Book Review - The Ownership of Enterprise by Henry Hansmann

Given the almost total absence of the cooperative model from mainstream business school discourse, I was recently delighted to hear that an acquaintance was teaching an "Introduction to Cooperatives" course at a college in Connecticut. I was quite curious to see what such a course would consist of, so I went on the website and downloaded the syllabus. While the students were exposed to a diversity of readings, the core of the course seemed to be built around one book, The Ownership of Enterprise by Henry Hansmann. Intrigued, I got my hands on the text and began digging in.

As its title suggests, the purpose of Hansmann's book is, fundamentally, the investigation of the forms of ownership that are prevalent in different sectors of the economy. Using a perspective that leverages tools from both economics and political science (he understands the governance of firms to be subject to similar political dynamics that public choice theory dissects in government), Hansmann starts off by offering a general theory of ownership that relies on two key factors.

Occupy Your Credit Union! A Tactic for Activist Members

    While the financial crisis and economic malaise of the past few years has been truly devastating, one silver lining has been the development of increased awareness of the democratic cooperative model of financial services embodied by the credit union movement. Hundred of thousands of people responded to the call to "move your money" around Bank Transfer Day, and both the rate of growth and the stature of the credit union movement is higher than it has been in a very long time.

    All of this is very exciting! However, it only represents the first step in achieving a just financial system. Being a credit union member is not basically the same as being a bank customer who gets better rates and fewer fees; rather, at its core, credit union membership means that you own your bank. With that ownership comes not simply a claim to your fair share of the profits that Bank of America would otherwise have shipped off to its shareholders, but the right to have an equal say in determining the policies and priorities of your credit union.

Credit Union Songs from the Founding of CUNA

After braving the icy roads back to Burlington, VT from my trip to America's Credit Union Museum in Manchester, NH, I have so many things to write about! A full recap of the trip will be forthcoming [*Update: Read it here*], but, in the meantime, I figured I'd treat Credit Union History readers to a fun find: a collection of credit union songs found in Edward Filene's diary from the Credit Union National Association's 1934 founding convention in Estes Park, CO! Included are such toe-tapping numbers as:

"The Old Loan Shark" (to the tune of "The Old Gray Mare")
"Credit Union Fellowship Song" ("Sidewalks of New York")
"Edward A. Filene" ("Yankee Doodle")
"Credit Union, Parley-Voo" ("Hinkey-Dinkey, Parley-Voo")
"Theme Song for Estes Park Credit Union Conference" ("The Man on the Flying Trapeze")
"Song of the Credit Union Widow to her Husband" ("Till We Meet Again")
"Song of the Credit Union Spinsters" ("Silver Threads Among the Gold")

I have to say, I'm looking forward to The Disclosures putting out a grind-core cover of one of these classics. Until that happens, though, I'll leave you with a recent video from those modern toubadours that continues the proud tradition of credit union people writing goofy songs about our movement...

"Ownership Salience" in Credit Unions (and Cooperatives)

An extremely interesting and unique characteristic of credit unions (and cooperatives generally) is the nature of their relationships with their member-owners. While often understood simply in terms of members' contractual and legal rights, the movement's history clearly suggests that the ways in which members conceptualize their relationship to their credit unions can vary extremely widely between institutions with identical governance structures. Such differences, in turn, can often exert profound influence on the developmental paths of different credit unions, and thus must be understood as driven by subjective, rather than structural, factors. One such dynamic that that I've found particularly useful and compelling when considering credit union development is something I've come to refer to as "ownership salience."

By this I mean, simply, the intensity with which a credit union member psychologically and behaviorally internalizes the fact that he or she owns their credit union. When ownership salience is entirely lacking, members simply treats their relationship with their credit union relationship as identical in kind to the customer relationship with a bank or other non-member owned business. This sort of person is a credit union member simply because it is the most attractive option on the market, and, when thinking about their institution, he or she uses the pronouns "they" and/or "it" (as in, "They made a donation to the food shelf"). If such a person has a negative experience, their natural response is no different than it would be at a bank: take their business elsewhere.

