The Egyptians had a system. God spoke to Pharaoh, who conscripted armies of laborers, divided the labor into teams, and established supervisors and overseers—and thus the pyramids were built. Five thousand years later, despite many changes in the nature and structure of work, most human enterprise is still run through organizations that use similarly vertical power structures.
For over 150 years, cooperative organizations have been providing workers with a more direct voice in how organizations are run, how prices are set, and how (and to whom) profits are distributed. The popularity of the cooperative model has grown significantly over the past 50 years, in large part in an effort to combat some of the observed flaws in industrial capitalism. The cooperative sector is estimated to generate over $2 trillion in annual revenue worldwide.
In seeking to generate economic profit, cooperatives operate like investor-owned businesses. They diverge in how they devise the means and methods to distribute their profits. In an investor-owned business, profit is distributed based on the number of shares an investor holds (as well as the relative hierarchy of those shares). In cooperative enterprises, profits are typically distributed based on a worker’s performance or via some other more equitable means (e.g., by even distribution to all members). The existence of shareholders and shareholder classes also influences voting rights. In an investor-owned company, the number of votes controlled by a particular investor is directly proportional to the number of shares that investor holds. Voting rights in most cooperatives are tied to membership status—i.e., one member, one share, one vote—and are not affected by relative changes in the amount of capital invested in the firm (additional capital investment by individuals takes the form of non-voting preferred shares).
Cooperatives also share traits with nonprofits and NGOs, both of which demonstrate significant concern for the social good and the elevation of the less fortunate to a more equitable place in society. In many cases, worker-owned cooperatives are organized specifically to acquire bargaining power and realize operational scales that individual enterprises struggle to obtain—thus making the co-op a valuable tool for advancing economic democracy.
While the structures of cooperative organizations vary, co-ops can generally be broken down into three categories: producer, consumer, and worker cooperatives. Cooperatives can and do serve multiple purposes, but each variation is deployed to provide some degree of power or equity not otherwise available to individual members. Thanks to such work, the cooperative organization has always been seen as a socially conscious undertaking. Consumer cooperatives—and a related form of cooperative known as a purchasing cooperative—are organized to enhance members’ buying power, usually by negotiating lower prices or protecting consumers from the exploitative efforts of other actors in a particular market. Producer cooperatives are commonly used as a community-based economic tool to market food products, such as a farmer’s or fisheries cooperative. Worker cooperatives are developed to provide a more stable and equitable employment platform where the fruits of the organization’s labor are distributed more broadly than in an investor-owned firm. Arguably the most well-known worker cooperative is Mondragón—a worker-owned co-op with almost 300 subsidiary companies and one of the largest employers in Spain. Despite several challenges, Mondragón has managed to grow to an impressive scale while holding true to the core values of a cooperative enterprise.
The Rise of the Italian Social Cooperative
While most cooperatives adhere to one of the organizational subtypes indicated above, multi-stakeholder cooperatives are also possible. Italy is one country where the development of such multi-stakeholder cooperatives has progressed the farthest. The country has a long history of cooperative organizations, gaining in strength during the reconstruction period following World War II. Various reports suggest that there may be over 50,000 commercial cooperatives in Italy, employing upwards of 800,000 people. These factors have produced a “social economy” that includes over 200,000 non-recognized associations (informal charities), almost 70,000 registered associations (formal charities), and over 17,000 social cooperatives. In the affluent Emilia-Romana region of Northern Italy, cooperatives account for over one-third of gross domestic product (GDP).
Social cooperatives were created as a category in Italian law in 1991. As Antonio Thomas explains, “SCs cover either caring activities (management of social-health care and educational services, provision of home and residential care to people at risk, babysitting/childminding, cultural activities, and environmental protection initiatives) or training activities (introduction of disadvantaged people, who are unable to enter ‘normal’ productive circuits, to business activities and employment opportunities)” (248). 8).
Unlike their commercial counterparts, the social cooperative’s main mission is to pursue some sort of collective or public good, with economic profit being a secondary or subservient goal. Such collective goods include things like care for the elderly or infirm, job re-training and placement, and various fair-trade commercial pursuits. Much like the social enterprise model, these social cooperatives are funded through a combination of charitable and philanthropic dollars and some sort of earned income. Much like the asset lock seen in other countries, members of a social cooperative must waive their rights to certain operating profits and accept limits on the returns that they can receive from investment activities.
What makes the Italian social cooperative stand out is its unique governance structure. The governing members of an Italian social cooperative are divided into three groups: members who receive direct economic benefits (either a paycheck or return on invested capital); members who benefit from the cooperative’s social mission; and members who volunteer their services to advance the cooperative’s goals. This unique definition of membership legally guarantees that the interests of a wide array of stakeholders are appropriately represented.
The Italian social cooperative exhibits many of the features of what is sometimes called a “social enterprise” in the United States. First, its main goal is to perform a social function. Second, it seeks to capitalize on market opportunities, as long as those opportunities do not compromise its social mission. Further, it seeks to ensure that the interests of a wide array of stakeholders are represented. While the traditional nonprofit and the social enterprise also seek broad stakeholder representation, the social cooperative is unique in that both its workforce and the constituents who benefit from its activities are legally mandated stakeholders. This distinctive governmental element produces a sort of “unconditional reciprocity” that goes beyond the typical nonprofit organization, where workers’ rights are often compromised as a result of budgetary constraints. In sum, the Italian social cooperative is better equipped to balance the competing demands of commercial success, social responsibility, and democratic governance.
Lessons for the United States and Other Nations
The example of the Italian social cooperative offers a unique means to resolve some of the tensions that persist in the nonprofit sector and in emerging forms of social purpose businesses like benefit corporations in the U.S. or community interest companies in the United Kingdom. Unlike nonprofits or these hybrid private businesses, the Italian social cooperative gives workers and constituents a legally protected voice and a vote in how the entity is run. While nonprofits, NGOs, and benefit corporations can all pass resolutions to broaden stakeholder input, only the social cooperative governance model ensures that all stakeholders’ interests will be fully represented.
No matter how well intended, traditional organizational pyramid structures always concentrate power and wealth in the hands of a few. Using the model of the Italian social cooperative offers a more democratic approach to sustainable social change.
This article originally appeared in the Nonprofit Quarterly. See the original article here.