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M PRA
Munich Personal RePEc Archive

The Role of Cooperative Societies in
Economic Development
Dogarawa Ahmad Bello
Ahmadu Bello University, Zaria-Nigeria

2005

Online at http://mpra
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uni-muenchen
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23161, posted 9
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The aim is to
investigate the ways in which cooperatives can act as agents towards sustainable community
development
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The paper posits that for
over 160 years now cooperatives have been an effective way for people to exert control over their
economic livelihoods as they play an increasingly important role in facilitating job creation,
economic growth and social development
...


Introduction 1
Today, in an era when many people feel powerless to change their lives, cooperatives
represent a strong, vibrant, and viable economic alternative
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They are based on the powerful idea that together, a
group of people can achieve goals that none of them could achieve alone
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They provide a unique tool for achieving one
or more economic goals in an increasingly competitive global economy
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Cooperatives
generally provide an economic boost to the community as well
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Only
recently worker cooperatives started gaining ground among working class citizens,
most of who find it difficult to save part of their salaries/wages for the rainy day
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This explains why quite a number of
cooperative farmers are found, particularly in southern Nigeria

1

This Paper has been published in the official journal of the Department of Public Administration,
Ahmadu Bello University, Zaria-Nigeria
Ahmad Bello Dogarawa, Department of Accounting, Ahmadu Bello University, Zaria

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The Role of Cooperative Societies in Economic Development

The problem is that many people do not know much about cooperative, its
mechanisms and role in economic development, and how it is considered in the world
as a Third Force, an alternative and countervailing power to both big business and big
government
...
The paper investigates the ways in which cooperatives can act as agents
towards sustainable community development
...


The paper is a descriptive survey, which involves the collection of data for the
purpose of describing the role of cooperative societies in economic development
...
Section two gives a background on
cooperatives, which serves as the theoretical framework
...
Section four highlights the steps
involved in starting a cooperative
...


Background on Cooperatives
The International Cooperative Alliance (ICA) in its Statement on the Cooperate
Identity, in 1995, defines a cooperative as “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
...
It is a business
enterprise that aims at complete identity of the component factors of ownership,
control and use of service, three distinct features that differentiate cooperatives from
other businesses (Laidlaw, 1974)
...

The first recorded co-operatives date back to 1750 in France, where local cheese
makers in the community of Franche-Comté established a producer cheese cooperative
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In 1844 the Equitable Pioneers of Rochdale
Society (EPRS) was formed
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Even though co-operatives
appeared in the century previous, Rochdale is seen as the first ‘modern’ cooperative
since it was where the co-operative principles were developed (Wikipedia, 2006;
Gibson, 2005; and Abell, 2004)
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By 1863 more than 400
British cooperative associations, modelled after the Rochdale Society, were in
operation
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Notable among the European countries in which
consumer cooperation received early popular support were France, Germany,
Belgium, Austria, Italy, Denmark, Finland, Norway, and Sweden (Abell, 2004)
...
The
major objective of the ICA is to promote and strengthen autonomous cooperative
organizations throughout the world
...
The ICA also aims to promote exchange
of information such as news and statistics between cooperatives through research and
reports, directories, international conferences, and two quarterly publications: ICA

Ahmad Bello Dogarawa, Department of Accounting, Ahmadu Bello University, Zaria

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The Role of Cooperative Societies in Economic Development

News and the Review of International Co-operation
...


Since its creation, the ICA has been accepted by cooperators throughout the world as
the final authority for defining cooperatives and for determining the underlying
principles, which give motivation to cooperative enterprise
...
In 1895, the
founding congress had 194 members; in the mid-1980s the ICA recorded a
membership of about 355 million individuals; in 1999, the ICA’s organisations
represented 750 million people; and since 2002 it was estimated that more than 800
million people are members of worker, agriculture, banking, credit and saving, energy,
industry, insurance, fisheries, tourism, housing, building, retailer, utility, social and
consumer cooperatives societies (Levin, 2002; Encarta, 2005; and Wikipedia, 2006)

Cooperatives are based on basic values and principles
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The values,
which are articulated by the ICA in a statement in 1995, include self-help, selfresponsibility, democracy, equality, equity and solidarity
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They describe the kind of people cooperators strive to be and the traits
they hope to encourage through cooperation
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Cooperative principles on the other hand, are guidelines by which cooperatives put
their values into practice
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Before 1995, the ICA has made two formal statements of the cooperative
principles, in 1937 and 1966
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The principles are:

