Lecture One Introduction: the Meaning the Rules the Principles and the Values of the Cooperative

DBA 304 NOTES

LECTURE ONE INTRODUCTION: THE MEANING THE RULES THE PRINCIPLES AND THE VALUES OF THE COOPERATIVE SOCIETIES

LECTURE OUTLINE

1.1Introduction

1.2Lecture Objectives

1.3What is a Cooperative Society

1.4Principal Rules of a Cooperative Organization and Operation

1.5The Principles of the cooperative societies

1.6The values of the cooperative society

1.7Justification of the Cooperative Institution

1.8The Objectives of the Cooperative Institution

1.9The Distinctive Features of the Cooperative Institution and how they differ from a workers movement.

1.10The Cooperative Management and Development

1.11Summary of the lecture

1.1 Introduction

I would like to welcome you to the study of the Principles of Cooperative Management. You are required to have done and passed all the Part 1 courses before you register for this course unit. In this first lecture we will learn what acooperative society is. We shall also discuss the rules, the principles, the values, the importance and the benefits of a cooperative enterprise. We shall also discuss the distinctive features of the cooperative enterprise and how the cooperative society differs from both the business organization and a trade union

/ 1.2 Lecture Objectives
At the end of this lecture you should be able to:

1. Explain what a cooperative society is
2. Identify the benefits, rules, principles and values of a cooperative society
3. Explain the origins of the cooperative institution
4. Explain the philosophical foundations of the cooperative enterprise
5. Discuss the distinctive features of a cooperative institution
6. Identify the origins and the basis of the cooperative movement
7. Explain the principles of the cooperative movement

1.3What is a Cooperative Society

According to the Oxford English Dictionary the word ‘cooperate’ means to join together, to act with another, to concur in producing the same effort. Therefore a cooperative is a society in which members work together, where they put up a joint effort for their mutual benefits. A cooperative society seeks to improve the situation of its members or to get them out of it when it arises, or to protect or free them forever from the possible social domination of those who hold economic power.

According to the International Co-operative Alliance (ICA) 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. The ICA definition recognises one essential element of cooperatives: membership is voluntary. Coercion is the antithesis of cooperation. Persons compelled to act contrary to their wishes are not truly cooperating. True cooperation with others arises from a belief in mutual help: it cannot be dictated. In cooperatives persons join voluntarily and have the freedom to quit the cooperative at any time.

Another widely accepted definition of a cooperative is the one adopted by the United States Department of Agriculture (USDA) in 1987: a cooperative is a user- owned user- controlled business that distributes benefits on the basis of useThis definition also captures what are generally considered the three primary cooperative principles namely user ownership, user control and proportional distributional of benefits. The user owner principle implies that the people who use the cooperative (members) help finance the cooperative and therefore they own the cooperative.. Members are responsible for providing at least some of the capital. The equity capital contribution of each member should be in equal proportions to that member’s use (patronage) of the cooperative. This shared financing creates joint ownership. The user control concept means that members of the cooperative govern the business directly by voting on significant and long term business decisions and indirectly through their representatives on the board of directors. Cooperative statutes and by laws usually dictate that only active coop members ( those who use the coop) can become voting directors, although non members some times serve on the boards in a non voting advisory capacity

Co-operative societies are also business enterprises which are set up and run by the members. They are undertakings that operate on business principles including profit maximisation, efficiency in production, maximum turnover, and minimum operational costs etc. Cooperative societies are not charitable institutions. They have objectives which they strive to achieve. They have common and collective objectives, they are run by members who also manage and control the undertaking for their own benefit and at their own risk. The cooperative institution has both economic and social benefits.

The cooperative undertaking is also established by members who wish to become their own masters in the economic and social fields. The members know and understand that the efficiency and hence the success of their undertaking ultimately depends on them and for their benefits. This feature of a co-operative institution emphasises that the members in the undertaking must be able to see that their personal interests are bound up with the common interests of all the members. Consequently all members must actively participate in the management and operations of the association, sensibly exercise their rights and obligations and provide their best qualities of common sense, judgement and honesty in managing their undertaking. This feature calls for proper and appropriate education of members on a continuous basis.

1.4 Principal Rules of a Co-operative Organization and Operation

Because the cooperative institution is not a philanthropic institution, it is also not a capitalist institution, and it rests on a voluntary association of persons, and it serves human beings and their needs, its organization and operation is governed by three basic rules which are peculiar to it namely the rule of equality, the rule of equity and the rule of ethnic, racial and political neutrality. These three rules are briefly discussed below.

