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Cooperatives and an Inclusive Economy

Doug O’Brien, president of the
National Cooperative Business Association Cooperative League of the USA

People are having a harder time finding their place in an economy that is excluding more and more workers, families, farmers and small business people. Trends in inequality, poverty and job availability have prompted researchers, policy makers, and society in general to look for strategies on how to meaningfully include more people in an economy that for many features decreased opportunity and less stable workplaces. These economic trends are also associated with nutritional issues for low income Americans and reflect the effects of business models that often do not sufficiently incorporate sustainability into their practices.

The cooperative business model is a proven strategy for addressing these types of problems, used by people successfully for generations. Many co-ops already exist within the organic movement, including well-known businesses like Organic Valley, Deep Root Organic Co-op, Equal Exchange, and Fedco Seeds — as well as your local food co-ops. Broader collaboration with existing cooperatives and expanded co-op development can empower the organic movement to grow while remaining in close alignment with its broader values. Co-ops already help farmers, retailers and consumers minimize environmental impacts, expand access to healthy foods and build stronger communities. Development of additional cooperative enterprises will benefit the organic movement and the local communities in need of healthier food and more sustainable, inclusive businesses.

Troubling trends

A consensus is emerging that inequality not only impairs the livelihoods of the people on the lower rungs of the economic ladder, but also a nation’s entire economy and society. Increased inequality tends to depress the gross domestic product, decrease human capital and limit the number of people who can invest in the economy. After several generations of declining or holding steady, inequality has increased since the 1970s such that by 2015 the top 20 percent of people made more than 16 times that of the bottom 20 percent. In terms of wealth (as opposed to income), 50 percent of all U.S. wealth is held by the top three percent.

What about jobs? New types of work have arisen. The gig economy is one example, loosely defined as a labor market in which “temporary, flexible jobs are commonplace and companies tend toward hiring independent contractors and freelancers instead of full-time employees.” While the gig economy provides a significant amount of autonomy and flexibility for workers, it also creates instability and generally provides few or no benefits such as health care and retirement savings. Observers of the gig economy point out that not only do many of these workers lack benefits, they tend to have lower incomes and miss out on certain tax advantages traditional employees enjoy. Many people in the gig economy would prefer full-time employment but cannot readily find better jobs or pay.

Another potential challenge — and perhaps an opportunity — is the result of an aging population. Baby-boomers are retiring and, as they do, a looming “crisis” is anticipated: mass small business closings. Baby-boomers own about half of all American privately held businesses with employees. Additionally, a vast majority of them (roughly 85 percent) have no plan for the business’ continued operation after their retirement. Many struggle to find a buyer — particularly a buyer who wishes to keep the business in or near its current location. With either the closing of the business, or its sale to a larger and physically distant competitor, employees will often lose their jobs and the local economy will lose the benefits of a locally owned and operated small business.

These trends – inequality and the rising precarity of many new kinds of jobs – furthermore contribute to what some call the “nation’s largest ongoing public health crisis”. Namely, this is the nutrition gap between the wealthiest and poorest Americans. This gap has grown over recent years despite overall significant improvements to U.S. nutrition. Essentially, while middle and high-income Americans are getting healthier and living longer, lower income Americans have seen few gains. Today, many nutrition-related diseases now disproportionately affect low income people, including both obesity and diabetes. This is likely partly a result of insufficient educational resources in low-income communities. Another set of related problems are “food deserts”- areas with little or no access to healthy foods, which are most prevalent in lower income communities – and food affordability. Lower income people may still choose less healthy options, even if supply-side issues are remedied, because they are cheaper.

Cooperative enterprise can be an effective response to both of these challenges, offering workable models for addressing business succession and food security. Examples of successful conversions include worker co-ops such as Real Pickles and food co-ops such as the Old Creamery Co-op — businesses that are not only committed to a regional, just and organic food system, but also demonstrate the potential of co-ops for rooting enterprises in their communities rather than the more conventional path of a buy-out by a larger business or outside investors. The recently opened Urban Greens Co-op Market in Providence, RI, is an example of a new wave of food co-ops established specifically to address issues of food security, diversity and inclusion, enabling a community to take direct ownership of its access to the food system. Working together, the member co-ops of the Neighboring Food Co-op Association (NFCA) are expanding programs like Double Up Food Bucks in New Hampshire and need-based discount programs such as Food for All to make healthy, local, organic produce more accessible to people on limited incomes.

