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The Cooperative Alternative

WASHINGTON, DC – In an era in which conventional models of finance, corporate governance, and corporate responsibility are increasingly debated, if not called into question, it may be time to revisit the alternative approach taken by economic cooperatives. The foundational values of cooperatives embody not only a humane vision, but also a pragmatic approach to production that has enabled the successful ones to thrive – and to spur economic growth in countries that desperately need it.

Cooperative movements took shape in the Americas, Europe, Australia, and Japan in the 1800’s. Many grew from the simple proposition that ordinary people could overcome adversity in the marketplace by banding together to buy and sell goods at reasonable prices, and quickly realized the added benefits of sharing knowledge among members, promoting inclusion, and building social capital.

Today, cooperatives cover a range of activities and come in a variety of shapes and sizes, from small-scale agricultural and consumer organizations in Africa to some of the leading agricultural brands and largest financial-service providers in North America and Europe.   

According to the International Cooperative Alliance, a cooperative is a “jointly owned and democratically controlled enterprise.” But, beneath this definition lie rich notions of voluntary association, accountability for strategic decisions, and concern for the communities that cooperatives serve.

Cooperatives have helped to bring information and services to far flung rural communities, empower workers, and expand financial services, healthcare, education, and housing. In doing so, they have transformed the economic and social landscape in countless communities. The International Cooperative Alliance reports that more than 800 million people are members of cooperatives worldwide.

Moreover, cooperatives account for a significant share of GDP in many countries, and an especially high share of the agricultural and consumer sectors. Cooperatives are also one of the largest providers of financial intermediation to the poor, serving an estimated 78 million people globally who live on less than $2 per day.

Of course, cooperatives have sometimes struggled to live up to the ideal. In the most egregious cases, some have fallen victim to bad politics, weak governance, or mismanagement. Others are exposed to risks stemming from concentration in a single business sector, commodity, and/or geographic area.

Cooperatives have also wrestled with questions of members’ entry and exit, financial disclosure, and relationships with the non-cooperative sector. And governments have often faced vexing questions with regard to financial regulation and taxation of cooperatives, including treatment of profits and consideration of exemptions.

And now, in a more mobile and urban world, one might ask: can cooperatives maintain their essential character, based on inclusion and knowledge sharing within a community? In a world in which geography is a diminishing barrier to business, can cooperatives sufficiently distinguish themselves as a viable alternative model? Or will they evolve to serve virtual communities, organized around new sets of challenges and opportunities?

The United Nations has declared 2012 the “Year of Cooperatives.” This provides a good opportunity to examine the extraordinary history of cooperatives, assess their strengths and weaknesses, and rekindle a discussion about a development model that promises higher levels of inclusion, ownership, self-determination, and concern for community.

The World Bank is active in the development of producer and credit cooperatives around the world. Some of the most notable programs include the Indian Dairy Cooperative, which has created an estimated 250,000 jobs, mostly in rural areas. Similarly, Mexico’s National Savings and Financial Services Bank has helped to strengthen savings and credit institutions that serve millions of rural residents who would otherwise have been relegated to the margins of the formal financial sector.

The Bank’s policy work has re-affirmed the notion that rural producer organizations are fundamental building blocks of agricultural development. And it has helped governments to supervise and regulate cooperative financial institutions.

As we search for innovative solutions to today’s development challenges, we should consider what the cooperative movement can offer. That means not only greater economic inclusion, higher agricultural productivity, strengthened food security, and financial stability, but also lessons concerning responsible and sustainable business practices, corporate governance, and community relations. And we should consider how to facilitate the spread of cooperatives’ best practices while avoiding common pitfalls.

The cooperative movement can prompt us to think in new, inspired ways. Capitalizing on cooperatives’ successes and learning from their mistakes can help us to expand the menu of options as we search for more inclusive and sustainable models of development, and new ways of building and sharing knowledge.

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  1. CommentedJonathan Lam

    Gamesmith94134: The Cooperative Alternative

    “According to the International Cooperative Alliance, a cooperative is a “jointly owned and democratically controlled enterprise.” But, beneath this definition lie rich notions of voluntary association, accountability for strategic decisions, and concern for the communities that cooperatives serve.”

