University of Wisconsin Center for Cooperatives

Cooperatives: A Tool for Community Economic Development


CHAPTER 2

COOPERATIVES AS TOOLS FOR ECONOMIC DEVELOPMENT
 
 
To illustrate how co-ops can be used as effective  
economic development tools, this chapter discusses:  
  • different ways people can engage in cooperative action to improve economic conditions and the quality of life in their communities;
  • the versatility of cooperation as a development tool;
  • examples of three different kinds of cooperation; and

  • how to use co-ops as an economic development tool.


Cooperation in Action

INTERACTIVE CABLE TV JOINS
SIX SCHOOL DISTRICTS
Trempealeau County, Wisconsin

In the early 1980s, the school districts in Trempealeau County, Wisconsin were faced with dwindling enrollments and the threat of school closures.  School district supervisors and board members came up with a plan to simultaneously preserve local schools and improve the quality of education.  They installed an interactive cable television system in the county’s six school districts, thus allowing schools to offer courses together and maintain adequate enrollments per course via distance education.  As a side benefit, this project also resulted in the first rural cable co-op in the U.S.


SENIOR HOUSING CO-OP EASES HOUSING SHORTAGE
Mt. Horeb, Wisconsin

In the mid-1990s, community leaders in Mt. Horeb, Wisconsin became concerned about older residents having trouble keeping up their homes and leaving the community in order to find more appropriate housing.  With assistance from the Homestead Housing Center, Mt. Horeb opened a 25-unit senior housing cooperative in 1997 that provides apartment-style living, a generous amount of common space and some support services.  There is a valuable side benefit of the cooperative: many of the homes formerly occupied by older residents have been bought by young families, thus alleviating a second housing problem in the village -- a shortage of single family homes.


COMMUNAL COMPOSTING RESULTS IN A MARKETABLE PRODUCT
Fayette County, Iowa

The biggest agricultural complaint among Iowans, including farmers, in recent years is the bad smell that emanates from hog farms.  A group of farmers and community leaders in Fayette County, Iowa came up with an idea to make a business out of this problem. Several members of the group researched and developed a commercial composting business that collects manure solids from area farms and mixes them with recycled paper and yard waste to produce a bagged, odorless compost that is sold to farm and garden centers.  The separation of the liquid and


INDEPENDENT PHARMACY
CO-OP HERALDS 2,000 MEMBERS
Nationwide

Chain stores and edge-of-town malls have spread across the rural landscape in the United States in the past two decades.  They have often left in their wake failed local merchants and down-at-the-heels downtowns.  In the early 1980s a group of Wisconsin pharmacy owners formed what is now called the Independent Pharmacy Cooperative.  The cooperative provides a means for its members to pool their buying power and bargain with suppliers for steep discounts on prescription and over-the-counter drugs, cosmetics and hundreds of other items carried in drug stores. The resulting reduced costs have improved the ability of these phamarcies to compete with chains. The co-op now has over 2,000 member-owners.


The stories summarized on the previous page illustrate different ways in which people can engage in cooperative action to improve economic conditions and the quality of life in their communities.  Similar examples can be given for local government purchasing cooperatives, child care centers, home care services for the elderly, transportation services and dozens of other cooperative projects.

These examples describe three kinds of cooperation:
1. cooperation as a process in which a group of local community residents engage in joint economic development planning (the composting project was developed through this kind of planning process);

2. formally organized cooperation in which a business is democratically owned and controlled by its members and is incorporated as a cooperative (the pharmacy co-op, the senior housing co-op); and

3. functional cooperation in which a business is not a formal cooperative but is owned and controlled in a manner similar to a formal cooperative (the school district distance education project).

These different kinds of cooperation -- involving local people, local businesses and local governments working together to address community problems – are part of a broader set of strategies which can be referred to as locally-based development.  Before we discuss these cooperative strategies in more detail, it is important to get a better understanding of the broader strategy of locally-based development.
 
 
Much of rural America is drastically underprepared to compete in international trade markets...the ability of our rural regions and small towns to take advantage of globalization hinges on local capacity to change effectively in a dynamic environment. 
Amy J. Glasmeier
Pennsylvania State University
 
 
Because cooperatives are organized to serve members, they also affect the communities where members and employees live.  Their economic impact is felt locally through good jobs that support the tax base, as well as strengthened community participation. 
Brian Henenan
Cornell University
 

Locally-based development
can be contrasted with strategies that seek to strengthen the local economy by accessing resources from outside the community.
Business prospecting and competing for federal and state grant programs are examples of externally focused development strategies.  Locally based and externally focused strategies are not mutually exclusive and can be complimentary.  For example, the distance learning project in Trempealeau County received major financial support from the Rural Electrification Administration.  The question is one of emphasis rather than the right or wrong way to do development.

