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Cooperatives are a vital form of economic development and job creation in the world, particularly in the developing countries like South Africa
by Xitlhangoma Mabasa
The world is in dire need of a solution to the ever-increasing gap between the rich and the poor, and the economic challenges currently facing most countries globally. Some developed countries, and a few developing countries, have cottoned on to the fact that cooperatives, with their dual nature of addressing both social and economic troubles, could be a potential panacea for these challenges – although not if they act alone. They need support from governments and to work side by side with companies, sole traders and close corporations if they are to succeed. While corporates importantly provide capital and jobs, their focus is on maximising profits, largely achieved at the cost of workers. Cooperatives, on the other hand, while also businesses driven by making a surplus, do this with great concern for the community. And unlike companies, which compete against each other, often destroying one another in price wars, cooperatives emphasise complementing one another. This paper argues that cooperatives are better poised than other forms of economy generating methods to enrich the poor and working class, as cooperatives encourage a more participative and empowering approach. South Africa, despite efforts to incorporate cooperatives into its socio-economic model, is lagging on the use of this crucial tool to tackle the triple challenge of inequality, poverty and unemployment. South Africa would do well to take heed of how both developed and developing countries globally are benefitting by using cooperatives as key instruments to generate economic growth, job creation and redistribution of wealth – while also enhancing the social fabric of their societies.
There are numerous forms of economy generating methods in the world, from companies and sole traders to close corporations and cooperatives.
Some developed countries – for example, Spain, the United Kingdom, Japan, Canada and Italy – use cooperatives as an alternative and/or supplementary form of ownership, economic growth, job creation and social development. Among developing countries, some embrace cooperatives in addition to the other forms of economic enterprises. Examples of such countries are Kenya, Rwanda, Tanzania, Cuba, Chile, China and India.
South Africa is also making efforts to support and promote cooperatives, although they, thus far, continue to occupy minimal space within the economic and social spheres. This is disappointing as South Africa, together with many developing countries, and more than most developed nations, needs cooperatives to address the inequality, poverty and unemployment quagmire it is trying to get itself out of. It is widely known that South Africa is the most unequal country in the world. Cooperatives, as an economic and social tool, would help to seriously address these inequalities, which in the main are the legacy of colonialism and apartheid.
A common challenge faced by developing countries that have emerged from colonialism and foreign occupations is that, although such countries have attained political freedom, for most of them economic emancipation remains elusive and a dream. However, among a number of other economic and social tools, cooperatives can assist in getting to grips with inequality and its destructive side effects, especially if supported by governments. The world needs to embrace cooperatives as they contribute towards helping the world to share its resources equitably.
The world faces a myriad of dilemmas, some of which are human made, while others are beyond human control. Earthquakes, for instance, are not something we have the ability to control. Whereas climate change, which is threatening to have devastating consequences on the lives of people, and which most are well aware of, is continuing to worsen – largely because of greed and selfishness – despite our ability to have some effect on its outcome.
The same can be said of the ‘triple challenge’ of inequality, poverty and unemployment, which has remained – largely unabated – at the top of the agenda facing humankind. The gap between the haves and the have-nots on a global scale is massive, and growing. And these challenges only worsen when zooming in on the developing nations, who have the added burden of the legacy of colonialism and occupations by foreign powers to contend with. Then, looking at South Africa, its history of apartheid adds to these woes. Pile on top of that gender and disability discrimination and it becomes a perfect storm.
This paper focuses on cooperatives as tools potentially available to the world to help create jobs, shrink poverty and promote equality, especially in developing countries like South Africa. Surprisingly, even developed countries are using cooperatives to deal with these problems. Redistribution of wealth and resources and job creation are in the interests of all people the world over if we ever hope to raze poverty to the ground.
Corporate involvement is critical to generating jobs, and governments must contribute by making the environment conducive for industry to thrive and grow, so that it can employ more people. The corporates should also help to bring down poverty. Unfortunately, even if industry does thrive and there is huge economic growth, it is not a given that such wealth will equitably and reasonably be shared with workers and the working class. We could easily have jobless growth, with the corporates sticking to maximising profits and not impacting on the lives of the poor.
