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The Role of Co-operatives in Enterprise Development
Jim Cawley, Alain Plouffe and Eric Bellows,
December 1994
Nexus, Number 27
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The co-operative movement is truly worldwide, spanning both industrialised
and developing regions. In the US and Canada alone, co-operatives have
attracted over 100million members. In China, there are 40 to 60 million
co-operative members; 70 million in India; 15 million in Japan and 60
million in the former Soviet Union. Co-ops have also played a significant
role in national economies, comprising for example 11 percent of gross
national product (GNP) in Costa Rica; 80 percent of the sugar processing in
India, and 20 percent of the coffee production in Uganda. The annual
economic activity of US co-operatives is estimated at $100 billion.
The major link between co-operatives and enterprise development is the fact
that co-operatives are businesses. Although they may be more recognised for
their collective nature and social benefits for members, co-ops must first
and foremost operate as viable enterprises. Like micro-enterprise
programmes, co-operatives make loans to members and support their
entrepreneurial activities.
Unlike micro-enterprise development, this diverse and huge movement is
linked throughout the world by a set of common co-operative principles,
which are:
- Ownership by and for the members;
- Open membership (limited only by a common denominator defining the
co-operative such as the workplace, trade, or community;
- Democratic control;
- Limited return on investment (returns come principally in the form of
goods and services);
- Ongoing education for members;
- Co-operation among co-operatives; and
- Concern for the community
In many areas, the presence of co-operatives has offered the only access to
democratic decision-making. Co-operatives have provided services that would
not otherwise be available. In the US for example, they were responsible for
much of the rural electrification. They also provide alternatives to
commercial monopolies in rural areas. Perhaps most important are their local
roots. Rather than re-locating operations to maximise opportunities for
profit, co-operatives invest their surpluses locally, often responding to
community development needs. By attracting local savings and lending
locally, credit unions offer a prime example of this co-operative advantage.
With these strengths, why do co-operatives fail so often? In several
countries co-operatives have been discredited, forcing co-operative
organisations to rename their efforts. Government intervention in
co-operatives in much of the developing world explains most of this
dysfunction. Outdated regulatory policies are part of the problem, but
government intervention in co-operative operations to further their own
political and economic agendas has been even more problematic. Members began
to view their co-ops as agents of government policy, managed by and for
someone else. Once involved, government could not let co-operatives fail as
a result, co-ops developed poor business practices.
Weaknesses internal to co-operatives have also contributed to their failure.
Co-operatives tend to make decisions slowly, in part due to their democratic
process and the tendency towards risk aversion among the poor who are
members. As a result they lose ground to private sector competitors who can
move more quickly. Uncompetitive salaries and high turnover have resulted in
weak management. Co-operatives are often undercapitalised, too dependent on
external funding and over-extended.
Despite its shortcomings, there is great potential for renovation and
innovation within the co-operative movement. Governments are disengaging,
leaving co-operatives open to re-claim their principles. In responding to
economic opportunities, the National Co-operative Business Association (NCBA)
is focusing less on explicit co-operative development and more on
identifying economic opportunities and responding to economic need, much in
the same way an enterprise development programme does. A review of case
studies of successful co-operative experience reveals innovative credit
services, including the use of guarantee funds to link co-operatives with
commercial banks, as well as new product and business development.
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Source
Jim Cawley is with the National Co-operative Business Association (NCBA),
Alain Plouffe is with SOCODEVI and Eric Bellows is with the Canadian
Co-operative Association.
Nexus is the quarterly magazine of Small Enterprise Education and Promotion
Network (SEEP). They can be contacted C/o Pact, 777 United Nations Plaza,
New York, NY10017, USA or e-mail: seepny@undp.org
SOCODEVI (Societe de Co-operation pour le Developpement International) was
founded in 1985 by six co-operatives and mutual aid organisations based in
Quebec, Canada. Following a long-established co-operative principle that
directs members to re-invest a portion of their profits in new
co-operatives, these founders transformed the international arm of the
existing Co-operative Council into the independent NGO - SOCODEVI. From the
outset, SOCODEVI's mission has been to promote the use of the co-operative
formula to harness human and financial capital for local development. In
1997 it had a staff of 19 working in 9 countries with an annual budget of $7
million. While SOCODEVI works only in developing countries - South and
Central America and French West Africa - its programmes reflect the
expertise of its member co-operatives in Quebec: agriculture, insurance,
forestry and finance.
Contact: Alain Plouffe, 11245 Chemin Sainte-Foy, Quebec, Canada G1S 4P2
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