Keywords

1.1 Introduction and Chapter Overview

Over the years, the cooperative movement has played an important role in addressing the challenges of poverty, unemployment and building social capital. Despite the stated benefits of the cooperative movement, its application has been associated with confusion in some contexts owing to poor understanding of what a cooperative is and how it functions. This chapter presents an overview of the cooperative movement. The chapter is organized into three sections. In Sect. 1.2, an overview of how cooperatives are conceptualised is presented. A review of the principles and values of the cooperative movement is also included in Sect. 1.2. The review discusses how the principles and values define the character of the cooperative movement. In Sect. 1.3, the different forms of cooperatives are presented. The section discusses the characteristics of the different forms of cooperatives and benefits associated with each form. The last section of the chapter presents the contributions of cooperatives to the global economy. The goal of this section is to challenge the notion that cooperatives are only applicable in addressing the economic conditions of vulnerable populations in developing countries. The review demonstrates that cooperatives, although have and continue to play a vital part in alleviating the poor socio-economic conditions of the vulnerable population, need not to be limited to that population.

1.2 An Overview of the Conceptual Understanding of Cooperatives

Literature shows there are different definitions of a cooperative . Porter and Scully (1987: 494) define cooperatives as “voluntary closed organizations in which the decision-control and risk-bearing functions repose in the membership, and decision management responses in the agent (manager), who represents the principal’s interests”. This definition presents three characteristics of a cooperative. Firstly, a cooperative is a voluntary association of persons. Such an association is formed to address members’ common needs. Secondly, a cooperative is controlled by its members since they are actively involved in making decisions about its operations. The third feature of the definition points to the fact that the risks of a cooperative are borne by members since it is member-owned and member-controlled.

According to Torgerson et al. (1997: 2), cooperatives could be seen “as a social movement of independent farm operators seeking to enhance and protect their place in the economic organization of agriculture”. The overriding aim of a cooperative, according to this view, is to protect the interest of members against exploitation by actors such as middlemen in the supply chain. The foregoing suggests cooperatives exist to balance the market economy by countering the effects of market distortion such as monopoly, monopsony, and oligopoly (Baker and Graber-Lüzhøft 2007). However, a weakness in Torgerson, Reynolds, and Gray’s conception of cooperatives is that it limits cooperatives to the agricultural sector. This is often a feature in the conceptualisation of cooperatives as agricultural organisations ideal for rural peasants. This is rather a misleading conception. As I point out later in this chapter, cooperatives are neither limited to the agricultural sector nor are they suitable only for the rural poor.

Cooperatives bring individuals together to empower themselves through the power of the collective. This value of cooperatives was acknowledged in a United Nations (1996) report which views cooperatives as an effective tool that enables a group of people (whether small or large) to mobilise resources to meet their needs. The report noted that in the process of resource mobilisation to meet members’ needs, cooperatives foster entrepreneurship in communities where they operate. In this way, cooperatives improve the socio-economic condition of members as well as that of the community. What is unique about a cooperative is that those who own a cooperative are often its customers (Birchall and Ketilson 2009). This characteristic sets cooperatives apart from other forms of businesses such as Investor-Owned Firms (IOFs) (Mazzarol 2009). Unlike IOFs in which members only contribute capital, members of a cooperative contribute capital and utilise services or market provided by the cooperative (Dlamini 2010).

Although the foregoing views show that cooperatives have been conceptualised in a number of ways (each with subtle differences), there has been a growing acceptance of the definition of cooperatives by the International Cooperative Alliance (ICA) .Footnote 1 The ICA defines a cooperative as “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 organised and operated on cooperative principles” (International Cooperative Alliance 1995). The strength of ICA’s definition lies in the fact that it synthesizes the diverse definitions of cooperatives in the literature. In addition, the definition does not only focus on economic values, it also emphasises the social and cultural values of the cooperative movement. This aspect is often absent in other definitions of cooperatives. The definition of cooperatives proposed by the ICA is what underpins the understanding of cooperatives in this book.

