The Feeling Is Mutual

When co-op managers from around the country met in Seattle last October, they devoted one convention day to a collective busmans holiday, boarding buses for an organized tour of Seattle-area cooperatives.

They strolled the aisles at a local PCC market, surveying shelves of health foods and learning how a neighborhood buying club grew to become a chain of natural foods markets that sells a half million dollars per day worth of organic everything. They bused over to REIs monumental flagship store and marveled at how a huge national chain with 122 stores and $2 billion in sales could have evolved from an idea cooked up 75 years ago by a few Seattle mountaineers. They clustered in front of the sedate Capitol Hill offices of Peoples Memorial, and heard the story of the nations largest funeral cooperative, which has 80,000 members.

While Seattle is best known for Fortune 500 corporations like Boeing and Microsoft, these visitors experienced the city as a cooperative Mecca, the epicenter of a historic movement that is a quiet but crucial facet of the Northwest culture and economy.

If youre into cooperatives, you want to come to Seattle to see what theyre about, observes David Woo, a Philadelphia cooperative activist who got his start selling outdoor equipment at REI in Philadelphia.

In addition to the nations largest consumer and funeral co-ops, Seattle and Washington state are also home to the nations largest health cooperative, one of the largest credit unions, along with dozens of rural electrical co-ops, farmer co-ops, grocery co-ops and more.

Theres something in the water out there in Seattle, suggests Liz Bailey, a vice president of the National Cooperative Business Association, which hosted the October convention. Something that breeds the cooperative spirit.

The NCBA is a national organization that represents several hundred cooperatives, including several of Seattles, most of which defy the popular stereotypes attached to cooperatives.

When most people think of co-ops, they think of counterculture hippies and Kumbaya, Woo observes, strolling through REI. But Seattle demonstrates that those stereotypes are ridiculous.

These days, when many Americans despair over Wall Streets astronomical salaries and ravenous corporate tactics, co-ops serve as a reminder that there are other ways to do business in the American marketplace.

A recent study at the University of Wisconsin identified more than 29,000 cooperatives across the United States, holding a staggering $3.1 trillion in assets and generating $500 billion in annual sales. They employ 856,000 people who earn $25 billion a year in wages. Most of these are consumer co-ops like REI, PCC Natural Markets and the rural electrical cooperatives. But there are also more than 700 purchasing co-ops like Ace Hardware and True Value, whose independent hardware store owners cooperate to buy goods in bulk, enabling them to compete with the big-box stores.

About 1,500 producer co-ops are owned by independent farmers who market their produce cooperatively. Darigold, the marketing subsidiary of Seattles Northwest Dairy Association and a household brand name across the region, is wholly owned by 542 dairy farmers who account for nearly a quarter of U.S. exports of cheese and other dairy products. (See page 48.)

While they may vary dramatically in their missions and membership, these diverse businesses share one crucial characteristic: They are owned by their membersbuyers, sellers or, less frequently, workers. There are no sole proprietors, no stockholders demanding higher profits and annual dividends. The customers, or the producers, also share ownership of the business, electing its board and shaping its policies, and in some way sharing its profits.

Some, like Seattles Group Health Cooperative, are legally organized as nonprofits. Most, however, are for-profit businesses. Either way, cooperatives are not charities; if they lose money, they fail.

Cooperatives also share another important characteristic: They are responses to something that doesnt work quite right in the free market.

Cooperatives are born out of adversity, says Diane Gasaway, a former banker who now directs the Northwest Cooperative Development Center. They are formed to serve a need that the conventional marketplace isnt serving. Economists call this a market failure. Electrical co-ops were formed to bring power to rural areas that private utilities wouldnt serve. REI was formed to make available high-quality outdoor gear that wasnt available at Sears. Credit unions cropped up as a response to bank failures, many of them during the 1930s.

Darigold was created in 1918 as a way to market a highly perishable product that has to be processed daily. Its essential that dairy farmers have a stable market for their products, Darigold CEO Jim Wegner explains. And that requires cooperation among farmers who might otherwise be competitors.

Cooperation isnt always easy, says Gasaway, whose organization helps groups start new cooperatives around the region. You need the impetus of the market failure to start. And that need has to be compelling enough to keep people at the table, because its hard to play in the same sandbox as other people.

The cooperative impulsethe idea that people can solve economic problems by working togetheris as old as civilization. But the legal and business concept is usually traced to the Rochdale Cooperative in the English Midlands, where weavers and other craftspeople founded a cooperative store in 1844 as an alternative to the predatory pricing of company stores. That concept crossed the Atlantic Ocean with European immigrants who formed cooperatives to defend against monopolistic banks and railroads.

