University of Wisconsin Center for Cooperatives

The Cooperative Sector

Outline of a presentation at the Graduate Institute of Cooperative Leadership

University of Missouri

Columbia, Mo

July 22, 1974

- by

A.F. LAIDLAW

CONTENTS

Introduction
Schools of Cooperative Theory
Assumptions of the Cooperative Sector School
Definition of the Cooperative Sector
Implications of the Cooperative
Dividing the Economic Pie
Intersectoral Relationships
Applying the Cooperative Sector Concept in Different Countries and Economic Systems
Summary and Conclusions

FOREWORD

The nature of this paper

This is not a "paper" in the usual sense of that word.
Nor is it the outline for an address.
It is rather a think-piece for co-op leaders, a synopsis of ideas for discussion.
It presents a few broad concepts in outline, against which you can compare your own views.
It will be supplemented by visual aids.

Participants should

Read it in advance of the session and organize your own ideas on the points presented.
Write marginal notes to help with discussion of the topics.

1. Introduction

Preparing the notes for this presentation, the writer has two main thoughts uppermost in mind:

At mid-1974, we see world society and mankind in a perilous state and in grave uncertainty about the future:

there is now the threat of widespread hunger and starvation facing some parts of the world...
the international monetary system is chaotic and several countries are on the verge of economic collapse...worldwide inflation proceeds at a frightening rate...
our trust in GNP as a measure of economic and social development has been shattered...
ten years ago we thought the age of plenty was just around the corner, but now we're afraid the age of scarcity may not be far away...
much of the brave and hopeful planning for international development has ended in disillusionment., the great majority of people in the poor countries are as poor and deprived as ever...
in many parts of the world racial hatred and political animosities are even more extreme than they were ten or twenty years ago...
not many of us here contemplate the future with complete confidence and assurance...
Obviously, there is need to revise the certainties we once held...too much of the armour wherein we trusted has been pierced and is rusty... we are living in dangerous times...

"Things are in the saddle And ride mankind."
- Emerson

The great problems of the world and mankind today are, as ever, economic. Even the problems that may be thought of as social, or political, or military, or religious, or racial, can usually be traced to an economic cause, or are at least partly economic. The great unsolved questions for mankind are:

How is the earth and its resources to be divided?
Who should own what?
How are we to share the fruits of the land and the products of industry?
How can we arrange it so that each person gets enough or a fair share?

The two great powers deciding these questions are:

Business organizations...Big Business...Multinational Business.. .Private Enterprise. . the entrepreneur...all operating according to the methods of the capitalist system...

Government...Big Government...Government...Bureaucracy...Officialdom...

The fundamental questions:

Is there no alternative to these two? Or must Big Business and Big Government together rule the world and mankind?

Can we build People Power into a strong countervailing force to balance these two?

Do we not need a powerful Third Force, organized on humane and rational principles, to help save us from the problems of avalanche proportions which now threaten mankind.

What this paper proposes

to explain the concept known as the Cooperative Sector.
to show cooperative organization as a Third Force, a countervailing power against both Big Business and Big Government.
to indicate how the cooperative movement should fit into the economic spectrum.
to suggest how cooperatives, which presently constitute the most widespread, non-political, non-religious movement in the world, could be made more effective in solving the great problems of humanity.*

"There are many ways in which to improve the condition of mankind but the noblest of them all is through Co-operation."
- George J. Holyoake

* The total memberships in cooperative organizations affiliated to the International Cooperative Alliance are currently reported at about 283 million.

2. Schools of Cooperative Theory

Cooperatives are understood differently and promoted differently at various times, by various people, in different countries and under different political systems. Four quite distinct schools of thought are these:

The Cooperative Commonwealth School

Its philosophy: the cooperative movement should aim to embrace all fields and permeate all activities of economic and social organization until it becomes an all-inclusive system. This was the stated objective of the Rochdale Pioneers and many early 19th century cooperators.

Chief features of this school: it places no limits on the possibilities of cooperatives to expand and spread into all fields. It assumes the possibility of a totally cooperative social order.

Names associated with this school: Robert Owen; Warbasse and George Keen, in some respects.

But today Cooperative Commonwealth thinking is generally regarded as highly idealistic, doctrinaire and utopian. It is not practical nor realistic in present-day society. However, it is possible to have a totally cooperative type of local community, as demonstrated, for example, by the Hutterite communities in Canada and the Kibbutz (communal) settlements in Israel.