In line with ICA’s definition , there is an increasing emphasis on non-economic benefits of cooperatives. What is important here is the recognition that self-organisation through a cooperative is an important strategy that simultaneously achieves social and economic outcomes. The combination of associationism and market forces makes cooperatives a veritable market option. Against this backdrop, Menzani and Zamagni (2010: 21) argue that “cooperatives can be seen as an instrument for unleashing the market’s full potential” primarily because of their economic and social outlook. In the absence of this recognition, the successes and failures of cooperatives would be defined in purely economic terms at the expense of the social and cultural dimensions (Garnevska et al. 2011; Mellor 2009). In recognition of the non-economic benefits of cooperatives, Wanyama et al. (2009: 187) emphasise the importance of adopting a “holistic social economy model” when it comes to the study of cooperatives. This approach is particularly important in light of the principles and values that underpin the cooperative movement.

1.3 Principles and Values of the Cooperative Movement

Across the world, the cooperative movement is guided by seven key principles. By adhering to the principles, the identity of cooperatives is upheld regardless of where they are located. Each of the seven principles will be briefly explored in the following paragraphs. This book recognises the conceptual value of these seven principles insofar as they reiterate the fundamental rationale for cooperatives, as well as their potential strength.

1.3.1 Voluntary and Open Membership

The first underlying principle of the cooperative movement is that of voluntary and open membership (International Cooperative Alliance 2007). In realising this principle, cooperatives do not discriminate on the basis of gender, social, racial, political or religious status of people. According to the principle of voluntary and open membership, a cooperative accepts anyone intending to utilise the services or opportunities provided by a cooperative. However, such a person must subscribe to the values for which the cooperative was established. Furthermore, a prospective member must be ready to accept the responsibilities that come with being a member of the cooperative. Such responsibilities include contributing time, finance, inputs and other resources required for the functioning of the cooperative. In addition, members are responsible for the governance of cooperatives since a cooperative is a member-owned organisation.

1.3.2 Democratic Member Control

Apart from being committed to open and voluntary membership, cooperatives are subject to member control (Nilsson et al. 2012). The principle of democratic member control is at the core of the cooperative movement. This principle ensures that at every point, a cooperative is committed to fulfilling the needs and aspirations of those who own it. The control of cooperatives is realised through the “one-member-one-vote” strategy (Bernard and Spielman 2009: 61). This principle safeguards against the hijacking of a cooperative either by members with higher investment or non-cooperative institutions (such as government and development organisations). Given that a cooperative is owned and controlled by members, each member is entitled to benefit from its services and profits. In view of this, the International Cooperative Alliance (2007) notes that surpluses of cooperatives are utilised by members for a number of reasons including the improvement of their cooperative and direct payouts from cooperatives proportionate to their contributions. In addition, surpluses of cooperatives are used in other activities such as community development programmes that are supported by members.

1.3.3 Member Economic Participation

Member economic participation is anchored on the view that cooperatives are owned by members who are required to contribute equally to its growth (International Cooperative Alliance 2007). The nature of contributions expected of members is dependent on the kind of cooperative and the sector in which it operates. For this reason, member economic participation could be in form of buying shares in a cooperative, delivering farm produce to a cooperative-owned processing plant, contributing manual labour to an agricultural cooperative and so on.

1.3.4 Autonomy and Independence

Cooperatives are autonomous and independent organisations. Adherence to this principle guarantees that cooperatives are free from the influence of external parties such as government, non-governmental organisations (NGOs), and development agencies (Nannyonjo 2013). Autonomy guarantees that cooperatives are not manipulated into fulfilling the needs and aspirations of external agents at the expense of members’ needs and aspirations (Hannan 2014). Abiding by this principle entails that government should focus on creating enabling environments that will foster the growth of cooperatives as autonomous organisations. Such enabling environment includes the implementation of favourable tax policies that encourage ploughing profits back into cooperatives thus strengthening the cooperative movement.

1.3.5 Education, Training, and Information

Education, training, and information is the fifth principle of the cooperative movement (International Cooperative Alliance 2007). According to this principle, a cooperative ought to provide relevant education and training to its members (Wanyama et al. 2009). Education and training empowers and encourages members of cooperatives to participate in decision-making regarding the running of a cooperative. It also guarantees that leaders of a cooperative have the requisite skills to oversee the day-to-day running of the cooperative. Furthermore, this principle commits cooperatives to educating the public about their nature, working and benefits, thus ensuring that the public is informed about the rationale for the formation of and participation in cooperatives. This could result in the public choosing to either become members of an existing cooperative or to establish a new one. Effectively, member education can contribute to increased number of cooperatives and cooperators.

