Tuesday, January 3, 2012

Enhanced Role of Cooperatives in Recovery from the Economic Crisis


1
ICA – IFFCO - CLT
International Conference on
Enhanced Role of Cooperatives in Recovery from the Economic Crisis
Bangkok, July 2-4, 2009
Recommendations
on
Strategy for Co-operatives
to
Emerge as Alternative of Significance in the Economic Recovery Process

1.Background:
The conference on Enhanced Role of Cooperatives in Recovery from the Economic Crisis
was organized by ICA Asia Pacific in collaboration with Cooperative League of Thailand and
Indian Farmers Fertilizer Cooperative with the objective of creating a shared vision on the
scope and role of cooperatives in the global economic crisis so as to devise a common
strategy to REPOSITION cooperatives as preferred form of enterprises and Global
Alternative of Significance.
75 participants from Cooperatives and Governments of 16 countries in the Asia pacific region
attended the conference.
The basis of deliberations was thematic presentations made by experts from ICA (the
Director General ICA and Secretary General CICOPA) and top officials of successful
cooperatives like NACF, IFFCO, JCCU, SNCF, AACCU, CPD and Governments. The
presentations were focused on impressive track record of cooperatives that had transformed
the core cooperative values into practice.

2. Underlying Causes:
Present economic meltdown comes at the juncture when globalisation and open
market scenario were just getting superimposed after a long love and hate kind of
global transactional business propositions.
Apparent cause was insatiable lust of the financial market for the profits. The volume
of financial derivative products that had jumped from 4000 billion US$ to 596 000
billion US$ between 1992 and 2007, i.e., a 150 times increase in 15 years had
received a blind eye from the regulators and investors.
The International Financial Reporting Standards (IFRS) defined by the London-based
IAS Board ultimately led to a dangerous instability of the value of listed companies
through the concept of ‘fair value’, by which the value of a company is recalculated
every three months on the basis of an anticipation of its market value at the time it
would be acquired.
Resultantly, the business people have been enticed to seek quick results instead of
having a long-term vision of the enterprise, leading to a trend towards greed and
extravaganza. This trend consequently induced a paramount priority to the
shareholders’ interests above the employees’ interest.
The consumers have been induced to consume more than required, and to borrow in
order to consume more, hence the famous ‘subprime’ crisis.
But the consumers are not the only ones to have fallen into the ‘debt trap’. Large
enterprises too have increasingly gone into debt mechanisms in order to acquire and
control other enterprises along the supply chain, thereby contributing to the steep
increase in “toxic” products mentioned above: debt is sold as capital in order to get
more credit, in complete contradiction with the most elementary economy textbook.
The diversion away from the real economy has become so blatant, and debt has
become so widespread, that we can no longer talk of capitalism as we used to know
it, namely a system of production and capital accumulation. Nor can we qualify the
economy as being dominated by the “free” market when, at the international level,
most trade has become ‘in house’ and intra-industry, and when, as a result of that,
prices are often administered, instead of being defined by the system of offer and
demand as the classic theory goes.
Nor, with the massive bailout that followed the breaking point of the crisis, have the
Western governments behaved as if they were following the classical liberal
paradigm, whereby lack of intervention and deregulation are the must. At any rate,
even the deregulation policies accompanied by a “light touch” fiscal regime are not
neutral and are a form of regulation per se, that directly impacts on the market
economy. And this attitude has contributed to promoting an ideology of optimism,
disconnected from the reality and contributing to triggering off the crisis.
It is expected that the meltdown will now affect all aspects of the economy, in the
Western industrialised countries but also elsewhere: public spending, production,
employment, prices of basic goods, pensions, remittances of emigrated workers,
exports, development funds, and the solvency of the states.

3. Why Cooperatives assume significance:
Cooperatives were established to defend ordinary citizens economically against
rising monopolies, to include them in the economy by achieving economies of scale,
and to have some control over the parts of the economy that were affecting them .
They have been developing mainly in periods of ‘great transformation’: marketisation
of daily goods (consumers’ cooperatives), land reform (agricultural and rural credit
cooperatives), urbanisation and post-war reconstruction (housing and construction
cooperatives), industrialisation (industrial cooperatives), the monetarisation of the
economy (credit cooperatives and cooperative banks), the development of the tertiary sector (service cooperatives), the ‘de-statisation’ of public services (social
cooperatives). Cooperatives often regain ground in local economic crises, like in Brazil in 1994, or in Argentina in 2001. It can be assumed that the same will happen with this global crisis.

