The ‘co-op’ business model

At a meeting of local credit unions a few nights ago there was good discussion about two competing visions; (1) a network of community based credit unions who collaborate to benefit from economies of scale and (2) a large integrated national back office corporate ‘subsidiary’.  There is tension as larger credit unions express impatience, resent having to seek consent from smaller players, and consequently promote more ‘efficient’ models that have more common for ‘joint stock’ companies.

The tension arises from diverging visions at the retail level.  There are two distinct types of credit unions.  Many are based on the classic democratic control model that has them rooted in a community and intrinsically a part of that community (eg. the police credit union, the Korean Canadian credit union, Sunshine Coast Credit Union), and others are large and widely dispersed enterprises that serve many communities.  The regional geographic bond credit unions have grown very large relative to classic credit unions.  And now some big ones are planning to become national players. The professional managers at larger credit unions previously worked in other corporate settings and they increasingly propose commercial bank style arrangements, capital structures, and business strategies.

However, there has always been a credit union commitment to the egalitarian ‘co-op’ model for business; credit unions network together to take care of back office or other chores, this is the so called ‘second tier’ level.  I was heartened to hear several speakers advancing that position and not being politely deferential to the bigger players.  The ‘co-op’ model is fundamental and distinguishes credit unions; it ought not be diluted upstream.  At the core, credit unions are a network of community based projects in common cause, mutually supportive.

The quest for operating efficiencies, and simpler decision-making structures, erodes the very essence of credit unions.  Yes we ‘provide services’, but as citizen controlled institutions we have a broader mandate and we are not simply ‘market driven’.  Speakers made reference to agricultural co-ops, telecom co-ops, and utility co-ops that constitute successful models for business.  We must appreciate that our network of credit unions is ‘something bigger’.

This legacy, essentially an assertion of political agency, is under pressure from the popular culture fascination with ‘market forces’ and a concomitant failure to appreciate the importance of community.  Indeed we are social beings and we are not simply a sum of individual transactions and individual decisions.  Research in behavioral economics, brain science, and the social sciences does not support the myths of the rational economic man, the myths that dominate the consumer culture of our time.

Powerful bankers and money managers continue to promote a model for business that will conveniently permit them to, over time, control a larger share of the action – through acquisition and consolidation, ‘monopoly’ – and to extract a larger share of the rent.  Sometimes the arguments are well constructed and the pitches obscure the likely political results.  The co-operative model simply says we will take care of things for ourselves, thank you.

ADDENDUM:  While I was grateful for this part of the debate that evening, I was alarmed that the upcoming provincial election was ignored through 3 hours of reports and updates.  As a citizen-based movement with a real stake in provincial legislation and policy, credit unions have a need to outline our needs, press for changes, and mobilize the electorate.

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