Tag Archives: cooperative

Food Co-ops and Resilient Communities

By Matt Cropp

In recent weeks, the game of political chicken that the Republicans and Democrats have been playing over the national debt limit has, for many people, raised the question of what would happen if the Federal Government does, in fact, default on its obligations. With tens of millions of elderly and disabled Americans directly dependent upon the Feds for their subsistence, and millions more of their fellow citizens employed by taxpayer-funded institutions, it is clear that even the partial bankruptcy of the US Government could have potentially disastrous consequences. Between throwing the most vulnerable Americans into abject poverty and eliminating the jobs of millions of their fellow able-bodied citizens at a stroke, such a scenario would seem, to many, like a whole-sale collapse of the American way of life on a scale not seen since the Great Depression.

In many American communities, the impact of such an event would be devastating. As recipients of government aid (including everything from food stamps to social security to welfare) and those employed by the government find their incomes suddenly eliminated, unemployment would explode. When all of that money ceases to circulate through the local economy, many key businesses (such as grocery stores) would cease to be profitable and, as they are usually owned by shareholders with no connection to the community in which they do business, many would close their doors and liquidate in order to pay off their creditors and owners. As a result, unemployment would rise further and many communities would soon find themselves lacking the vital services that are essential to their very survival. Thus, it is not unimaginable to envision a mass migration by able-bodied persons in desperate search of work along the lines of the Okies who migrated out of the Dust Bowl in the 1930s. For those who are too old or disabled to move to greener pastures, however, such an outcome would be utterly devastating, as they might often find themselves abandoned in communities with almost no ability to care for them.

While the above is a bleak picture, I believe that there is a community institution that’s existence would lead to a radically different outcome when faced with similar circumstances: namely, a fully developed, well-run food co-operative. Owned by its customers, the response of a food co-op to an economic catastrophe has the potential to radically differ from that of a corporate grocery store. For the latter, monetary profit is the sole measure of its value, and, if the store becomes unprofitable, the natural response is to cut investor losses by shutting it down. By contrast, a food co-operative exists for the mutual benefit of its members, and, in a pinch, it has the ability to substitute their labor for capital, insulating both the co-op and its community from the worst elements of an economic collapse in several ways.

First of all, as the co-op’s cash income declines as a result of the community’s increasing unemployment, it could mobilize unemployed members to do jobs that would have otherwise cost the co-op valuable cash. Such workers might be paid a subsistence wage in scrip that can be spent at the co-op, thus both saving unemployed members from total destitution while simultaneously strengthening the organization. Furthermore, depending on the depth of the crisis, this member-worker model could be extended to productive pursuits outside the co-op, i.e., they could be put to work bringing land under cultivation, the products of which would then be sold through the co-op. Indeed, such organization of the unemployed into productive enterprises could well form the foundation of a sustainable economic recovery (and has fascinating historical precedents in co-operative experiments among the unemployed in California during the Great Depression of the 1930s). Finally, since the principles that govern co-operatives includes “Concern for Community,” co-ops could organize ways to meet the needs of the vulnerable people who were functionally abandoned when their government benefits dried up. Such help could include relaxed work requirements for elder and partially disabled member workers, and the counting of hours worked in organizations that serve the especially vulnerable (such as senior centers, group homes for the developmentally disabled, etc.) towards member workers’ weekly quotas.

Given these potential benefits in an economic crisis situation, I believe that a food co-operative should not be seen as just another grocery store, but also as an insurance policy. While the most immediate possibility of serious dislocation seems like it might come from the looming Federal default, the truth is that, in our increasingly interconnected and globalized world, a disruptive shock could come from almost anywhere. At its best, globalization has allowed billions of people to specialize and trade with each other, generating the wealthiest society ever seen in human history. However, such profound interdependence has also made many communities increasingly vulnerable to the effects of systemic failure. As institutions that can, in good times, fully and efficiently access the fruits of the global economy (in fact, my food co-op is the cheapest place to get groceries in Burlington), while providing the organizational capacity for community resilience in times of collapse, a well-run food co-op is something that no responsible community should be without.

Take Action

If you agree with this argument, there are a few things you should consider doing. First, if you are fortunate enough to live in a place with an already existing food co-op, become a member, patronize it, and see what you can do as a volunteer to help advance its interests. If it does not have an existing member-worker program, encourage the board to consider launching one. At my co-op, members get a 7% discount if they work two hours per month, and 12% if they work four; while not at the scale that such a program would need to be in a crisis, simply having the infrastructure in place to organize member-workers means that a co-op will be able to respond much more nimbly when it counts.

If you do not live in a place with a food co-op, consider trying to help organize one. In New England, the Neighboring Food Co-op Association and the Cooperative Fund of New England are great organizations that provide both mentorship and resources to groups who aspire to found a co-op – for other regions, a quick Google search will often uncover valuable resources. Additionally, if you have money that you’d like to invest in a manner that promotes resilient communities while making a modest rate of return, the Cooperative Fund of New England will put your funds to good use.