Locally-based development means building on the strengths and shoring up the weaknesses that are present in a community.  Most new businesses in a community are formed by local entrepreneurs.  Most new jobs result from local business expansions and start-ups, not from businesses moving to a community from somewhere else.  Locally-based companies are far less likely to leave town than firms owned by outside investors.  These facts indicate that the development and nurturing of locally-based businesses should be a significant part of a local development strategy.

Cooperation can be seen as a set of tools within the locally-based development tool box.  Clearly, cooperation is not the answer to every local problem.  There are many tools which are important for local development that may not fit the definitions of cooperation given above.  For example, the following activities often don’t have a cooperative component:

  • technical and financial assistance to start-up and established local businesses;
  • development of the economic and social  infra-structure such as roads; and
  • telecommunications, health care, schools etc.
Even in these areas, however, there is plenty of room for cooperation, particularly in the sense of cooperation as an inclusive approach to planning.  Also, one of the most effective ways to strengthen small businesses is through support and advice from current and former business owners and managers.  This type of mentoring assistance can be coordinated through an informal cooperative network of business people.  Business incubators, both with and without walls, can also be organized around a cooperative philosophy so that emerging entrepreneurs feel a strong sense of ownership in the shared facilities and services they use.

Downtown business groups and local governments can cooperate on sponsoring events, sales and downtown beautification programs to bring consumers back to Main Street to shop.  So, even in these traditionally non-cooperative local devel-opment areas, there is a role for working together.
 
Cooperatives are tools for economic development and should promote both social empowerment and economic goals. 
Madison Principles
 
Cooperative Awareness
With the examples given above and the versatility of cooperation as a development tool, why isn’t it used more?  In part, the answer is because examples such as those presented above are not widely enough known.  In part it’s because developers don’t have the experience of working on cooperative development projects and don’t know where to go for help.  In part it’s because it takes a special effort to take on a new approach to development.

The lack of awareness of cooperative approaches to development may be changing.   For example, much of the literature on neighborhoods and communities now stresses the desirability of arriving at consensus about preserving or changing a community’s identity, amenities, and services.  There is an increasing emphasis in schools on cooperative learning in which students learn in groups and teach each other rather than view each other as contestants competing for the same prize.  Technology breakthroughs have democratized access to information and communication, although many would argue that the effect thus far has been an overload of trivia and commercialism rather than a gateway to cooperative enlightenment.

Businesses are also learning how to cooperate better with one another -- both vertically, by working more closely with suppliers, buyers and consumers, and horizontally, by doing joint purchasing, servicing, and marketing with other businesses in the same product areas.   The Independent Pharmacy Cooperative is an excellent example of joint purchasing.  These cooperative approaches are also being adopted by local governments and non-profit organizations such as the Rural Wisconsin Health Cooperative, a co-op of about 20 hospitals and health care centers.

Agriculture is the single most important economic sector in most Wisconsin counties.  Dane County, the home of the state capitol and the largest campus in the University of Wisconsin system, also has the second highest level of agricultural production of Wisconsin’s 72 counties.  Despite the tremendous importance of agriculture in the state economy, it is ignored by most local leaders when they look at opportunities for economic development.

We can reinstate agriculture and agricultural processing as an economic sector deserving of locally-based development initiatives.  Farms engage in the same cooperative activities as other businesses.  Farmers have been doing so far longer than most other business owners.  There are over 250 agricultural cooperatives in Wisconsin, many of which trace their roots back 50 years or more.  There are also several “new generation” co-ops that have emerged in the last few years, especially in  North Dakota and Minnesota, which provide a co-op model for our time that combines good financial returns for farmer-members, effective capitalization and product marketing strategies, and a commitment to the economic vitality of local communities.

Many farmers are also involved in networks -- a kind of informal cooperation -- to help themselves improve their farming practices and find market outlets.  An example of this from the Upper Midwest is the spread of rotational grazing networks in which thousands of producers have adapted low cost, environmentally friendly livestock grazing techniques by participating in local networks with other farmers.  Through these networks farmers pass on information and conduct pasture walks on each other’s farms to evaluate and learn from each other’s practices.
 

Cooperation as a Development Tool
Throughout this manual, there are many examples of successful cooperative projects and information on how to adapt them.  Not all issues lend themselves to cooperative action, but many do.  Cooperative planning, and formal and informal cooperatives, deserve far more attention than they usually receive as local economic development tools.

These processes and outcomes are what cooperation as a development tool is all about.  This manual and the resources listed in it are intended to help you to add these tools to your toolbox and to use them effectively.
 
 
Although magazines all feature the successful “tycoon,” seldom do we find stories of successful communities that worked together to solve a problem, or successful coalitions that acquired a healthy bottom line by cooperating rather than competing.  Rampant individualism seems to prevail despite the fact that it has left us feeling isolated, stressed out and overburdened, and despite the fact that there are hundreds of case studies which demonstrate that cooperation works. 
Fred Kirschenmann

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