The Power of Cooperatives

The concept of cooperatives is extremely powerful. Cooperatives are nothing more than private companies that owned by their members, rather than investors or founders. Members can the workers or the customers or both.

Cooperatives are powerful simply because they're owned and controlled by their members. That ownership structure naturally aligns the incentives of the organization with the best interests of members. Normal people can band together to form a cooperative simply because they want some service to exist and want to control it themselves. By doing so they "cut out the middleman" and keep whatever "profits" flow from the enterprise, whether they be financial or social.

It should be obvious why cooperatives are so much better for customers.

  • Cooperatives remove the antagonistic relationship between producer and customer. A for-profit company will always try to provide the least amount of value to customers for the maximum amount of revenue, and is only prevented from doing so completely by competition. Of course, the entire goal of smart businesses is to avoid competition at all costs, and they're often successful.
  • Cooperatives allow members to benefit from vertical integration, but to an even more extreme degree. For-profit companies vertically integrate layers of their supply chain to internalize the profits of that layer. Cooperatives allow normal people to band together to integrate an entire supply chain, letting them internalize profits as increased consumer surplus instead of watching those profits get sucked away into corporations.

Cooperatives are a proven model, and have already transformed many industries, from consumer banking (you very likely use a credit union rather than a private bank), to rural electrification.

They're even frequently formed by for-profit companies! All these well-known companies are cooperatives whose members are smaller independent for-profit companies:

Cooperatives essentially combine all the best aspects of non-profit charities, government institutions, and for-profit companies. They can afford to fail without causing society-wide consequences, a luxury the government doesn't have.

They don't have the power to use violence and are subject to the law, so they're much less theoretically dangerous than the government.

They have no incentive to maximize profit at the expense of customer welfare, as is often done by for-profit companies who have discovered some sort of vulnerability in the market or the psychology of customers.

They have no incentive to artificially oversaturate markets and push wasteful consumption, since once members are satisfied with what the cooperative provides can simply direct it to sustainably maintain itself.

They provide tangible economic value to members and charge for their services, so unlike charities or governments they are economically self-sufficient.

Cooperatives are capable of almost entirely solving the problems of corporate consolidation, capitalist malfeasance, plutocratic political and cultural manipulation, income inequality, consumerism, and environmental degradation. Cooperatives of course aren't enough on their own, and we'll certainly still have to dramatically reform our governments. But cooperatives could allow us to make progress on our society's biggest problems without waiting for political reform, policy change, government intervention, or social consensus.

But so far they haven't achieved anything close to those lofty goals. Why? Why aren't cooperatives everywhere?

Two different reasons: inefficient coordination systems, and the startup capital disadvantage.

Inefficient coordination systems

If I was for some reason dissatisfied with my credit union, I could choose to exercise my membership to try and change it. However in order to do so, I would have to:

  • Wait until my credit union's yearly member meeting.
  • Travel to the member meeting.
  • Vote for a board member I believe will advocate for the change I'm interested in.
  • Wait for that board member to institute the change (if they're even elected at all).

It should be obvious why many of us don't even realize we are equal owners of our credit unions: it's difficult to actually exercise the rights of our membership! We still benefit from member ownership, since the institution is generally aligned with our interests. But the whole democratic process is just as stuck in the past as the government is.

This isn't necessary! Cooperatives are private companies, which means they are ideal testing grounds for better systems of democratic control such as Adaptive Democracy. The next chapter will discuss at length how we can build an activist consumer cooperative, one governed with Adaptive Democracy and focused on aggressively expanding to as many industries as is useful.

Startup capital disadvantage

In an economy like ours where most capital is held by profit-seekers, most capital will be deployed for profit-seeking. This isn't a problem for cooperatives that are already "started up" and self-sustaining. But getting started requires capital, and the people who currently control most capital won't invest it to create companies they won't then own.

This disadvantage wouldn't exist in a society with properly functioning systems for funding public goods.

In such a society cooperatives could form very easily, and would almost always out-compete for-profit companies (ask yourself: who will usually provide a better service, a company who takes a cut for themselves, or one that invests all profits back into improved service?).

For-profit companies would still exist, mostly in industries with both extreme uncertainty and massive profit potential (mineral exploration and high-tech research jump to mind). But any industry where there's less "uncertainty" and more mere "risk" and the products in question are likely to become commodities, then cooperatives would almost always produce superior results for consumers.

Because fewer concentrated for-profit entities would exist, much more capital would be available for democratic action, leading to more cooperatives and a virtuous cycle of ever-improving consumer surplus and shared prosperity.

However in the short term we have to be clever about raising startup capital for cooperatives. Some solutions are better or more applicable than others.

  • Cooperatives sometimes fund startup by pooling resources from an initial group of members. The downside of this model is that it's more complicated, and requires structuring possibly unequal forms of membership since the initial group must be somehow compensated for their investment.

    This can be avoided by requiring all subsequent members to invest the same way as the original members, but that adds extra friction that isn't always reasonable in all industries. This model is what's often used for cooperatives of for-profit companies such as the examples given above.

  • More often cooperatives fund startup through government loans. This makes sense! The existence of cooperatives with open membership is an obvious public good. Funding them is clearly in the purview of the government, especially since cooperatives can pay back public loans with interest! However this option is obviously extremely contingent on government policy.

    It's even possible the government systems supporting cooperatives have stunted them. By carving out a small definition of what a cooperative is allowed to be, it's possibly made it difficult for ambitious and experimental cooperative structures to form. This might have been intentional! It's possible corporate meddling intentionally created this "regulatory playpen", designed to keep cooperatives away from the broader economy and therefore corporate profits.

  • Cooperatives are sometimes started using grants from interested parties, and such grants could be sought from other entities. Cooperatives can also secure loans from other cooperatives.

  • Of course the scrappiest way to fund a new cooperative is to simply "bootstrap" it. With a strategic combination of a business model with low upfront capital requirements, pre-orders, crowdfunding, and personal investment, it's possible to get something off the ground.

The next chapter will discuss how we intend to fund the activist cooperative, using a combination of grants, loans, and bootstrapping.

Seize the means of production! (peacefully)

Cooperatives are exciting because they offer a way to address the severe economic inequality growing around the world without having to wait for existing power structures to give their permission.

They offer a path to reclaim science, technology, and industrial scale for the benefit of common people, rather than letting them rampage across society for nothing more than private profit.

Critically, they can help us avoid the hyper-concentration of even more powerful forms of property such as artificial intelligence systems, and therefore prevent a grim "techno-feudalist" future.

Cooperatives enjoy structural advantages that make them inevitable. All we need is efficient systems to control them, and Adaptive Democracy offers just such systems.

The next chapter will discuss much more specific plans for building adaptively democratic cooperatives. Here are some detail chapters you might find interesting before you move on:

Almost there!

Main Chapters

Adaptive Democracy
Common Resource Rights
The Power of Cooperatives
A Realistic Plan for Fundamental Change
Table of Contents
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