Role of Co-operatives in the Contemporary Economy - Literature review Example

Role of Co-operatives in the Contemporary Economy Introduction Co-operatives have the capability to cultivate economic development at the regional and community arena, working on the essence of cooperation that is already established in rural communities. Co-operatives encourage the best possible involvement in the social and economic growth of all individuals and are a powerful economic mechanism in industrialised nations and a highly effective business model in poor economies (Merrett & Walzer, 2001). Co-operatives greatly support bottom-up local ownership and decision-making systems through organisational systems founded on egalitarian decision-making and through their dedication to definite co-operative principles. Moreover, these principles involve a firm commitment to equity and sustainability. Furthermore, co-operatives facilitate an enhanced capability to make use of local social capital and enable the pooling of resources (Tripathy, 1998). Co-operatives were viewed as an important contributor in the economy in the 1950s and 1960s, especially in Africa. But because they were burdened with expectations and government intervention, numerous were unsuccessful, and co-operatives were cancelled by virtually all development organisations (Hedlund, 1988). But co-operatives were starting to regain their vitality in the past decades. It is widely known that co-operatives greatly contribute to millennium development objectives. They have the ability to raise income for their people and also provide an array of benefits. In satisfying the needs of their members co-operatives raise incomes and protect the means of support of their people and their communities (Restakis, 2013). Co-operatives do not have the ability to offer the entire solution to economic inequality and global poverty, yet they are definitely part of the solution, for they are part of a programme having a similar group of global ideologies and standards. This paper discusses the nature of co-operatives, particularly its role in the economy. The discussion includes a definition and history of co-operatives. But most importantly, this paper analyses the contribution of co-operatives to the local economic development of depleted communities, with actual cases or examples. Co-operatives and Economic Growth Co-operative is defined as a voluntary group of individuals established to satisfy their collective needs through democratic decision-making, mutual efforts, and distribution of economic gains based on participation. At its Centennial Congress in 1995, the International Co-operative Alliance (ICA) approved this definition (Mendoza & Castillo, 2006, p. 4): “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.” Even though there were previous groups with the attributes of a co-operative in other regions across the globe, the ‘Rochdale Pioneers’ are widely considered the pioneers of the contemporary Co-operative Movement (Mazzarol, Reboud, Limnios & Clark, 2014, p. 51). The Rochdale Equitable Pioneers Society was established in 1844 by cotton mill labourers in response to elevated prices of household and food products and low wages. They pooled together all their financial assets to obtain products at cheaper prices and built a venue at which customers may become part of the society and participate in, and allocate, the mutual gains it offered (Mazzarol et al., 2014). The ideologies underlying the Rochdale Pioneers were accepted all over Europe. Besides the usual co-operative where the gains are distributed among employees and customers, there is also the employee-held mutual where earnings are distributed among employees. Arguably, the most widely known model of an employee-held mutual enterprise in the UK is John Lewis (Pearson, 2012). A written constitution specifies the power or decision-making structure for the John Lewis Partnership. The constitution lays down the absolute goal of the Partnership (Pearson, 2012, p. 211): “the happiness of all its members, through their worthwhile and satisfying employment in a successful business.” Role of Co-operatives in the Economy As already stated, the main purpose of co-operatives is to satisfy the needs of their members. Co-operatives begin with the identification of a prospect or a need. Cooperatives also work like other business organisations (Birkholzer, 2009). They should provide for a market effectively and productively, they should be appropriately managed, and they should endure economically. Nevertheless, co-operatives have several unique attributes. First, members gain from their co-operatives. Earnings are shared by the members in accordance to their use of the co-operative. They have greater access to more favourable goods, services, and/or prices (Pearson, 2012; coops.wisc.edu, n.d.) Second, members have power in co-operatives. Every member is granted a single vote, irrespective of their use of the co-operative or the sum of equity they have put in. And, the members are the owners of their co-operatives. Being owners, they supply the capital or resources needed for start-up and development of the enterprise (coops.wisc.edu, n.d., para 2-4) In general, they have been seen as tools for the fulfilment of the objectives established by outside groups, like government and nongovernmental agencies (NGOs), and condemned for failing to deliver the benefits to the poorest (Gonzales & Phillips, 2014). According to Cynthia Giagnocavo of the University of Almeria, “Cooperatives act as catalysts, not just for economic growth but also for social growth” (UN Cooperatives News, 2012, para 1). With local control and ownership, and overall income allocated to those who are dependent or draw on the co-operative, co-operatives are regarded by some to be a perfect approach to local economic growth. The arrangement and goals of co-operatives force them to act in a different way in their communities than enterprises with other organisational systems. Furthermore, co-operatives provide a means for a set of people to bring together their scarce resources to come up with a critical quantity (UN Cooperatives News, 2012). Co-operatives pool together capital, resources, and people into bigger, more sustainable and economically competitive parts. While actual federal support for rural development weakens, the likelihood for locally held co-operatives to fulfil a more direct and important part in rural economic growth enhances. Co-operatives are development instruments and must encourage both economic and social empowerment objectives, especially in depleted communities (Blakely & Leigh, 2009). ‘Depleted communities’ is defined by Johnstone and Lionais (2004) as “areas where the strength of capitalistic relationships has diminished; these locations are products of uneven development, which is itself an inherent feature of capitalism” (p. 217). Hence, although some regions encounter economic progress, others encounter economic failure or unproductivity and a set of related social issues. Although circumstances in depleted communities can restrict prospects for traditional growth, entrepreneurial mechanisms are not equally limited. In these contexts, the entrepreneurial mechanism will be adjusted to fulfil community objectives, thus creating new kinds of