Jose Alejandro Gomez History of Finance The history of the ﬁnancial cooperative: The German credit union as a quintessential social innovation and the origin of modern collaborative consumption. In light of the prolonged malaise of the global market driven capitalist system there appears to be a rising intellectual interest, public concern or in some cases political push for a more ethical economic order that prizes greater levels of equity, equality and social purpose to be incorporated into the political economy of nations, the business models of corporations and the organization and management of economic institutions within the framework of free market enterprise. Beyond being just the subject of intellectual fodder, these concerns are shaping a generation of ethically aware and communally oriented consumers that are empowering the rise of businesses with a social value proposition those in favor of this shift see a potential emergence of an era of socially driven innovation as a way out of the present productivity stagnation it is easy however to dismiss this movement as a passing trend due to the present disaffection with the economic climate only time and the market will tell if the communal social economy encapsulated in disruptive businesses like AirBnB, innovative financial mechanisms like crowd funding and promising new corporate structures like the social enterprise prove a cursory fad within the process of capitalisms insatiable creative destruction or emerge as a the dominant political economic paradigm. The present growth of communal consumption trends and the future potential of a social economy are conceptually in collective debt to an innovation that arose in the German financial system predating social media by almost two centuries, the credit cooperative or credit union emerged in the mid-19th century as a perfectly tailored response to the era’s economic transition in particular the shocks this had on the asset less sectors unable to gain traction in the now wage driven labor market, this coupled with a non-existent social safety net from a state yet in the early stages of consolidation and a private sector that was rapidly expanding was not yet able to cope with the pace of change much less concern itself with workforce development or training. Most demonstrative of the market failure cooperatives would remedy was that the existing financial sector directed financing to the large firms which provided collateral and intelligible financial
information beyond business only people with tangible assets such as property were provided loans rarely was financing made available to small or medium enterprise much less to a wage laborer for banks lacked the information to asses risk of default and this segments lacked substantial collateral with which to guarantee money borrowed, this proved a compounding vicious cycle those without capital were most in need of financing to invest in their productive capacity but lacked assets to secure the necessary funds for capital investment.(McKillop & Wilson, 2011) This was the socioeconomic context in which the modern antecedent of cooperative banking arose in Germany with the first urban credit cooperative being founded in 1850 by Herman Schulze-Delitzsch, a politician and judge looking to serve the needs of urban craftsman and proprietors, the same concept was later expanded upon to the benefit of rural farmers in the German hinterland by a mayor in the western Rhineland, Friedrich Wilhelm Raiffeinsen in 1864.Both institutions served a similar function looking to draw outside funds into communities lacking in capital, though their target clientele differed, both the urban and rural cooperative banking innovations were “formed in response to perceived failures in formal financial institutions”.(Pg.82 Mckillop;Wilson) Cooperatives primarily targeted the communities of the working poor coping with the transition from rural sustenance farming to wage labor, while...
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