Gongol.com Archives: December 2021

Brian Gongol

December 1, 2021

Business and Finance Freely associating to do some business

People like to see themselves as part of larger stories, and Giving Tuesday creates a narrative into which we can insert ourselves. Whether the event actually instigates additional giving that people may not have performed otherwise or just time-shifts already-planned giving so that it takes place around a specific date, charitable fundraisers say it's a $2.5 billion day for donations. ■ The American tradition of charitable giving is strong and remains distinctively so in the world. While a charitable spirit deserves to be a source of pride, we too often skip a step between "for-profit" and "charity" -- the self-helping sector, populated with organizations like cooperatives and mutual companies. ■ Alexis de Tocqueville made note of how those were a distinctive characteristic of America nearly 200 years ago, writing: "The Americans make associations to give entertainments, to found establishments for education, to build inns, to construct churches, to diffuse books, to send missionaries to the antipodes; and in this manner they found hospitals, prisons, and schools [...] Wherever, at the head of some new undertaking, you see the government in France, or a man of rank in England, in the United States you will be sure to find an association." ■ But these sorts of organizations take motivation, leadership, and stewardship. And times have been tough: For example, there were 7,239 Federally-insured credit unions in the United States in June 2011, but as of June 2021, the number had fallen to 5,029. Membership and assets both grew in that time, but the significant decline in total organizations suggests a high degree of consolidation -- a symptom, typically, of a maturing industry rather than a growing one. In agriculture, the USDA counted 3,346 farmer co-ops in 2000, and 1,871 in 2017. (For historical context, that figure was estimated at 14,000 around 1920.) ■ Cooperative forms of ownership are not entirely without risk -- some evidence suggests that it's tough to make governance work inside democratically-organized firms, perhaps because some aspects of reward are diminished for individual initiative. (Others have observed that they may be just as good at growing as for-profit competitors, but that they do so differently.) ■ Yet it's entirely possible for cooperative firms to succeed: REI (the outdoor retailer) is a co-op, and Best Western Hotels is a member-owned nonprofit whose member-owners shot down a plan to convert into a for-profit company in 2019. ■ There are reasons to think we should commit more effort, discussion, and (when appropriate) occasional tacit support through government policy to these business forms, particularly if they demonstrate a capacity to correct certain market failures. They may be especially sensible in settings where macroeconomic factors have squeezed out proprietor-owners, employee-owned firms, and other forms where pride of ownership plays a role in governance. It may especially make sense to look at how cooperative forms may fill the gaps in markets where conventional owners have departed and "vulture capitalists" have worked their way in -- a common symptom of decline. ■ Perhaps as much as anything, working for a cooperative-type firm needs to represent a combination of both financial reward and social esteem for prospective employees, especially senior leadership. People make trade-offs all the time between social status and pure financial remuneration, but in order to attract bright, innovative, and capable leadership, cooperative organizations have to be able to pay somewhat competitively with the high-performance parts of the private sector, while holding some of the status that attracts others to the charitable nonprofit sector. ■ That may be a significant hurdle to overcome, since it belongs strictly to neither and sits instead on a sort of middle ground of the production possibilities curve between the two. But it's well worth considering, especially since we know ourselves to be living through a particularly disruptive economic period, and we also know the same model was seen in another disruptive era as a means to preserve a market economy while democratizing some of its benefits. Something of a revival may be due, but it's hard to see that happening without breathing some life into the narrative.