What Cooperatives Are (and Aren't): Economist Says Co-Ops Represent the Aggregates of Economic Units

By Ling, Charles | Rural Cooperatives, November-December 2009 | Go to article overview

What Cooperatives Are (and Aren't): Economist Says Co-Ops Represent the Aggregates of Economic Units


Ling, Charles, Rural Cooperatives


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Many factors are converging to bring new attention to the cooperative business model. Discussions about a possible role for co-ops as part of national health-care reform and an explosion of interest in local foods, farmers markets and community-supported agriculture and fisheries--which often employ co-op business models--have added to this attention.

During the past 10 or 15 years, we've also seen many experiments with variations on the traditional co-op business model, as have occurred with some new-generation processing co-ops and producer-owned limited liability corporations (LLCs), including those involved in renewable energy production. As such, it is timely to take a fresh look at what a cooperative is and how it differs from an investor-owned business.

Emelianoff's definition

A concise definition of a cooperative by Ivan V. Emelianoff--in explaining the economic structure of cooperative associations about 70 years ago--remains refreshingly clear and applicable today. His work marked the beginning of a new era in the development and evolution of cooperative theory. The narrative of ideas presented in this article is primarily drawn from Emelianoff's book, and will hopefully shed light on the nature of cooperatives.

In Economic Theory of Cooperation, Emelianoff carefully reviewed the worldwide literature on cooperative theory from the late 19th century until 1939. He came to the conclusion that for economic analysis of cooperatives, the economic structure of cooperative organizations should be clearly defined, and that the definition should be free from the encumbrance of sociological, legal, technical, social-philosophical and ethical considerations.

Against this backdrop, Emelianoff established this definition: "Cooperative organizations represent the aggregates of economic units." While that is more "bare bones" than many definitions of cooperative, it crystallizes the essence of what cooperatives should have in common.

"Aggregate" is commonly defined as: "Any total or whole considered with reference to its constituent parts; an assemblage or group of distinct particulars massed together." Further, as defined by Emelianoff: "An economic unit, or economic individual, is an economic body admittedly complete and sufficiently integrated for individual existence and independent (in conditions of an exchange economy--interdependent) economic functioning."

Co-ops as aggregates of farms

In the agricultural context, farms are such economic units. The nature of cooperative associations as aggregates of member-farms is clearly discernible in the embryonic forms of such associations. For example, a buying club of farmers may want to purchase certain goods together, such as fertilizer.

The buying club would have someone take orders from member-farmers and place orders with a vendor, as well as perform other related chores. If the vendor requires a deposit, members may advance money to the buying club for the deposit requirement in proportion to their respective buying volume.

There may be an elected committee to facilitate decision-making if the number of members is large. Members may each have one vote if their purchasing volumes are about the same. Otherwise, some form of proportional voting may be adopted to conciliate large-volume members.

When the fertilizer (for example) is delivered, members pay the balance of their obligations. After the transactions have been completed, payment to the vendor and other expenses are subtracted from the sum of money paid by members. Any surplus is returned to members in proportion to the volume of fertilizer they have purchased.

This buying service is conducted at cost; every aspect of a member's transaction through the buying club is in proportion to their patronage (buying) volume. The buying club may be disbanded after fulfilling its joint-buying purpose. …

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