Report

Who knew Australians were so co-operative? The size and scope of mutually owned co-ops in Australia

25 Oct 2012
Description

Despite eight in every ten Australians belonging to a co-op or mutual such as the NRMA or AustralianSuper, only 16 per cent realise it, according to this paper which maps the size and scope of mutually owned co-ops in Australia.

Eight in every ten Australians are a member of a co-operatively owned, or mutually owned enterprise (co-ops and mutuals) such as a road side assistance organisation (NRMA, RACV), a member-owned superannuation fund (AustralianSuper), a mutually owned bank (such as bankmecu) or a consumer cooperative (Co-op Bookshop). Similarly, large businesses such as the dairy co-operative Murray Goulburn or the giant grain handling enterprise Co-operative Bulk Handling are collectively owned by the farmers who supply them.

A defining feature of co-operatives is their democratic nature. They are owned and controlled by their members, and they apply co-operative principles and values in their day-to-day activities. The combination of a high degree of community participation in co-ops, a low level of public awareness of their own participation, and the ongoing willingness of millions of customers to spend billions of dollars paying higher prices than necessary for goods and services creates a substantial opportunity for both the co-op sector and policy makers to reduce the cost of living for most Australians.

Despite the widespread membership of co-ops, and the size and economic significance of the sector, community awareness of the sector runs far behind community reliance on the sector. Indeed, according to a survey conducted by The Australia Institute despite the fact that 79 per cent of people are members of a co-op only three in ten Australians could name a co-operative or mutually owned enterprise and only 16 per cent of Australians believe that they are a member of one.

The widespread community reliance on co-ops and mutual organisations suggests that these enterprises have significant advantages over their for-profit rivals. In relation to home mortgages, for example, members of mutually owned banks, credit unions and building societies are estimated to save an average of 0.4 per cent on their mortgage interest rate which, for an average loan, generates savings of $76,417 over the life of the loan and reduces the repayment period by three years.

The vast majority of Australians believe that privately owned for-profit companies are more interested in shareholder profit than customers (90 per cent), that large shareholders have too much influence (88 per cent) and that corporate executives are overpaid (92 per cent). However, despite these beliefs most Australians do not seek out co-operatively or mutually owned alternatives. For example, as discussed above even when substantial financial savings are available many Australians do not switch from the 'big four' banks to their mutually owned competitors.

In recent years many for-profit companies in Australia have begun to emphasise the contribution that they make to Australian communities. Mining companies and the big four banks, for example, extensively promote any contributions they make to communities even though such contributions represent a very small proportion of total profit. That said, the willingness of for-profit companies to spend large amounts of money on advertising suggests that the community as a whole is likely to value and admire such contributions.

Co-operatively and mutually owned enterprises on the other hand typically invest the surplus they generate into the community or return it to their members. As such, these organisations spend far less money advertising the contribution they make to the community and therefore there is far lower awareness of this contribution.

Of course, the relative lack of expenditure on advertising means that the cost of providing services to members is significantly lower. The big four banks spent more than $1 billion on advertising in 2011, all of which was in turn passed on to their customers through higher interest rates and fees. Ironically, the lower level of expenditure on advertising by co-ops and mutuals means that many members, and potential members, are unaware of the low prices and high quality services that are often available.

The relatively high level of consumer satisfaction with co-operatively and mutually owned enterprises and relatively high levels of consumer loyalty, do however, combine to create a circumstance in which such organisations can promote the advantages, to consumers and the community, of their ownership structures without having to match the expense incurred by their privately owned competitors.

These opportunities include the following:
1) Better explain their ownership structure, and its benefits, to their existing customers.
2) Better explain the contribution that mutuals and co-ops make to the community. The mutual sector could highlight its contribution to society by creating a central registry of community support. Similarly, the mutual sector needs to measure, and promote, its contribution to the building of social capital which, in addition to the economic contribution described above, contributes to community wellbeing and resilience.
3) Government ministers and government departments should pay greater attention to the benefits to consumers and communities that flow from co-operatives. They should also do more to overcome the pragmatic or psychological barriers that prevent consumers switching to mutually owned enterprises.

The fact that so many Australians are members of co-ops and mutuals yet so few are aware of this fact is both a challenge and an opportunity for the sector. While it is unclear why so few members are aware of their membership, the fact that they remain members suggests that the quality and price of the service alone is sufficient to retain their custom. If the mutual and co-op sector can succeed in explaining the broader benefits of membership then it is likely that not only will their existing members become even more supportive, but that they will more readily consider a wider range of mutual and co-operatively provided goods and services.

2012 is the International Year of the Co-operative. There are one billion members of co-ops and mutuals around the world. Co-operative businesses can be traced back to the late fifteenth century while the first modern co-operatives emerged in Rochdale, England in 1844 with the founding of the Rochdale Society of Equitable Pioneers, which allowed members access to food at more affordable prices.

Today, both around the world and in Australia, mutuals and co-operatives continue to provide a wide range of goods and services while delivering tangible benefits to their communities and returns to their members. Co-ops range in size and scope from small locally oriented groups formed to improve access to low cost, locally grown food to nationwide member-owned superannuation funds managing tens of billions of dollars' worth of members' funds.

As discussed above, the majority of Australians believe that shareholder-owned companies are too focussed on profit and not concerned enough with their customers. Similarly, since the recent meltdown of the financial system during the Global Financial Crisis many Australians have expressed their desire for change and the development of 'an alternative'. Paradoxically, many of those people who express a desire for something new are likely to be members of at least one such alternative.

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2012
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