Cooperatives, along their history, have proved to build a type of economy with the
following characteristics, each of which is in stark contrast with those that have
brought about the economic crisis:

It is based on needs that are basic and permanent (such as employment,
production, consumption of basic goods, saving and borrowing, housing, etc)
It therefore also has long term objectives
It is based on ordinary citizens, and join together to solve the needs mentioned
above
It is rooted in the local community and does not delocalise
It is not for sale and thus not dependent upon the ups and downs of the
shareholders’ market.
It is based on democratic control by members-owners, with accountability & cross
checks
It plays a strong stabilising role on the markets, and the more so when
cooperatives make up a strong proportion of the economy in a given sector (e.g.,
60% of the banking market in France, 90% of the agricultural market in The
Netherlands).
Over the past few decades, cooperatives have by and large shied away from
asserting themselves according to their own identity. There are many reasons but the onus lies on the cooperative leadership.

4. Main Challenges before cooperatives:
The share of intra-cooperative trade and economic agreements is still far too low to
ensure that cooperatives are a relevant actor in the global economy. This is not to
say that cooperatives should create a parallel economy, but only that they should
have a far more substantial part of trade and economic agreements than has been
the case so far.
The cooperative movement needs to strongly develop its own standards based on its
own set of values and principles, against those that are developing against us, such
as the International Financial Reporting Standards, and that will destroy us if we do
nothing. The cooperative standards should be better developed along the different
cooperative sectors.
Cooperatives should strengthen information and education at large, including on the
successes of legendary cooperative institutions and enterprises. In particular for
gaining the confidence afresh, people should be convinced to put the stakes in
cooperative ventures especially in the captive market segments where cooperatives
enjoy their own niche.
Policy & legislative aspects on the cooperatives in the above context must ensure
supremacy of democratic control and governance in the spirit of ICIS.

5. Notion of Recovery and the way forward:
After the spectacular bailouts which we have been witnessing, the move towards
completing the privatization of public services is going on unabated. Furthermore, the G20 have not yet come to an agreement on how to regulate the international financial and monetary system, nor is any breakthrough-type agreement pointing at the horizon.
Thus, even if signs of recovery do exist, in some countries more than in others, the
risk that an even bigger crisis might loom large, at least in the Western industrialized
countries, is one that should be taken seriously?
Asian countries have a strong responsibility in this, by either trying to prevent such a
larger crisis to flare up, or by protecting themselves from it through appropriate
policies. Part of such policies, precisely, must reinforce the cooperative movement for the reasons cited below.










Model 1
Model 2
Profit Driven Private Enterprise Model

Benefit Driven Cooperative Enterprise Model
Remuneration of shareholders
Satisfaction of the needs of stakeholders
Dependence on financial markets
Independence from financial markets

Debt accumulation
Capital accumulation
Instability of enterprise value
Stability of enterprise value

Instability of enterprise location
Stability of enterprise location

Job instability
Job stability

Short term strategy
Long term strategy

Vertical control
Horizontal, democratic control


If cooperatives are characterized by an opposite model to the one that brought about
the crisis, it is logical to assume that coops could have a role in its solution.
Cooperative strategy should be geared towards the middle-long term, while also
maintaining a close eye on the short term.
Governments, regional organisations and multilateral organizations should explicitly
recognize the key role that cooperatives could have in solving the deep structural
problems of the national and of the global economy.

6. Measures required:

6.1 Strengthen democratic control

The present crisis indicates that the lack of democratic control over the economy is,
in the long run, unsustainable.
Although democratic control is central to cooperative institutions, its concrete
implementation must be substantially improved. The opponents of cooperatives, in
particular in the field of public policies, often insinuate that democratic control in
cooperatives is only formal, and the more so when cooperatives become large
enterprises. Thus, our first defense is to demonstrate that this is not the case through actual practice and we must prove it by examples of successful cooperatives using all the feasible and effective modes of publicity and awareness building.

6.2 Promote indivisible reserves
Also key to the reinforcement of the cooperative movement are the corollaries of
democratic control which we find in the 3rd cooperative principle, and in particular the institution of indivisible reserves. Indeed, indivisible reserves constitute a potent deterrent against attempts at external takeovers on cooperatives. In the absence of indivisible reserves, such takeovers are difficult but possible; if the members manage to be convinced to give up their membership of the cooperative in a general assembly (the other side of the coin of joint democratic control is the capacity to democratically destroy the jointly controlled enterprise). But when a cooperative enterprise has accumulated over decades or sometimes over a century, sizeable indivisible reserves which the potential acquirer will never get hold of, the latter will think twice before triggering off an operation of this kind.
Since cooperatives remain the last substantial part of the economy which is not for
sale nor to be put out of members’ control, the indivisible reserves should be
rediscovered to ensure members’ and customers’ loyalty.