Voluntary and Open

Membership; Democratic Member Control; Member Economic Participation;
Ahmad Bello Dogarawa, Department of Accounting, Ahmadu Bello University, Zaria

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The Role of Cooperative Societies in Economic Development

Autonomy and Independence; Education, Training and Information; Cooperation
among Cooperatives; and Concern for Community
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They are democratic organisations controlled by their members, who actively
participate in setting their policies and making decisions
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Members contribute
equitably to, and democratically control, the capital of their cooperative
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Members usually
receive limited compensation, if any, on capital subscribed as a condition of
membership
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Also,
cooperatives are autonomous, self- help organisations controlled by their members
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They provide education and
training for their members, elected representatives, managers, and employees so they
can contribute effectively to the development of their cooperatives
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They also serve their members most effectively and
strengthen the cooperative movement by working together through local, national,
regional and international structures
...


Regardless of the type, size, geographical location or purpose, cooperatives provide a
unique tool for achieving one or more economic goals in an increasingly competitive
global economy
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Cooperatives operate very much like other businesses
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However, there are important distinctions that make cooperatives unique
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The three groups are: the persons who own them (the
shareholders, the investors), the persons who control them (the effective decisionmakers) and the persons who use them (the customers)
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In small private business the situation is
generally much better because of the close connection between shareholders
(investors) and control
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But still the users, the customers, are a separate group
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The diagrams below give a picture of the uniqueness of cooperative societies
1
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Small Private Business
PERSONS WHO OWN
PERSONS WHO CONTROL

PERSONS
WHO USE

3
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In public enterprise, the components of ownership, control and use are
separate and disjointed, in contrast to cooperatives, where they are unifies
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According to Taimni (1997), combating exploitation, reducing disparities, improving
social conditions and gender sensitivity, and helping to create a more just society with
pronounced concern for environmental protection and sustainable processes of
development all tend to make a cooperative a preferred and more socially desirable
form of organization
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The process of developing and sustaining a cooperative involves the
processes of developing and promoting community spirit, identity and social
organisation as cooperatives play an increasingly important role worldwide in poverty
reduction, facilitating job creation, economic growth and social development (Gibson,
2005)
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Since the users of the services they provide
owned them, cooperatives make decisions that balance the need for profitability with
the welfare of their members and the community, which they serve
...

Hence, cooperatives accord members opportunity, protection and empowerment essential elements in uplifting them from degradation and poverty (Somavia, 2002)
...

Ahmad Bello Dogarawa, Department of Accounting, Ahmadu Bello University, Zaria

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The Role of Cooperative Societies in Economic Development

In a number of ways, cooperatives play important role in global and national
economic and social development
...
They contribute to sustainable
human development and have an important role to play in combating social exclusion
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In addition to the direct benefits they provide to members, cooperatives strengthen the
communities in which they operate
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Many cooperatives provide jobs and
pay local taxes because they operate in specific geographical regions
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In Nigeria, cooperatives can provide locally needed services, employment, circulate
money locally and contribute to a sense of community or social cohesion
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Students could also be employed on casual-appointment basis
during long vacations
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Starting A Cooperative
Like other businesses, cooperatives start with the recognition of a need or an
opportunity
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Starting a new cooperative takes energy and resources
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Ahmad Bello Dogarawa, Department of Accounting, Ahmadu Bello University, Zaria

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The Role of Cooperative Societies in Economic Development

Because cooperatives are people-driven organizations, the first key to their success is
to identify individuals with like needs who want to explore the feasibility of forming a
cooperative business
...


The original group of individuals is usually potential users of the cooperative
...
They organize informational meetings
for other potential users and discuss topics such as: how the proposed cooperative
could meet identified needs, cooperative operational practices, advantages and
disadvantages of the cooperative business structure, member investment and financial
requirements, and member commitment needed
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Criteria used for selecting advisors should include: level of cooperative experience,
ability to work as a team, understanding of issues related to start-up organizations, and
objectivity
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Various authors, cooperators and cooperative consultants view
the steps differently
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In an attempt to ensure conciseness, precision and comprehensiveness, we
synthesise the various steps developed by these sources
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Hold an organizing meeting; establish steering committee
A core group of interested individuals should hold an informational meeting of
potential cooperative members and others in the community
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It
is important that the group come to general agreement on the nature and importance of
the problem and the potential for a cooperative to address it
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If sufficient interest is generated, a steering committee is selected from the group
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The steering committee meets regularly and reports its
activities and findings to the larger group
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Critical questions this step poses include: is there general agreement on the nature of
the problem? Does the cooperative form of business meet the group’s needs? Is there
sufficient interest among potential cooperative members to proceed with a feasibility
study? Are there individuals willing to serve in a leadership capacity? Sub-committees
on business plan, by-laws and policies, purchasing and construction, and personnel
could be formed
...
Survey on potential members
Under the guidance of the steering committee and resource persons, potential
cooperative members are surveyed
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3
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The purpose of a feasibility
study is to examine critical opportunities and obstacles that might make or break the
proposed cooperative business
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The critical
issues that a feasibility study analyzes include the number and interest level of
potential members; market issues (can the cooperative get better prices, better quality
Ahmad Bello Dogarawa, Department of Accounting, Ahmadu Bello University, Zaria

