment, saying, "The next century needs the contributions of cooperative organizations as a people-based 'international countervailing power' for economizing the natural resources of the world and hence protecting the fundamental needs of coming generations." The background paper articulates the responsibility of cooperatives to participate in the environmental protection of their communities.

 

The beginning

The ICA has concluded a nearly fifteen-year process of exploring the fundamental values and principles of the international cooperative movement. In spite of the vast differences in national circumstances, industry practices, cultures and ideologies, cooperators were able to identify those characteristics that describe their unique form of human enterprise. These are the values and principles which give voice to the enduring soul of the cooperative movement. The ICA sees them as "inherently practical principles, fashioned as much by generations of experience as by philosophical thought." As we join millions of other cooperators throughout the world in adopting them, we cannot but reflect on the nature of democracy, the use and control of capital, and the critical roles of members, directors, management, staff and the community in our cooperatives.

As part of an international commentary onthe new Statement of Identity, M. Pax summarized the critical importance of this effort:  "Our values and principles are our self-definition, our distinctive contribution to society and the basis for our practical activities. The test of our values and principles is not only in their intrinsic morality, the logic and social justice which they embody, but in our ability to translate them concretely and realistically from social theory into social fact and to make them effective in our daily lives. It is only a courageous social movement which would dare to probe so deeply and so openly into the foundations on which it rests."

The 1995 Statement of Identity represents a remarkable worldwide consensus on basic values. Monumental as that achievement is, it is only the beginning. The profound challenge is to articulate, activate and actualize the values in our own communities. The path is clear. Now is the time to set forth.

 

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The International Cooperative Alliance Statement of Cooperative Identity

Adopted September 1995

DEFINITION:

A cooperative is an autonomous association of persons united voluntarily to meet their common economic, social, and cultural needs and aspirations through a jointly-owned and democratically controlled enterprise.

VALUES:

Cooperatives are based on the values of self-help, self-responsibility, democracy, equality, equity, and solidarity. In the tradition of their founders, cooperative members believe in the ethical values of honesty, openness, social responsibility, and caring for others.

PRINCIPLES:

The cooperative principles are guidelines by which cooperatives put their values into practice.

FIRST PRINCIPLE: VOLUNTARY AND OPEN MEMBERSHIP

Cooperatives are voluntary organizations, open to all persons able to use their services and willing to accept the responsibility of membership, without gender, social, racial, political, or religious discrimination.

SECOND PRINCIPLE: DEMOCRATIC MEMBER CONTROL

Cooperatives are democratic organizations controlled by their members, who actively participate in setting their policies and making decisions. Men and women serving as elected representatives are accountable to the membership. In primary cooperatives members have equal voting rights (one member, one vote) and cooperatives at other levels are organized in a democratic manner.

THIRD PRINCIPLE: MEMBER ECONOMIC PARTICIPATION

Members contribute equitably to, and democratically control, the capital of the cooperative. At least part of that capital is usually the common property of the cooperative. They usually receive limited compensation, if any, on capital subscribed as a condition of membership. Members allocate surpluses for any or all of the following purposes: developing the cooperative, possibly by setting up reserves, part of which at least would be indivisible, benefiting members in proportion to their transactions with the cooperative, and supporting other activities approved by the membership.

FOURTH PRINCIPLE: AUTONOMY AND INDEPENDENCE

Cooperatives are autonomous, self-help organizations controlled by their members. If they enter into agreements with other organizations, including governments, or raise capital from external sources, they do so on terms that ensure democratic control by their members and maintain their cooperative autonomy.

FIFTH PRINCIPLE: EDUCATION, TRAINING, AND INFORMATION

Cooperatives provide education and training for their members, elected representatives, managers, and employees so they can contribute effectively to the development of their cooperatives. They inform the general public -- particularly young people and opinion leaders -- about the nature and benefits of cooperation.

SIXTH PRINCIPLE: COOPERATION AMONG COOPERATIVES

Cooperatives serve their members most effectively and strengthen the cooperative movement by working together through local, national, regional and international structures.

SEVENTH PRINCIPLE: CONCERN FOR COMMUNITY

While focusing on member needs, cooperatives work for the sustainable development of their communities through policies accepted by their members.

See other articles from this issue: #062 January - February - 1996