Describing a More Inclusive Economy

Stagnating wages, increased inequality and precarity in the work environment have increased insecurity for many U.S. families and those around the world. Nutritional issues and deficits damage our health and sense of wellbeing. Unfortunately, traditional metrics for success in the economy tend to be narrowly focused on income and wealth, minimizing other significant factors that influence our wellbeing. So researchers and policymakers have sought ways to measure the economy that go beyond traditional metrics and “suggest the need to consider all dimensions of economic life”.

Some of these researchers describe their work as part of building an “inclusive economy”. The term “inclusive economy” has multiple definitions but generally means opportunity should be available to everyone—no matter their geography or demographic—as well as the ability to live with dignity. As stated in a 2016 report supported by the Rockefeller Foundation, an inclusive economy is “one in which there is expanded opportunity for more broadly shared prosperity, especially for those facing the greatest barriers to advancing their well-being.”

The report’s authors, Chris Benner and Manuel Pastor, describe how economic thinking has evolved toward an “inclusive economy” framework. In the mid-to-late 20th century, conventional thinking dictated that inequality was necessary, predicting that wealth would trickle down and eventually the poor would benefit more than otherwise because of a stronger economy. Recently some economists have challenged this notion—both theoretically and empirically—finding a lack of evidence that the cycle eventually results in decreased inequality. Economists then focused on lower-income populations, with two of the approaches called “pro-poor growth” and “inclusive growth.” “Pro-poor growth” focuses on how the poor benefit in the economy—primarily through income, but in some cases researchers looked to factors such as education, health and nutrition. The concept of inclusive growth goes a step further, asserting that inequality is “bad for things like political stability and social cohesion.” Inclusive growth also tends to look not only at outcomes, but also to process so that all members of society are able to participate and contribute to economic growth.

The concept of inclusive economies builds on these concepts, drawing from other fields of study to “emphasize aspects of the economy that are poorly captured in more traditional metrics of economic progress”. These approaches capture benefits and costs to society that GDP has not, such as contributions of women who do not receive income, impacts to nutrition or the costs of environmental degradation. Benner and Pastor describe five characteristics, along with proposed indicators, of an inclusive economy: equitable, participatory, growing, sustainable and stable.

Work around the inclusive economy has tended to focus on people’s place in the broader economy; there is, however, another important and related question: how do the concepts around the inclusive economy connect to people’s relationships with the firms with whom they do business?

 Jerry Voorhis

ex-Congressman Jerry Voorhis of California was a co-op leader

Well before the term was coined, people understood and used cooperatives to help people obtain a more inclusive economy. In 1961 former Congressman Jerry Voorhis, then Executive Director of the Cooperative League of the United States (now NCBA CLUSA), stated: “If…concentration of power is the cause of the present weakness of our society, we can nonetheless show that we know a counteractive to that power which can restore responsibility and hope to the average citizen. … It is the simple counteractive of cooperation, the method of mutual aid. Any groups of people anywhere on earth can use that same method both to raise their living standards and enhance their freedom and build their human dignity.” Voorhis made clear that the cooperative movement has always been about expanding opportunity for a more broadly shared prosperity, primarily by setting up the conditions wherein people are empowered through the businesses they own and for which they work.

For those involved in the cooperative movement, the inclusive economy characteristics are quite familiar. Similar ideas are found in the cooperative values and principles that guide individual co-ops and the wider movement. As people-centered businesses, cooperatives have been at the forefront of efforts to use their business model to address critical societal issues such as empowering disenfranchised communities or ensuring people have access to essential infrastructure. Focusing on one important example, in her book Collective Courage Dr. Jessica Gordon Nembhard chronicles the use of cooperative principles and the co-op business model by African American social and economic movements. Dr. Nembhard summarizes the function of cooperatives: “Cooperatives stabilize their communities—increasing economic activity, creating good jobs, increasing benefits and wages, and encouraging civic participation…Cooperatives provide a mechanism for low-resource people with few traditional opportunities to create new economic opportunities for themselves and their co-workers and neighbors.”

