COOPERATIVES: ENGAGING THE COMMUNITY TO ADDRESS THE CHALLENGES BROUGHT BY THE MIDDLE INCOME STATUSJOURNEY TO AND FROM THE MIDDLE INCOME STATUS – THE CHALLENGES FOR PUBLIC SECTOR MANAGERSAPRIL 24, 2014 | SHANGHAI, P. R. OF CHINA

Kevin C. Chua, Ph.D.Center for Economic Research, Shandong University

kchua@sdu.edu.cn

2Presentation Outline The cooperative option to development

Partners in promoting inclusive growth Delivering public goods and services in areas

the government and private sector cannot adequately provide

Linking the informal to the formal economy

Supporting an enabling environment for the growth of the cooperative sector

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The Cooperative Option to Development Facts and Figures on Cooperatives

Cooperatives are autonomous associations of persons united voluntarily to meet their common economic, social and cultural needs and aspirations, through a jointly owned and democratically controlled enterprise.

A billion members in 96 countries More than 100 million people employed (20%

more than multi-national enterprises) Livelihood of nearly 3 billion people made

more secure

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Significant memberships in the Asia-Pacific region

India: 242 million China:160 million Indonesia: 80 million Philippines: 12.6 million Viet Nam: 7.5 million Malaysia: 6.7 million Singapore: 1.4 million.

In Japan and Korea, more than 90 percent of farmers are co-operators.

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Table 1: Distinctions between Cooperatives, Corporations and NGOs Cooperatives Corporations NGOs Ownership Members Shareholders No legal owners Purpose To maximize

members’ benefits To maximize shareholders’ return on investments

To maximize beneficiaries’ benefits (excluding members)

Management Managed by members and elected officials (Cooperatives may hire qualified professionals.)

Managed by Board of Directors and management team

Managed by Board of Directors, paid professional staff and volunteers

Control and voting rights

One-member, one-vote Voting based on shareholdings

May lack internal democratic process

Income allocation

Income proportional to participation in the cooperatives

Income proportional to shareholdings

Non-profit

Funding Pooled members’ capital and income from operation

Shareholders’ equity, debt and income from operation

Public donation and grants

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Prof. Elinor Ostrom on Collective Action Design principles for successful cooperatives:

1. Presence of clear boundary rules2. Use of governing rules to match local needs and

conditions3. Member participation in making and modifying the

rules 4. Development of an internal monitoring system5. Use of graduated sanctions to punish offenders6. Accessible means for dispute resolution7. Minimal recognition of the right to organize by a

national or local government8. For large organization, the presence of governance

activities organized in multiple layers of nested enterprises

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There is a role for governments.

But too much interference do more harm than good.

Users of common-pool resources manage local resources more sustainably with own basic rules than with externally imposed rules.

Imposing a single set of rules on all governance units in a region is a threat to sustained collective action

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Partners in Promoting Inclusive Growth Delivering public goods and services in

areas where the government and the private sector do not adequately provide.

Success stories: Rural Electrification of the United States in the

1930s Denmark’s recent emergence as a leader in

renewal energy White Revolution in India starting in the 1970s

The Amul Model

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The Amul Model or the Anand Pattern of Dairy Development

Source: GCMMF website

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Cooperatives make good development partners:

Community engagement and community-based local solutions

Long term investment view in the community

Network of cooperation in the national, regional and village levels

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People-centered, not profit-centered, enterprises

Example: Spain’s workers cooperatives network, Mondragon Consumer cooperatives in Sri Lanka, Indonesia, Thailand and

Malaysia supplied rural areas even with not very profitable operations.

Help fill some of the gaps in public sector management Implementation and monitoring of national development

plan Established cooperative network in many countries in the Asia-

Pacific region Feedbacks on the ground to serve as input to the evaluation

of national development plan

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Linking the informal to the formal economy Members access formal financial services

through savings and credit cooperatives (SACCOs) and credit unions (CUs).

Roughly 45% of the branches of financial cooperatives are located in rural areas (only 26% with commercial banks).

Worldwide, 53,000 credit cooperatives serve over 857 million people; of which, 78 million are making less than US$2 a day.

Example: Sarana Bina Insani (SBI) Credit Union in Jakarta

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Agricultural cooperatives integrate farmers in the supply chain and provide ready market.

About 50 percent of global agricultural output is marketed through cooperatives.

Farmers are introduced to fair trade initiatives. Federations enter into formal credit arrangements

on behalf of members.

Example: Da Zhang Shan Organic Farmers Association (大鄣山有机茶农协会 ) in China’s Jiangxi province

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Choice avenue to pass new knowledge or technologies from research institutions and universities to local farmers

Explaining how tensiometers work during a meeting with a local Cooperative Society of farmers in India.

Photo courtesy of the Earth Institute, Columbia University

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Supporting an Enabling Environment for Cooperative Growth Nature of cooperative give rise to unique

challenges. Difficulty increasing capital base Unsustained membership interests Ownership too diverse Lack of professional management

Other challenges Poor leadership, lack of clear vision and goal Corruption Capital shortage and barriers to credit Intense market competition State interference or the absence of cooperative laws

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Some general points that the government can consider in supporting the sector:

Balance between self-organization and regulation

Consistency across laws and policies Public education and leadership development Capacity development and support services Financial support for fixed capital and asset-

building purposes

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Thank you for listening!