This article examines the concept of community ownership and whether it is conducive to economic transformation. We discuss different types of community ownership and their characteristics, why this type of ownership is desirable and the lessons we can draw from evidence.
Ownership and governance are intimately connected. A company’s ownership structure is crucial for the business strategy it pursues and the positive or negative impact it ultimately makes in the world. Community ownership can give those affected by organisations a say in their strategy and is one possible alternative to traditional shareholder ownership. The latter is currently the dominant form of corporate ownership and has been linked to aggravating social inequalities and ecological extraction. This article is the third in this series, following previous articles on steward ownership and employee ownership.
A 200-years old principle
Community ownership is not a new idea. Before capitalism took hold, European societies often held assets like agricultural land in (informal) community ownership. This tradition continues to this day in many developing countries. Cooperatives, a more formal form of community ownership, have been around for 200 years. The current interest in this form of ownership is therefore best seen as a revival of something as old as time. Clearly defined individual ownership might be seen as more modern than to informal community ownership.
Even as clearly defined, excludable property rights helped capitalism to rise, community ownership never disappeared. In various legal forms and across diverse sectors, it remains a significant mode of organisation across today’s economies. It has historically often played a market making role, extending goods or services not yet considered commercially viable. Examples range from building societies to extend home ownership to electric cooperatives to increase energy access.
Types and characteristics of community ownership
There is not one single definition of ‘community-based ownership (CBO)’. Different arrangements fall under it, all of which have in common that: ownership and/or control is shared (more or less) equally and exercised collectively by a certain group (the community) and that these arrangements are formed “for the common good of a defined community”.
But within this definition a lot of differences still exist. Three dimensions help us get a better understanding of the range of the concept:
- Who the community is. Traditionally, the ‘community’ involved in ownership would be place-based: tied to a specific place, such as a single property, a neighbourhood, a village or a region. This network can be small (for example a housing coop) or big (for example a regional producer network). Nowadays, communities can be more dispersed and merely interest-based, sometimes even existing only through online connections. The composition of the community can also vary, for example being made up of:
- Producers
- Consumers
- Buyers
- Investors
- Mixed groups (‘multistakeholder’)
- (Employees – which were discussed separately in the previous article)
- The type of ‘ownership’. Sometimes, CBOs entail ownership of tangible assets, such as real estate, production facilities or solar panels. Sometimes, the ownership of the asset lies with the government but the community is given the right to use and control the asset. An example would be running a child-care service in a state-owned asset. And sometimes it does not refer to literal ownership of a physical asset: it can also refer to more intangible ‘assets’, such as the collective bargaining power that is gained by forming a producer or consumer community.
- The institutional form. CBOs can take different forms, which include associations, cooperatives, foundations and hybrid structures such a firms owned by a foundation. It is good to note that in some cases (such as foundations), an organization may not technically be community-owned. Legally the foundation ‘owns’ itself. However, it can for example be put in the statutes that it serves a certain goal or community, making it effectively act like a CBO.
Taken together, all of these different aspects show that CBOs might be best understood not as a single typology, but as a spectrum of related approaches with different characteristics.
Prevalence of community ownership
A recent report on the social economy in Europe, which includes CBOs such as cooperatives, associations and foundations amongst others, shows that there are already many such organisations throughout the continent. Over 6% of all EU employment (11.5 million people) happens in the social economy, at over 4 million organisations.
For cooperatives specifically, including all types including worker coops, there are:
- 250.000 in the EU
- Employing 5 million people
- With 163 million members
Though it is hard to precisely delineate numbers for CBOs or distinguish trends through time, we can say that cooperatives have (very) significant market shares in various industries in specific countries, such as agriculture in the Netherlands and Finland, forestry in Sweden and banking in France.
Do CBOs behave differently in practice?
In practice, some CBOs behave quite differently from traditional forms of ownership – and some act almost the same. It seems the degree to which they act differently (in other words: more sustainable) depends on several key factors.
1. Broad community – As a rule of thumb, CBOs with a broader ‘community’ (e.g. an entire village, rather than just the producers of a certain good within that village) act more in line with societal interests. A simple explanation is that when stakeholders with more diverse interests are able to weigh in on decision-making, the outcomes of those decisions will reflect general societal interests more closely.
2. Democratic governance – Even if ownership is broadly shared, if governance is narrow in practice, the CBO might still not act in line with societal interest. To ensure those diverse interests translate into practice, it is therefore important that decision-making is (nearly) democratic. This is for example the case in many small cooperatives, which operate on the basis of a ‘one person, one vote’ principle in many decisions. On the other hand, big consumer or producer cooperatives may in practice be run in a similar fashion to traditional shareholder-owned firms (with day to day operations overseen by a board that only occasionally consults the members).
