Are co-ops the business model of the future in Arizona?
Workshop event on co-ops aims to take a step toward an inclusive, sustainable statewide economy.
If the word “co-op” makes you think of a group of hippies sitting around unable to agree on anything, then Nigel Forrest suggests you think again. Cooperatives, according to Forrest, are viable, dynamic and thriving businesses that look after the interests of people, communities and the environment, while building strong, inclusive and sustainable local economies.
“Cooperative businesses offer a chance for good stable jobs, meaningful work, community empowerment and strong local economies, particularly in areas where this is needed most: in rural areas and in poor urban areas,” says Forrest, a postdoctoral research associate at Arizona State University.
Forrest manages the Sustainable Local Food Economies and Enterprises Lab with Arnim Wiek, an associate professor in ASU’s School of Sustainability. Wiek has teaches a graduate level class that covers cooperatives, employee-owned businesses and benefit corporations.
Wiek’s lab has been working to build local capacity for co-op business development, including a bakery cooperative startup project. The lab, together with the Arizona Cooperative Initiative and a handful of enthusiastic volunteers, is hosting a workshop this week to support a growing network of cooperatives around Arizona. Over 50 participants who are from business support organizations, community organizations, or are existing or aspiring members of cooperatives will take part in panel and group discussions to chart a path forward.
Forrest answered our questions about how co-ops work and how they benefit their members and the communities they serve.
What is the difference between a co-op and a typical business?
There are four main differences between co-ops and typical businesses: ownership, governance, profits and fundamental values.
A typical business is owned by an individual, a small group of partners, or by shareholders, who may not even participate in the business. A cooperative business is owned by its members, who may be independent producers, such as farmers; consumers, such as grocery store customers; or workers, depending on the type of cooperative – but they all participate in the business economically.
In terms of governance, each member of a co-op has an equal share in a democratic ownership structure (one member one vote). In typical businesses, the number of votes is proportional to the ownership share (one dollar one vote); in the same way, profits are distributed to shareholders according to the proportion of shares they own. Co-ops, by contrast, distribute any profits (or losses) to their members in proportion to their economic participation. Members who contribute more produce, purchase more groceries, or work more hours will receive a greater share of the profits.
But there is another difference on different level: it is that cooperatives are guided by a different set of values, such as self-help, democracy and equity, codified into a set of seven universally accepted principles. Typical businesses have no such code of conduct and are driven only by the profit-motive, though that is not to say that owners cannot impose their own values on the business. One example is new certification standards developed by B Lab, which certifies B Corporations. Employee ownership is another way that regular corporations can corporations can adopt some of the same values as cooperatives.
Why does that matter to businesses?
There has been some sound research showing that worker cooperatives and employee-owned businesses are at least as productive as typical businesses, provide higher quality service and are more resilient to economic downturns. These outcomes result from employees taking responsibility, being happier, staying with the business for the long-term and looking out for the long-term future of the firm and its ability to provide for its members.
Cooperative businesses exist for the benefit of their members, whereas for typical businesses, it might be said that members, in the form of workers or consumers, exist for the benefit of the business (and its owners).
What are the advantages to workers of being in a cooperative?
The biggest advantages are that members in a worker cooperative have stable, decent jobs, where they have responsibility and opportunities to grow. They are more satisfied in their work and this can translate into better health, family life and quality of life.
It is notable that wage ratios between the highest and lowest paid employee in worker cooperatives are under 10 to 1, whereas in regular businesses it is much more, in the hundreds to one in many larger firms. Profits made in cooperatives are given back to the worker-owners or consumer-owners, rather than being funneled up to the executives or shareholders.
What are the advantages to communities served by co-ops?
Cooperatives also do a better job for the communities they are in. Cooperatives tend to be more closely connected with the city, town or rural area around them. They are not run by management in another state or country or by shareholders around the world, but by people who live in the local community.
As a result, in some direct and indirect ways, cooperatives are better for the environment as well; people are more likely to care about not polluting their own communities, as well as investing back into their communities. The seventh cooperative principle is that cooperatives should work for the sustainable development of the community. Being a cooperative member demands and builds skills in participating in decision making and taking responsibility, which is carried over into other areas of civil life and politics.