The Rule of Equality This rule specifies that relations between members and the association and between members within it are governed by the rule of equality that is to say, irrespective of possible differences of race, creed, political opinion, social status or contributions of capital, all the persons whose needs can be satisfied by the services rendered by the undertaking possess equal rights and duties with respect to the association and within its ranks. This rule also means that there is the same right to join the society (of course subject to certain conditions of residence, occupation etc), there is the same right to refrain from joining, there is the same obligation to refrain from behaving in such a manner as to offend fellow members, there is the same right to resign from the society and the same obligation to do so only under certain prescribed conditions which safeguard the interests of the society.There is the same right of supervision over all operations and the people entrusted with them, there is the same right of speaking at general meetings, there is the same voting rightand there is the same right of standing for election to the various organs of the society.

The Rule of Fair Share This is also referred as the rule of equality This refers to the rule of proportionality or equitable sharing.The rule means that in sharing of the society’s surplus, the surplus is shared out to each member in proportion to the business he/she has done with the society i.e. in exact proportion in which he has helped to form the surplus.

The Rule of Political, Religious, or Ethnic Neutrality This rule emphasises the fact that a co-operative institution should practice political, religious or ethnic neutrality in all their operations, practices or processes. However the rule does not mean that the members do not have a religion or a tribe of their own. Neither does it mean that members should not have a political opinion or should not express their political opinion freely. The rule means that the society should not discriminate against its members on the basis of their political or religious standing or their tribe for that matter. The society should treat all members equally and without discrimination. In fact it should assist members to understand their political rights and prevent any form of exploitation of the members by the political elite. In fact for a cooperative society to allow members to be exploited by the political elite is inconsistent with the very basis on which the cooperative institution is foundedi.e.to eliminate any form of exploitation.

1,5 Cooperative principles

Cooperatives throughout the world share the same universal principles of cooperatives, namely;

Voluntary and Open Membership – Cooperatives are voluntary organizations, open to all persons who are able use their services and willing to accept the responsibilities of membership without gender, social, racial, political or religious discrimination.Each person has the freedom to join or not join a cooperative society. Once he or she has joined he has the freedom to leave the society if he or she so wishes. This is a fundamental principle as it implies that those who are member are there of their own free will and undertake all the obligations of membership freely.

Democratic Member Control – cooperatives are democratic organizations controlled by their members, who actively participate in setting their policies and making decisions. Men and women serving as elected representatives are accountable to the membership. Members have equal voting rights – one member, one vote.Each member has a right to speak in meetings and stand for any position in the cooperative.

Members’ Economic Participation – members contribute equitably to, and democratically control the capital of their cooperative. At least part of that capital is usually the capital of the cooperative. Members usually receive little compensation if any. Members allocate surpluses for developing and safeguarding their cooperative, and for returning to members as dividends.

Autonomy and Independence – cooperatives are autonomous self-help organizations controlled by their members. If they enter into agreements with other organizations, including governments, or raise capital from external sources, they do so on terms that ensure democratic control by members. Members are responsible to themselves for their own decisions. Decisions about their coop societies are and no other body should make decisions on their behalf.

Education, Training and Information – Cooperatives provide education and training for their members, elected representatives, managers, and employees, so that they can contribute effectively to the development of their cooperatives. Cooperative societies should endeavour to offer education and training not only to their members but to the policy makers and the public so that they an understand about the cooperative in their midst and provide support when needed.

Cooperation among Cooperatives – cooperatives serve their members and strengthen the cooperative movement by working together with other cooperatives, and through local, national, regional and international structures.

Concern for Community – cooperatives work for sustainable development of their communities through policies approved by their members.

.1.6 The Values of a cooperative Enterprise

A cooperative society is also expected to have certain values, norms, briefs, and practices to make it truly a cooperative society. Values are principles that guide planning and operations of a person or entity. They provide an ethical framework towards certain activities and away from others. These values include self-help, self-responsibility, democracy, equality, efficiency, effectiveness, equity, and solidarity. Cooperative members believe in the ethical values of honesty, transparency, accountability, social responsibility and caring for others. The value of self help means that members believe that they are wholly responsible for the success or failure of their society. Self responsibility has the same connotation as self help and emphasizes that every member feels that his contribution in both material and knowledge and experience is essential for the society’s success. Democracy emphasizes not only the supremacy of members when they are together but also the right of every one of them to speak, stand for an office and vote in every meeting of the society. Equality as avalue emphasizes that the cooperative society in the provision of services must treat all members equally regardless of creed, position in the society or religion or even political beliefs. This ensures satisfaction for all members in the society. Efficiency implies that every members seeks to produce at least cost and effectiveness implies that members strive to achieve the societies goals as much as possible. The value of equity means that the cooperative society believes in fairness not only in the distribution of surplus but also in dealing with all the issues of sharing such as materials. Solidarity emphasizes the need to work together as team in all endeavours.