But one of the economic tools that can help to level the playing fields by kindling both wealth and jobs, is cooperatives, which, ideally, should exist alongside companies, sole traders and close corporations.
Defining cooperatives vs corporations
“A cooperative is an autonomous association of persons united voluntarily to meet their common economic, social and cultural needs and aspirations, through a jointly owned and democratically controlled enterprise” (International Cooperative Alliance, 1995).
There are two characteristics that distinguish cooperatives from other enterprises: Firstly, they are associations of people which agree to be the owners, the makers of democratic decisions and the users of their joint enterprise. And secondly, their main purpose, as an economic unit, is to promote their members’ interests by rendering services, rather than focusing only on maximising profits.
Cooperatives are based on the values of self-help, self-reliance, self-responsibility, democracy, equality, equity and solidarity. In the tradition of their founders, cooperative members believe in ethical values of trust, honesty, openness, social responsibility and caring for others.
The core principles of cooperation are voluntary and open membership; democratic member control; member economic participation; autonomy and independence; education, training and information; cooperation among cooperatives; and concern for community (International Cooperative Alliance, 1995).
Now, briefly defining a company (there are many types of enterprises, but this paper will be limited to mainly defining cooperatives and companies): “A company is a form of enterprise which is a legal entity in its own right in terms of the Companies Act. The functions of a company are divided rationally between the board of directors, which sees to the management of the enterprise, and the shareholder owners who provide the share capital. A company exists independently of its members. Its assets and profits are its own and the members have no right of ownership over the assets. Its liabilities and obligations are its own and may not be recovered from its shareholders. Their liability is therefore limited” (Le Roux, 1999).
The case for cooperatives
Most big foreign corporates drive the economy without any intention of redistributing the economic benefits to the native inhabitants. That said, job creation by corporates remains a welcome contribution to countries that have just obtained freedom, and foreign direct investments also become a critical necessity as such countries attempt to rebuild their economies.
The problem is that wealth redistribution to the poor and the working class typically does not occur voluntarily. The situation is even worse if there are no strong trade unions to fight for better benefits for workers. After all, what is freedom if it fails to transform the economy to the benefit of the previously exploited citizens?
This paper does not discuss the world’s myriad of problems and possible solutions. And this approach is not intended to undermine other solutions that are available to address problems and challenges facing the world’s populations. Rather, it consciously focuses on the social economy as one contribution to alleviate the plight of the poor and the working class.
In addition, this paper’s argument does not ignore other impediments such as the flight of capital from developing countries to the developed world. Neither is it ignorant of some new leaders of liberated countries who steal from the government purse funds that are supposed to further liberate their people socially and economically. And that these challenges get more pronounced where the legislature arm of government is weak, and even more so where the judiciary is also weak or compromised.
The argument advanced here in favour of the social economy and cooperatives is that even in some developed countries, cooperatives are seen as a necessary complementary form of economic activity alongside companies, close corporations and sole traders. Cooperatives build and own buildings which they rent out, for example, in the UK and other developed countries. In Germany and Spain cooperatives have developed to the degree that they occupy space in the manufacturing areas, for instance, manufacturing machinery components like motor vehicle gearboxes and engine parts.
In developing countries like Kenya, Rwanda and Tanzania, cooperatives are key instruments of growing the economy. In Kenya, this is demonstrated in the milk industry. Cooperatives at family and community level take the milk to a secondary cooperative, where the milk is assessed in quality and quantity to be combined with other cooperatives’ contributions. Those huge volumes of milk are then taken to a tertiary cooperative, where it is processed into various milk products like cheese and yoghurt. Some milk is put into cartons in readiness for both local selling and exporting. And these Kenyan cooperatives operate alongside the economic activities of companies, sole traders and close corporations.
Clearly, cooperatives benefit both developed and developing countries. A prominent common challenge facing the world is a persistently growing gap between the rich and the poor, which is even more pronounced in developing countries. It is not uncommon to hear of jobless growth, where governments are celebrating huge profits, while employment lies in the gutter. In contrast, cooperatives are by nature inclined to produce and create jobs and also contribute to social development (as they contribute to economic growth).