growth possible. People who are resolute to take part in entrepreneurial activities within the setting of a depleted community will modify and look for suitable instruments for business growth (Johnstone & Lionais, 2004). Not like social entrepreneurs who emerge locally and should go on without the advantage of a traditional business framework, co-operative entrepreneurs capitalise on traditional business model, deep-rooted networks, skill, and knowledge. Co-operative entrepreneurs understand the importance of traditional business framework in achieving their objectives and, where probable, they embrace such framework (Giagnocavo, Gerez, & Perez, 2011). By consolidating the traditional business framework and community objectives, these co-operative entrepreneurs are capable of setting up productive and sustainable business systems. The Role of Co-operatives in Promoting Local Economic Development in Depleted Communities As is characteristic of numerous postcolonial countries, especially in Africa, co-operatives have played a very important role in the development agendas intended for most rural communities. It is known that co-operatives offer a framework for consolidating resources of individuals of scarce means to attain collectively recognised development requirements of the specific population (Luviene, Stitely, & Hoyt, 2010). In Tanzania, co-operatives have established elements of the central factors in the development agendas and political ideologies which have directed the growth of the nation. This had a quite considerable influence on the expansion and growth of the co-operative structure with major repercussions on the possible impact of co-operatives on efforts to mitigate poverty (Sizya, 2001). As explained by Carlsson “… because of the circumstances under which the cooperatives were formed, i.e., as a reaction of Africans and peasants against the unfair marketing practices of mainly non-African traders, they became convenient cover organs for political activities” (Sizya, 2001, p. 4). Co-operatives have facilitated local economic development in Tanzania by providing means to involve African producers in the production of cash crop, building an opportunity for political progress and upward mobility; offering a way to transmit influence and power to the bigger farmers, enabling the formation of an affluent segment of African famers to defy or question the control of the long-established African Chiefs; and by allowing the farmers to get bigger prices (Sizya, 2001). In an actual way the co-operatives during that period were greatly helping in the fulfilment of the objectives of poverty mitigation. This conclusive achievement was the justification under which co-operatives were implemented as a core component of the Government Rural Development Policies (Sizya, 2001; Durden et al., 2013). From then on until now, government has occupied the forefront in the supervision of co-operatives through the legal requirements and in the manner of its shifting development agenda over time. The co-operatives have grown into formal institutions wherein the sought-after members have taken on a submissive part (Sizya, 2001; Allard & Davidson, 2008). Another example of the effectiveness of co-operatives in cultivating local economic development is Bangladesh. Muhammad Yunus, a Bangladeshi economist, realised that through lending assets to those lacking capital and property-less he would be furnishing them the capacity to raise their living standards (Johnstone & Lionais, 2004). He attempted to persuade the banks to formalise his lending project without a collateral condition. As expected, the banks refused. He then decided to launch a micro-loan experiment programme, which was eventually named ‘Grameen’. Grameen offered lesser loans to the destitute. Loan non-payments became the group’s obligation. Thus the group worked to provide shared incentive and assistance to settle the loans and contributed to the control of administrative costs. In 1979, Yunus finally persuaded the Central Bank to accept his project (Johnstone & Lionais, 2004). The Grameen Bank developed rapidly. The Grameen, even though not particularly aiming at communities in general, has been triumphant in mitigating poverty in Bangladesh. Moreover, it bolstered shared support and social capital in the communities where the co-operative built itself. The co-operative, by making use of business models adjusted to the demands and requirements of the poor, has created a means to be sustainable and worthwhile in depleted communities (Johnston & Lionais, 2004). The co-operative is presently offering new enterprises such as insurance plan and community-oriented health care (Johnston & Lionais, 2004; Goglio & Alexopoulos, 2013). The last case in point is Mondragon, Spain. Jose Maria Arizmendiarrieta, a Spanish theologian, believed that a transformation in society is possible through business since it possessed the greatest influence or power over society. He explained (Johnstone & Lionais, 2004, p. 222): “To build co-operativism is not to do the opposite of capitalism, as if this system did not have any useful features, when in reality it has been a very interesting experience in organisation and economic activity, and its efficiency cannot be doubted.” His framework of community and worker business ownership, with its stress on practical or methodological superiority, has been quite productive. The Mondragon Cooperative Corporation came into being. The co-operative has contributed to the economic development of the community by creating a large number of jobs. The organisational system made by Jose Maria has made sure that the business stayed accountable for and embedded to the community. In spite of criticisms, the co-operative keeps on connecting with the community (Johnstone & Lionais, 2004). Indeed, the accomplishment of Mondragon in cultivating and advancing the depleted community has drew several followers, most particularly Valencia (Johnstone & Lionais, 2004). In general, the managers of reputable cooperative banks and community-oriented finance groups are permitted to make a decision on how to invest the funds and savings of its members and customers (Zeuli, 2002). It is an issue of sensibleness or expediency whether the members and owners of the organisation must also be incorporated into investing and lending choices. Conclusions This paper discusses current achievements and long-term capability of co-operatives in depleted communities where social, democratic, and economic reforms are the objective. It discusses cases or illustrations of how the co-operative business framework supports poor communities and individuals financially by raising earnings and building investment and value prospects; socially, through enhancing unity, cohesion, and trust, resulting in stability and strength despite conflict and harsh conditions; democratically, through presenting actual knowledge of member involvement, accountability, and democratic control. Co-operatives have been and keep on being a momentous economic player all over the industrialised world. In numerous countries co-operatives are one of the biggest main ventures in wide-ranging domains of information and communication technology, savings, agriculture, and so on. 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