1.3.6 Cooperation Among Cooperatives

Promoting cooperation among cooperatives is another principle of the cooperative movement. According to Novkovic (2008), cooperation among cooperatives facilitates the formation of a network of cooperatives at local, regional, national and international levels. By developing a robust network, cooperatives become strategically placed to harness the benefits of economies of scale and scope (Dredge 2006). Cooperation among cooperatives enhances the viability and sustainability of the cooperative movement since it links them to support and opportunities in the network. Furthermore, cooperation results in the circulation of income and business opportunities among cooperatives. What this entails is that instead of outsourcing activities to other business, business opportunities are retained among cooperatives thus ensuring that cooperatives provide business services to one another. This is particularly important to new and emerging cooperatives that need new businesses and access to resources in order to function.

1.3.7 Concern for the Community

As an economic model that is rooted in the grassroots, cooperatives are expected to have a strong concern for the immediate community in which they operate (International Cooperative Alliance 2007). According to Zeuli et al. (2004: 18), cooperatives have “the potential to create more substantial social and economic benefits within a community than non-cooperative firms”. Similarly, Bertulfo (2007: 106) contends that “while focusing on member needs and wishes, cooperatives work for the sustainable development of their communities”. The argument here is that addressing members’ socio-economic needs will have a spillover effect on the community at large. Benefits that accrue from cooperatives to the community are either intentional or unintentional. While the former relates to purposive and planned action, the latter is concerned with the trickle-down benefits of the activities of cooperatives to local communities. When people participate in cooperatives, they advance their personal, collective and communal interests.

In addition to the principles outlined above, cooperatives are governed by a set of values. According to the International Cooperative Alliance (2007), the cooperative movement is underpinned by the “values of self-help, self-responsibility, democracy, equality, equity and solidarity”. These values ensure that cooperatives are not only geared towards the economic good of members but are also about empowering members to become better agents in their communities. Cooperatives are also governed by the ethical values of honesty, openness, social responsibility and caring for others (International Cooperative Alliance 2007). Such values are expected to be the essence of every cooperative.

What the foregoing shows is that, essentially a cooperative exists to address the socio-economic needs of its members. The hypothesis is that values of self-help, self-responsibility, democracy, equality, equity, and solidarity make cooperatives ideal for socio-economic development . Their developmental orientation is particularly valuable in developing regions like sub-Saharan Africa where almost 80 % of the population are involved in subsistence activities such as small-scale agriculture (Nyiraneze 2007). Studies (see, for instance, Develtere et al. 2008; Getnet and Anullo 2012) have shown that cooperatives have been instrumental in poverty alleviation, job creation, economic development and social transformation.

According to Mazzarol (2009), the benefits of cooperatives depart markedly from regular businesses activities that are underpinned by the philosophy of competition and profit maximisation. Due to its focus on members’ needs, the cooperative model provides an alternative model for the economic upliftment of disadvantaged people. The cooperative model, particularly agricultural cooperatives, provides a parallel supply chain network for its members to circumvent the negative externalities created by intermediaries in the agricultural supply chain. The principles and values of the cooperative movement presented above underpin the different forms of cooperatives.

1.4 Forms of Cooperatives

According to Birchall and Ketilson (2009: 13), cooperatives can be categorised based on the nature of stakeholders in a cooperative enterprise namely consumers, producers, and workers. Using this criterion, Birchall and Ketilson (2009) grouped cooperatives into four main forms: consumer, worker, producer, and finance cooperatives. Each form of cooperative will be briefly explored in the following paragraphs.

A consumer cooperative is a form of cooperative owned by people involved in the purchase of consumable goods. Such cooperatives buy goods in bulk and are therefore able to sell these to members at reduced prices (Deller et al. 2009). Consumer cooperatives can exist as supermarkets, grocery stores and retail outlets that sell different items to members at lower prices (Little et al. 2010). In this sense, their existence is informed by the desire to break the market monopoly by providing parallel supply chains for consumers. In the US, for instance, consumer cooperatives have been construed as “a new hope for the generation of Americans who looked toward a new economic order to distribute the nation’s resources more equitably” (Williamson 2005: 61). New cooperatives most frequently were a symbol of rebellion against technocracy, hierarchical corporations, and “big business as usual”. According to the University of Wisconsin Center for Cooperatives (2012), William King (1786–1965) advocated and popularised consumer cooperatives. Through his magazine, “The Cooperator”, he circulated his message of consumer cooperatives, which resulted in rapid expansion of consumer cooperatives.