Ownership is typically more dispersed under cooperatives than under companies. In developing countries, colonialism has perpetuated ownership patterns in favour of the rich. Usually, the rich are the colonialists who own a major part of the economy, and few natives may, after liberation, join the rich in sharing the spoils.
Ownership patterns are characteristically against the majority, who are usually the natives of the ‘liberated’ countries. Multinational companies are, on the whole, not shy of owning a huge percentage of the assets and wealth of formerly colonised countries, where the poor and the working class remain in perpetual poverty and unemployment. It is ordinarily not the intention of big corporates to redistribute wealth to the poor and the working class.
There is an argument that market forces, if left undisturbed by governments, will create and redistribute wealth. But that has proved to be a fallacy, as typically it has never materialised; the market has generally failed to redistribute wealth. Hence, we speak of market failures and the need for government intervention.
Cooperatives offer a solution to market failures. Guided by the seven principles mentioned earlier, cooperatives and their leaders have noted that the disparities between the richest and the poorest must be addressed, and so, there is a deliberate plan being executed by cooperatives to narrow that gap.
Some countries embrace cooperatives to a degree where they even help in the establishment of universities and technikons that specialise in training people on cooperatives. For example, in Spain (a developed country) and countries like Kenya (a developing country).
The values upon which cooperatives are founded help build better communities. Complementing one another is emphasised over competing against each other. Price wars – where one company does everything to kill a competing company under a free market and untempered capitalism – are hardly heard of between cooperatives.
Cooperatives as a tool for change
Cooperatives serve a number of objectives: generating economic growth, job creation and redistribution of wealth. They also contribute to enhancing the social fabric of societies.
Social and economic challenges continue to ravage the world in general and developing countries in particular. The 2008 economic meltdown is a vivid example. Economic tools used to address these challenges should serve humankind in a complementary way, backing what good governments are supposed to do. Using a variety of different economic tools provides diverse types and levels of services, which is needed in a world dominated by such contrasting interests and circumstances: war-thirst vs peace-loving, wealth vs poverty, greed vs generosity, totalitarianism vs democracy, corruption vs lawfulness, oppressive vs progressive, self-serving vs community serving.
Although this paper focuses largely on poverty, unemployment and inequality as the main threats facing the majority of the world’s population, especially the poor and working class, there remains an awareness of other challenges across different parts of the globe. Dire problems such as climate change, racism, religious-extremism, imperialism and colonialism are all affected by and affect the ‘triple challenge’. Added to these serious worries is the horror of gender-based, xenophobic, child and transgender killings. World wars are also a threat to humankind, as we cannot discount the possibility of a third world war.
As if that terrifying list is not enough, the globe is also facing the disastrous outcome of the Covid-19 pandemic. The inequalities facing the world were acutely exposed by the greed of developed countries as they hoarded vaccines in the thick of it, depriving poor developing countries of the life-saving medicine.
The global leaders should strive to contribute to world peace. And whatever tools are devised, we should continually ask ourselves whether they contribute towards making the world a better place or worsening its condition. We must accept that different people will have different opinions about which tools to use, however, it is clear that if the world embraced cooperatives more, and used them alongside other progressive methods or policies, the world would not only be better positioned to address challenges such as poverty, unemployment, and inequality, but also environmental and climate change issues.
Which is not to say that approaches like the creation of companies as a means of generating economic growth and wealth generation are entirely bad. Actually, the creation of companies is good for both developing and developed countries. But the corporates do not go far enough to address the plight of the poor and the working class.
Unfortunately, the world embraces these other forms of economic activity, like companies, more than cooperatives. To quote Louis Favreau: “The cooperative movement is becoming aware of the severity of the crisis and its international scope: stock market capitalism, environmental disasters and rising inequalities. At the same time, cooperatives are rediscovering that they are faring better, thanks to their cautious economic approach. Leaders are now more inclined to assert that cooperatives are part of the economic alternative to this crisis. Although cooperatives tend to be politically reserved, powerful initiatives have been springing up around the world alongside with what the ICA is now trying to do as an international organisation for political representation” (Favreau, 2012).
