Imbalance Sheets

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Cooperative capital: the very words cause the eyes of some co-op members to glaze over with disinterest or even distrust. Why? It’s not merely aversion to numbers or money. In a culture and economy based on private wealth, the ownership is nevertheless disguised, and widespread ignorance about capital naturally extends to co-op members and directors.

When merely buying, one is a patron or consumer, and this subjugation is the prevailing social dynamic when seeking to meet one’s needs. But in a cooperative, one is asked to be an owner and to invest in the business and its larger community.

What is a cooperative? It’s a democratic ownership structure in which the benefits and risks accrue primarily to the users of the business. But that isn’t necessarily how the co-op is marketed to its owners and the public. At this late date there is still little unity around marketing messages for food co-ops. Many co-ops and their members offer an understanding of co-op purpose that is limited to its special services or product offerings—features that other businesses also could provide and messages that fail to say anything about community or collective ownership.

Cooperative capital consists of assets that are owned by the members (allocated equity) and the cooperative at large (unallocated equity), rather than by commercial lenders. Cooperative capital is built primarily through education of co-op members—how the co-op markets itself—and then through profitable operations. Is it a social club, where for a small cost one obtains discounted prices and a newsletter? That is the impression given at some food co-ops. Or, as in better examples, is the co-op an enterprise owned by its community of patrons, dedicated to meeting the needs of that community, and actively strengthening that community’s resources?

A co-op practice common in earlier years, fortunately seen less often today, is to offer such generous price discounts for members that these sales earn little margin, forcing reliance on nonmember sales in order to be profitable. In such cases, a democratic ownership mission is contradicted or undercut by an expectation of immediate rewards for joining the co-op club.

A co-op may indeed offer the best prices for a market basket of groceries. But encouraging a mentality of “cheap” does little to build loyalty or commitment to the cooperative and may have the contrary effect. Lack of market differentiation, and then decline, is the likely fate of co-ops whose primary selling point for membership is a price discount.

In recent years food co-ops have taken major steps to rectify such imbalances. Thanks to the fine work by, among many others, Kate Sumberg and Walden Swanson (blessings on both of them!), more and more co-ops, having adopted a common format for balance sheets and income statements, regularly share data that highlights strong retail performance as well as problem areas. “Owners” and “member-owners” have emerged as preferred language, emphasizing that the cooperative relationship is founded on investment. It is based on cooperative capital.

Gradually, more food co-ops have adopted the classic cooperative methods of financial management, prudently limiting immediate rewards to a level that allows continuing growth in equity. The best ownership programs offer excellent member services and periodic rewards, while retaining most of the business earnings until the annual accounting, which then allows for a patronage rebate or distribution. If the member has not supplied the required investment, that owner’s portion of business earnings is mostly applied to the cooperative’s capital needs.

It’s a sound, historically proven method. But it only works well—that is, beyond the present generation!—if the co-op leadership and marketing messages give the proper weight to building capital. Are your co-op’s messages and policies in balance with a mission of cooperative ownership?

Finally, in addition to such internal review, what remains to be answered—and very urgently in response to our warring, rogue state—is whether co-op leaders are willing to take up the active defense of cooperative values in the larger social arena. Cooperatives are, or should be, among the array of forces struggling to repair the tattered threads of democracy and peaceful global relations.

Failing such struggle, cooperatives will still be a force for survival, primarily possessing human capital and its memory of those values.

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Dave Gutknecht is editor of Cooperative Grocer ([email protected]).

See other articles from this issue: #129 march - april - 2007