As this is International Credit Union Day it may be the right time to speak up about the roots of our credit unions, and the ‘revolutionary’ role they play in the larger political economy. This is most evident in developing countries, such as Ghana, where one of our staff at CCEC recently visited. But it is also at the heart of credit unions in countries like Canada, the US, and Australia, where credit unions have a substantial institutional standing. However, the root mission often gets lost in the confusion of getting things done. I speak to some related points in an OpEd in today’s Vancouver Sun.
The essential difference for credit unions is the ownership – democratic consumer ownership. This is a radically different ownership structure. Co-operative ownership introduces different answers to the questions related to ‘why’ the organization exists and ‘how’ the organization is to conduct itself.
Because only 5% of the worlds ‘banks’ are co-operatives, these co-ops do not get the attention they deserve. Those in the media are captivated by the tales of big business. In fact, many initiatives in the regulatory world ‘assume’ investor ownership as the norm and consequently penalize the the co-operatives in the mix.
The purpose of a co-operative is to provide ‘services’ to members, who join voluntarily to aggregate their buying power. The purpose is to provide needed services, at a fair price, with an implicit quality guarantee.
The co-op model is ‘revolutionary’ in several ways. First, it directly challenges the bias of contemporary economics that would argue that market forces would identify and serve needs as they arise. Throughout western Canada and in Quebec that was not the case, which was why people created credit unions during the 20th century. Second, the member-owners have many interests that stretch well beyond ‘profit maximization’, the alleged driving focus of investor-owned banks. Member-owners may have a community they wish to nurture, or shared social commitments and environmental concerns that can become part of the policy framework of their enterprise. And third, credit unions are political constructs that are inherently representing consumer-members, and the interests of consumer-members, in the larger world.
This last political role is one that has been down-played over the last few decades in Canada as we have professionalized the managerial practices within our credit unions and as directors have been dedicated to ‘prudent’ management and ‘efficient’ operations. The recent decades of successful growth and relative affluence have caused many to simply mimic the conventions of investor-owned firms, and to not be as active in the public square as credit unions could be.
Accountability to our member-owners is the other fundamental difference of a co-op model. In a co-op each member has one vote, and only one vote. This is dissimilar to investor-owned firms: no one can have a majority (or dominant) voting entitlement, voting entitlements are widely distributed, all members may stand for the board, and credit unions enter into complex collaborations in mutual support of one another. These second tier co-op arrangements allow credit unions to pool resources and business transactions to achieve necessary economies of scale. Distributed, democratic ownership obliges boards to share more information widely, but it also means no member has a big stake in the operations so many will be disinterested, they will be free riders.
The governance framework for credit unions relies on an informed and engaged membership. Members meetings and mail outs have classically been important components of maintaining healthy boards and loyal memberships.
Unfortunately, with growth and consolidation over the last few decades many of the traditional co-op accountability mechanisms have been tested, weakened or forgotten in some cases. But smaller credit unions still follow these ‘local’ accountability practices. New reporting, disclosure and member engagement practices, using current technologies, need to be explored to ensure the vitality of our co-op accountability systems.
Good accountability is the quality assurance loop for a consumer owned enterprise.
In the face of our consumer culture these ‘how’ accountability questions are a challenge. Several years ago it was common to hear, “Act Local, Think Global’. For credit unions that remains the message. It is here where member-owners can start to see that they are part of something bigger.
The photo comes from a poster used by the Common Good Co-op, BC’s first ‘credit union’.