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The Role of Cooperative Societies in Economic Development

or better services than potential members currently get through other means?);
operating costs; start-up costs; and availability of financing
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Contributions by potential
cooperative members are often used to help cover the cost of a feasibility study
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The steering committee should hold a follow up meeting with potential cooperative
members to report on the results of the feasibility study
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The preliminary financial projections should tell the
group how much equity will be required from each member of the cooperative, and
whether or not the cooperative is projected to return any patronage refunds (shares of
the profits) to members during the first few years of operation
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This should be a major decision point
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4
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The business plan serves two
primary purposes: to provide a blueprint for the development and initial operation of
the cooperative and to provide supporting documentation for potential members,
financial institutions and other investors
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5
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These documents are: articles of
incorporation; bylaws and other legal documents
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The bylaws provide instruction on how the
cooperative will conduct its declared purpose and must be approved by the
membership
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The next thing would
be to incorporate the association
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As soon as the
cooperative is incorporated and thus exists as a legal entity, two or three members of
the steering committee should open a bank account in the cooperative’s name
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6
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The business plan should include the amount and type of financing needed
by the cooperative and a strategy for obtaining it
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Virtually all cooperatives require some level of member financing, usually in the form
of stock purchases or membership fees
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The steering
committee should prepare a membership application for new members to fill out and
sign
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Each member’s initial
Ahmad Bello Dogarawa, Department of Accounting, Ahmadu Bello University, Zaria

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The Role of Cooperative Societies in Economic Development

financial contribution should be collected at the time the membership application is
submitted
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Recruit members for the cooperative
During their organizational phase, many cooperatives hold meetings for potential
members, conduct surveys and mail organizing updates to them, and collect initial
down payments on membership fees
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Thus, when the time
comes to actually “ante-up” and join, potential members are more primed to act
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This should be a major
decision point
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8
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There are two major pieces of business that
must be conducted at this meeting: the members adopt the cooperative’s bylaws; and
the members elect a board of directors for the cooperative
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In their capacity as owners, members elect the board of directors to function as their
representatives in overseeing the administration of the cooperative
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As the members’
representatives, the board’s primary responsibilities are to develop policies, conduct
long-range planning, hire and supervise the cooperative manager, and guide the
cooperative in pursuing its mission and goals
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However, recruiting staff personnel is listed as a later step in the
cooperative formation process because the cooperative is not a definite “go” until the
necessary financing has been secured
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This approach also has the effect of
making investors feel more comfortable about financing the cooperative because
proposed management staff have been identified
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9
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Actual
operations may begin after all facility transactions are completed and the manager has
hired the needed complement of employees
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Cooperatives are subject to the same marketplace demands and planning
requirements as any business, including careful market analysis; sound business
planning; competent management; and adequate capital to start-up and grow
...
A
cooperative must not only meet its members’ needs, but also survive in the
marketplace while doing so
...
In almost all parts of the world,
cooperatives face one or more of the following crises: crisis of ideology, crisis of
capital, crisis of credibility and crisis of management (Taimni, 1997)
...
These are cultural
transformation, competition and expansion, wage solidarity, centralization and
reorganization, and programmes to increase productivity and participation
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Hence, to maintain their special character,
cooperatives must be two things in one: a business organization and a social
movement
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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 (Laidlaw, 1974)
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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
...
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
...