Favreau further argues for: “1) greater distancing from capitalism, which has been ongoing for some time; 2) increased international activity; 3) greening activities within several of its organisations. All this transformation seems to indicate that its legendary political neutrality may be a thing of the past. Could this be a major turning point?” (Favreau, 2012).
Most corporates exacerbate the crises – poverty and inequalities – of developing countries, and they are not ashamed of publicly admitting that their main objective is profit-maximisation. For most of these companies profit maximisation is achieved at the cost of permanent workers, who are converted into casual labour, and also by denying workers essential benefits like medical aid and unemployment insurance. In the name of implementing labour flexibility, especially in developing countries where unemployment is usually too high, most workers easily get retrenched and their wages get reduced, with the utilisation of casual labour becoming the norm. It is far too difficult and risky for casual labour to form or join trade unions. Consequently, low paid workers translate into poor households with low per capita income for families and communities.
Cooperatives need support to succeed
For cooperatives to succeed, governments need to support them. This could take the form of governments exempting emerging and small cooperatives from paying tax for a certain period as they get their footing. It could also imply providing land, seeds and implements to agricultural cooperatives. In South Africa, a country that leads the world in terms of the gap between the few rich and the majority of poor people, cooperatives are making efforts to emerge as a role player, but that noble objective is proving to be a steep mountain to climb (DSBD, 2023).
Small business is attempting to assist cooperatives to emerge as a strong role player, through various supporting agencies: Small Enterprise Development Agency (SEDA), Small Enterprise Finance Agency (SEFA), National Empowerment Fund (NEF), Companies and Intellectual Property Registration Office (CIPRO), South African Bureau of Standards (SABS), among others.
These agencies provide essential supportive services, for example, SEDA empowers new cooperatives with appropriate skills that the cooperative will need in its area of operation. For instance, it would train emerging cooperative farmers, teaching them farming skills before they endeavour to start their businesses. This enhances the chances of cooperatives succeeding, reducing the chances of failure – it is a worldwide observation that most businesses fail during the early stages. SEFA then typically helps emerging cooperatives with funds after such cooperatives have been empowered by SEDA.
In the 1960s the cooperative sector in Chile experienced major expansions, “with more than 3 400 active cooperatives coming into existence as a result of broad government support and promotion ... Various challenges followed which led to the University of Santiago de Chile, through its International Centre for Social and Cooperative Economy (CIESCOOP), pursuing work in various cooperative subsectors (schools, workplace, drinking water supply, etc.) with a view to strengthening and publicising the specific contributions – not to mention their very existence – of cooperatives” (Dávila et al, 2012).
In Canada, it has been demonstrated that government support assisted the development and growth of cooperatives. “All cooperatives in the North had certain features in common. First, they were dependent upon government support in the form of financing for initial capital outlay (which in no way set them apart from resource industry development in the North). They received technical supporting areas of accounting, pricing, and correspondence with outside dealers, and some supervision or management of the business in order to manipulate outside markets successfully. They also relied upon access to air transportation and shipping for distribution to widespread communities, perhaps the most costly factors” (Stopp, 2012).
To further illustrate how essential government support is for the success of cooperatives, Caroline Gijselinckx (2012) argues that “Governments are partners: Cooperatives in the areas of (health) care and social services cannot function without government support. Governments create the legal framework in which they can operate, but also purchase services and determine and control the criteria to which products offered and their supplies must conform, provide price or wages subsidies, grant access to investment funds that only ask a modest return on investment, assign favourable fiscal or social measures, support pilot projects, and so on”.
Gijselinckx’s arguments are informed by research from, among others, Italy, UK and Sweden. “In Sweden and the United Kingdom, there are cooperative development agencies, often with co-financing by the government, supporting new cooperative developments” (Gijselinckx, 2012).