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The Coming Micro-Ownership Revolution

In the more than two centuries since the beginning of radical transformation of economic life that accompanied the rise of industrial capitalism, one of the most interesting trends has been the changing nature of the forms through which people have engaged in economic activities. Before the industrial revolution, an artisanal mode of production predominated, with many small work-shops producing the goods required by the largely agrarian economy. At first glance, such the existence of many small firms would suggest a highly competitive economy; however this was not the case. Rather, the high cost of transporting goods created by primitive transportation networks, the risk of brigands, etc., meant that, rather than a single integrated economy, there existed many small economies between which only low-bulk, high-value goods (such as spices) were exchanged. In this situation, workshops were almost universally owned locally, since the cost of monitoring an agent in a distant city would be prohibitively high (the exception being those in the aforementioned low-bulk, high-value businesses, but they also helped ensure the loyalty of distant agents by using family members).

However, the advent of the 19th century transportation and communication revolutions, which brought better roads, canals, steamships, railroads, and telegraphs into widespread use, changed the game. The many local markets became increasingly integrated, and the prices of commodities converged over the course of the century. These changes also led to radical shifts in how firms were both run and owned. With huge, growing markets at their disposal, firms could, as Chandler describes in his brilliant book Scale and Scope: The Dynamics of Industrial Capitalism, drastically reduce the unit cost of many products by engaging in capital-intensive mass production. However, in order to fully take advantage of such available efficiencies, firms needed to mobilize amounts of capital beyond the resources of almost any individual or family. As a result of this problem, the “managerial firm” emerged as the dominant model in many industries by the end of the 19th century. Where, previously, the owner of a business was generally involved with its operations, managerial firms were characterized by a separation of ownership and management (which began to be undertaken by salaried professionals).

The practical result of this change was that it meant that the ownership of a firm could be divided between a far greater number of individuals than had been previously possible when owners were responsible for directly monitoring a firm’s performance. Such a division would not have been cost effective at the beginning of the 19th century, but the drastically reduced cost of information brought about by the aforementioned revolutions meant that, by the 1920s, a small but respectable percentage of the American population held some ownership stake in a corporation through the stock market.

I believe that this historical dynamic has a very interesting implication for our contemporary situation. If the cost of information, in fact, influences the optimal structure of firm in the economy, then the growth of the Internet over the last decade should be understood as a signal that the traditional corporate model is heading the way of the dinosaur. Indeed, there is plenty of evidence to suggest that small to mid-size firms can use their flexibility to outmaneuver the existing behemoths in many ways; however, there are certain industries in which economies of scale will remain extremely important. However, certain very recent developments have to potential to radically alter the ownership structures of such firms.

Of paramount importance is the emergence of peer-to-peer online monetary systems such as Bitcoin. By drastically reducing transaction costs and allowing for true micro-payments (on the order of hundred-thousandths of a cent), such systems have the potential to drastically reduce the minimum barrier to entry to obtaining an ownership stake in a firm. As a result, I believe we might begin to witness the organic transformation of many large firms to co-operative ownership.

The logic of such a transition is as follows. In a perfectly competitive market, the margin of profit trends towards zero, with consumers obtaining products at cost. In such a situation, the motivation for shareholders who do not use the firm’s products to retain ownership is fairly low, while the only tool left for a firm to attract customers away from its competitors would be to offer them an ownership stake in the business, which would guarantee that they would continue to receive the firms products at cost in the future. As such, it would be reasonable to expect the gradual transition of the ownership of many companies in the coming years from absentee shareholder to consumers.

A possible objection to this scenario would be to inquire as to why such a transition has not already occurred? The answer, I believe, lies in the relative cost of ownership. In 1800, owning a share of a London blacksmith’s shop while living in New York would have been prohibitively expensive, due to the fact that the transaction costs necessary to receive the benefits of ownership would eat up most, if not all, of the profits. However, once the underseas telegraph cable was in place, such costs were reduced to the point that such ownership became possible. It seems there is a similar dynamic at play with co-operatives.

In the past, co-operatives have only been successful in economic sectors in which the size of the economic relationship they have with their members is sufficiently large to offset the transaction costs of ownership (i.e., groceries, insurance, feed for livestock), and they have often further defrayed such costs through the use of volunteer labor. However, with such technologies as Bitcoin sending transaction costs plummeting towards zero, the range of firms that could be economically owned by their users/consumers is drastically expanding. The logic is simple – why patronize a for-profit firm when you can be assured you’re receiving goods and services at cost from your co-op store/auto repair shop/social networking website. Just as the first communications revolution gave birth to the age of the corporation, the rapid changes that our contemporary world is experiencing could be paving the way towards the age of the co-operative.