Book Review - Cooperation Works! by Nadeau and Thompson

Cooperation Works! How People Are Using Cooperative Action to Rebuild Communities and Revitalize the Economy, by E.J. Nadeau and David J. Thompson, is an accessible and wide-ranging overview of the cooperative movement in the United States as things stood at the time of the book's publication in 1996. Including both a general discussion and a number of specific anecdotes, each chapter is devoted to a specific form of cooperation, including such topics as senior housing co-ops, community-owned sports teams, and employee owned enterprises.

In addition to the value of the overall comparative perspective promoted by the diverse subject matter of Cooperation Works!, the book's chapter on community development credit unions (CDCUs) is particularly valuable to those interested in credit union history. Though the historiography of American credit unions in general is pretty sparse, extra little has been written about the CDCU model. This neglect can likely be attributed to the fact that, with their relatively recent origins and a tiny fraction of the asset-size of traditional credit unions, CDCUs are relatively easy to relegate to a footnote or an aside. When discussed at all, they are mentioned in passing as a project that emerged out of the "War on Poverty" era before the narrative returns to the main credit union story.

Common Bonds and Conflicting Identities: The Establishment and Development of the Vermont State Employees Credit Union

Given that I busted my butt writing this document for the better part of a year in order to finish my masters degree, I might as well make it available for public consumption. Read the whole thing here (pdf); the Abstract follows the break:

Banks vs. Credit Unions in the Financial Crisis - with Graphs

In recent discussions of the relative merits of using banks or credit unions, one argument in favor of the latter asserts that they generally fared better than banks in the financial crisis. The reason for this, the argument goes, is that for-profit bank shareholders are only liable for losses up to the value of their investment, while they stand to profit from the returns on both their own investment as well as the depositors' funds. Thus, since it's rational to take greater risks when gambling with other peoples' money than with your own, for-profit banks tended to take on risky investments during the real estate bubble.

By contrast, since they are owned by their members, the conflict of interest between shareholders' desire for greater returns and depositors' desire for increased stability simply doesn't exist in credit unions. They thus tended to take fewer risks during the boom, and, as a result, didn't take as grave of a hit as commercial banks when the economy went bust.

In order to see if this thesis reflected the actual experience of the financial crisis, I crunched some numbers from the NCUA and FDIC. The results, which were published yesterday by the Motley Fool, seem to confirm credit unions' relatively superior performance in the bust. Read the full article, complete with pretty graphs, here.

The Unique Importance of Co-op Histories

While working on an institutional history of the Association of Vermont Credit Unions over the past few months, I've been giving the reason for writing such narratives a lot of thought. Particularly, I've come to the conclusion that, as a result of their unique ownership structure, histories of cooperatives serve fundamentally different purposes than do those of for-profit companies.

In the case of the latter, institutional history is commonly treated as a marketing tool. By crafting a narrative that puts the organization's best foot forward, a corporate history (whether in the form of a short blurb on a website or a full-length book) is generally driven by the goal of elevating the stature of its subject by providing it with ennobling historical roots. That objective, in turn, provides a powerful incentive to minimize (or overlook entirely) the conflicts and questionable moments that inevitably litter an organization's past.

At the root of this corporate tendency to whitewash their histories when presented for public consumption is the fact that their relationship with their customers is adversarial. As consumers are fickle and can often change which business they patronize with relative ease, it would be profoundly irrational for a corporation to actively promulgate an historical vision of itself which might damage its bottom line by scaring off its patrons. As a result, official corporate histories are notoriously unreliable and incomplete, which has, in turn, sparked a whole cottage industry of critical historical writing devoted to exposing the skeletons in corporate closets.

