Cooperatives and community investment

In the 1920s, Western North Carolina was a hotbed of agricultural cooperatives. For farmers here, the Great Depression began well ahead of the stock market crash. Overproduction, monopoly control of commodity markets and Prohibition dramatically cut farm income across the country.

In answer, the Farmers Federation began organizing growers to combine their market power, build warehouses and dairies, and improve the quality of their products through cooperative enterprises. Led locally by James G.K. McClure, the patriarch of Hickory Nut Gap Farm in Fairview, the Farmers Federation helped mountain families maintain income and preserve their holdings through the hardest years of the Depression and World War II.

Recent years of economic turmoil and hardship have brought a resurgence of interest in cooperative enterprises across the nation and in WNC. Many advocates for restructuring the national economy to a more human scale — thinkers such as Gar Alperovitz, Marjorie Kelly and Michael Shuman — point to the cooperative form as a key element in that movement. As Kelly writes in Owning Our Future: The Emerging Ownership Revolution, “The cooperative form is most highly developed in remaining focused on serving the common good.” Cooperative enterprise comprises an international movement, benefitting billions of people on six continents and trading in trillions of dollars of goods and services. Yet cooperatives are the most local of businesses, creating value and growing wealth that remains rooted in their communities.

In the context of community investing, however, cooperatives present a quandary. The cooperative model is a way of doing business that optimizes the benefits for the people who participate in the enterprise rather than returning profits to investors. A cooperative is owned by, serves the needs of, and is democratically managed by its members.

For example, the French Broad Food Co-op is a grocery store on Biltmore Avenue in downtown Asheville. It is owned entirely by individuals and families in this community. It exists for the use of its owners — for the purpose of selling healthful, organic food and other products. Each member family has a single share of ownership and one vote in the governance of the business.

Like any other capitalist venture, it must maintain positive cash flow, but because FBFC’s purpose is to sell good food to its owners, its goal is to provide the best value, and not to earn a profit from each transaction. Any net operating margin represents an overpayment by its owners for their purchases, not a profit, and is returned to them in proportion to their spending. The Co-op’s very existence and the quality it provides to its members is their return on investment.

There are many other cooperatives at work in WNC, although many do not have the word “cooperative” in their name. The Haywood and French Broad Electric Membership corporations provide their residential and business owners with electric power. Financial institutions such as Telco Community Credit Union, United Services Credit Union, Carolina Mountain Credit Union, State Employees and other local credit unions are entirely owned and governed by their respective depositors. WNC has child-care cooperatives, agricultural cooperatives — even artisan-owned cooperative galleries. A number of worker-owned cooperatives — such as Home Cleaning Professionals in Asheville, Green Muse in Hendersonville and Opportunity Threads in Morganton — provide gainful and meaningful employment to folks in economically marginalized communities. As to those worker-owned businesses: Yes, they are managed by the employees themselves.

Many successful cooperatives started small and grew into large enterprises just through the financial contributions and work of their owners. But to start or expand a modern cooperative business, the hard fact is that projects need more capital than members can provide on their own. Even when credit unions and community financial development institutions are willing to lend, the lender generally wants cooperatives to share in the risk through equity investment.

A typical entrepreneur can obtain equity investment from outsiders in exchange for a share of the profits and a share of control of the enterprise. But cooperatives are constrained by the principles of member ownership, benefit and control. Conventional businesses are controlled in proportion to the dollar value of each owner’s investment: Money votes. Cooperatives are controlled democratically: People vote. This is the investment quandary: How can I invest in a cooperative if I am not a member? And how can cooperatives seek investment from outsiders?

Cooperatives are keeping pace and are developing creative and people-focused methods to meet modern financial demands. For example, many cooperatives borrowed a tool from Wall Street to build equity investment — using preferred shares. This is a special type of stock that provides no vote, and therefore does not offend democratic control principals. To make up for the lack of vote, preferred shares typically offer a fixed annual return or dividend, closely resembling interest payment on a loan.

This is how the Hendersonville Community Co-op is raising capital to build a new and larger store. The new structure will have twice the floor space, double the product offerings and more employees. Disclosure: I am an owner and member of the board of directors of the Co-op. Our preferred shares are only available to Hendersonville Co-op owners who are residents of North Carolina. Our capital campaign is close to meeting the goal of $800,000 in preferred-share investment, which is a significant chunk of the total cost of the project. The rest of the financing comes from local lenders, such as Self Help Credit Union.

If you live near Hendersonville and want to buy healthy, organic food, joining our Co-op is a simple community investment you can make. Becoming a member-owner is the best way to support the cooperative economy. But if you’re already a member of the Hendersonville Community Co-op, or the French Broad Food Co-op, and want to invest even more in cooperatives, there are some options.

You can invest locally but indirectly. Cooperative financial institutions — such as the Northcountry Cooperative Development Fund — exist to provide capital to cooperatives, including the Hendersonville Co-op. In turn, these instititutions seek individual investments to support their loan portfolios. You can similarly invest in Self Help’s Go Local CD to support its loans to cooperative (and conventional) business in WNC.

You can invest directly but (for the time being) not locally. Equal Exchange Cooperative is a worker-owned importer and distributor of Fair Trade coffee, chocolate and other food products. Equal Exchange pioneered the use of non-member preferred shares and now finances a significant portion of its capital needs that way. “Social investors” can support cooperative enterprise and Fair Trade by adding Equal Exchange to their portfolios. And you can buy Equal Exchange products at the French Broad Food Co-op and the Hendersonville Community Co-op, or drink its coffee at Firestorm Café & Bookshop, a worker-owned cooperative in Asheville.

As the cooperative economy grows, we can look forward to more opportunities to invest in our communities by joining co-ops and occasionally investing in co-ops in which we don’t participate directly. This democratic form of capitalism builds lasting wealth where we live and work.

— Thomas Beckett is an attorney focusing on the needs of startup and growing enterprises. He is the co-founder of Carolina Common Enterprise, North Carolina's new cooperative development center.