Very co-operative

How Germany invented the sharing economy

The name lives on. Source: imago

If they can put down their smartphone for long enough, most millenials would claim the sharing economy as their own. Whether it’s foregoing the office for a co-working space, crowdfunding a new fintech or booking an Airbnb rental for a short break (traveling with Uber, of course), the world’s 20- and 30-somethings have brought new meaning to the term co-operative.

But they didn’t invent it. That honor goes to a 19th century German bureaucrat, whose then radical ideas are enjoying another day in the sun thanks to the renewed interest in all things shared. Friedrich Wilhelm Raiffeisen, born 200 years ago this month in western Germany, was a rural mayor who in the 1850s hit on the idea of people banding together to conduct their mutual business themselves, as owners, investors and customers. His principle of self-help, self-governance and self-responsibility was a sort of halfway house between capitalism and Marxism, a harsher version of a sharing economy gaining traction at the time.

The concept was to liberate poor tenant farmers from permanent indebtedness to landowners and stop them being wiped out by poor harvests. Raiffeisen’s first “cooperative banks” provided a backstop by pooling resources in an entity that made them bankers, borrowers and business partners, a mix that today would be given the trendy monikers of crowdfunding and shared capitalism.

The two social innovators were ahead of their time in anticipating a sharing economy based more on mutual benefit than personal or public property.

Franz Hermann Schulze-Delitzsch, a German politician and economist, embellished the concept by acknowledging that such cooperation is not only beneficial to public welfare but also to the individuals involved. Instead of going to capitalist investors, profit would go to those who produced it. Subsequently, many other countries formed similar institutions, such as building societies in the UK and credit unions and mutual insurance companies in the US.

The cooperative idea, known as Genossenschaft in German, has remained popular in Germany ever since Raiffeisen. Like in other countries, it also evolved over the decades as mutualist institutions grew. They became bigger and more centralized, to the point that they are now hard to distinguish from their capitalist counterparts.

Today, the German supermarket giants Edeka and Rewe are less like the small grocery retailers who banded together to bulk buy food and much more like large franchise operations with centralized procurement. And DZ Bank, which functions as the clearing bank for the more than 1,000 co-operative Raiffeisen banks and Volksbanks (people’s banks), has expanded into corporate and international banking. It now resembles many big investor-owned banks, making profits of more than €1 billion last year.

But the concept has held true in other areas. Cooperatives in residential construction provided the solution to a critical shortage of housing in Germany during industrialization. They built and managed affordable housing for millions – a lesson for similar shortages today. There are now 2,000 such cooperatives in Germany, which manage 2 million apartments and have 3 million members. In Berlin alone, there are 80 cooperatives managing 180,000 apartments, more than 10 percent of the housing in the capital.

Such successes have led to a resurgence in the Genossenschaft concept in recent years. The number of mutualist institutions – primarily in banking, agricultural, energy and residential sectors – has risen to more than 8,000 from some 5,500 in 2004.

200. Geburtstag von Wilhelm Friedrich Raiffeisen
Co-operative even in death. Source: dpa

Such growth is likely to appeal to a millennial generation that renounces personal ownership and prefers sharing, a sort of benign socialism. The reason for this appeal in the 21st century is the same as that identified by the founders in the 19th century – people need to rely on each other to work together with limited natural resources in a way that provides mutual benefit.

Adapting this mutualist concept to pressing contemporary needs requires little imagination. Car-sharing for a particular group of commuters or charging stations to promote e-mobility (including construction of solar and wind-generation facilities) are among the possibilities awaiting a critical mass of participants. Cooperative associations in some German states are already exploring pilot programs.

Workers cooperatives are also drawing attention as an alternative to venture capital in launching a startup. This can be particularly promising for early retirees who otherwise would have trouble finding investors to launch a new venture as a second career.

The open question today is whether the new economy of shared vehicles, co-living apartments and crowdfunding will be run by behemoth corporations such as Uber or by the small, decentralized units envisioned by Raiffeisen and Schulze-Delitzsch. Either way, the two social innovators were ahead of their time in anticipating a sharing economy based more on mutual benefit than personal or public property. Millenials should salute them.

A version of this article originally appeared in the business magazine WirtschaftsWoche. Darrell Delamaide adapted it into English for Handelsblatt Global. To contact the author:

We hope you enjoyed this article

Make sure to sign up for our free newsletters too!