    It sounds faulty as it is compromising with voluntary association, strategic decision or concern for communities; and why some have fallen victim to bad politics, weak governance, or mismanagement. In a way I see corruption and manipulation are inevitable, of course, when International cooperative Alliance is under the pressure to compromise if it wrestled with questions of members’ entry and exit, financial disclosure, and relationships with the non-cooperation sector. Perhaps, its finance were treated under the entity of subsidies to government and the cooperatives are wrestle with better deal with governments since it is not distinguishingly enterprising the cooperatives itself.

    Perhaps, there are models available in the rural regions of China that they are state enterprises and turned privatized. Many are successfully run after the local tribes and Chinese made their enterprises work under the scrutiny of the government and tribal bodies. And, development and the profit sharing made the accountable and its reliability under clearer independent rules or agreement and enforcement of the law seemingly worked; even though there are bad examples of corruption and abuses, even riots too. But through the observation on the structural development, it is still sound and expanding. I am not promoting state-owned enterprising but it is how the cooperatives should represent and stand in for those under the management and promote its business to advance till replacements to the cooperatives are available and such enterprise is standing to its own and is free from the shadow of its government or monopoly.

    Perhaps, I am making a point that market and charity does not mixed if profit take the shares in cooperating to produce, and producers can claim their rights to own through the enterprising establishment. Of course, it is a business development under the management of the Cooperatives and sovereignties in governance, and supervision of parties under the professionals and volunteers from UN. Often, I heard operations get lost after its product is turning to commodities. Why can’t cooperatives be the dealer as well till such commodities can go individually into the bodies of market committees that can be traded or aggregated through the financing system? It is a long process of how the Cooperatives can gain through experience and failure; but a little polishing make it glow. Besides, if there is more of supportive developments from the World Bank or the trading market, silos of gains or sacks of sugar in storage can be used or bought in subsidizing the poorer ones who survive under $2.

    It is easy to say than actually accomplish, but the principle of enterprising does give a better chance to produce goods and generate wealth under the conditions of cheaper labor or land use. Charity or subsidy is not accountable for future growth when business disciplines give a better outlook in general which the Cooperatives should have marketing its ideas of profit to its investors. Consequently, the producers and workers can share with those are poorer, subsidies and grants may be contagious to corruption and anemic growth.

    May the Buddha bless you?

  2. CommentedProcyon Mukherjee

    The reference to the Dairy cooperative in India, which fructified into the top brand of India, Amul, is very apt. The social equity generated by the stakeholders in question pales in comparison the object that an equivalent corporate program would have acheived. The difference perhaps lies in the nature of instruments that the latter uses, which is debt-fueled growth, as opposed to the equity built-up program of the former; essentially we are dealing with a resultant leverage component, which is many times the current service capability of the equity in many cases. Whether this stems from larger inclusion of the stakeholders, is something which needs to be seen.

    Procyon Mukherjee

  3. CommentedZsolt Hermann

    The cooperative alternative sounds a perfect idea for a global, integral world where all of us have become interconnected and interdependent.
    What we have to keep in mind though that so far any union, cooperation was usually built against someone else, or against another cooperation, to gain on someone, gain larger share, more profit.
    Today in this new totally integral system the cooperation has to involve the whole system, the whole of humanity together.
    Which means a fundamental change in our previous competitive attitude when we only associated with someone if it meant larger profit or advantage for ourselves, many times ignoring the other parts, the rest of humanity.
    Today in an integral system it cannot work as we see through multiple examples in the crisis, most notably in Europe which is a clear example of a Union to gain market share, to increase profit, but now that it cannot live up to expectation immediately it starts to fall apart, as the members retreat from the necessary full integration.
    This is not surprising since it goes against the common logic we applied before, which logic seemed to work up to this point. Politicians still do not dare to advocate supra-national integration fearing a backlash from the public, and especially from other, populist, nationalistic political forces.
    Until the whole human public understands what it means to live in a global, integral world, what it means we all depend on each other even for our necessities, this will be a barrier we cannot cross.
    Thus educating the public is the first priority if we want to climb out of our present problems.

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