Cooperative Principle #3: Member Economic Participation
This principle spells out the responsibilities of members to their cooperatives, and how money is to be treated in the cooperative business association.
Here is the new principle in full: “Members contribute equitably to, and democratically control, the capital of their co-operative. At least part of that capital is usually the common property of the co-operative. They usually receive limited compensation, if any, on capital subscribed as a condition of membership. Members allocate surpluses for any or all of the following purposes: developing the co-operative, possibly by setting up reserves, part of which at least would be indivisible; benefiting members in proportion to their transactions with the co-operative; and supporting other activities approved by the membership.”
Let’s examine what each part means. Members contribute to the financial capital of their cooperatives equally. Each co-op, either through direct, democratic action of the membership or through its elected representatives, determines a required share purchase (capital), based on the amount that will be needed to start and maintain the business.
Capital thus raised becomes the common property of the co-op, and there is little, if any, interest paid on this amount. This prevents speculative practices, in which investors provide capital in exchange for high rates of return which could endanger the financial health of the association.
“Surpluses” (co-op lingo for profit) which are generated by the efficient management of the cooperative business, are to be allocated in such a way as to prevent any member from profiting at the expense of any other. They may or may not be returned to members. The elected representatives of the co-op, or the members themselves, may choose to use the money for improvements, expansions or new services for the membership, or other activities supported by the membership.
If distributions of surplus are made, they are in proportion to the amount of business done by each member (patronage rebates). In essence, each member getting back part of the profit that their own purchases have generated for the cooperative.
It is important to remember that cooperatives are businesses that are exist to improve the lives of the participants, by providing goods and/or services that the members need. The Third Principle makes it clear that members have a responsibility to capitalize their cooperative, and that by pooling funds they agree to participate in an association that exists for the good of the whole group, not just a few individuals.
This principle also makes it clear that cooperatives are not non-profit organizations! However, the profit, or “surplus” generated by the cooperative does not benefit a small group of owners or investors, but the entire cooperative membership. It is not the fact of profit, but the uses to which it is put, which differentiates the cooperative enterprise from private business.
This article is used by permission and adapted by Hope Sutton from a Sevananda Natural Food Co-op Newsletter article originally written by Steve Cooke, General Manager.