Retail Food Cooperatives: Testing the “Small Is Beautiful” Hypothesis

Cooperative business enterprises are primarily distinguished from other forms of business organization by the fact that their members consider other goals to be more important than return on invested capital. Accordingly, many economic analyses of cooperatives examine how different goals influence price offers, patronage refunds, firm growth, and the performance of the markets in which cooperatives operate. Such efforts usually assume symmetric costs, i.e., cooperatives have access to the same technology, factors of production, and factor prices as are available to other business enterprises. Here a more general approach to cooperatives performance is followed. It is predicated upon the fact that cooperatives, by virtue of their organization as cooperatives, may be able to employ factors of production, technologies, and marketing strategies that are not available or economically rational for other forms of business organization. This proposition is novel only because it is stated positively. It has often been stated in the negative, i.e., cooperatives lack access to resources readily available to other forms of business, most notably equity capital markets, and are thereby hampered. A specific instance of this reasoning is E. F. Schumacher's "small is beautiful" hypothesis. This note operationalizes the hypothesis and performs a provisional empirical test of it with data gathered from new wave consumer food cooperatives. Organized during the past fifteen years, these coops have ardently pursued Schumacher's ideas by maintaining small grocery stores and encouraging direct consumer participation to contain costs. Old wave retail cooperatives, whose roots lie in the depression of the 1930s, on the other hand, tend to operate supermarkets with product lines and services similar to those of leading grocery firms. In 1980 there were more than 2,500 retail food cooperatives accounting for approximately $500 million in grocery sales. This is less than one percent of nationwide grocery sales. Neighborhood preorder buying coops far outnumber coop stores and supermarkets (Co-op Directory, p.1). However, food coops may be of interest among economists for the following reasons. There has been a decline in competition in many local markets, especially in rural and small city market areas creating a need for the price ameliorating effects of efficiently run retail food cooperatives (Cotterill 1978, 1982a). Coop growth has been rapid in many areas of the country and is nurtured by regional or statewide federations that are becoming increasingly professional in outlook. The National Consumer Cooperation Bank, established in 1979, needs advice on cooperative business management and the feasibility of the cooperative development plans by local groups. Finally, in several states the extension service is beginning to work with food cooperatives because they are an appropriate vehicle for attaining program goals in the following areas: food marketing, community development, home economics, and nutrition. For these same reasons there is a need for increased analysis of food cooperative goals and business practices. Perhaps no one has had a more energizing influence upon new wave food cooperatives than Schumacher. His writing and ideas belong to a tradition of organic and decentralist economics whose major spokesmen include Robert Owen and Peter Kropotkin, the forbears of modern cooperative theory; political and religious thinkers and activists such as William Morris, Gandhi, Lewis Mumford, and Tolstoy; and more recent social critics such as Paul Goodman and Murray Bookchin. In the introduction to Small Is Beautiful, Theodore Rozak writes: