A Cooperative Approach to Local Economic Development - Book Review

Administrative Science Quarterly,  Dec, 2002  by Robert P. Gephart, Jr.

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Christopher D. Merrett and Norman Walzer, eds. Westport, CT: Quorum Books, 2001. 197 pp. $63.50.

This thin book with 11 chapters is a well-integrated and useful overview of new-generation cooperative enterprise organizations (hereafter, NGCs). NGCs are an important form of cooperative organization that seeks to allow producers to retain value that is added to their products, in the current case, agricultural products and commodities. An estimated 200 or more value-added NGCs have emerged in the last decade (Fulton, p. 11). The key example is the 21st Century Alliance (Williams and Merrett, chap. 10), which has launched five NGCs, including the 21st Century Grain Processing Cooperative, with stock valued at $3.2 million, the 21st Century Bean Processing Cooperative, with $500,000 of member capitalization, two dairy cooperatives, with total members' stock of over $3.3 million, and the 21st Century Agricultural Fibre Cooperative. NGCs differ from the cooperative forms of organization examined in much of the extant organizational literature in important ways, as discussed below. Thus, the book contributes to organizational analysis and administrative studies by describing the features and history of NGCs and bringing these important organizations to the attention of a broad scholarly audience.

The book distinguishes new-generation cooperative organizations from traditional cooperative organizations and from other organizational forms, particularly the limited liability corporation. The term cooperative organization refers to a wide range of organizations that operate on cooperative principles, generally including democratic control by members.

Cooperative organizations include collectivist organizations such as free medical clinics, legal collectives, and communes that seek to implement broad social values such as participation in decision making (Rothschild-Whitt, 1979: 503). While many cooperative organizations exist for non-economic social purposes, certain cooperative organizations have an enterprise or economic orientation and are concerned with the production of economic value. These traditional cooperative enterprise organizations generally operate on three principles (Hanson, p. 47): (1) democratic principles of one member, one vote; (2) subordination of capital, that is, profits are paid back based on patronage or business done and not on amount of investment, and (3) preferences in liquidation based on patronage rather than investment.

NGCs differ from limited liability firms and also from traditional cooperative forms of organization on two bases: delivery shares and restricted membership. In NGCs, members purchase delivery shares that function as contracts. Delivery shares provide the owner with the right--and obligation--to deliver one unit of (farm) product to the cooperative. The share purchase obligates the cooperative to accept the unit at an established price. Membership is restricted to those individuals who purchase shares at the time the NGC is initially capitalized or who repurchase shares from original owners/shareholders. Share prices are significant and are based on the total member capital needed for startup divided by the number of units of farm product that can be absorbed by the facility being created by the NGC. This allows the NGC facility to operate at 100 percent capacity. "The basic argument put forward is that NGCs have evolved as a new organizational form because of forces that are both external and internal to the co-op" (Fulton, chap. 2, p. 11).

In contrast, traditional cooperative organizations rely on open membership with a nominal membership fee that provides members with an entitlement to purchase items from a cooperative. As the authors point out (Walzer and Merrett, p. 15), the delivery share and restricted membership features of NGCs are not new, but the unique nature of NGCs is that "this organizational structure represents the first time these characteristics have been brought together and then replicated."

The book also establishes that NGCs can provide a novel and important means to achieve rural economic development in an age in which family farms and farming communities are rapidly vanishing and corporate farming is prevalent. Chapters in the book chronicle reasons for NGCs, describe their history, and provide case descriptions of NGC operations. The book provides useful suggestions for forming NGCs and cooperative organizations in general. It outlines the community impacts of NGCs, including benefits and risks, and explains how NGCs can and have been used in rural economic development. Further, the book explores changes in agriculture in the new economy. It outlines a rationale and future agenda for developing cooperative enterprises in twenty-first-century global businesses. The book thus clearly shows the importance of NGCs to organizations and organizational theory.

The authors specifically direct the book to farm producers, cooperative organization stakeholders, and persons involved in local economic development--an audience of practitioners and scholars interested in the formation of NGCs and their use as local economic development tools in rural areas. It serves as a resource and handbook on the potential economic role of NGCs and the ways in which they can help farmers retain value from their productive efforts, providing helpful guidance to persons interested in developing a new-generation cooperative organization. Yet the audience of the book should also include a wide range of organizational scholars, managers, and social service and community workers interested in the nature, features, and prospects for new forms of organization. In particular, the topic of new-generation cooperatives is important to scholars interested in small family businesses, since many of the farm producers for whom NGCs may be a viable tool are the individual family farmers who reflect the Jeffersonian ideal of rational capitalists, as Merrett and Walzer note (p. 91).