Cooperatives in a More Inclusive Economy

To further demonstrate how cooperatives can build a more inclusive economy, and to show how the organic movement can continue to harness the power of cooperatives, it will be useful to understand how these two great forces have already been working mutually to achieve their goals and what they can do going forward. Using three of the Rockefeller Foundation’s “Inclusive Economy” report – participation, growth and sustainability – provides a useful framework.

Participation

“People are able to participate fully in economic life and have greater say over their future. People are able to access and participate in markets as workers, consumers, and business owners.”

Participation is in the very DNA of the cooperative business model: Co-ops rely on members not only to set the course of the business, but also to play a crucial role in the business (whether as a consumer, producer or worker). This higher level of participation makes it more likely that the priorities and values of the people who use the business are expressed as their business interacts in its community—the result of a truly people-centered business. An ICA Group white paper describes how this dynamic plays out in the worker cooperative context: “When workers and owners are one and the same, the interests of the company and the community become aligned and investment decisions are made to ensure the ongoing viability of the company — including measures around job quality and supporting the local economy.”

With increased participation in the business, worker cooperatives not only yield better outcomes for communities, they also show that when ownership is paired with a meaningful degree of employee participation, performance, productivity and firm longevity are enhanced. For example, the nation’s largest worker cooperative, Bronx-based Cooperative Home Care Associates (CHCA), employs well over 2,000 people in the home health care sector, one that experiences notoriously high turnover rates because of the relatively low pay, erratic work schedule and skimpy benefits. Because CHCA is owned and controlled by its members, the cooperative has focused on a “retention” culture that prioritizes employee development through extensive training, better benefits and a more predictable work schedule. CHCA’s average turnover rate is now just 15 percent — far from the industry standard of 60 percent. This significantly higher retention rate translates to better care for the clients.

The benefits of worker cooperatives make them ideal as a solution for retiring business owners, looking to plan for the future of their businesses once the owners leave them. Politicians see this and have begun supporting efforts to incorporate worker ownership as a strategy to mitigate the issue. Last year’s passage by Congress of the Main Street Employee Ownership Act is one major example; it directs the small business administration to more equitably provide loan funding and technical assistance services to groups interested in both worker and food co-op development. In numerous rural areas, small town grocery stores – many who are not parts of recognizable companies like WalMart, etc. – can benefit from conversion to worker and community ownership as their business owners retire and ensure that local consumers can get the food they need, particularly organic products, which are better for their overall wellbeing.

Growing

“An economy is increasingly producing enough goods and services to enable broad gains in well-being and greater opportunity. Economic systems are transforming for the betterment of all, especially poor and excluded communities.”

The-Inclusive-Economy-Co-op-PrinciplesInspired by and using the cooperative business model, some organizations are supporting fair trade practices to ensure that local economies grow, particularly in the developing world, in ways that ensure that those traditionally excluded from their economies instead benefit equitably from the growth they produce. One such organization is Equal Exchange. Equal Exchange was formed through three individuals – Jonathan Rosenthal, Michael Rozyne and Rink Dickinson – who met as managers of a New England Food Co-op. The organization strove to give farmers, producers and their families greater control over their economic life, while educating consumers about relevant trade issues, food quality and more. It did so with a global focus and rooted in the principle that workers should control the businesses through which they market and sell their products.

Today, Equal Exchange sources from over 40 co-ops and small farmer organizations throughout Africa and Asia, as well as North, Central and South America. Their products range from coffee, to cacao, dairy products and more. Their successes act as a demonstration of the benefits of the worker-cooperative model they use. Equal Exchange’s successful 3+ decades of operation demonstrates that the cooperative model can create sustainable businesses that go beyond earning the profits needed to sustain them; member co-ops provide technical trainings and women’s leadership development to ensure that more people experience the growth that their co-ops provide.

Sustainable

“Economic and social wealth is sustained, maintaining inter-generational well-being. Inclusive economies preserve or restore nature’s ability to produce the ecosystem goods and services that contribute to human well-being.”