In 2008, during the economic meltdown, cooperatives are among the economic entities that suffered less and mainly survived the economic onslaught. In Italy and Spain, and other countries, cooperatives survived relatively better during this time compared to companies and sole traders.
Cooperatives are better at knitting communities together than other economic enterprises
Economic development (even with economic growth) if unaccompanied by social development and emancipation, is inadequate in meeting the challenges facing humankind, particularly the poor and the working class.
In developing countries like South Africa, cooperatives are not new. Historically, most rural places practiced an economic activity called ‘letsema’, whereby a community would collectively plough one of its members’ fields and thereafter move to plough the next community member’s field until the collective finish ploughing all the participants’ fields. That way the collective energy ploughed more fields than if each field owner had singularly worked on their field alone. This notion can be transferred to cooperatives. We simply call it the strength of teamwork.
In addition to companies, close corporations, sole traders and others, cooperatives have emerged as a tool that occupies a particular niche that is often ignored by governments. “Cooperatives have been driven by principles that make them different from other organisations since their origin. The statute from the first experience on cooperatives in 1844, in Rochdale, contained principles upon which a cooperative organisation should be created. According to Schreiner, some founders of the Rochdale cooperative had already participated in pre-cooperative experiences and were familiar with the ideas of Robert Owen, a socialist utopian and founder of the cooperative movement” (Cardoso Cançado et al, 2012). To give testimony to this, are the seven principles of cooperatives listed earlier.
“The founders of the cooperatives did not only want food at fair prices; they also aimed for education of family members and access to housing and employment – through the purchase of land and factories – for the unemployed and the underpaid” (Cardoso Cançado et al, 2012). Inspired by the success of cooperatives in Rochdale, “in 1895, the International Cooperative Alliance (an authority on cooperative principles) was created in London, with the initiative of English, French and German leaders” (Cardoso Cançado et al, 2012).
Members of a cooperative seem to identify with their cooperative to a degree that they may even choose to agree to lowering wages if they understand that such a sacrifice will grow the cooperative. As a company exists independently of its members, employees would normally not agree to a salary cut as they are not involved in the running of a company and, in relative terms, identify less with the company.
Cooperatives cooperate among themselves to a degree where they can accumulate their moneys for purchasing stock, and using the principle of economies of scale, they can negotiate better prices as they purchase in bulk. In contrast, companies guided by the principle of competition may find it easy to destroy the competitor by using a price war as a strategy.
During the recent pandemic, most pharmacies increased prices of medicine for Covid-19 – for example, vitamin tablets and ginger – in their pursuit of profit maximisation. In South Africa, the Competition Commission had to intervene by investigating the claim of excess pricing, and having found a leading pharmacy, Dischem, guilty, it was penalised with a fine.
In comparison, most cooperatives, while striving to make a surplus, would have been guided by the noble principle of acting in the interest of the community in which they operate. One of the seven principles, ‘concern for the community’, renders this guidance. Guided by those principles, most cooperatives would not unduly increase prices as they lean more towards caring for the community.
There are two related concepts that are important to look at here: concern for community (relates to cooperatives) and social responsibility (relates to corporates). The concept of concern for the community is closely related to other concepts, like the principle of democratic member control. “The principle of concern for community is founded on two pillars: (i) the sustainable development of communities where cooperatives are located and (ii) the accomplishment of this development through policies approved by their members” (Cardoso Cançado et al, 2012).
The concept of social responsibility, on the other hand, is problematic. Most companies if accused of not doing enough for the communities and countries in which they are located, deny this in response. They argue that they do carry out social responsibility in the area where they are located or operate by creating employment for community members and paying taxes, which benefit the said community. Fighting for dominance here is private interest versus collective welfare – that is, pursuing the interests of shareholders (profit maximisation) as opposed to satisfying community needs (improving quality of life).
But there is a slight overlap. One argument is that most corporates are doing the social responsibility function as a public relations (PR) exercise. Another argument is that they are doing it as a marketing exercise. Reputational capital is another aim of corporates; it enhances the company brand if well executed. This partially explains why companies will go to great lengths to sponsor a soccer team that is winning. Usually, weak or new teams struggle to secure sponsorship.