By contrast, the relationship of cooperatives (and consumer cooperatives in particular) to their histories is very different. Since the customers of such firms are, by definition, also their owners, the corporate concern over losing customers as a result of a warts-and-all portrayal of their history has little relevance to the cooperative context. Instead, such histories actually function to strengthen co-ops, since they provide the members and leaders of organizations with a clear sense of which paths have been taken or avoided in the past, and why. As a result, much of the institutional memory which is too often lost when a veteran board member or employee leaves can be preserved and used to inform future decisions without fear (as exists in a corporate environment) that its public exposure would cause great organizational harm. By maintaining a "long memory," cooperatives can cultivate an institutional culture (which their corporate competitors are structurally incapable of emulating) in which decisions can be based upon a deep and rational understanding of, and engagement with, past choices.

As philosophers from Francis Bacon to Michel Foucault have long recognized, the possession of knowledge is a source of great power. In the hierarchical, authoritarian cultures of many corporations, this fact is reflected in tireless efforts to obscure their pasts so as to deny their customers the power over them that knowledge of their history would provide. By contrast, at the core of the cooperative idea is the democratic dispersal of power: every member has an equal stake in the organization and an equal vote for the board of directors. However, such rights mean little if co-op members lack the information necessary to make truly informed decisions about how to wield their influence. As such, a corollary of dispersal of power to co-op members must be an equal dispersal of knowledge about the organization. Though such knowledge takes many forms (accurate annual reports, etc.), a comprehensive and well balanced institutional history is a vital tool of member empowerment that no cooperative should be without.

Book Review: We the People by Roy Bergengren

Reading through the works of credit union pioneer Roy F. Bergengren, it quickly becomes apparent that his books fall into two categories. The first consists of his "Credit Union Books" which, as the name suggests, were written for the benefit of the movement in a narrow sense. Containing practical guides to starting and running a credit union, the contact information of important people in the movement, and updates as to its status both nationally and in various locales, these books were primarily intended to be aids to credit unionists across North America as they struggled to build the movement from the ground up.

Although such texts make up the bulk of Bergengren's oeuvre, he also penned three works in response to contemporary events that take a much broader perspective. His memoirs can be seen in this light as a philosophical reflection upon his career as a co-operative organizer, and I Speak for Joe Doakes, written in 1944, is a call for international and economic co-operation as a way to prevent yet another world war from decimating yet another generation. However, the most involved and comprehensive of these books is We The People: Being an Impudent Dissertation on Certain National and International Matters.

Book Review: CUNA Emerges by Roy F. Bergengren

Written shortly after the formation of the Credit Union National Association, CUNA Emerges, by Roy F. Bergengren, is a truly essential text for students of the early credit union movement. Intended as an introduction to the theory and practice of credit unionism, Bergengren's book offers a comprehensive window into the ideas and general practices that characterized the movement in the mid-1930s. Along the way, he offers numerous insights into the nature of the philosophy that underpinned credit unionism, as well as observations on issues that the movement has continued to wrestle with to this day.

First and foremost, this book is of truly incomparable value to anyone doing primary research on early American credit unions (i.e., pre-1970s); in fact, for anyone considering such a project, I would strongly recommend consulting it before digging into the archives. Without the benefit of this book, my earliest archival work had a steep learning curve, as I only gradually, and in a piecemeal fashion, came to understand the full significance of the musty documents that had been excavated from a credit union's supply cabinet.

The Coming Micro-Ownership Revolution

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In the more than two centuries since the beginning of the radical transformation of economic life that accompanied the rise of industrial capitalism, one of the most interesting trends has been the changing nature of the forms through which people have engaged in economic activities. Before the industrial revolution, an artisanal mode of production predominated, with many small work-shops producing the goods required by the largely agrarian economy. At first glance, such the existence of many small firms would suggest a highly competitive economy; however this was not the case. Rather, the high cost of transporting goods created by primitive transportation networks, the risk of brigands, etc., meant that, rather than a single integrated economy, there existed many small economies between which only low-bulk, high-value goods (such as spices) were exchanged. In this situation, workshops were almost universally owned locally, since the cost of monitoring an agent in a distant city would be prohibitively high (the exception being those in the aforementioned low-bulk, high-value businesses, but they also helped ensure the loyalty of distant agents by using family members).