The School of Modified Capitalism

Its philosophy: cooperatives are essentially capitalism with a slightly different set of rules. Cooperatives serve mainly to restrain the capitalist system and curb its excesses. Cooperatives are also useful for situations that are not attractive to capitalist business, where profits are uncertain or marginal. Cooperatives should not eliminate profit-making but rather try to get everyone into the act.

Chief feature of this school: it views capitalism as the model and fundamentally legitimate form of business, and cooperatives as only a modification or special form of it.

Names associated with this school: a large section of the cooperatives in USA, especially farm marketing co-ops; many credit union leaders, especially in the USA but in some parts of Canada too; cooperative leaders generally who see themselves as partners with private business in opposing government intervention in economic affairs.

This school of cooperative thought is not widely supported outside North America.

The Socialist School

Its philosophy: Cooperatives are essentially a socialist institution, oriented to left-wing ideology. One branch of this school sees cooperatives from a public and social rather than a private and individual viewpoint, while another sees them as junior partners of the State in a centrally-planned socialist economy. This school stands in polarity to no. 2.

Chief feature of this school: the State per se should be the commanding and final authority over all economic activity; cooperatives are an integral part of government planning and are subsidiary to State enterprise.

The supporters of the Socialist School are numerous in some countries of Western Europe, and are dominant in the communist countries and many developing countries.

The Cooperative Sector School

Its philosophy: Cooperation is a distinct economic sector in its own right. Cooperatives are essentially different from both capitalism and public enterprise, though they have some features of one and some of the other and thus may be considered a "middle way" between the two. The ideal economy is one that has a good balance of public, cooperative and private sectors.

The chief feature of this school: it sees cooperatives as co-existing with the other two sectors and all three complementing one another in building a strong economy and a good social order.

Supporters of this philosophy are numerous in Europe, especially the Scandinavian countries. Perhaps the majority of Canadian cooperators subscribe to this school of thought, and it is strongly supported in other countries too, e.g. Israel and Japan.

One of the leading spokesmen for the Cooperative Sector concept was Dr. Georges Fauquet, former head of the Cooperatives Branch of ILO (1920-33) and author of Le Secteur Cooperatif. Dr. M.M. Coady, a well-known figure in the cooperative movement in Canada, was a supporter of this school of thought.

"...as soon as practicable, this Society shall proceed to arrange the powers of production, distribution, education, and government..."
- Rochdale Pioneers (1844)

"Evolution may substitute cooperative democracy for the state...The beginning of this organization of society now exists in the cooperative associations...Here is the framework and the beginning of the cooperative society of the world."
- J.P. Warbasse (1942)

"The good society of the future is probably one in which there will be fourfold ownership: (a) individual ownership of farms, homes, etc; (b) a large measure of cooperative ownership in all the economic processes; (c) a measure and perhaps a very large measure of socialism; (d) and an area of private profit enterprise."
- M.M. Coady (1951)

"The commanding heights of the economy should be under public control."
- (India)

"What's good for General Motors is good for the country."
- Charles E.Wilson (1950's)

3. Assumptions of the Cooperative Sector School

The validity of the Cooperative Sector rests on a number of assumptions.

The other three schools of cooperative theory must be rejected:

the Cooperative Commonwealth is too utopian...it is unrealistic in modern times anyway.
the viewpoint of the School of Modified Capitalism is unacceptable...cooperatives lose their essential character when they follow the dictates of capitalism.
similarly, they lose their identity when they are subjected to the power and control of the State.

No one system alone can provide the perfect social order:

the capitalist system obviously has great defects... it works well for some but leaves large numbers deprived and underprivileged.
nobody of a democratic frame of mind wishes to see the State and officialdom becoming all-powerful.

"The experiments multiplying before our eyes show that no sooner does the State undertake the organization of the economy than it has to recognize the limitation of its own power and competence." - G. Fanquet

The Cooperative Sector theory also assumes a certain degree of willingness or agreement on the part of the other two sectors to a state of co-existence with cooperatives.

Of course, the power of the State can be used to wipe out cooperatives altogether or make them ineffective... This has happened in the past (Nazi Germany)...and can happen again.
Or capitalist business may stop them or weaken them before they get well organized...this has often happened.

4. Definition of the Cooperative Sector

Before proceeding farther, we should define what we are talking about; in other words, we should identify the cooperative sector.

What do we understand by cooperatives? What is a co-op?

How do we distinguish a cooperative from another business?

How are we to explain cooperatives to those who are not familiar with them?