Assuming the validity of the sector concept (the "mixed economy", as it is often
called), cooperators face such questions as 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? Hence, one other challenge that cooperative societies face is the choice of
business most suitable for the enterprise
...
No business in a national
economic system is completely independent and self-sufficient but operates in
conditions of dependence and interdependence
...
Similarly the State and public
enterprise depend greatly on private enterprise, or on cooperatives
...
And, of course, the reverse,
cooperatives depending on private business in some way or other, is quite common
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They constantly operate in co-existence with other
forms of business and sometimes in conjunction with them
...
It must now
decide what place it means to claim for itself in the new economy, either organized or
in process of organization
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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
...
This
indeed has a lot of repercussion particularly in the developing economies and is
against the 6th principle of cooperatives: Cooperation among Cooperatives
...

Business earnings of the cooperative must be great enough to systematically rotate the
investment of members, pay patronage, and offer goods and services at reasonable
prices or pay fair market value for customer’s products
...

Ahmad Bello Dogarawa, Department of Accounting, Ahmadu Bello University, Zaria

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The Role of Cooperative Societies in Economic Development

To better tackle the above problems, Taimni (1997) suggested, in addition to fore
mentioned, that cooperatives should make optimum use of all resources and strive
continuously to enhance productivity of resources; ensure highest efficiency while
providing services to members; improve management capabilities and competencies
through effective organizational designs and structures; mobilize capital and lay
greater stress on internal capital formation and accumulation; develop and retain
human resources - members, leaders, staff and managers; forge strategic alliance with
key institutional actors in the new environments; evolve and sustain integrated,
vertical structures; increasingly focus on directly enhancing socio-economic
conditions of their members by undertaking value-added operations; encourage
members' participation through improved, diversified services; and strictly adhere to
the values of honesty, openness, caring and concern for community and environments
...
It however, calls for maintaining balance
between economic and social purposes, emphasizing differences, relating with other
cooperatives both at national and international levels, and maintaining a favourable
public image
...
Regardless of its purpose or membership, starting a cooperative
requires considerable time, energy, commitment, and technical resources
...
Potential members must devote much time and energy to developing their
new business
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A
strategic business plan is important to harmonize all of the elements for the
cooperative’s success
...
As business organizations, cooperatives are partly
private, partly public, but essentially different from both private enterprise and public
enterprise
...


Cooperatives must play the role of a Third Force, an alternative and countervailing
power to both Big Business and Big Government
...
The distinguishing feature of cooperative business is its dual
nature as economic enterprise and social organization
...
The best economic order is achieved through a mixed
economy
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Governments are expected to provide a supportive policy, legal and institutional
framework, provide support measures based on activities, provide oversight on terms
equivalent to other forms of enterprise and social organization, adopt measures to
improve access to finance for disadvantaged groups, and topically, to promote the
formalization of the informal economy
...


Ahmad Bello Dogarawa, Department of Accounting, Ahmadu Bello University, Zaria

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The Role of Cooperative Societies in Economic Development

References
Abell, P
...
(1994): Cooperatives: The People’s Business, Manchester UK: Manchester
University Press
Carroll, R
...
, Flores, X
...
(1969): A Review of Rural Cooperation
in Developing Areas, Geneva SUI: UNRISD
Cheney, G
...
23
Coté, D
...
, Fulton, M
...
(Eds
...
(1980): Philosophy, Principles and Ideologies of Cooperatives: What are their
Implications for a Vision of the Future? Saskatoon SK: The Co-operative College of Canada
Craig, J
...
(1996): New Generation Cooperatives, Madison: University of Wisconsin Centre
for Cooperative
Encarta (2005): Cooperative Movement, Encyclopedia Encarta 2005 Edition
Gertler, M
...
6
Hansmann, H
...
J
...
Fisher Unwin
Hoyt, A
...
uwcc
...
coop
...
(1941): Problems of Cooperatives, at www
...
wikipedia
...
F (1974): The Cooperative Sector, Columbia: University of Missouri
Ahmad Bello Dogarawa, Department of Accounting, Ahmadu Bello University, Zaria

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The Role of Cooperative Societies in Economic Development

Levi, Y
...
(2002): The Promotion of Cooperatives, ILO Cooperative Branch, at
www
...
coop/europe/ra2002/speech
RBCDS (1995): What Are Cooperatives? Washington: Cooperative Information Report
Schaars, M
...
(1978): Cooperatives: Principles and Practice, Madison: University of
Wisconsin Centre for Cooperative
Shaffer, J
...
London UK: The
Scarecrow Press
Somavia, J
...
ica
...
K
...
uwcc
...
en
...
org/wiki/cooperative

Ahmad Bello Dogarawa, Department of Accounting, Ahmadu Bello University, Zaria

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