For a More Progressively Evolving Society

Monday, March 18, 2013

Cooperatives: Alternative Economic Structures and Business Enterprises

Alternative Economic Structures and Business Enterprises
By Dieter Dambiec

The basic reason for having cooperatives as a form of economic enterprise in an economy is to help people work together and move forward in a collective way.  Cooperatives are considered to be the best form of economic enterprise because they are capable of seeking a balanced adjustment between collective spirit and individual rights.  Dieter Dambiec summarizes Prout's views on cooperatives.

Cooperation means getting things done with collective effort.  The benefit  of cooperatives is that they combine the wealth and resources of many  individuals and harness them in a united way.  To help achieve this,  however, cooperatives should be structured so that individual interest  does not dominate collective interests.  Individual dominance can  adversely effect the welfare of different social groups and the  environment.  

Essence of cooperatives
Cooperatives as a form of economic enterprise involve getting things done between free human beings with: 
(i) equal rights; 
(ii) equal human prestige (and mutual respect for each other); 
(iii) equal locus standi (eg, legal standing) so that everyone's welfare  is considered.  

This is called "coordinated cooperation" and is needed for equilibrium  and equipoise in social life.  A socio-economic system should be based on  coordinated cooperation not subordinated cooperation.  

"Subordinated cooperation" involves people doing something individually  or collectively, but at the same time keeping themselves under other  peoples' supervision or control.  This can degenerate the moral fabric of  an enterprise and should be avoided when structuring cooperative business enterprises.

More evolved than communes
A collective economic enterprise that lacks coordinated cooperation as  its primary mode of functioning is a commune or communist system.  It ends up being based on subordinated cooperation and the predominant  relationship is that of supervisor and supervised or master and servant.   According to Prout founder P.R.  Sarkar, these relationships are ultra  vires to the psychological needs of the human mind and retard progressive movement.  

Such systems force production down, not increase it.  This is because  workers do not feel oneness with their job, nor do they have freedom to  express all their potentialities.  Communes or collectives in communist  countries were not cooperatives.  They were simply production distribution mechanisms under a regimented system of control.  

The major distinctions between communes and cooperatives are: 
(i) Communes lack personal ownership; this is one reason for their  failure.  Without a sense of personal ownership people do not work hard or care for property.  Suppression of personal ownership sentiments results in sluggish production and psychic oppression.  In cooperatives, to  compare, there is personal ownership, subject to social limitations on  concentration of wealth but also part of a mechanism to ensure  progressive increase in everyone's living standards. 
(ii) Communes lack a proper incentive system, which discourages  individual initiative by talented people.  The result is that people do  not work hard.   
(iii) Organisational behaviour and outlook in communes tends to be  materialistic and the imposed leadership crude and unsophisticated.

More responsible than capitalism
Cooperative economic enterprises must also avoid becoming capitalist in  nature.  A key feature of capitalism is the import of raw materials from  other countries or regions in order to manufacture finished products.   Cooperatives must not encourage this form of economic imbalance.  An  economy based on cooperatives must develop its own raw materials through research so that cooperatives are not dependent on foreign raw materials.

For example, apple orchards (raw materials), sericulture, apple  processing, packaging, transportation and marketing should all be  regarded as part of the farming industry of a region and function as  cooperatives.  

However, in capitalism raw material producers like farmers, timber  growers, fishing fleets, etc.  have to sell their produce immediately  through large commodity exchanges or multinational companies in order to pay off loans for irrigation, seeds, labour, equipment, etc.  Because  capitalist enterprises control markets for these raw materials, producers  often sell at lower prices than they could get under other arrangements.   A good example of the squeeze on primary producers' income by capitalist enterprises can be seen in the steep decline in wool prices in Australia over recent years.  Commodity exchanges and multinational corporations act as or dominate raw materials markets to the detriment of their suppliers.

In a cooperative system, raw materials producers like farmers would not  be faced with the same financial pressures, and so not be forced to sell  produce immediately after harvesting at sub-market prices.  By advancing  money to individual farmers, cooperatives will allow farmers to better  control the conditions of sale and thus enjoy more financial security.

A properly conceived and structured cooperative should be capable of: 
(i) determining how much to sell;  
(ii) determining the most favourable time to sell in order to get the  best price; 
(iii) fixing the price of its own produce within certain price limits.   In this way cooperatives will get the profit which is presently taken by  middlemen and profiteers in the capitalist system.  

In a cooperative farmers sell their produce to the cooperative at a rate  fixed by the cooperative.  When the market price is reasonable the  cooperative sells the aggregate.  The farmers then receive their  percentage of the profit, which will be proportional to the amount of  their land shareholding in the cooperative.  At least this can be an  initial arrangement.  

Membership requirements
Cooperative members have to be local people who, by virtue of their  established residence, can make a commitment to the cooperative and the region it services.  Therefore the problems of a floating population and immigrant labour which may disturb the economy by increasing the  availability of labor will not occur in a cooperative system.  The  requirement of a worker's or shareholder's longer term commitment to the  cooperative means there is no scope for floating labourers to be  cooperative members.  Elimination of immigrant labour will also protect  the social life of the cooperative from possible adverse social  influences created by mobile populations.  