Laying aside Rochdale Principles for the moment, and assuming that we accept them, let us examine different kinds of business organization in relation to three main groups of people responsible for bringing them into existence and keeping them in operation.

The persons who own them (the shareholders, the investors)
The persons who control them (the effective decision-makers)
The persons who use them (the customers)

(See the diagrams on the accompanying sheet)

In typical capitalist business, especially large enterprise and multinational corporations, these three are separate and distinct groups. There is little or no identity of shareholders, management and customers - those who invest, those who control and those who use the service live in separate, frequently antagonistic, worlds. Capitalist business is typically disjointed from the viewpoint of personal responsibility, because each of the three components is oriented towards its own objective.

In small private business the situation is generally much better because of the close connection between shareholders (investors) and control. In a small retail business, for example, the first two components are often identical. But still the users, the customers, are a separate group.

1. Capitalism

In a cooperative, all three come together to form a unity; those who own, those who control, and those who use are one.

Let us then consider this:

Definition: A cooperative is a business enterprise which aims at complete identity of the component factors of ownership, control and use of service.

Note: While the accompanying diagrams compare capitalism and cooperatives, the points of comparison apply also to public enterprise and cooperatives, though in a different way. In public enterprise, sometimes referred to as State Capitalism, the components of ownership, control and use are separate and disjointed, in contrast to cooperatives, where they are unified. In cooperatives, responsibility and accountability are direct; in public enterprise they are indirect and frequently difficult to trace.

"A cooperative association is not an impersonal grouping of capital, but in the fullest sense of the term an association of persons."

- G. Fauquet

5. Implications of the Cooperative Sector Concept

Clearly, if a movement lays claim to being a distinct sector in its own right, it must recognize the implications that follow from such a claim. There's a moral and intellectual price to pay for being identified as a special sector in an economic system. Three fairly obvious implications for the cooperative sector are these:

Cooperatives must be different

if they are not different from other business, how are we to distinguish them or identify them?
if they do not aim to be different, why have them at all?
the great strength in cooperatives lies in certain unique features which other business cannot imitate.

The dual nature of cooperatives

to maintain their special character, cooperatives must be two things in one: a business organization and a social movement.
in striving for efficiency, cooperatives often tend to imitate other business, but in pursuing a social purpose they bring out the features which make them different.

Education is of paramount importance to the cooperative sector

unless all those responsible for cooperatives (directors, officers, members, staff) are well informed and knowledgeable, cooperatives are likely, in some countries, to become much like capitalist, profit-seeking business, or in other countries to become handmaids of the State.

"One does not possess what he does not comprehend."
- Goethe

"Education makes people easy to lead, but difficult to drive; easy to govern but impossible to enslave."
- Lord Brougham

6. Dividing the Economic Pie

Assuming the validity of the sector concept (the "mixed economy", as it is often called), we immediately face such questions as these:

What type of business activity is most suitable for each of the three sectors, public, private and cooperative?

Are there certain kinds of business that rightfully belong to the public sector?

Are there others which are best left to private enterprise?

What kinds, ideally, are most suitable for the cooperative way of business?

Are there some fields in which all three may engage and compete?

A group exercise

The public sector only

the water system
the postal system

Private enterprise mainly

hotels
restaurants

Cooperatives, ideally

farm marketing, especially first sale

All three:

housing

In which sector do the following activities or enterprises ideally belong?

railroads?
drug manufacture?
broadcasting?
cable TV?
steel manufacture?
hospitals?
medical services?
fertilizer industry?
taxi business?
electric power?
banks?
auto insurance?

7. Intersectoral Relationships

No business in a national economic system is completely independent and self-sufficient but operates in conditions of dependence and interdependence.

Both capitalist business and cooperatives depend to some extent on the State and services provided by the State (highways, water supply, schools, the postal system, etc.)

Similarly the State and public enterprise depend greatly on private enterprise, or on cooperatives.

Sometimes private-profit business depends on cooperatives (e.g. many supermarket chains depend on farm marketing co-ops for supplies.)

And, of course, the reverse, cooperatives depending on private business in some way or other, is quite common.

Thus, cooperatives cannot be thought of as an exclusive economic system but rather as one section of the total economy. They constantly operate in co-existence with other forms of business and sometimes in conjunction with them.

"The Co-operative Movement can no longer count, as in the past, upon indefinite growth in an environment of economic liberty. It now has to adapt itself by struggle in one place, by agreement in another - to the elements of a complex environment, partly free and partly organized. It must now decide what place it means to claim for itself in the new economy, either organized or in process of organization."

