46th Session of the Commission for Social Development

Panel Discussion - Promoting full

employment and decent work for all

Reducing poverty through employment generation: the role of co-operatives

Johnston Birchall, Professor of Social Policy, Stirling University, Scotland

Purpose of the presentation focus on developing countries outline the core purposes and conditions for

effectiveness of successful co-operatives identify the types of co-op that contribute best

to employment generation, and explain their comparative advantages

explain why there is a legacy of ‘pseudo co-ops’ in developing countries, and what the reform process entails

identify the challenges faced by genuine co-op sectors

suggest ways that international support can be provided so as to strengthen co-op sectors

What is a co-operative?

A membership-based economic association that has three basic features:

Member ownership Member control Member benefits

Who are the members?

The people who make use of the co-op’s services

They can be individuals, households or small businesses

They provide capital, but only in order to obtain the services they need

Core purposes

To focus on members’ needs as the core purpose of the business

To provide a governance structure that keeps boards and members in touch with each other

To develop an operating system which successfully meets members’ needs

Conditions for effectiveness – internal to the co-op (From Tushaar Shah, 1996)

Patronage cohesiveness: boards aggregate the members’ priorities and turn them into organisational goals

Governance effectiveness: board holds the operating system accountable for achieving organisational goals

Operating effectiveness: managers and staff deal directly with members, under pressure to meet members’ needs. Members, in turn, provide loyalty and commitment

Conditions for effectiveness – relations between co-ops Co-ops rarely stand alone, but survive

better in clusters Horizontal linkages between primary co-

ops help spread knowledge about organisational design (what works)

Vertical linkages lead to federations and secondary shared service co-ops (eg banking, insurance, marketing, crop processing)

Conditions for effectiveness – in the environment Government regulates lightly and does not

control co-ops Laws enable co-ops to take a legal form that

suits their nature Political parties are kept at arms length Funding from govt and donors is used selectively Market entry is possible (does not require lots of

capital or high technology) But well designed co-ops will survive even in a

hostile environment (cf Sanasa in Sri Lanka, primary coffee co-ops in Tanzania)

How do they generate employment? Directly, by employing people to provide the

goods or services to members Indirectly, by enabling their members to do

business more effectively for themselves: - increasing the number of hours of

productive work individuals can do (v under-employment)

- increasing the number of people they can employ (v unemployment)

More generally, by improving the local economy, making everyone better off

Which types of co-op work best for employment generation? Primary producer co-ops (farmers, fishers,

forestry workers) Shared service co-ops (small traders,

personal service providers, craft workers etc)

Savings and credit co-ops Utility co-ops (electricity, water for

irrigation) Basic needs co-ops (health, housing,

education, social care – but they rely on income generated elsewhere!)

Which types of co-op do not work well in developing countries?

Worker co-ops – the interests of members as owners and employees are difficult to align. If successful they restrict entry and ‘degenerate’ into conventional firms.

Consumer co-ops – the rewards are not great, so it is hard to retain the interest of individual consumers. Also, retailing is hard to manage

Producer co-ops - Fishing - Agriculture - Forestry - Common pool resource management (water

for irrigation, forests, fish stocks) - Shared service co-ops of self-employed, small

traders and manufacturers All good at securing higher incomes for

producers, and strengthening local economies Better at combating under-employment than

generating new jobs

Savings and credit co-ops Variously known as credit unions, SACCOs,

women’s banks, co-op banks Highly effective, particularly when they use: Group lending or personal guarantees Are locally based Are backed up by a district and national

structure that provides banking facilities Volunteers to run the primary societies Keep clear of government patronage Use donor funding judiciously

Employment through credit co-ops They do not provide much employment

directly, but: When combined with micro-enterprise

development, they enable members to establish and expand their businesses

By lending for farm inputs and ironing out seasonal fluctuations, they encourage farmers to diversify crops and raise their incomes

By lending to women they enable them to gain economic independence

The legacy of history In the post-colonial period, at first co-ops

were very successful In the 1970s in several countries co-ops

were taken over by the state – they became parastatals

As such, they were mismanaged, subject to party influence and corruption

In some countries the word ‘co-operative’ is now so tainted we have to use different words (eg farmer association)

Challenges to pseudo co-op sectors We have to distinguish between pseudo co-ops and

real, member-owned co-ops A reform process has begun in some countries, but

it is hesitant and opposed by vested interests In some countries reform is not yet on the agenda The movement from state/party controlled coops to

autonomous member-driven co-ops is not linear – it is a struggle against vested interests

New co-op laws and UN declarations are not enough Sometimes genuine co-ops can only emerge when

official co-op apexes and district unions have fallen apart

Challenges to genuine co-op sectors Governments want to use co-operatives to deliver credit

(eg Million Housing Programme in Sri Lanka, Billion Shillings programme in Tanzania) – this can easily destabilise them

Donors want quick, quantifiable results while co-operatives take time to set up

When co-ops become successful, politicians and local elites want to own them

Promoters have to decide how serious they are about doing economic development rather than welfare/community development

Some co-op sectors are promoted by NGOs that are not themselves membership-based – this restricts the ability of primary societies to integrate vertically

What kind of international support is needed? Northern co-op development agencies can do it best, eg

NRECA promoting electricity co-ops in Bangladesh, ICMIF providing reinsurance for co-op insurers, WOCCU developing remittance services for migrant workers, CCA and Desjardins strengthening credit co-ops

Donors should channel aid through these specialist co-op agencies

Role of International Co-operative Alliance and International Labour Organisation is to accredit and support real co-operative movements, strengthening their business support organisations

Role of northern consumer co-ops is to link up with southern producer co-ops in fair trade