The trend toward cooperative ventures is growing rapidly in the United States for many reasons, and the latest manifestation of that growth is the co-op bank bill, a legislative proposal pending in the Senate that has just been endorsed by the White House and already has passed - albeit by one vote and without White House support - the House of Representatives.
The co-op bank bill is designed to create a new federal bank that will provide market-rate loans and technical aid programs to new and existing non-profit cooperative business. It also would provide some funding for self-help associations that are set up by cooperative groups seeking to provide such things as legal services.
Besides the obvious reason of financial savings due to the lack of profits, other fundamental social issues have given rise to the cooperative efforts.
Inner cities, for example, are losing many basic services once provided by private industry. Banks, chain stores, insurance companies are leaving hard-pressed areas in droves, and also cutting down on loans or financial commitments on those areas. Supporters of the co-op concept claim that only the residents of these depressed areas are willing to put in the time and effort to revitalize their local economy and cooperatives are their best tool.
According to Ralph Nader, in testimony last week before the Senate Subcommitee on Financial Institutions, "Consumer cooperatives have reaclhed the moment of opportunity in this country . But co-ops cannot exploit this opportunity without the capital and technical expertise provided by this legislation."
Nader told the panel "coexistence has replaced competition" in the food industry, with prices running higher than they should because of the strength of a relatively small number of chains in most markets. Still, these chains also are abandoning the inner cities, Nader claims.
In Washington D.C. alone, there was a 33 percent reduction in the number of grocery stores between 1969 and 1974, Nader said.
Although the new co-op bank would support cooperatives ventures of all kinds - including food, health services, housing, energy, etc. - it has some historical basis in the Farm Credit System. The FCS was set up in 1916, with federal seed money, in much the same way proposed coop bank would be set up. It was responsible for aiding the economic recovery of rural America and has repaid the government for that initial seed money.
Proponents of the co-op bank bill say this bank will repay all of its needed seed money, too, thus costing the government nothing in the long run.
It is also pointed out that cooperative ventures have an inherent problem of limited return on their investment. Because of this they have the added problem of obtaining credit lines from the banks that are used to dealing with profit-oriented firms that must and do show higher returns on investment. The banks don't see a cushion to absorb losses in the existing profit structure that profit-oriented firms have.
Nader says that bankers "consistently complain that they do not understand the balance sheets of cooperatives that approach them for loans. They distrust the democratic nature of the organization. In fact, banks seem to assume that any organization that is democratic is by its nature inefficient."
Sam Brown, who now leads Action, in his earlier job as Colorado State treasurer, had to intercede with local banks to help the Common Mart Food Cooperative in Denver obtain a loan. Now, the co-op is doing very well.
In Seattle, the Group Health Co-op of puget Sound serves 240,000 residents through two hospitals, ten medical centers an extended-care facility. There are 2,000 employes, including 200 doctors.
In existence for 30 years, that Seattle program could not secure a commercial loan until 10 years ago - after it already was serving 100,000 members.
"In the early years, some members mortgaged their homes to provide needed capital," co-op member Lyle Mercer said. "In our view, it is questionable whether a group health plan could be formed today and duplicate our success without the assistance of a lending institution that understands cooperatives."
But not everyone feels the need for an independent bank to exclusively fund cooperative efforts.
"Widespread competition, not public subsidies, is the best hope for holding down food prices," says Harry Sullivan, of the Food Marketing institue, an industry-sponsored trade association. He told the hearings last week that it was futile to try to cut food prices by shaving retail profits, because retail profits, were already less than 1 per cent of total sales. "There is no fat in the food distribution to trim," he said.
Sullivan also that, although the bill would help fundco-ops -which he called an "important and viable form of food retailing," especially in the inner city - the other business involved in food distribution would not be helped. "No single form of business should be favored over another," he said.
Jeffery L. Perlman of the U.S. Chamber of Commerce also spoke out against the bill at the hearings. "Subsidizing inefficiency is not the way to raise the standard of living of the American people," he testified.
And the National Federation of Independent Business sent its Washington counsel to the hearings to report that 93 percent of NFIB's members opposed the bill. According to attorney Mike McKevitt, the small business feared that the federal government would be subsidizing their competition in many cases, giving the existing small business owner an unfair disadvantage.
"If Congress wants the co-op bank to revitalize urban neighborhoods, it can accomplish its goals through already established and funded programs," McKevitt said. But he pointed out that because co-ops already "enjoying the government-sanctioned advantage (as nonprofit organizations) of not having to pay taxes, they can reap the benefits of the marketplace withough having to shoulder their fair share of the burden. Add to this the cost of setting up just the pilot program - $250 million - which must be absorbed by the taxpayer, and you have a real injustice to the small business people in this country."
The bil calls for federal funding authorizations in three key areas. It asks for the federal government to buy up to $500 million in stock in the bank over the first five years - which would provide the basic seed money to get the bank going.
Then it asks for an additional $250 million over five years in government funding for a self-help development fund to aid low-income co-op borrowers, and finally calls for the bank to have about $5 million worth of borrowing authority.
The administration reversed its earlier stand last week and announced that it would support the bill - if the federal funding requirements are lowered somewhat. In testimony before the House last spring, the administration representative from the Treasury Department tesified that the administration would rather see the matter studied more before any action was taken.
"The administration now has a better appreciation for the needs of consumer cooperatives than we did last April," said the same spokesman, Asistant Treasury Secretary Roger C. Altman, at the Senate hearings last week.