The strategic value of cooperatives (Part 1)

Important planks

20130728rawle's business pageIn thinking about the issues of economic inclusion and social cohesion, the mind of this writer was drawn to the business organization known as the cooperative society.  The two concepts of economic inclusion and social cohesion form important planks of the development thrust of the Granger administration.  Education is a third element that, when joined with the other two planks, increases the chance that Guyana can be ready to deal with issues of economic growth and the global interplay of sustainable development.  Bringing three of the critical pillars of development together is a formidable task, especially in a multiracial country like Guyana, and one that requires the application of a workable mechanism for this purpose.  It is the recognition that the cooperative might be that workable vehicle that caused this writer’s mind to stray to that business model, notwithstanding Guyana’s recorded experience with it in the past.  This article examines the utility of the cooperative society as a key player in the development drive and the strategic value it brings to economic inclusion and social cohesion.  It draws on examples from a few countries to show the viability of this option as a means of addressing social and economic problems simultaneously.  Because of size, the article will be presented in two parts.

 

Non-participation

Economic inclusion is often linked to the non-participation of people in the financial system of a country.  In the USA for example, the Federal Deposit Insurance Corporation (FDIC) takes a keen interest in this matter and strives towards the goal of giving all Americans access to safe, secure and affordable banking services.  The European perspective reveals that the issue is much broader than that of a financial nature and is a major cause of poverty and income inequality.  The European view could be seen from the focus of the European Bank for Reconstruction and Development (EBRD).  The EBRD defines economic inclusion as “the opening up of economic opportunities to previously underserved social groups”.  To the Europeans, it is about doing things to include the unutilized and under-served human resources of a country in the mainstream of the economy.  Traditional economic thought refers to such persons as unemployed or under-employed.

The two perspectives about economic inclusion are interesting.  One can take it that the FDIC is more concerned about persons who have money, but are not using the banking system for whatever reason.  Given the dynamics in the USA, it might also be linked to undocumented workers.  On the other hand, the EBRD sees the person as having no money, but needs an opportunity to get it.  The previously underutilized persons would be the child now leaving secondary school and adults who would not have wanted to work or now have the opportunity to do work but faced obstacles in the past.  This concept of economic inclusion wants the barriers to economic opportunity removed.

The Center for International Private Enterprise (CIPE) defines economic inclusion as “the equality of opportunity for all members of society to participate in the economic life of their country as employers, entrepreneurs, consumers and citizens”.  It entails access to markets, resources and opportunities without bias.  It calls for active participation in the economy for greater numbers of workers, entrepreneurs and consumers.  The focus is on equality of opportunity.  The latter view contains a broader perspective that is relevant to Guyana, especially when one considers that unemployment among Guyanese youths stands around 40 per cent and poverty levels could be as high as 36 per cent.  This view of economic inclusion also emphasizes the role of the individual.

 

Severity of crime

But it must be the limitations of the individual in the first instance that prevented him or her from gaining access to resources to enable greater participation in the economy.  Substantial research is required to gain a good understanding of the problem.  For the past 30 years, Guyana has emphasized the liberal model of economic participation during which period, the income gap has widened and the severity of crime has risen.  Crimes have widened to include money laundering, terrorism, trafficking in persons and drug trafficking.  Racial epithets have intensified and efforts are being made by some to keep Guyanese of different races from coalescing around a common development agenda. It was at this point of thinking of the issues that the use of the cooperative came to the mind of this writer as a possible way of overcoming the aforementioned challenges.

As one thinks about the issue, the question should rightly be asked, didn’t Guyana try the cooperative model before?  The answer is yes, but there is a major difference in economic philosophy at the time of its earlier use and now.  In the earlier period of use, Guyana relied exclusively on non-market economic principles for the operation of its cooperatives.  This practice led to improper management and decision-making.  Now, one is considering free-market economic principles under which cooperatives have turned out to be major drivers of economic and social progress, and global expansion of market power.

 

Value

There must be some value to cooperatives as to why several rich and highly successful countries rely on this business organization for economic activity.  The proportion of cooperative membership to population varies across the globe, but it is very high in countries that are among the wealthiest in the world.  Fifty per cent of the population in Finland and Singapore are members of a cooperative society.  According to IMF data, when measured on a per capita basis, Singapore is the fifth richest economy in the world.  The thing about Singapore too is that its reliance on cooperatives is unmistakable.  About two-thirds of all supermarket trade is done through cooperatives.

It is given as one in three people in Canada, Honduras, New Zealand and Norway.  Norway is ranked the 14th richest country in the world.  It is as much as one in four in the USA, Germany and Malaysia.  In the USA, one would find that 42 per cent of all distribution lines are owned and maintained by cooperative societies.  Most of these countries have per capita income that are five times or more the per capita income of Guyana.  Consumer cooperatives have a strong record of creating decent work for its workers, engaging in fair trade, setting industry standards for honest labelling and promoting a healthy diet.

 

Definition

The question then is, what are cooperatives and what role have they played to make them useful vehicles for economic inclusion and social cohesion?  A common definition used for cooperatives is “autonomous organizations of people, united in their desire to fulfil their economic, social and cultural aspirations through a jointly owned organization that operates democratically”.  They operate on the basis of seven principles.  These principles are voluntary and open membership, democratic member control, members’ economic participation, autonomy and independence, education, training and information, cooperation among cooperatives and concern for community.  Economic participation and concern for community are two principles that undergird inclusion a cohesion.  They point to the fact that the cooperative is an avenue for enabling economic inclusion and bringing members together under corporate responsibility.  There is wide consensus that cooperatives pay attention to people and the communities in which they live.

 

Alternative business form

It is essential to recognize that cooperatives are alternative forms of private business organizations.  In Guyana, cooperatives are equivalent to corporations with different rules of ownership and profit distribution.  Like a corporation, the cooperative has three basic interests.  These are ownership, control and beneficiary interests.  But unlike a corporation where they are separated, the three principles are wrapped in one.  The cooperative is owned by the people who use it.  That is called the user-owner principle.  In addition, the cooperative is controlled by the people who use it.  That is referred to as the user-control principle.  The benefits of the cooperative go to the users on the basis of their participation.  That is referred to as the user-benefits principle.  Consequently, it is only in the cooperative organization that all three interests are usually vested in the user.  Viewed from the perspective of the three principles, the cooperative is a profit-seeking entity that can create room for economic inclusion and social cohesion.

However, a fundamental issue remains and that is whether or not the cooperative can provide appropriate responses to the challenges faced by the disadvantaged.  Research has found that cooperatives are primarily businesses that have often emerged as a result of crisis situations.  During those times, cooperatives ended up saving jobs in communities.  They have a positive effect on market conditions also.  Rural 21, the international journal for rural development, observed that cooperatives focus on people and therefore are able to increase their power in the marketplace.  In the magazine, it is observed too that cooperatives ensure that retail prices of consumer goods remain at reasonable levels and that access to them remain safe, reliable and affordable.  Cooperatives utilize ethical values that increase consumer and member confidence in the organizations.  During crisis periods, it is often cooperative financial institutions that continue to grant loans and create jobs in their various sectors at pre-crisis levels.  In effect, they are seen as free-market tools for managing crisis.

To be continued

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