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Resilience of the Cooperative Business Model in Times of Crisis Sustainable Enterprise Programme International Labour Organization What began as a crisis in finance markets has rapidly become a global jobs crisis. Unemployment is rising. The number of working poor is increasing. Businesses are going under. Concern is growing over the balance, fairness and sustainability of the sort of globalization we have had in the Resilience of the run up to the financial crash. The International Labour Organization, representing actors of the real economy, that is Cooperative Business Model governments, working together with representatives of Photos cover: © Ellen Beijers, Kropka! - Fotolia.com employers and workers organizations, is playing its role within in Times of Crisis the UN and multilateral system to support its constituents as they seek to weather the crisis, prepare for recovery and shape a new fair globalization. The Decent Work Agenda Design and printing - International Centre of the ILO, Training - Italy Turin provides the policy framework to confront the crisis. In this series of brief publications, the ILO's Sustainable Enterprise Programme reflects on impacts of the global Sustainable Enterprise Programme economic crisis on enterprises and cooperatives, provides examples of policy and enterprise-level responses, and indicates how constituents can be supported by the ILO. Made of paper awarded the European Union Eco-label reg.nr FI/11/1. International Labour Organization Sustainable Enterprise Programme Resilience of the Cooperative Business Model in Times of Crisis Johnston Birchall1 and Lou Hammond Ketilson2 1 Johnston Birchall is Professor of Social Policy at Stirling University, Scotland 2 Lou Hammond Ketilson is Director, Centre for Cooperative Studies, University of Saskatch- ewan, Canada. She would like to acknowledge the help of her research assistant, Dwayne Pattison Copyright © International Labour Organization 2009 First published 2009 Publications of the International Labour Office enjoy copyright under Protocol 2 of the Universal Copyright Convention. Nevertheless, short excerpts from them may be reproduced without authorization, on condition that the source is indicated. For rights of reproduction or translation, application should be made to ILO Publi- cations (Rights and Permissions), International Labour Office, CH-1211 Geneva 22, Switzerland, or by email: [email protected]. The International Labour Office welcomes such applications. Libraries, institutions and other users registered with reproduction rights organizations may make copies in accordance with the licences issued to them for this purpose. Visit http://www.ifrro.org to find the reproduc- tion rights organization in your country. ISBN 978-92-2-122409-9 (print); ISBN 978-92-2-122410-5 (web pdf) ISSN 1999-2939 (print); ISSN 1999-2947 (web pdf) ILO Cataloguing in Publication Data Birchall, Johnston; Ketilson, Lou Hammond Resilience of the cooperative business model in times of crisis / Johnston Birchall, Lou Hammond Ketilson ; In- ternational Labour Office, Sustainable Enterprise Programme. - Geneva: ILO, 2009 1 v. (Responses to the global economic crisis ISBN: 9789221224099;9789221224105 (web pdf) International Labour Office cooperative / cooperative bank / credit cooperative / employment creation / economic recession 03.05 Johnston Birchall, Lou Hammond Ketilson Resilience of the cooperative business model in times of crisis; International Labour Office, Job Creation and Enterprise Development Department. - Geneva: ILO, 2009 International Labour Office; Job Creation and Enterprise Development Dept The designations employed in ILO publications, which are in conformity with United Nations practice, and the presentation of material therein do not imply the expression of any opinion whatsoever on the part of the In- ternational Labour Office concerning the legal status of any country, area or territory or of its authorities, or concerning the delimitation of its frontiers. The responsibility for opinions expressed in signed articles, studies and other contributions rests solely with their authors, and publication does not constitute an endorsement by the International Labour Office of the opinions expressed in them. Reference to names of firms and commercial products and processes does not imply their endorsement by the International Labour Office, and any failure to mention a particular firm, commercial product or process is not a sign of disapproval. ILO publications and electronic products can be obtained through major booksellers or ILO local offices in many countries, or direct from ILO Publications, International Labour Office, CH-1211 Geneva 22, Switzer- land. Catalogues or lists of new publications are availablefreeofchargefromtheaboveaddress,orbyemail: [email