Burdin and Dean (2009: 518) define worker cooperative “as an enterprise where the firm’s labor force chooses the management and the administrative structure using a democratic political process”. Either a small or a large group of people can own a worker cooperative. For instance, a tourism business can be owned by its workers just as a group of factory workers could own the factory in which they work. According to Majee and Hoyt (2010: 147), worker cooperatives, “through open membership and democratic local ownership of the enterprise, are believed to provide a platform on which participation of local people in both social and economic activities can be enhanced”. In addition, worker cooperatives, because they are member-owned, have the potential for improved performance. Mathie (2012: 22) notes that “studies show that employee owned businesses tend overall to have higher productivity, greater levels of innovation, better resilience to economic turbulence and more engaged and fulfilled workers who are less stressed than colleagues in conventionally owned businesses”. These benefits of worker cooperatives stem from the fact that they strive to assert workers’ rights. Consequently, the health and wellbeing of members cannot be sacrificed for profit. This is why Stikkers (2011) argues that the success of worker cooperatives is measured by the extent to which they create quality and sustainable jobs. The success of worker cooperatives has also been linked to the resilience of worker cooperatives in times of economic crisis. For instance, Birchall and Ketilson (2009) argue that despite the effects of the 2008 crisis, worker cooperatives in Italy remained largely functional. At the height of the Spanish financial crisis, cooperatives in the Basque region ensured that unemployment was consistently kept low. Cooperatives achieved this by rehiring those laid off by poorly performing cooperatives (Birchall and Ketilson 2009). The resilience of cooperatives in any given economic crisis is also demonstrated by their ability to create and sustain employment. Smith and Rothbaum (2013: 4) cites some examples including France where “employment in cooperatives grew 12.1 % and in all firms by 1.4 %; in Italy, the figures were 86.2 % for cooperatives compared to 3.8 % for all firms; in Spain, 31 % versus −8.1 %; in the UK, 133 % compared to −2.0 %; and in the EEC as a whole, 76 % compared to 2.0 %”. In a study comparing the performance of Capitalist Firms (CFs) and Worker Cooperatives (WCS), Burdin and Dean (2009: 527), found that “CFs would produce a socially inefficient level of layoffs due to their inability to establish credible commitments between owners and workers. By contrast, because of their unique control structure, WCs would have more egalitarian adjustment mechanisms at their disposal”.

Worker cooperatives can emerge in one of three ways. The first of these are new start-up cooperatives that emerge in response to needs in a niche market. To take advantage of the recognised niche market, a group of individuals comes together to start a business in which they are simultaneously its workers. The second way that a worker cooperative emerges is through the conversion of an existing business into a cooperative (Burridge 2012). This could happen when the owner of a business sells his/her business because s/he wants to retire or is unable or no longer desires to continue running the business. Worker cooperatives also emerge in times of economic difficulties. In this case, an existing business is rescued by workers to preserve it from liquidation (Artz and Kim 2011; Burridge 2012). By putting together their income to purchase shares in the company, worker cooperatives that emerge in this way achieve three things: they save the company from liquidation; save their jobs, and create a means of obtaining additional income through the profit of the cooperative (Burridge 2012).

A producer cooperative refers to the form of cooperative owned by a group of individuals that produce the same kind of goods. Members of this form of cooperative use shared facilities for processing and distributing their goods. Known sometimes as a marketing cooperative, producer cooperatives provide value added services including processing, packaging, and branding to members. Individuals who join producer cooperatives enjoy services that would otherwise be expensive if sourced individually. Producer cooperatives are often found in the agricultural sector where they provide value added services to members (Bloom and Hinrichs 2011). For instance, corn producers can come together to form a cooperative that owns and operates a flour milling plant. The cooperative could also provide branding services to independent farmers who belong to the cooperative. This gives them access to larger markets as well as reduced transactions costs. In this way, producer cooperatives simultaneously lower input costs as well as increase farmers’ bargaining power which could result in higher returns on investment (Mazzarol 2009).

Financial cooperatives are the fourth form of cooperatives. Financial cooperatives, like other forms, are member-owned. Members’ savings provide the reserve that financial cooperatives lend to both members and non-members (Birchall 2013). Cooperative financial institutions (CFIs) are better sources of finance for cooperatives since they do not place restrictions that emerging cooperatives face when they source finance from commercial financial institutions.