Therefore, social responsibility (for corporates) is not the same as the concern for community (of cooperatives). If a bigger proportion of the world could embrace cooperatives, it would indeed be a better place, both socially and economically. There is enough space for cooperatives to exist alongside companies, close corporations, sole traders and other economic methods. Cooperatives will only enrich and complement the other methods, without threatening their existence.
However, although there is a strong argument to be made that humankind will be better served with a wider variety of economic and social methods, this does not mean that cooperatives are a panacea for all economic and social challenges in the world, particularly for the developing nations. For the world to become one socially and economically, more needs to be done beyond what cooperatives and corporates can offer.
Other advantages of cooperatives
There are many other ways that cooperatives are adding value to people’s lives. Cooperative capital is less expensive than external capital, provided that the investors – who (often) also have a user-relationship with the cooperative – are not investing in the cooperative for speculative reasons. A lower (or even zero) return on investment is accepted for cooperatives where members have great user value, for cooperatives that have a high value for the community, or that are embedded in a well-organised community of interests or ideological community, for initiatives that would otherwise have to primarily rely on the work of volunteers and charity. A higher return on investment in accordance with the market is expected from more commercially-orientated investments.
Training is another virtue of cooperatives. Most cooperatives train their members not only to benefit the cooperative, but also to benefit the broader society, as those skills can be used elsewhere in society, for example, in the broader labour market. According to Caroline Gijselinckx, offering high quality services at the lowest possible price is one of the virtues of cooperatives (Gijselinckx, 2012).
In addition, cooperatives offer an enriched vehicle for providing social welfare. The increasing tension between tightening state budget constraints on the one hand and growing social needs on the other has led welfare states all over the world to try to find ways to scale back public expenditures and responsibilities, by persuading citizens and private organisations to engage in the alternative financing of social services.
The 2008 worldwide financial crisis has made most countries appreciate the value of cooperatives as an economic and social instrument. Yasmin Lemzeri et al succinctly summarise this: “The financial crisis that hit the banking sector in 2008 was so serious that the States had to intervene to prevent a systemic crisis. It seemed that no bank – either cooperative or commercial – was spared. However, depending on their membership structure, their level of capitalisation and geographical situation, cooperative banks appeared and seemed to weather the storm better – so much better, in fact, that their indicators had deteriorated to a much lesser extent and even improved. Cooperative banks have proven to be important contributors to financial stability. However, commercial banks have shown themselves to be more resilient in the post-crisis period. Although they suffered strong downgrades of their indicators scores, they succeeded in making up for time lost between 2006 and 2008” (Lemzeri et al, 2012).
Another authority on cooperative banks in India, Sudha Kornginnaya, says, “In the past, cooperation was conceived ‘essentially as corrective to the excesses and deficiencies of capitalism’, and it is now all the more relevant in the present time. Though the financial crisis has devastated the market-driven corporate economy, cooperatives have shown their economic resilience by fulfilling common goals of the association. ‘A cooperative is a symbiosis: a union of an association of people and a business, both of which have to keep healthy for the orgasm to thrive’. Hence social achievements are vital for business success, while economic strength is imperative to yield social aims. However, the financial cooperatives that have replicated corporate banking behaviour have now embraced a renewed socialist imperative alongside their economic performance goals. There is a growing realisation among financial cooperatives that their effectiveness is based on the reconciliation between economic efficiency and adherence to social values” (Kornginnaya, 2012).
Some problems facing cooperatives
As favourable as the arguments for cooperatives are, this does not preclude that they face challenges. In Argentina, during its 2001 financial crisis most companies collapsed. Cooperatives took over the running of companies and converted them to cooperatives. The one challenge they faced was that they mimicked a company’s hierarchy in running their cooperatives, which believe more in a relatively flat structure.
In China, in the words of Wu Xiliang: “Even although China’s rural financial markets have undergone great reform in recent years and banks financial institutions cover every township, today China’s rural mutual credit cooperatives (RMCC) remain underdeveloped in contrast with other financial institutions” (Xiliang, 2012). This constitutes a critical problem for the RMCCs.