In Washington, those populist impulses led to the establishment of the Washington State Grange and the Peoples Party, rooted in Puget Sound farms and in the logging camps and mills at the turn of the century. Many of those pioneers were avowed socialists and labor radicals, but others were nonideological farmers and workers trying to defend themselves against the chronic economic cycles of the era.

The cooperative explosion occurred in the 1930s, when bank failures and the Great Depression left people looking for alternative ways to buy, produce or market their goods. REI, Peoples Memorial, BECU and many producer and electrical co-ops were founded in the mid-1930s. The seeds were sown for Group Health around 1937, and it went into business 10 years later.

For the likes of REI and Group Health, the growth rate has been phenomenaland sometimes controversial. True believers suspect that the cooperative mission diminishes in inverse proportion to the size of the membership and the flow of money. When members no longer feel like owners, youre too big, says Derek Hoshiko, who has organized small cooperatives in the Seattle area. They begin competing with other communities. Im a member of REI, but I dont really feel like an owner there.

That impulse is understandable to anyone who subscribes to the social or environmental values often attached to cooperatives, says Gasaway. But cooperatives are real businesses that deal with all or most of the same economic realities as the conventional business across the street. Contrary to many assumptions, she says, most cooperatives have to make a profit, which is subject to income taxes. Those taxes may be lower than for the corporation next door, because co-ops return much of their profits to members, who generally pay individual taxes on that income.

For profit or not, cooperatives have worked their way into every corner of regional and national economiesfrom retail to farming to electricity and health care.

And what next? Gasaways organization has helped a group of home health care workers organize a cooperative in Bellingham. Think about it, she says: You have a huge generation of aging Baby Boomers, many of them with money to spend, who will be needing care, and many of them would rather get it at home. Home health care workers require substantial skills, but are poorly paid, averaging about $11 an hour. As a result, theyre hard to get and hard to keep. You have a fast-growing demand for care, and a shortage of people to provide ita classic market failure.

Cooperatives could provide more consistency to caregivers, patients and their families, Gasaway says. And you can do this because youre not paying a third party; there are no CEOs and stockholders raking income off the top.

Today, the idea of a home health care co-op may seem farfetched. But no doubt thats what people thought 75 years ago about a group of Seattle mountaineers who thought a little co-op might be a good way to acquire some good climbing gear.

A Co-Op Sampler

Some cooperatives based in and around Seattle

REI (Recreational Equipment Inc.): Launched by Seattle mountaineers in 1935 as a way to obtain quality climbing equipment, REI has become the nations largest consumer cooperative, with 3.5 million members and $1.8 billion in sales through 122 stores in 29 states. This year, REI paid out $165 million in dividends to members and employees.

Darigold: Its the brand name used by the Seattle-based Northwest Dairy Association, which is one of the nations largest producer co-ops, with sales of milk, cheese, butter and other dairy products exceeding $2 billion per year. Founded in 1918, Darigold is owned by more than 500 independent dairy farmers, who compete with other co-ops and conventional dairies around the country. (See Executive Q&A, page 48.)

Group Health Cooperative: Established in 1947, Seattle-based GHC is the nations largest consumer-governed health care organization, boasting more than 600,000 members in Washington and northern Idaho. With nearly 10,000 staff, including 1,100 physicians, Group Health is frequently cited as a potential model for a future national health care system.

BECU: Credit unions are classic cooperatives, wholly owned by their members. Founded in 1935, BECU (formerly Boeing Employees Credit Union) is the states largest and the nation’s fourth largest, with 800,000 members and $10.8 billion in assets in 2011.

PCC natural markets: The largest consumer-owned natural food co-op in the nation, with nine stores in the Seattle area, PCC (for Puget Consumers Coopeartive) claims more than 45,000 member-owners, $161 million in sales and net income of $2.3 million in 2011.

Peoples Memorial Funeral Cooperative: Since its founding in 1939, Peoples Memorial has grown to become the nations oldest and largest co-op of its kind. Based on Capitol Hill, it has about 80,000 members and handles nearly 10 percent of funerals in the Seattle-King County area. About 95 percent of its funeral arrangements are simple cremations, with an average cost of about $850.

Peninsula Light Co.: PenLight is the states second-largest electric cooperative, delivering federal hydropower to some 31,000 homes across 112 square miles in the Gig Harbor area. Most of Washingtons electrical cooperatives are in rural Eastern Washington.

Tree Top: Owned since 1960 by Eastern Washington apple growers, the well-known juice cooperative processes more than 300,000 tons of apples and other fruits per year. Sales in 2011 were $370 million, returning 19 percent on members investments.