Photo by The Cooperative Group, licensed under the Creative Commons Attribution-Share Alike 2.0 Generic License
According to a study by economists from the Federal Reserve, there were about 200,000 more closures of business than normal during the first year of the COVID-19 quarantine. About two-thirds of those closures were individual companies with chain locations making up the remainder. While small or family-owned businesses suffered acutely during the pandemic, a certain alternative business model proved itself capable of maintaining stability: the co-op. Last May, the Green Top cooperative grocery in Illinois was able to help the struggling Kilgus farmstead by purchasing their entire milk stock and selling it in a two-for-one special. They sold milk at about 10 times Green Top’s normal rate. According to Erbin Crowell, executive director of the Neighboring Food Co-op Association, co-ops saw some of their most profitable days during the pandemic. Considering the severe shortages faced by supermarkets, who needed to create lines to prevent hoarding, the stocked shelves at co-ops seem nothing short of miraculous.
Cooperatives are businesses owned and operated by the workers or consumers of the company rather than a single entrepreneur or outside shareholders. The supposed strength of this model is not a new discovery. An article by The Guardian dating back to 2013 champions cooperative businesses as having a near 0% default on loans. The journal “Brookings Papers on Economic Activity” has its own piece on the theoretical advantages of co-ops. Unlike a corporate business, a worker cooperative has no distinction between executive decision-makers and those performing the rote labor required to keep production going. A worker arguably has a much better understanding of the practical aspects of the business than an office-bound middle manager does, so a worker-run operation can make smarter decisions. Additionally, when there are distinctions between workers and owners, decisions are often made that might negatively affect one group while positively affecting the other. For example, if an employee notices that she and a partner have been assigned a task that only requires one person, she will likely not tell management out of fear of being laid off. This problem would not occur in a co-op since the worker in question would be a shareholder who couldn’t be terminated without just cause. Co-ops consequently provide a strong sense of stability for their members during recessions—taking a pay cut is preferable to unemployment, which reached its highest recorded rate during the COVID-19 pandemic. If this model were more prevalent, it might even solve the “sticky wages” problem that lengthens recessions.
Why aren’t co-ops more prevalent? Unfortunately, co-ops deal with many of the same impracticalities as an entrepreneur starting a small business. The average person simply does not have the capital for a startup, and getting a loan can be risky even if a bank is willing to humor an up-and-coming business. It takes a great deal of courage for one person to start a company, so one can imagine how difficult it can be to get a dozen people to all put money down on one startup. Additionally, Co-ops tend to not focus on growth and profit as much as corporate businesses. Food cooperatives in particular tend to be set up to provide mutual aid for a community; the consumers run the business so that they don’t end up exploited by owners who are concerned with profit more than well-being. Sometimes a good co-op needs members who are motivated not by success alone but by a sense of compassion and civic duty. Unfortunately, those qualities are rare in the typical businessman.