The behavior of food co-ops naturally reflects their members’ priorities since these grocery stores are owned and democratically governed by people in the community. The beginnings of most of these co-operatives are closely tied to the organic movement. Many began primarily in order to provide organic, natural food to consumers who could not otherwise access these products. Their recognition of the merits of organically produced food played one major part in the eventual recognition by the public at large that organic food’s benefits could both significantly outweigh any extra cost and obtain better environmental outcomes that mitigate the harmful practices more conventional agriculture at times exercises.

Today, food co-ops are not alone in selling organic food. However, the same values that led these co-ops to sell organic food are reflected in their concern for the impacts that their stores and suppliers have on the environment. Accordingly, food co-ops as a group have put in place practices to improve energy efficiency, increase the use of renewable energy and reduce their carbon footprint. Food co-ops outperform their conventional competitors on Department of Energy rankings of energy efficiency: On a scale of 0 to 100 (with 100 being optimal), food co-ops score 82 while the industry average is merely 50. In a related metric, “[c]o-ops generate 50.6 metric tons of carbon dioxide equivalents per million dollars of sales compared to 73.7 metric tons for grocery stores that furnish data to the Carbon Disclosure Project.

National Co+op Grocers (NCG), a cooperative of close to 150 food co-ops in the U.S., uses a program called Co+efficient to track its sustainability metrics. To offset greenhouse gas emissions associated with employee air travel and ground transportation—as well as electric utilities used in its main office—NCG partnered with an international environmental organization called the PUR Projet to establish the Co+op Forest — a living forest that offsets its carbon emissions. Since 2013, NCG has planted 4,700 native trees in a previously deforested region of Peru and protected an estimated 1.7 million trees by conserving nearly 7,000 acres in a highly bio-diverse old growth forest.

Closer to home, food co-ops across the Northeast have been pioneers in sourcing organic products, supporting local producers, and investing in greater efficiency and reduced waste. For example, among the 10,800 GreenChill Partnership grocery stores in the U.S., the Hanover Co-op Food Stores of New Hampshire and Vermont has repeatedly earned top recognition from the Environmental Protection Agency (EPA) for its work reducing refrigerant emissions, recording the greatest improved emissions since joining the partnership (82.9 percent reduction since 2011), as well as the most improved emission rate from the previous year (a 77.4 percent reduction from 2015 to 2016). The co-op’s “refill not landfill” collaboration with the City of Lebanon, NH, solid waste district encourages shoppers to consider bulk buying, reflecting food co-ops’ long-standing commitment to reducing packaging waste.

Conclusion

As people look for strategies to create a more inclusive economy, they should consider one of the most important relationships that people have in the economy: the businesses where they work, purchase goods, sell products or obtain services. The cooperative business model empowers people to own, control and benefit from these businesses. Because cooperatives are people-centered, their outcomes tend to go beyond only the financial bottom line to consider how the business can provide critical goods and services in a way that reflects members’ values.

As the early precursors to the inclusive economy movement, cooperatives have for generations empowered people to advance both economic and social goals. Meanwhile, researchers, practitioners and policymakers have developed and are beginning to implement policy frameworks that would build a more inclusive economy. Much potential exists if these two movements—the long-standing and proven cooperative movement, and the more nascent and highly relevant inclusive economy movement—combine their efforts. Even more benefits will come if the organic movement – already rich in cooperatives – participates, ensuring that more inclusive economies create healthier and more environmentally sustainable societies. Together, they can contribute a complementary set of experiences and assets toward achieving a common goal: empowering people within the economy and society to build the future they seek, both for themselves and their communities.

Doug O’Brien is President & CEO of NCBA CLUSA, where he works with the cooperative community to deepen its impact on the economy. Before joining NCBA CLUSA, O’Brien led the White House Rural Council and served in top positions at the U.S. Department of Agriculture Rural Development, the federal agency that leads community economic development strategy and financing in the U.S. Greg Irving is a research assistant at NCBA CLUSA and has co-authored a number of articles in the past two years on how cooperatives can help build more inclusive economies.