Studies have shown that CFIs are resilient institutions during economic crises (Crear 2009; Delbono and Reggiani 2013; Birchall 2013). This characteristic of CFIs has been attributed to their commitment to promoting members’ needs. A study by Birchall (2013) shows that the resilience of CFIs is linked to their values of concern for members and the community. Their values make cooperatives engage in banking practices that do not expose members’ finance to undue risks. Although the 2008 financial crisis had negative effects on the CFIs, they largely performed better than other kinds of financial institutions (Crear 2009; Delbono and Reggiani 2013). According to Birchall (2013: 2), most financial cooperatives survived the 2008 financial crises “without needing any government bailouts, without ceasing to lend to individuals and businesses, and with the admiration of a growing number of people disillusioned with ‘casino capitalism”. Similarly, a study by the International Cooperative Alliance (2010) found that “cooperative banks [since the 2008 recession] gave millions of people stability and financial security because the cooperative banking business model emphasises not profit maximisation but instead the best possible products and services to members”. Birchall and Ketilson (2009: 13) further argue that this approach of cooperative banks “show that there is an alternative to the current policy of greater public regulation of private banks, while in many countries also providing banking and insurance to low-income people who would otherwise be unbanked”. Effectively, cooperatives have been able to provide financial services to their customers despite the financial crises.

1.4.1 Summary of the Forms of Cooperatives

Table 1.1 gives a summary of the forms of cooperatives discussed above. It is important to point out that the different forms of cooperatives explored above have similar organisational forms and are guided by the same principles and values of the cooperative movement. The different forms of cooperatives are created primarily to meet members’ socio-economic needs. These needs could be access to marketing opportunities, housing, credit facilities, urban renewal, use of shared facility, meeting social needs and so on.

Table 1.1 Summary of the forms of cooperatives
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1.5 The Contributions of Cooperatives to the Global Economy

The different forms of cooperatives summarised above make important contributions to the global economy . According to Merrien (2014), there are about 2.6 million cooperatives around the world. These cooperatives “have over 1 Billion memberships and clients” with “12.6 Million Employees work[ing] in 770,000 Cooperative offices and Outlets” (Merrien 2014: 1). Cooperatives generate an annual revenue to the tune of US$3 trillion (Merrien 2014: 1). The cooperative sector also has a strong presence in the global insurance sector. According to the International Cooperative and Mutual Insurance Federation (2014), “the mutual and cooperative sector represented 27.3 % of the global insurance market in 2013, a significant growth in global market share from 23.8 % in 2007”. The foregoing underscores the significant roles of cooperatives in the global economy.

Cooperatives have and continue to make valuable contributions to the economies of many high-income countries (see Table 1.2). The economies of these countries are characterised by strong, vibrant and diversified cooperatives that employ large workforce and contribute to the countries’ GDP (International Cooperative Alliance 2010). As shown in Table 1.2, cooperatives contributed US$158.75 billion to the global economy in 2013.

Table 1.2 Countries by total turnover of cooperatives over 100 Million US$
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The high concentration of cooperatives, coupled with their success in industrialised countries, is bringing about a paradigm shift in the way they are conceptualised and operationalised in these countries. Rather than being seen as an economic model suitable only for vulnerable peasants, scholars and policy makers are beginning to emphasise the need to envision and approach the cooperative movement as a viable economic model for all (International Cooperative Alliance 2010). Consequently, a number of countries are creating enabling environments for cooperatives through various policy instruments that could facilitate the emergence and growth of the cooperative sector (Mutuo 2012). The contrary is the case for developing countries like South Africa where cooperatives are often small-sized and operate mainly in agriculture.

1.6 Conclusion

The primary objective of this chapter was to provide an overview of the meaning and defining characteristics of the cooperative movement. The chapter notes that although there are different definitions of cooperatives, there is a growing recognition and acceptance of the definition offered by the ICA. As noted in the chapter, the value of the definition lies in the fact that it recognises cooperatives as a unique social organisation that works towards meeting members’ economic, social and cultural needs. To achieve these goals, cooperatives are underpinned by sets of universal principles and values that set them apart from other forms of business organisations. Cooperatives, as noted in the chapter, have and continue to be an instrument in employment creation, poverty alleviation, and social development. Additionally, they are contributors to the global economy. What the foregoing demonstrates is that cooperatives have the potential to improve the socio-economic conditions of developing countries such as South Africa where there is a high level of poverty, unemployment, economic inequality and social fracture.