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Catalyzing worker co-ops & the solidarity economy

Co-ops Financing Co-ops

Worker co-ops run their own businesses, why not their own financial resources?

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June 24, 2013
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There are limited options when looking to finance a co-op, especially a worker co-op. Aside from co-operative loan funds (like the Cooperative Fund of New England {see article by Micha Josephy in this issue}, Workers Revolving Loan Fund and Northcountry Co-operative Fund) and the rare credit union that lends to businesses, financial institutions do not understand co-operatives. Most lenders are completely unfamiliar with the Co-operative Principles and how they influence our business practices. It is not just that funders don't share our values, it is that we aren't using our values to create our own funding.

We need other co-ops — credit unions, producer co-ops, food co-ops, etc — in order to reach our vision and have co-ops providing all the things our economy needs.

   — Seth Mellen (Pioneer Valley Photovoltaics)

As we are presented with the issues around co-operative financing, the Co-operative Principles guide us with particular characteristics: Democratic Member Control; Members' Economic Participation; Autonomy and Independence; Co-operation Among Co-operatives. We've seen these and the other values and principles repeatedly. Some co-ops display them in their stores or on their websites, and support our movement by maintain a strong co-op identity. In this article we'll talk about how worker co-operatives founded a secondary co-op (co-operatives of co-operatives) based on these principles to fund and support themselves and new co-ops.

When worker co-operatives were formalizing the Valley Alliance of Worker Co-operatives (VAWC) between 2009 and 2010 members communicated a desire for an improved capacity and participation in financing and development. Many of the questions facing co-ops can't be answered effectively by one co-op due to time and resource barriers typical to small and medium sized businesses. VAWC is part of a wave of co-ops addressing issues through forming secondary co-ops. Shortly after VAWC formed, food co-ops in the same region formed the Neighboring Food Co-op Association (NFCA). Shortly after that VAWC and NFCA worked with credit unions to form the Valley Co-operative Business Association for co-ops of all stripes to work together. As a secondary co-operative scarce resources among co-operatives can be mobilized to address larger issues like policy, interco-operation, co-op consciousness raising and new co-operative development.

The Valley Alliance of Worker Co-operatives has over $7 million in revenue and $35,000 in charitable contributions annually with 55 worker members (11 more on worker member track) and 10 Member Co-ops:.
  • Brattleboro Holistic Health Center
  • Broadfork Permaculture Co-operative
  • Collective Copies
  • Co-op 108
  • Gaia Host
  • Pedal People
  • Pioneer Valley Photovoltaics (PV2)
  • Simple Diaper and Linen
  • Toolbox for Education and Social Action
  • Valley Green Feast Collective

Core questions while forming VAWC were: What is our long term plan for a member driven economy? How is our movement guided by the Co-operative Principles, Values and Identity as part of our strategic planning? What resources can co-ops use to build a co-operative solution to our funding needs? How can we implement member control and accountability to co-operatives? What would finance for co-ops need to look like for co-ops to participate in it, and will this reach a critical mass to make the desired impact? While we won't answer all these questions here they serve as a framework for much of VAWC's activity.

As VAWC's direction and goals formalized Member Co-ops showed interest in a financial mechanism that was directed and funded by co-ops themselves. Co-ops felt they had a stake in growing new co-operatives but had relatively scarce resources. Likewise, many wanted to share their expertise in co-running a business but not take on all the responsibility of development. Indeed, all the stresses and challenges like those listed above were eclipsing broader issues essential to the growth of our model. A sustainable strategy was needed combining surplus and members' expertise — two among the clearest of advantages of co-ops over traditional firms — into a program to bring co-ops' participation to funding co-operatives.

VAWC Member Co-ops were attracted to Italian and Spanish co-operative complexes, namely Konfekoop and Mondragon in Spain, and federations in Emilia Romagna in Italy as key examples of co-op led and funded movements. In the 1990s, co-ops in Italy had written a law requiring co-ops to give 3% of surplus to a co-operative development fund of their choice and this model intrigued VAWC and fit in with our cross-industrial and geographical make-up.

It is no secret why Emilia Romagna has 7,500 co-ops — 2/3s of them worker co-ops — in about the same geography as New England. Not only can we imagine this but we expect our role in development to be a part of the leadership in achieving it.