However, the advent of the 19th century transportation and communication revolutions, which brought better roads, canals, steamships, railroads, and telegraphs into widespread use, changed the game. The many local markets became increasingly integrated, and the prices of commodities converged over the course of the century. These changes also led to radical shifts in how firms were both run and owned. With huge, growing markets at their disposal, firms could, as Chandler describes in his brilliant book Scale and Scope: The Dynamics of Industrial Capitalism, drastically reduce the unit cost of many products by engaging in capital-intensive mass production. However, in order to fully take advantage of such available efficiencies, firms needed to mobilize amounts of capital beyond the resources of almost any individual or family. As a result of this problem, the "managerial firm" emerged as the dominant model in many industries by the end of the 19th century. Where, previously, the owner of a business was generally involved with its operations, managerial firms were characterized by a separation of ownership and management (which began to be undertaken by salaried professionals).

Book Review: Crusade by Roy F. Bergengren

Published in 1952 (only three years before his death), Roy F. Bergengren's final book, entitled Crusade: The Fight for Economic Democracy in North America, 1921-1945, was written with the clear purpose of recording the legacy of his life's work as a credit union organizer. Mixing a chronological narrative of the movement's growth from his early work as the head of the Credit Union National Extension Bureau until the Second World War with countless colorful anecdotes and philosophical asides, Bergengren provides the reader with a rich textual mosaic which powerfully conveys his sense of the movement's trajectory and meaning during the years of his involvement.

As a work of history written by a participant, Crusade often reads like a book-length acknowledgements. For each event he covers, whether it be successfully lobbying for a state credit union law or organizing a speaking tour, Bergengren faithfully names all of the people whose support made the particular achievement possible. While this nostalgic style sometimes gets a bit tedious and mushy, it also means the book is an excellent place to start for anyone interested in undertaking a wide variety of credit union history-related projects. Not only will that reader emerge from Crusade with a fairly clear sense of the movement's overall developmental path, but he or she will also likely have developed a list of the names of the key players in almost any episode of that period.

Book Review: I Speak for Joe Doakes by Roy F. Bergengren

When one first picks up Roy Bergengren's I Speak for Joe Doakes, it is immediately apparent that the book stands apart from the bulk of his oeuvre. To start with, having been written in 1944 and published a year later, the realities and implications of the Second World War loom large and extend even to the book's physical form. Immediately below the copyright information, the reader is informed that the text is "manufactured in strict conformity with Government regulations for saving paper," and it is dedicated to "SERIAL NUMBER 0-560627 and SERIAL NUMBER 0-1289910 [presumably his enlisted sons] With All My Love." Unlike the rest of his books, which focus primarily on the credit union movement that he founded and led, I Speak for Joe Doakes has a much grander purpose: namely, to argue for a post-war international and economic order rooted in co-operation.

As its title suggests, the book is framed as Bergengren's advocacy for the interests of "Joe Doakes," his "symbol of the common man, the worker, the great mass of people." In general, Joe Doakes is not a man of expensive tastes or voracious appetites. Rather,

He is most vitally concerned with any circumstance which affects his opportunity to work at a fair wage ... it is essential to him that there be a lasting peace. He has no wish that this war shall end in futility as did the war which his father fought. He is interested in co-operation as a possible contributing factor in the creation of the great new world which might evolve from this war if his rights and hopes and aspirations are adequately recognized in the peace.¹

The validity of these insights, Bergengren argues, is rooted in his decades od criss-crossing the United States for the purpose of helping thousands of "Joe Doakes" from all walks of life to organize credit unions. That experience, he believes, provides him with a unique vantage point into the interests and desires of the inarticulate "common man," who he declares to be his "client." Thus, according to Bergengren, what "Joe Doakes" desires above all else is to avoid a full replay of the great traumatic episodes of Bergengren's generation: the First World War and the Great Depression, or, to put it more abstractly, to secure lasting peace and economic prosperity.