Another problem arises out of inadequate knowledge of rural areas by commercial banks. “In China, the current, longstanding government measures used to manage the banking market in the rural areas are the same as the measures used in urban areas. However, commercial banks cannot know the rural areas completely, and it is difficult for farmers to get loans from commercial banks” (Xiliang, 2012).
Another reason why there is, relatively, poor knowledge of rural areas and rural cooperatives by commercial banks is that most commercial banks are situated in urban areas, as they pursue a high geographic concentration of clients (in urban areas) compared to sparsely distributed cooperatives (in rural areas), which have less appeal. To lay out infrastructure in rural areas is more expensive than in urban areas.
Fortunately, there are other types of banking institutions that are suitable for the rural areas: Rural Credit Cooperative, Agriculture Bank of China and China Post Bank, rural and township banks, lending companies and rural mutual credit cooperatives. The irony is, although the China Post Bank receives more deposits from farmers, it gives fewer loans to farmers. It is a challenge. As a result of strict access rules, many civil rural financial cooperatives cannot obtain registration from the China Banking Regulatory Commission, and this encourages the existence of village and township banks that operate unregistered. But even though they are unregistered, they occupy a critical niche as they are able to serve scattered farmers who would otherwise be too expensive to service.
In South Africa, remote places are hungry for banking institutions that should be located in rural areas. India and China are doing better than South Africa, as they have more cooperative banks, which are better suited to serve the sparsely populated areas. The weakness of rural places that are without cooperative and suchlike banks is that loan sharks and other opportunistic pseudo loan and borrowing institutions can spring up and occupy the space that should be occupied by properly registered banks.
In Argentina, in some cases worker cooperatives (WCs) own and manage firms. These are Argentina’s recovered firms (RFs), which “represent a movement of WCs that emerged from Argentina’s 2001 economic crisis. In that crisis the economy of Argentina got completely devastated. According to the World Bank, unemployment topped 25 percent in 2002. Argentina could no longer afford to export goods or service its debts. The resulting run on Argentina’s banks marked the definitive start of the crisis in December 19, 2021” (Reese, 2012). Characteristically, most RFs are committed to community development as they run firms guided by cooperative principles. During the crisis in Argentina, cooperatives succeeded in saving some firms from complete collapse, with a number of jobs saved.
Research and development are critical for the development of cooperatives and for cooperatives to keep up to date with the dynamic world development and challenges. Cooperatives are empowering: “They are developed as instruments for stakeholders who want to develop answers to their needs and expectations, and to gain mastery over their lives. Participation, active involvement, control and critical awareness are key to this mastery and this is exactly what drives cooperative development” (Gijselinckx, 2012).
The dual nature of cooperatives: marrying the social and financial economies
As can be seen, there are advantages and disadvantages to both companies and cooperatives, and so, it makes sense for cooperatives, companies, close corporations and sole traders to exist together in the world. In certain areas their advantages will overlap to the benefit of all people globally. It would be highly regressive for countries to shun cooperatives, which would rob communities of the benefits.
Sonja Novkovic makes an important point: “Cooperative firms are known to possess a dual character; on the one hand they are business driven by economic incentives, while on the other, they are associations with a social purpose and character. Cooperatives have often been portrayed by their members as businesses that combine a social mission with their economic goals. This dual aspect has not been easy to quantify, and literature has been divided along those dual lines – social aspects have historically been addressed more or less separately from economic concerns, while economics literature has steered clear from addressing the social nature of cooperative organisations” (Novkovic, 2012).
What the world needs is for all forms of economic and social development activities to act together without aiming to displace each other, because together they all add value to humankind. There is adequate space for this approach to work. Government should support all progressive forms of economic and social activities, especially cooperatives, as they are more likely to help empower the poor and the working class by addressing the inequalities between the rich and the poor in the world, where the economic and social disparities are astronomical.