protected] Visit our website: http://www.ilo.org/publns Printed in Italy Table of contents Summary........................................................................2 Introduction ....................................................................3 1. Cooperatives thrive in times of crisis ..............................5 1.1 Employee-owned co-operatives...............................7 1.2. Cooperatives succeed only in crisis or also in crisis? .......8 2. Why are cooperatives good in a crisis?...........................10 2.1 The cooperative model of enterprise .......................10 2.2 Cooperative performance in crisis ..........................13 3. How are cooperative banks and credit unions faring in the current crisis? ................................................15 3.1 Increase in assets and deposits ..............................17 3.2 Significance of cooperative banks and savings and credit cooperatives for financial inclusion .................26 3.3 The significance of cooperatives for employment creation and decent work ....................................29 3.4 Policy responses ...............................................32 3.5 How can the ILO assist its constituency to promote cooperatives to address the crisis and recovery?..........36 1 Summary The financial and ensuing economic crisis has had negative impacts on the ma- jority of enterprises; however, cooperative enterprises around the world are showing resilience to the crisis. Financial cooperatives remain financially sound; consumer cooperatives are reporting increased turnover; worker coop- eratives are seeing growth as people choose the cooperative form of enterprise to respond to new economic realities. Why is this form of enterprise proving so resilient? This report will provide historical evidence and current empirical evidence that proves that the cooperative model of enterprise survives crisis, but more importantly that it is a sustainable form of enterprise able to withstand crisis, maintaining the livelihoods of the communities in which they operate. It will further suggest ways in which the ILO can strengthen its activity in the promo- tion of cooperatives as a means to address the current crisis and avert future crisis. 2 Introduction The recent massive public bail-out of private, investor-owned banks has un- derlined the virtues of a customer-owned cooperative banking system that is more risk-averse and less driven by the need to make profits for investors and bonuses for managers. Savings and credit cooperatives also known as credit unions or SACCOs, building societies and cooperative banks all over the world are reporting that they are still financially sound, and that customers are flocking to bank with them because they are highly trusted. The point is an im- portant one, because the cooperative banking sector is extraordinarily large; the World Council of Credit Unions has 49,000 credit unions in membership, with 177 million individual members in 96 countries. The International Raiffeisen Union estimates that 900,000 coop- eratives with around 500 million members in over 100 countries are working according to the cooperative banking principles worked out in Germany by Friedrich Raiffeisen. In Europe alone, there are 4200 local cooperative banks, around 60,000 branches and a market share of 20%. The banks serve 45 million members and 159 million customers.3 Some of the largest banks in the world are cooperatives: Rabobank, for instance, has 50% of Dutch citizens in mem- bership, is the largest agricultural bank in the world, and is rated the world’s third safest bank. 4 The essence of cooperative banking is quite simple. It is that members, who include both savers and borrowers, use the cooperative to recycle money from those who have it to those who need it, without anybody outside taking a profit and with interest rates set so that the system works in everyone’s interest. 3 DeVries, B (2009) European Cooperative Banks in financial and economic turmoil, Paper for the UN Expert Group Meeting on Cooperatives, April, New York 4 By Global Finance Magazine. It is also the only privately-owned bank with the highest pos- sible credit ratings (see OCDC, 2007) 3 ILO - Sustainable Enterprise Programme This report begins by providing historical evidence that cooperatives are good in a crisis. This sets up a plausible generalisation that they will continue to be good in the current crisis. The report then tests out this generalisation by providing theoretical argu- ments and empirical evidence for and against it. It is in two parts. In the first part, it investigates the claim that cooperative banks and savings and credit cooperatives are better able to withstand the banking crisis and economic recession than the investor-owned banks. It presents arguments
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