46 th Session of the Commission for Social Development

1. 46th Session of the Commission for Social Development Panel Discussion - Promoting full employment and decent work for all

2. Reducing poverty through employment generation: the role of co-operatives • Johnston Birchall, Professor of Social Policy, Stirling University, Scotland

3. 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

4. What is a co-operative? • A membership-based economic association that has three basic features: • Member ownership • Member control • Member benefits

5. 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

6. 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

7. 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

8. 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)

9. 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)

10. 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

11. 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!)

12. 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

13. 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

14. 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

15. 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

16. 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)

17. 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

18. 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

19. 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