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In Hard Times, Co-ops Can Help Hold Communities Together

Aug 27, 2022

From the beginning of the COVID-19 pandemic to the recent inflationary spiral of basic goods and services, neighborhood-based small businesses have been among the victims of the changing economic landscape. Before the pandemic, small businesses had a failure rate of around 20% in the first year. Although some COVID relief programs helped to keep the doors open for some small businesses, there is no indication that the government is considering any similar measures to address recent increases in costs of food, energy, housing, and transportation. Economists say the misnamed Inflation Reduction Act just passed by Congress will have a “statistically zero” impact on inflation. A recent survey found 61% of all small business owners report they are “struggling to stay afloat.”

Communities don’t have to wait for the federal government to act to preserve local businesses and jobs. Worker cooperatives and consumer cooperatives are two of the most powerful tools to stabilize the economies of urban neighborhoods and small towns. They wait only for the participation and support of local governments and local investors.

Whether in small towns or big city neighborhoods, economic setbacks ripple through the community. Every job lost, every disabled worker, every eviction or foreclosure impacts not just an individual or a family but a network of residents, workers, and consumers. When a small business closes its doors, whether it’s a restaurant, a bodega, a barber shop, or a laundry, it can have an even greater impact. A business owner loses their investment and savings, employees lose their livelihood, and consumers must travel a greater distance from home for groceries, household items, or everyday services.

When small businesses close, they may also be replaced by “big box” enterprises: fast food restaurants, chain retail stores, and franchised service providers. While failure rates show that the life of a small business may be precarious, larger companies are more resilient. A new chain store may open in a neighborhood and operate at a loss, offset by the profits from its other, more well-established stores.

Small businesses succeed when they are part of the web of relationships in a neighborhood. They know their customers, offer goods that are in demand locally, and recruit employees who live in the neighborhood. Small businesses sponsor sports teams at local schools, have a presence at charitable events, and participate in the life of the community. Extending that web of relationships can help make small businesses more resilient. Small businesses that are organized as cooperatives – co-ops for short – strengthen their community economically and model democratic structures so that political engagement means more than voting every two or four years.

There are essentially two kinds of cooperative businesses: worker co-ops and consumer co-ops. A worker co-op is a group of individuals who jointly invest in, open, and run a business that is operated along democratic lines. Without a boss, participants in a worker co-op share decision-making and risk-taking, while sharing equally in the fruits of their work. One recent study shows that during the pandemic, worker co-ops have been slower to lay off workers and quicker to re-invest in communities, while another shows that among worker co-ops, the more democratic they are, the more productive.

In a consumer co-op, the circle of “owners” is comprised of consumers rather than workers, and they participate in the co-op as “members.” Depending on the size and economic strength of a consumer co-op, members may pay a small monthly or annual fee, or contribute hours of work as volunteers, or some combination of the two. The members make decisions about what goods to carry, how to set prices, and what outside vendors to purchase from. Typically, consumer co-ops are also open to the public, with members receiving a discount that, in turn, helps to prompt local shoppers to become members.

For co-ops to help stabilize and strengthen the local economy, municipal governments must prioritize support for these business models. Cities and towns can offer incentives to form co-ops and tax breaks once established. Blighted commercial properties can be rehabilitated and offered as low-rent or no-rent co-op incubators. The traditional role of regulatory agency staff is enforcement; they can be re-oriented to help co-ops (as well as other small businesses) come into compliance with regulations, ranging from building and public health codes to labor regulations and tax reporting requirements.

Credit unions would be a natural partner with local governments in the initiation and support of neighborhood-based co-ops. Unlike banks, credit unions are chartered as non-profit organizations, often focused on serving particular communities. By providing loans under favorable terms tailored to the needs of co-ops, a credit union helps to strengthen the community of which it is a part while creating a “brand” that is attractive to community members.

In hard times, urban neighborhoods and small towns experience suffer the same kinds of dislocation: evictions, foreclosures, and homelessness; rising poverty and food insecurity; and falling rates of high school graduations accompanied by rising rates of petty theft and other crimes of survival. Local small businesses often fail under these circumstances, to be replaced (if at all) by large chain stores and franchises in which decision-making is removed to far-off corporate headquarters. Worker co-ops and consumer co-ops in which neighbors share risks and engage in democratic decision-making can serve as economic and social buffers that hold together and strengthen communities.