#15: Member Economic Participation

The third of the so-called User Principles is the principle of Member Economic Participation. Think of this as the users of the co-operative financially support the co-operative. The identity statement states:

3rd Principle: Member Economic Participation

Members contribute equitably to, and democratically control, the capital of their co-operative. At least part of that capital is usually the common property of the co-operative. Members usually receive limited compensation, if any, on capital subscribed as a condition of membership. Members allocate surpluses for any or all of the following purposes: developing their co-operative, possibly by setting up reserves, part of which at least would be indivisible; benefiting members in proportion to their transactions with the co-operative; and supporting other activities approved by the membership.

This principle provides for the funding of the co-operative. Members should support their co-operative financially and provide the necessary capital to maintain and grow the organization. Capital, in a co-operative, has a vitally different role. As this definition of this principle suggests, capital exists to serve the needs of the co-operative (and the members). Unlike stockholders, however, capital does not get used to simply generate a profit, it gets used to enhance the benefits to the users of the co-operative, its membership.

The control of capital rests in the basis of democracy. People’s ability to participate in the co-operative comes from a minimal threshold of participation. In the United Kingdom, the share in The Co-operative is ₤1.00. At Union Cab, the cost of a share is $25.00. The main form of capital development in co-operatives comes through operations; however, members might also be expected to invest when necessary. For consumer co-operatives, the main way to address capital comes through setting prices at an appropriate level to meet capital demands. For worker co-operatives, wages and shift charges help meet the capital needs.

In a worker co-operative, the discussion over wages and benefits brings life to this principle. The ability to raise or lower pay and benefits allows the members of the co-operative to collectively decide how well to fund the co-operative. As with the consumer co-ops and prices, this allows the worker co-operative to engage in the market economy without a profit motive.

The lack of the profit motive, however, does not mean that the co-op isn’t driven to succeed in the marketplace. In a worker co-operative, the only way to increase wages and benefits is to increase market share. The role of profit (or surplus) relates more to capital replacement rather than creating rewards for stockholders. In many ways, this principle drives worker co-operatives. The “reward” for hard work is not a patronage refund, it is the good paying job (for the industry) with great working conditions (for the industry). However, the need for capital still exists and workers must manage it carefully.
Worker co-ops have to balance the operational and capital needs along with the very human needs of living wage, safe and humane workplaces, and a democratic environment. In this case, the concept of member economic participation means more that writing a check, it means that the members must accept responsibility to control their co-operatives capital. In a consumer co-op, it is relatively easy: hire managers with strong financial skills and let them manage. For worker co-operatives, we often have to teach our entire membership especially our board to understand finances. Most of us, in worker co-ops, majored in History and social studies, we avoided accounting and business classes like the plaque. This creates a unique challenge of educating our membership and creating a culture of fiscal intelligence.

That challenge creates a danger. Too often, because of ignorance, our worker co-operatives follow the industry standards in financial management and human resources. This is an error. The industry standards have been designed to maximize profit and treat the worker as an “asset” or a “resource”. As we learn about finance and how the money flows through our co-operative, we need to be cognizant that the purpose of having the money to flow isn’t to make more money, but to make our lives better.

Next Week: A diversion into Mondragon and the Worker Co-op User Principles

About John McNamara

John spent 26 years with Union Cab of Madison Cooperative and currently helps develop co-ops in the Pacific Northwest. He holds a Ph.D. in Business Administration and Masters in Management: Co-operatives and Credit Unions from Saint Mary's University.
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