Benefits of User Owned Firms
Phil Kenkel
Bill Fitzwater Cooperative Chair
As we wind up the International Year of Cooperatives it is appropriate to discuss the benefits of user owned firms. Agricultural cooperatives are obviously one type of user owned firm but a wide variety of other business 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 the 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 you need to communicate to your members to help them understand that your cooperative matters. User-owned firms have another level of benefits that impact the general market place 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 market place competitive. They prevent or offset the power of monopolies and cartels and 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. The user-owned business form also has some inherent disadvantages. I’ll discuss those in the next newsletter.
12-6-2012