A fitting example of a conglomeration of corporate business and cooperatives is Mondragon in Spain, where Mondragon represents many cooperatives internally in Spain as well as all over the world. Cooperatives under Mondragon expand their interests by relating to corporate businesses in Spain and globally, with the understanding that that co-existence is in the interest of both major players.
“In October 2009, Ebrahim Patel, South Africa’s newly appointed Minister of Economic Development, caused a stir by publicly expressing his support for the social economy. Opening an International Labour Organisation (ILO) regional conference on the role of the social economy in Africa’s response to the global economic crisis, he declared: ‘As we chart a new growth path on the continent, we need not see cooperatives and social economy entities as simply residual absorbers of labour. Instead of limiting their role, enterprises in the social economy can be a leading force for modernising economies and expanding economic development.’ He went on to say that the social economy was ‘absolutely vital to the recovery of African economies”.
On 12 April 2011, Patel told the South African parliament: “The key to empowering women, black South African, workers, the rural population and young people is to provide them with real economic opportunities – in jobs, access to resources and entrepreneurial opportunities, meaningful self-employment, and through the social economies. This is not an act of charity, but fundamental to sustained growth, to using our wide talent pool fully and to the social solidarity any society requires to prosper”
Cooperatives are not a hostile competitor to other forms of business enterprises. Rather, they should be seen as complementary to them. All the different types of enterprises should exist side by side, as each occupies a particular niche. This complementary value is best illustrated by the German companies of BMW, Mercedes Benz and Golf, where some of their components are manufactured by cooperatives, which purchase those same vehicles to fulfill transportation needs.
While one of the objectives of cooperatives is to make a surplus, it does so with utmost concern for the community in which it operates, for example, by avoiding the disposal of litter in rivers in the area. Concern for the community is one of the seven principles of the International Cooperative Alliance, to which all cooperatives subscribe.
Cooperatives are better poised to enrich the poor and working class, as they encourage a more participative and empowering approach. Generally, cooperatives cooperate among themselves as a matter of principle. Sometimes, cooperators even identify with their cooperative to the point where they are willing to take a pay cut if they believe it will help their cooperative survive a financial crisis, such as the one in 2008.
Cooperatives, by design, are better positioned to reduce inequalities in the workplace, as the salary gaps between the top executives and the ordinary workers is usually very low when compared to that in companies, sole traders and close corporations.
International bodies should learn what some of the virtues and strengths of cooperatives are and explore integrating them into their practices, as it seems cooperatives internationally are more united than organisations such as the IMF, World Bank, United Nations, among others. Components of these bodies tend to be negative towards one another and, thereby, lose the benefits of collectivism.
Governments throughout the world need to support cooperatives to benefit from their many advantages. In turn, cooperatives will fare better through this support, which could take the form of training on cooperatives in colleges and universities, or funding. Learning about cooperatives could also be added to the syllabus at high school level alongside subjects like business economics.
It is clear from this paper that the pros far outweigh the cons when it comes to incorporating cooperatives into the economy. Cooperatives have the potential to address the economic and social concerns that continue to plague the globe, especially poor developing countries. They have the potential to fight the triple threat of inequality, poverty and unemployment – and to win. Countries that do not support cooperatives for whatever reason, should not be surprised to find the gap between the rich and the poor widening further.
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This report has been published by the Inclusive Society Institute
The Inclusive Society Institute (ISI) is an autonomous and independent institution that functions independently from any other entity. It is founded for the purpose of supporting and further deepening multi-party democracy. The ISI’s work is motivated by its desire to achieve non-racialism, non-sexism, social justice and cohesion, economic development and equality in South Africa, through a value system that embodies the social and national democratic principles associated with a developmental state. It recognises that a well-functioning democracy requires well-functioning political formations that are suitably equipped and capacitated. It further acknowledges that South Africa is inextricably linked to the ever transforming and interdependent global world, which necessitates international and multilateral cooperation. As such, the ISI also seeks to achieve its ideals at a global level through cooperation with like-minded parties and organs of civil society who share its basic values. In South Africa, ISI’s ideological positioning is aligned with that of the current ruling party and others in broader society with similar ideals.
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