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A Possible Way Out of the Burlington Telecom Debacle: Mutualization

The shaky position of Burlington’s city-owned telecommunications company, Burlington Telecom, has been publicly apparent for quite some time now, but recent events have powerfully highlighted its uncertain future. It’s been in negotiations with its creditor, Citi Capital, to restructure its debt load for months, but, according to Seven Days, those talks have recently broken down and Citi Capital is demanding the either the repossession of BT’s infrastructure or the repayment of the lease from Burlington’s general fund. As a BT customer, this definitely has me concerned since I have little desire to find myself suddenly sans Internet as a result of the crisis.

As such, it is vitally important to find a just resolution to this problem, but I’ve been unimpressed by the ideas that have been floated thus far. A straight-up bailout from a City or State funding source seems to be (and should be) off the table since it would be profoundly unjust to the taxpayers who don’t utilize BT’s services. Similarly, selling the service to a private company with the cash on hand to quickly resolve the debt issue is equally problematic. Substantial public resources have gone into building Burlington Telecom, and to turn over the value embedded in that investment to a private concern while in a state of crisis (and thus likely not receiving a fair-market price) would be equally irresponsible and as much a theft from the taxpayers as a bailout. Finally, simply letting it fail due to what is essentially an artificial scarcity of capital would again be a disservice to the taxpayers and citizens of Burlington.

However, I believe there’s another route out of the BT crisis that has not been sufficiently explored: mutualization. By selling the service to its users in the form of a consumer co-operative (similar to Vermont Electric Co-op), BT could continue serving them while, at the same time, it would eliminate the risk and burden placed on non-BT subscribing taxpayers. Furthermore, selling Burlington Telecom to the “Burlington Telecom Co-op” would open new sources of capital to BT that would allow it to lessen its dependence on out-of-state financing.

The first source of capital would be member equity; each subscriber would be required to hold an ownership stake in BT and, depending on the number of subscribers, this could easily put several million dollars into its coffers right off the bat to get itself back on track with Citi and retire some of its out-of-state debt. Second, it could sell bonds to its members. Paying a greater rate of interest than most individuals can find for their savings while still keeping them lower than those paid to Citi, such bonds would create three benefits. First, they would allow BT supporters to put their money where their mouths are and pony up the capital necessary to support BT’s solvency and success. Second, they would allow for the retirement of a substantial portion of BT’s outstanding debt with debt at a lower interest rate, thus reducing the financial pressure on the company. Finally, such bonds would mean that the interest payments would accrue to BT’s stakeholders in Burlington and be fed back into our local economy rather than feeding an out-of-state banking conglomerate that has sucked up billions in Federal bailout money.

Additionally, the new co-op could also potentially obtain capital from a wide variety of sources that exist specifically to assist co-operatives. Indeed, one of seven guiding principles of the co-operative movement is “cooperation among co-operatives.” The mutualization of Burlington Telecom would be an excellent opportunity for Vermont’s co-operative movement to publicly honor that principle by purchasing BT bonds. Our state has more food co-ops per capita than anywhere else in the country, many of Vermont’s credit unions have assets in the hundreds of millions, and utility co-ops are omnipresent. If those institutions act according to their principles and step forward to invest in a fellow fledgling co-operative institution, the benefits would accrue to both their institutions and the people of Burlington. While the details of such a plan must still be worked out, I sincerely believe BT’s mutualization is the only just path forward; it deserves serious public consideration before the taxpayers are ripped off, one way or the other, in a corrupt and/or exploitative resolution of the Burlington Telecom crisis.


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A Proposal for Vermont Healthcare: VermontHealth

For generations the delivery of medical care has been a highly disputed and controversial issue in the United States.  In general, the left side of the political spectrum continuously attempts to develop government run health programs on the state and federal levels, while the political right often resists these attempts.  There are many variables to consider about this trend, including political fervor and expediency, profit motives, special interests, and human inertia.  Though it is impossible to define unified positions for the Left and Right, the conclusion can be drawn that the size, complexity and often the cost of healthcare systems have all increased.  Over the years we have seen the development of national programs such as Medicare and Medicaid, while individual states have also implemented varying government assistance programs for those in financial need.  Currently, we are witnessing one of the biggest pushes for health reform in our country’s history, with the goal to make healthcare available to all people.  While many of these programs have successfully delivered healthcare to their target populations, the fact remains that insurance companies are still heavily involved and make a profit at the expense of the tax-payer.  Cigna, Aetna, Blue Cross etc. all contract with state governments and the federal government to create plans for eligible citizens to choose from, which creates a profit that can be distributed among shareholders in the company.  This is the inefficiency that VermontHealth seeks to address, using the cooperative model of business to provide the citizens of Vermont with a local, not-for-profit healthcare option with the sole purpose of benefitting its members.  The mission is not to eliminate insurance companies completely or discourage the use of government resources; rather, it is to streamline the most effective components of those two to supplement the co-op, while keeping both the capital and control of the business within the state and in the hands of community stakeholders.

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