What do people need to understand about co-ops?
Cooperatives are viable, dynamic and thriving businesses. They are alternative ways of doing business that look after the interests of people, communities and the environment, that build strong, inclusive and sustainable local economies. Cooperatives, in their many forms, can fit many different situations and needs.
What do most people think of when they hear the word "cooperatives”?
People who grew up in rural areas will probably think of electric or farming cooperatives, and most likely they will be favorable associations, but they will be unlikely to think of cooperatives in other areas of their lives, like grocery shopping, child-care, business services, healthcare or housing.
There are a lot of businesses we use but don’t even realize are cooperatives, like credit unions, mutual insurance companies, ACE hardware and others. If when you think of cooperatives, you have a picture of a group of hippies sitting around unable to get anything done because they can't agree on anything, then it is time to notice what is happening and think again.
What does the media get wrong?
The media just does not cover cooperatives and other alternative enterprises: coverage is overwhelmingly of for-profit businesses and the stock market. We would like to see cooperatives, benefit corporations, employee-owned businesses and other forms of alternative businesses receiving a higher profile in the media and making people aware that there are other options out there.
How does Arizona compare to other states and countries in their cooperative development?
Arizona has a robust electric cooperative sector with 8 large active cooperatives. However, in so far as other forms of cooperatives, such as worker cooperatives, Arizona is falling behind. Arizona has over 500,000 small businesses, but only one worker cooperative.
States such as Wisconsin and California have substantial support networks providing training, development, financing, and advocacy services, while there is nothing like this in Arizona. Meanwhile, cities such as Richmond and New York have created worker-cooperative development initiatives. New York City provided $2.2m funding for its program in 2017 and launched 36 new worker cooperatives. No cities in Arizona are yet providing any support for cooperatives.
What cooperatives are there in Arizona?
Although there are not many cooperatives in Arizona, there are some good examples. Take Technicians for Sustainability (TFS), for example, in Tucson Arizona, a successful solar installation company that converted to a worker cooperative, in the last few years. We have several much loved food cooperatives in this State, of which Sierra Vista Food Co-op in Sierra Vista and the Food Conspiracy Co-op in Tucson.
There are also successful agricultural cooperatives, such as the San Xavier Food Coop, which has found a way to address water rights and sustainable farming through their cooperative. Rural Electric Cooperatives have been busy running large-scale production and distribution of electricity in Arizona since the 1960's! There are also employee-owned businesses in Arizona: Sundt Construction, for example, has over 2,000 employees that own the business 100%.
Why hold the workshop now?
The rising tides of inequality, diminishing democracy and environmental breakdown urgently demand that we take a new economic approach to meeting our needs, while changes in technology and demographics are raising fundamental questions about the future of work that need to be addressed now, before it is too late.
Against this background, however, three more specific changes have created greater opportunity for cooperative and employee-owned businesses both nationwide and in Arizona. First is that in 2016, the cooperative statutes in Arizona changed to allow incorporation of a much broader range of cooperative types. Previously it was necessary for worker cooperatives or consumer cooperatives to incorporate out-of-state, or to very carefully craft by-laws that would allow them to operate as a cooperative legally.
Second is that in 2018, the Main Street Employment Act was passed mandating the Small Business Agency to extend its loan guarantee program and provide business development services to employee-owned firms, potentially easing some of the difficulty that employee-owned businesses have obtaining financing. The third factor is the wave of baby-boomer business owners retiring, which frequently results in a sell-off to large corporations or in closure of the business; tragically, these retiring owners rarely sell the business to their workers.
Can cooperatives mitigate climate breakdown?
Regular businesses, over the last 20-30 years do not have a good track record of the environmental and climatic effects of their products and business. I would say it is imperative that we have a new economic approach based on the cooperative model, where their local embeddedness, workforce engagement and more responsible practices are far more likely to produce the environmental outcomes that are urgently needed.
What do you hope will be the outcome of this workshop?
Ultimately, we want to see a lot more cooperatives being started in Arizona. However, the workshop is just a first step towards creating the kind of development and support network needed to make this happen. We intend to use the event as a springboard to further events and activities, such as a statewide conference or specific training events. We also hope attendees will make valuable connections and that more organizations and individuals will become involved.