6.3 Use cooperative values in publicity
Under the present crisis, which also reflects a crisis of values in the economy,
cooperative values should be rediscovered as a potent commercial argument.
Timidly, a number of cooperative groups in Europe, e.g. in agriculture and banking,
are beginning to incorporate cooperative messages in delivering their publicity
slogans.

6.4 Boost information and education on cooperatives
In order to revert strong prejudices in public opinion about cooperatives, both
representative tiers of cooperatives and the governments should sponsor and
promote information campaigns that clarify a number of misconceptions, and in
particular about the assumption that democratic control would decrease
proportionally to the size of the cooperative enterprises, and about the nature of the
cooperative “dividends”, which in fact are not dividends at all, but an adjustment of
the price of the transaction between the member and the cooperative.

6.5 Identify promising sectors
Cooperatives must reinforce themselves in their various sectors and typologies in the different countries. The sectoral coverage of cooperatives is very patchy: agricultural supply and marketing in China, milk, sugar, fertilizers in India, consumers’
cooperatives in Japan, cooperative banking in France and Germany, worker and
social cooperatives in Italy and Spain, etc. This makes it difficult for the cooperative
system to present itself, and be perceived, as a credible and viable alternative in
each and every sector of the economy in each country.
In this age of financiarisation of the economy, the development of cooperative banks
is particularly critical. When cooperatives reach 17-20% of the banking market (EU
average) or even 60% (in France), and when they dedicate 30% of their activities to
SMEs (EU average), they can be seen as a real stabilizer of the economy, and
indeed they are, and have proven to be during this crisis.
Two types of cooperative banks should be developed: a) generalist cooperative
banks, providing loans to individuals and SMEs; this is the model of the German
Raiffeisen banking group, the French Credit Mutuel, and Quebec’s Desjardin (each of them being among the major banking groups in their respective country or region).
b) cooperative banks specialized in the development of cooperatives and controlled
by cooperatives or cooperatives/social economy organisations, like the Credit
Coopératif in France or Mondragon’s Caja Laboral in Spain.
The two types are complementary and not mutually exclusive, and both are
necessary to a strong recognition of the cooperative system as a stabilizer of the
economy. Indeed, type a) would work towards the stabilization of the national and
international financial system, while type b) would in fact be development banks for
cooperatives.
The development of industry and services should not only be focused on urban
areas. Indeed, the development of cooperatives in cottage industries, tourism and
services linked to agriculture should be seen fundamental in rural development,
especially in many Asian rural districts that are characterized by rural underemployment.

6.6 Develop cooperatives of SMEs, small producers and professionals
There is a considerable scope for development of the cooperative movement through second degree cooperatives for small enterprises, small producers and
professionals. We have cases of excellence in a number of countries, such as handloom weavers in India, taxi drivers in Singapore, medical professionals in Uruguay, bakers in Germany, masons, carpenters and mechanics in France, lorry drivers in Italy, various handmade industries in Egypt etc.
Depending on the sectors and the circumstances, those cooperatives may have
different functions, such as group purchases (of raw materials or inputs), common
commercialization, stock managements etc.

6.7 Fragile enterprises should be converted into cooperative enterprises
Provided projects are handled professionally with knowledgeable people, and a
constant follow up by cooperative federations and/or enterprise support institutions as mentioned above, the cooperativisation of enterprises threatened to be closed down can be a successful activity and save many jobs.
Hundreds of cooperatives have also been created under this modality in Brazil and in Argentina following those countries’ national economic crises, respectively in 1994-1995 and 2001-2002. In Shanghai, 99 state enterprises were transformed in
cooperatives between 1996 and 1999 within the framework of a CICOPA project,
involving 36 000 jobs, amidst the then state policy of ‘zhua da fang xiao’ (litterally
‘keep the big ones and let go the small ones’, referring to state enterprises). Most of
those enterprises would have otherwise been closed down, and most of the jobs
would thus have disappeared.
ICA members that are most involved in this type of cooperative activity, namely in
Italy, Spain, France and Argentina, are reporting that the present economic crisis is
bringing in a whole batch of new enterprises in crisis to be transformed into
cooperatives.
This modality can substantially improve the perception, at the national level, of the
cooperative system as a viable and sustainable alternative.