1.7Justification for the Cooperative Institution

The most frequently heard arguments in support for cooperatives are the following:

a)Economic democracy: Cooperatives overcome obstacles to development moreequitably than other institutions because they are based on active participation by individuals. Because they promise and provide social benefits, cooperatives are potentially good vehicles for motivating and reaching large numbers of people.

b)The economies of scale: Cooperatives are able to improve the economic status of the less well-off members of society by pooling their meagre resources and operating with large capital and turnover. In this way cooperative activities can also attempt to displace middlemen. As producers the members should receive higher incomes and as consumers they should pay lower prices as a result of reorganization of marketing functions through cooperatives.

c)The resource allocation: Cooperatives may be less expensive in terms ofgovernment subsidies than parastatals or other direct alternative public sector initiatives to organise large scale services such as agricultural marketing, farm input supply, extensions and electrification especially in rural areas.

d)Synergism The efforts of a group working in a cooperative effort results in a greater benefits for all than the sum of individuals in the group

People who organize and belong to cooperatives do so for a variety of economic social and even political reasons. Cooperating with others has often proven to be a satisfactory way of achieving one’s own objectives while at the same time assisting others in achieving theirs. Farmers create farm supply and marketing cooperatives to help them maximize their net profits. This requires both effective marketing of their products for better prices as well as keeping input costs as low as possible. The farmers recognise that they are usually more efficient and knowledgeable as producers than as marketers or purchasers. By selling and buying larger volumes they can also usually achieve better prices.Consumer cooperatives are established to sell the products a group of consumers want but cannot find elsewhere at affordable prices. The consumer members are primarily interested in improving their purchasing power- the quantity of goods and services they can buy with their incomes. They naturally wish to get as much as possible for their money in terms of quantity and quality. As owners the members have a say in what products their stores carry.

Employees organize bargaining associations and labour unions to negotiate collectively with management and owners. In some cases employees form workers owned cooperatives. As the name suggests a worker owned cooperative is owned and controlled by its employees. Employees establish bargaining units and cooperatives in the hopes of improving their general working conditions and ensuring job security.

All in all the cooperative institution helps in the attainment of economic and social goals for all most efficiently and effectively by utilizing economies of scale and benefiting through synergy.

1.8 The Objectives of the Cooperative Institution

A cooperative enterprise seeks to achieve several objectives. In the first instance cooperatives are formed by people sharing a common bond i.e. they have at least one other interest in common besides their membership in the cooperative society. Their common interest is often defined in occupational or geographical terms. A cooperative is a joint activity by members in the pursuit of certain group aims and objectives. These can be commercial, religious, humanitarian, idealistic, or geared towards social reforms. Cooperatives work for these objectives through members.

Secondly a cooperative is a permanent business organization established and maintained by members as an operational business enterprise. It functions like other permanent economic units offering commercial and financial services, or producing agricultural, handicraft or industrial products. A special type of relationship is supposed to exist between the cooperative enterprise and its members for the welfare of the members. Accordingly, and within legal limitations, a cooperative enterprise many not act independently of its members and its activities are ideally determined by their economic priorities. As a business/commercial enterprise the success of a cooperative society is measured by firstly improvement of the situation of a member. This is usually interpreted to mean improving member’s living standards through increasing their cash income and liquidity. The second measure of success is thecontinued existence of the cooperative; This requires that a cooperative society develop rationally, be staffed effectively, maintain a sound financial structure to ensure solvency and liquidity, firmly establish business relations and procedures and strive for other positive qualities essential for commercial survival. Thus cooperatives minimize prices on goods sold to members and total or per unit costs of given operations.They also maximise total payments or payment per unit to members, service offered to members, theper unit or enterprise surplus, turnover (total revenue), market share and social services.

In the achievement of these objectives, conflicts or controversies often arise To reduce these conflicts and controversies it is preferable to prioritise these objectives and specify conditions under which the minimisation and maximization objectives are to be met for example, produce payments should be increased under condition that first a targeted amount of surplus is retained by the cooperative enterprise secondly each qualifying member is extended credit for the purchase of farm inputs up to a limit not exceeding a specified proportion of the value of that member’s previous year’s harvest marketed through the society and thirdly farm inputs are sold to members at not more than 2 per cent above wholesale price.