- Fauquet

Thoughts and suggestions

Though cooperatives should actively compete where necessary and sometimes oppose other business interests, the earlier idea of constant and unending conflict with "old line business" is not a healthy attitude on which to base cooperative development. We should always look for more positive ways and give proof of cooperative theory by service and performance.

"The best form of cooperative propaganda is always the quiet example of successful societies."
-G. de Soyza

The relationship between government and cooperatives is a matter of greatest importance nowadays, especially in the developing countries of the world. But it is also becoming an important question in developed countries. In countries like USA and Canada, what are some of the things cooperatives should ask and expect of government?

In modern times the tendency everywhere is for the power and influence of the State to grow and expand in all directions. In such fields as health and welfare, industrial development, consumer protection, communications, economic planning and so on, government influence and control have increased enormously in recent years. Should cooperatives act so as to slow down this rapid growth?

"Let your life be a counter friction to stop the machine."
- Thoreau, referring to the power of government.

Applying the Cooperative Sector Concept in Different Countries and Economic Systems

Cooperatives tend to take their ideological colour from the economic environment in which they exist. In countries dominated by capitalist ideology, they tend to be judged, and to judge themselves, by the norms of profit-making business. In countries dominated by communist ideology, they are assigned a certain place and role in the economy by State planners and serve as instruments of government policy. In developing countries, they often seem to have the worst of two worlds: they must be competitive with entrenched private business, including multinational corporations, and at the same time follow the dictates of close government control.

In addition, the cooperative sector suffers from an internal handicap of its own making: the frequent failure of various types of cooperatives to work closely together as a sector. Because of their voluntary and democratic nature, cooperatives have been reluctant to impose strict disciplines on themselves - they much prefer to act by common consent and persuasion. Recognizing a lack of cohesion and solidarity among cooperatives, the delegates at the congress of the International Cooperative Alliance in 1966, held in Vienna, approved the inclusion of a new principle for the guidance of all cooperatives: Cooperation Among Cooperatives.

The cooperative sector in various parts of the world

Western Europe: consumers' cooperatives highly developed; agricultural cooperatives growing quite fast; cooperatives especially strong in the Scandinavian countries; also special types, e.g. housing, banking and workers' productive cooperatives. Many forms of cooperative enterprise had their origin in Western Europe and the largest concentration of cooperative development is still, there. The cooperative sector relatively strong and effective.

Eastern Europe: Certain forms of cooperative organization highly developed under central economic planning by the State: consumers' co-ops (rural only) in USSR, agricultural cooperatives and housing cooperatives in Poland, cooperative farming in some countries; cooperatives generally subject to rigid State control; the cooperative sector subsidiary to the public sector.

USA: Except for credit unions, which are often not associated with cooperatives anyway, the greater part of the cooperative sector is rural and agricultural. Cooperatives, by and large, are guided and assessed by the dictates of capitalist business.

Canada: The cooperative sector somewhat better integrated than in USA. As in many other things, Canadian cooperatives stand somewhere between those of Europe and USA in social outlook and ideology.

Japan: Cooperatives highly organized and well integrated in the rural economy; virtually every farmer a member of a multipurpose cooperative. Cooperatives reflect the order and discipline of the Japanese culture.

(summarize remainder in discussion)

Africa:

Latin America:

Asia, especially India:

Others, e.g. China, Israel, Caribbean countries:

9. Summary and Conclusions

The Cooperative Sector concept offers the most reasonable theory to explain the place of the cooperative movement in modern society.

In order to achieve their maximum strength and effectiveness, cooperatives of various kinds must regard themselves and, as far as possible, act as a distinct sector within the national economy of any country.

As business organizations, cooperatives are partly private, partly public, but essentially different from both private enterprise and public enterprise. They are a "middle way", an economic sector in their own right.

Cooperatives must play the role of a Third Force, an alternative and countervailing power to both Big Business and Big Government.

A cooperative is a business enterprise in which the elements of ownership, control and use of service are united in one group of persons.

The distinguishing feature of cooperative business is its dual nature as economic enterprise and social organization.

A cooperative without a strong component of education is in danger of losing its essential character, that is, the human and personal characteristics which distinguish it as a cooperative.

The nature, size and strength of the cooperative sector varies greatly from one country to another.

An economy based on one form of business organization alone is neither desirable nor possible in modern times. The best economic order is achieved through a mixed economy.

To justify their existence and fulfil their purpose, cooperatives must make a significant and unique contribution to solving some of the massive problems facing mankind today.

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