6.8 Set up cooperatives in community activities and services of general
interest
The massive privatization of public and social services taking place across the globe
(including health, energy production and distribution, education, the environment,
culture, the care of the elderly etc) constitutes an opportunity for the cooperative
movement that should not be missed.
The Italian social cooperatives, that have so far been at the forefront of this trend,
have seen their numbers literally exploding: the biggest of the three Italian
federations of social cooperatives, Federsolidarietà (a CICOPA member),
experienced the following increase of its affiliated cooperatives in only 5 years:
2001 2006

Number of cooperatives 2822 4143
Number of jobs 100 000 138 000

Those cooperatives often associate within the same enterprise different types of
members-stakeholders, such as the workers, the users, support institutions and
sometimes even representatives from the local community, and new legislation in 8
different countries has made it legally possible.
Multistakeholder membership offers an important governance model for community
activities.

6.9 Promote horizontal entrepreneurial groups among cooperatives:
Peer (horizontal) groups within and among cooperatives, bringing in business scales
through horizontal (and not vertical) integration can make a big difference in
“mainstreaming” the cooperative share of the economy.
Cooperative banks in Germany, France the Netherlands or Quebec, for example, are
not big unitary banks, but flexible groups of many small local or regional banks, with
the same system of democratic control as in primary cooperatives. This is, in fact,
one of the reasons why they have so far resisted surprisingly well to the crisis.
In India, important agro-industrial activities have been ‘mainstreamed’ within the
cooperative movement thanks to the gradual construction of such horizontal groups:
Amul in the milk industry, and IFFCO in the fertilizer industry. In agriculture, Korean
NACF, although also called federation, is in fact at the same time an entrepreneurial
group as well.
Cooperative groups can be active in the most varied sectors, from medical activities
(like Unimed in Brazil) to construction and public work (like CCC-ACAM in Italy), from distribution (like SOK in Finland) to services of general interest (like CGM in Italy). Some of those groups are active in various sectors, like the well-known Mondragon cooperative group (active in various industrial activities, agriculture, banking, distribution, education and research), now the 7th entrepreneurial group of Spain. Especially under times of crisis (the ongoing one like in previous ones), cooperative groups present a number of advantages compared to isolated cooperative SMEs. In some cases (like in Mondragon), specific entities of the group can coordinate the temporary or permanent redeployment of workers from one cooperative to another one within the group.

6.10 Legislate in a gradual way
For public policies to remain stable, it is important that, at one point, they become
enshrined in legislation. The above policies should also gradually be the object of
specific legislation, while bearing in mind that ‘the function creates the organ’ and
not the other way round. No legislation, in itself, can be a development instrument.

6.11 Develop the networking and representative role of the international
cooperative institutional system
The international cooperative institutional system is the ICA system, coordinated by
the head office in Geneva, and made up of its various international bodies, namely
regions, global sectoral organisations, regional sectoral organisations, thematic
committees, and, last but not least, the members at the national level.
The international cooperative system should strongly favour the creation of both
horizontal groups and horizontal supply chains at the international level. In order to
do so, an important endeavor should first be done in the field of databases and
mapping, in order to identify the stronger and more globalised sectors and their
geographical distribution, and then try to encourage encounters and matching
activities.

6.12 Develop own standards and combat standards that are detrimental to
coops
Cooperative standards (based on the Statement on the Cooperative Identity) need to
be sufficiently understood and explained either through a checklist or broad
operational indicators.

6.13 Strengthen coordination within the cooperative movement at all level
A strong global coordination through regional structures of the ICA carries enormous
potential in the lobbying work with the governments and international organisations
so as to have an impact at the global level.

6.14 Intensify cooperative development strategy at world level
The development of cooperatives is closely connected to the actors both at local and
regional levels. Therefore, the cooperatives should strongly engage with all key
actors of development in the world, such as multilateral organisations, NGOs etc, to
convince them to promote projects linked to the development of cooperatives, and to
do development through cooperatives. Cooperatives should propose their own
experts in those development projects.

Conclusions
1. Cooperatives should be geared to drive through both the conventional and
innovative non-conventional sectors like SMEs, health, education, technical
professions, environment, special community services and infrastructure &
local resource management with middle to long term strategy truly in the spirit
of co-operative identity ensuring democratic controls and promoting indivisible
reserves.
2. It would be a big move forward to evince interests of governments and
accordingly meso and macro level measures should be based on a strong
partnership with governments at all administrative levels supplemented with
greater visibility and hard edged information campaign on cooperatives being
proud of their modesty and emanating from humble origins.
3. Enabling policy environment of the governments on cooperatives must be
maintained and accordingly the legislative features of the law on cooperatives
are reviewed and improved. ICA system together with ICA members,
multilateral international organizations and UN system should be used to
coordinate world level lobbying and networking.
4. The cooperatives being community based must be preferred and considered
for spear heading demonstrative and replicable awareness campaigns both at
local and global levels on issues of global concerns like MDGs of the UN,
global warming etc. in collaboration with other actors in this field.
July 21, 2009

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