Reflections on the 3rd co-operative principle

Jean-Louis Bancel shares his view on the 3rd co-operative principle

Economic relations between co-operators and co-operatives are more than a matter of capital.

It is a great pleasure, a few years after the publication by the International Cooperative Alliance (ICA) of the Guidance notes on the co-operative principles, to once again contribute to the collective reflection on the third co-operative principle.

Far from wanting to affirm a doctrine of “good interpretation”, it is a question of contributing to a collective reflection launched by the ICA Congress in Seoul in December 2020, devoted to the co-operative identity.

The articulation between the third and the first principle

First of all, it must be remembered that the co-operative values ​​and principles constitute a complete set, characterising co-operatives. We cannot highlight only one principle, separating it from the others. This is why it is important to highlight what links the first and third principles.

The first principle, relating to members (here called co-operators) explains that a co-operative is an organisation “open to any person able to use their services … that membership entails”.

The third principle,  “economic participation of members”, is a corollary of the “ability to use” the services of the co-operative.

These two expressions are the translation of what social economy researchers call “the dual quality” of co-operators. In this characterisation, the co-operators are both the initiators of the co-operative’s production capacity (which is not reduced to the capital contribution) and its users.

Some remarks on the distinction between title and content

Reading the third principle does not fail to raise questions about the gap in meaning between its title and the written content.

Indeed, the title would suggest that the principle is devoted to all economic relations between the co-operators and the co-operative. However, the content only concerns the capital relationship between the co-operative and the co-operators.

This distinction between the title and the content deserves some attention.

The content of the text suggests writing in layers. The ICA interpretation guide clearly explains this wording in the form of a “Spanish inn” (a place where customers can eat what they bring), allowing, at the international level, the coexistence of several concrete implementation formulas. 

It is common knowledge that there are very different implementations of “indivisible reserves” between geographic and/or legal groups. In some jurisdictions, the existence of indivisible reserves (co-ownership of the co-operative and not of individual co-operators) prohibits the “demutualisation” of a co-operative. This point of view is not shared in other legal frameworks.

To delve deeper into the subject of co-operators’ relationships with the capital of their co-operatives, I can only invite them to consult the studies published in the ICA’s document on the matter, The capital conundrum.

Here, I prefer to delve into other aspects which reflect the evolution of the composition of the ICA and, with it, the identity issues of the international co-operative movement.

For a long time, the ICA was mainly made up of consumer co-operatives. This explains the evolution of the drafting of principles over time, particularly in the economic field.

In the original draft of the Rochdale principles, of the nine rules set out in 1860, four fell within the economic domain. First: capital contribution by co-operators paid only at a fixed rate; third: loyalty of the co-operative in respecting the rules of weight and measure (no cheating on quantity); fourth: cash sale (prohibition of credit sales); fifth: distribution of the surplus between the co-operators in proportion to their purchases.

Related… Member’s money: UK retail societies and withdrawable share capital

The wording of these principles has evolved over time. After the various revision congresses, only subjects relating to capital retained a place in the section relating to the economic field. One of the reasons was that some of the rules adapted to consumer co-operatives did not seem relevant for other categories of co-operatives: banking or agriculture, which had appeared and joined the ICA.

The current wording of the third principle demonstrates the introduction of amendments, at the initiative of the French delegation participating in the Manchester Congress of 1995, so that the concerns of worker co-operatives, which have a different relationship to capital from consumer co-operatives, are included.

In view of the expansion of the categories of co-operatives belonging to the international movement, revealing different relationships between companies and their co-operators and consequently having differentiated needs for economic capital, it seems necessary to question the current limitation of the economic contribution of members to the sole subject of capital. Doesn’t a co-operative that only delivers services have more loyalty from its members than financial capital? Likewise, should economic relations between social co-operatives or co-operatives providing public services only be characterised by the subject of capital? The more the ICA has the desire to be representative of the diversity of co-operatives, the more collective reflections on the economic relations between co-operators and their co-operative will have to go beyond the current field.

The debates that emerged during the 2000s when certain accounting regulators contested the characterisation of shares held by co-operators as capital should have alerted the co-operative movement to the risk of losing intellectual control of one of the substantial elements of characterisation co-operatives.

New areas which could be treated under economic relations

Among the subjects which merit examination in order to establish principles governing the economic relations between co-operators and their co-operative are:

The voluntary contribution of co-operators to the proper functioning of their co-operative. Shouldn’t the example of co-operators who select products from panels be reflected in the co-operative’s periodic economic reports? In certain countries, it is obligatory to communicate quantitative information on the value provided by the voluntary commitment of members.

Likewise, proponents of a contributory economy plead for non-monetised contributions to be valued. Thus, in the field of science and knowledge, how can we recognise the contribution of co-operators who contribute to the filing of a patent and thus contribute to creating value for the co-operative?

Should these non-monetary forms of contribution to the co-operative be recognised by the granting of shares? And is this a category conferring voting rights? In the event of departure from the co-operative, do these members have the right to monetary compensation or is it wealth falling within the indivisible reserves owned by the co-operative?

By extension, shouldn’t the co-operative movement get involved in questions of extra-financial accounting to enhance co-operative specificities? More fundamentally, shouldn’t we reflect on the added value created by a co-operative and its distribution between the different stakeholders?

There would certainly be other topics to open. The work initiated by the Seoul Congress on the Cooperative Identity in the present times could be an opportunity to go beyond the “questions to be examined later” mentioned at the end of each of the interpretation notes published by the ICA.

I hope to have shown the reader that the question of economic relations between co-operatives and their co-operators cannot be reduced to the sole dimension of capital wealth and that there is material to reflect on a possible new wording of the third principle co-operative.