Benefits of User-Owned Firms

By Phil Kenkel
Bill Fitzwater Cooperative Chair
Oklahoma State University

 

What are the benefits of user-owned firms? Agricultural cooperatives are obviously one type of user-owned firm, but a wide variety of other businesses, including worker cooperatives, consumer cooperatives, utility cooperatives, mutual insurance agencies, credit unions and cooperatively organized banks, also operate under the user-owned business model. A number of researchers have tried to compare user-owned and investor-owned firms across all business sectors. The results suggest that user-owned firms have several advantages.

Cooperatives and other user-owned firms benefit their user-owners through access to infrastructure and services, cash patronage, stock patronage as it is redeemed and the ability to have input into how the organization operates. Those are the benefits that you need to communicate to your cooperative members to help them understand that your cooperative matters.

User-owned firms have another level of benefits that impact the general marketplace and economy. Those are the benefits that we need to communicate when we tell the general public that the cooperative business form matters.

The benefits of cooperative businesses to the general public involve market conduct, alignment and risk taking. User-owned firms help to keep the marketplace competitive. They prevent or offset the power of monopolies and cartels; they also help force other firms to set fair prices. The ultimate effect is fair prices for consumers. Managers and board members of user-owned firms are aligned with the interests of owners and customers. They are not driven by the need for short-term profits and bonuses. They drive the firm like they own it, not like they stole it!

This leads to a third area of comparative advantage. User-owned firms are less likely to take unreasonable risks. We saw this during the recent banking crisis when cooperative banks and credit unions demonstrated that they were much less risky relative to investor-owned banks. User-owned firms tend to be stable, avoiding hostile takeovers, leveraged buyouts and job outsourcing.

User-owned firms have advantages to the general public because they keep markets honest, provide stability and stay focused on the long-term goals of their customers. Those are the points we need to work into our general discussion of cooperatives.

 

Cooperatives: As American as Apple Pie

By Phil Kenkel
Bill Fitzwater Cooperative Chair
Oklahoma State University

 

The first recognized cooperative business in the United States was founded in 1752 by Benjamin Franklin. The Philadelphia Contributionship for the Insurance of Houses from Loss by Fire became the first mutual fire insurance company in America and it continues to operate today.

Philadelphia was a relatively small town in 1752 with approximately 15,000 inhabitants and 8 volunteer fire companies. Fire prevention played a large role in the planning of the city. Streets were wider than average, and brick and stone were common building elements. Despite preventive measures and the efforts of firefighters, fires did still occur. The cooperative provided residents a much needed safety net.

Before accepting a property for insurance, the company sent surveyors out to inspect each building. The board of directors reviewed these reports and then set the rate. The cooperative set new standards for building houses because it refused to insure houses that were considered fire hazards. The criteria they used to evaluate buildings would one day be reworked into both building codes and zoning laws. When the first Continental Congress met in Philadelphia in 1774, they met in Carpenter’s Hall, a building owned by a carpenter’s cooperatives and insured by the Philadelphia Contributionship.

Today, over 350 million Americans are members of mutual insurance agencies, cooperatives and credit unions. Those Americans can be proud to be part of an industry first established in the United States by one of our nation’s founding fathers.