   — Libby Garofalo (Brattleboro Holistic Health Center Co-op)

Feedback from within VAWC Member Co-operatives clearly supported co-ops directing funding and support. Feedback from outside co-operatives, however, was resoundingly negative: "Co-ops don't have the funds." "Worker co-ops should leave it up to experts to run finances and support." "Co-ops and worker co-ops in particular are having a hard enough time running their own businesses. Why make things more difficult?" "Co-ops are too different and can't agree on larger scale issues." We heard these voices but for VAWC inter-cooperation is a central challenge of our movement in the quest to remain viable in a shifting economy, retain members and co-op viability, and empower others to employ the model we use to earn our living.

Expansion and development occurs in a context of support, education and technical assistance as being a part of a successful co-operative requires more than adequate funds and a set of bylaws. It requires dedication, understanding of co-operative structure and governance, adherence to a mission and vision, interpersonal communication, education and meeting challenges like market competition, evolving technologies. Co-ops benefit from members who have gained this experience and can share it with other co-operators.

From the outset VAWC's vision was of a diverse, integrated cross sector economy with worker co-operatives as one segment of regional economic and cultural vibrancy. During the creation of VAWC's Membership Agreement — our shared agreement for how we work together, our benefits and responsibilities — co-ops wanted the funds available for any co-operative they wanted to support. At the time of drafting the Agreement a basic direction was constructed:

"Building the co-operative economy requires "external mutuality", including mechanisms for moving financial resources among enterprises from areas of surplus toward areas of need and opportunity for economic development. In keeping with the practice of other successful co-operative complexes, member co-ops shall commit 5% of their annual pre-patronage surplus each year as a contribution to a co-operative development fund that will be identified by VAWC and oriented toward the development of our network. "

Pioneer Valley Photovoltaics, which began in 2002 from a meeting of the unemployed, now has nearly 10 members and installed 50+ systems last year.

 

It is worthwhile to note that co-ops and their members were not only contributing their funds away from their own co-ops for development, but were doing so to collaborate among all co-operative sectors. Co-ops can work together on larger scale issues and will contribute financially to a model that they direct.

With this idea set and agreed by members, next was deciding on how to implement our vision and what to do with the 5% surplus. After another round of research partnering with the Co-operative Fund of New England (CFNE, www.cooperativefund.coop) became a clear choice. CFNE has supported VAWC since its inception, participates across sectors and would meet both short term and long term goals. In the short term our funds would be an investment in CFNE as they lend to other co-operatives. We are also able to use the fund as added collateral for a loan we want to support. For the long term we were building relationships across co-operative sectors and utilizing CFNE's lending infrastructure, enabled us to continue to deliver value for membership and rather than re-creating loan administration.

In December of 2012 — the last month of the International Year of Co-operatives — our research and strategizing and working with feedback culminated in founding the VAWC Inter-co-operative Development Fund (VIDF). As this article goes to print, another year's contributions are coming in from co-ops further stabilizing our co-op's assets and lending capability. VAWC Member Co-ops can apply for preferred terms through VAWC Member Meetings and any other co-op can apply to the VIDF once they've applied to CFNE.

A challenge for this type of mechanism is a limitation on only being able to serve relatively smaller sized loans. While a number of VAWC Member Co-ops would be served by the assets currently in VIDF, some of the larger co-ops are on a longer term time table before this has a substantial effect on their capital access.

Unlike any other financial resource, the VIDF brings the voice of co-operators and their co-ops to the table of development through economic participation and democratic control. Worker co-ops now direct a financial pool according to their own visions with their own money independent of other funds. The VIDF is galvanized in a context of co-op led staff, development support, advertising campaign and educational curriculum. With four worker co-op conversions and a start up in the past three years, the additional access to capital is a welcome additional financial asset. This fund is a seed planted by co-ops and cultivated by Co-op Principles. It is moving us toward brighter, more financially secure horizons.

Contact us with thoughts or questions: On the Web, or By Email, or call us at 1.888.682.4801.

Adam Trott is the Staff for the Valley Alliance of Worker Co-operatives, where he supports, develops and educates about and for worker co-operatives. Adam has been a worker/member of Collective Copies since 2004 - a collectively-managed worker co-op and union shop offering full service printing and book-binding services from two locations in western Massachusetts.  He serves on the board of the Co-operative Capital Fund (www.coopcapital.coop/coopcapital), the Steering Committee for the Valley Co-operative Business Association (www.vcba2012.coop), the Co-operative Enterprise Collaborative (www.umasscec.org), the United Electrical Workers for Co-operation and is a former board member of the Eastern Conference for Workplace Democracy (www.east.usworker.coop). 

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