3. Clear mission – Having a clear core mission is important. It helps the organisation overcome heterogeneity in member preferences: any (large) group will have a range of different opinions and interests. The risk is that different members or sub-groups will simultaneously pull the CBO in conflicting directions, thereby impeding progress altogether. Person one wants A, person two wants B; they end up doing neither. A clear focus on a broadly supported mission will help: there is at least one (or a few) objective(s) that everyone can get behind.
4. Short-term profit focus – A CBO can still drift away from its core mission if financial gain becomes the main focus. This risk is especially pressing for community-owned organisations with a relatively narrow community and a high turnover, such as agricultural producer cooperatives. CBOs deal with this risk in different ways.
Some CBOs choose to introduce asset locks: mechanisms that prevent or limit profits from being taken out of the organisation. Instead they must be reinvested and/or used to pursue the CBO’s mission. This use of asset locks is similar to the second principle of steward-ownership: making it formal that profits should serve the mission rather than the other way around.
But asset locks are not a prerequisite for community-oriented profit allocation: CBOs can also choose to voluntarily reinvest profits into their communities (or society as a whole) because their ownership structure and mission ensure a more social orientation.
Take for example Betuwewind, who reinvested the revenue from its wind farms in numerous sustainable projects in the region. They financed charging stations for electrical vehicles, agroforestry projects and a foundation that supports numerous local sustainability initiatives every year.
Clearly, not all CBOs meet these conditions. FrieslandCampina, for example, is a large international producer cooperative, with Nourishing by Nature as their mission statement. They are a cooperative with a strong financial orientation, that serves a narrow community and is not run very democratically. As a result, its primary focus is on ensuring good milk prices for the farmers involved, rather than the broader societal interest of the countries in which it is active.
We can conclude that not all CBOs meet the criteria described here, but many do – especially smaller CBOs. They are often run democratically and with societal impact at the forefront. Perhaps it is easier to meet the criteria in a smaller scale organisation; conclusive research on this point is lacking.
Ways in which CBOs create value
When they do meet the criteria, CBOs can create value through various mechanisms, in ways that traditional firms do not.
They can increase community cohesion, by fostering a sense of inclusion and shared ownership, and creating more interaction between community members. This cohesion can in turn strengthen a community’s capacity to take action when needed.
It is then perhaps not surprising that initiatives undertaken by CBOs enjoy more support from the communities in which they operate. Such support is especially valuable in addressing societal challenges such as the energy transition. Energy communities, such as Betuwewind, manage to reduce or even eliminate the ‘not in my backyard’ sentiment that sometimes impedes the instalment of renewable energy capacity.
More broadly, CBOs often succeed in delivering services that serve the community, even if the market cannot or will not provide them (e.g. they are not profitable enough). Care cooperatives are an example of this. Sometimes the ‘beyond market’-element also entails the service becoming more accessible or affordable. In these ways, CBOs can provide socially valuable services, even if these are not commercially viable.
Financing community owned organisations
When it comes to external financing, the early stage is most challenging for CBOs (similar to steward-owned and employee-owned companies). Equity funding is usually not an option, because it entails giving up (part of the) control of members.
This is why member-finance is not unusual for CBOs in early stages. With cooperatives, for example, members often help to finance the organisation. This can be done through a one-time purchase of a stake in the cooperative, or by paying regular member fees. Depending on the legal form, those providing funding for the CBOs truly become owners (e.g. with cooperative), or they merely are members or contributors (with associations/foundations).
With most legal forms, members are not liable in the case that the organisation has debts or goes bankrupt. However, in these cases members can lose their entire contribution.
In a later stage, CBOs can (much like ‘normal’ companies) obtain loans or debt financing through standard channels, provided they meet credit requirements. Some collectives and cooperatives also receive funding from public sources. For instance, care collectives in countries like the Netherlands are (partly) publicly funded for the care they provide. Sometimes, community-owned or -run projects also receive government subsidies for specific projects or initiatives.
Conclusions
CBOs can create value for their community and society as a whole. They can increase community cohesion and capacity, which in turn can help in addressing societal challenges that require strong local support such as the energy transition. Furthermore, CBOs have a ‘beyond market’-element, meaning they often manage to bring goods and services where none were before and/or at lower prices than the market.
Not every organisation with elements of community-ownership actually realizes these benefits. In general, when CBOs have a broad community, democratic control, a clear core mission and asset locks or other mechanisms to prevent financial motivations from taking over, the benefits of CBOs are realised. In terms of financing, CBOs mostly face challenges in the early stages.