Anyone who wishes to be part of the socio-economic life of a region,  however, can settle there and become a member of local cooperatives.  

Sarkar further states that in the cooperative system unemployment will be solved.  This is because as production increases the need for more human resources and for the construction and operation of more facilities will also increase.  Educated people can be properly employed as skilled  workers.  There will also be a need for tractor drivers, labourers,  cultivators, etc.  who as cooperative members will naturally do this work.   In times of economic downturn everyone's labour will be proportionately  reduced so that no one suffers the stigma of being unemployed.  In this  way economic downturns will always be short and temporary.  

Sarkar is confident that cooperatives will solve the unemployment problem and states that in the cooperative system there should be no compulsory date for superannuation.  People should be free to work as long as they like providing their health permits.  This is in contrast to some government policies which encourage older people to retire in order to make room for younger people.  Following is a look at other aspects of  Sarkar's cooperative concept.  

Workforce composition
All groups in the cooperative workforce will benefit from the  cooperative's profits.  The members of a cooperative will be composed of: 
(i) shareholders - who receive salaries for their work plus a return on  their shares; 
(ii) non-shareholders or labourers - who enjoy stable employment and  favourable wages.

Non-shareholding labourers can be further categorized into those who are: 
(i) permanent labourers - who get bonuses and premiums (dividends) as  incentives besides their wages; and  
(ii) casual or contract labourers - who only get wages for their labour.  

Labourers or workers also include those who are engaged in cooperative  management.  They will be entitled to draw dividends and salaries on the  basis of their membership in and services they render to the cooperative.  

This structure allows cooperatives to develop a proper incentive system  so that individual initiative by talented people is encouraged.  An  incentive system should ensure that intelligent people are not forced to  do work which is unsuitable for them, or be paid the same wages as  ordinary workers.  If skilled workers get paid more than unskilled workers  there will be an incentive for all to become skilled and work harder.  In  this way the cooperative will encourage the educational and skill  upgrading of its members.  

In addition, workers who give the greatest service to the cooperative  should get the greatest bonuses.  Bonuses should be paid in proportion to  wage rates and should reflect both the skill and productivity of the  worker.

Shareholder composition
Members who purchase shares in a cooperative should have no power or  right to transfer their shares without the permission of the cooperative.   Such a pre-emptive right allows existing shareholders to determine the  basis of membership, and prevents capitalist entrepreneurs from  purchasing large numbers of shares in a cooperative and speculating in  the market.  Speculative activity can easily lead to a depression and this  will of course effect the cooperative.

Shares can however be inherited.  The shares of cooperative members  without descendants simply pass on to their legally authorised  successors, who become members of the cooperative if they are not already members.  Different countries have different systems of inheritance, so the right of inheritance should be decided according to the system in vogue.  In western common law countries if someone inherits shares in a business enterprise and does not want to become a member of that enterprise, existing shareholders simply buy that person out.  Presumably the same reasoning can be applied to cooperatives.  Following this arrangement will help cooperative members avoid litigation.  

Because cooperative members will be from the same vicinity they will all  know each other, so there should be no difficulty in deciding who should  be able to buy such shares due to ignorance about potential shareholders.

Disadvantaged persons can also benefit from the cooperative system.  A  widow, disabled worker or minor can all own shares and derive an income  based on the number of shares they own.  Therefore even if as cooperative members are unable to work, they will still be entitled to an income from cooperative profits.  Establishing such a structure on a large scale should be able to do away with the welfare state mentality prevalent in capitalist societies.

Dividend distribution
In a cooperative system there will be no preference shares.  Today  preference shares are used by some financial institutions as a substitute  for debt investments (ie., loans to businesses).  Preference shares really  mean that a lender in the guise of a shareholder has first grab at co-op  dividends and therefore co-op profits.  Such investors should become  ordinary shareholders like other co-op members and share proportionately  in the success (or perhaps otherwise) of the co-op.

Cooperative management
Cooperative members should elect a board of directors from amongst the  cooperative members.  The position of director should not be honorary.   Directors must be moralists.

The board decides the amount of profit to be divided amongst members,  ie., the dividend to be paid to each shareholder.  However, not all profit  should be distributed in the form of dividends.  Some should be kept or  used for: 
(i) reinvestment, purchasing capital items or repair and maintenance;  
(ii) increasing the authorised capital of existing shareholders; 
(iii) deposit into a reserve fund to be used to increase the value or  rate of dividends in years when production is low.  This also ensures that  shareholder capital is not adversely affected.

Farmer cooperatives
All people have the right to be guaranteed minimum requirements such as  food (including water), clothing, housing, education and medical care.   These basic requirements should be cooperatively produced because they are essential collective requirements.

The importance of food means there has to be maximum and safe utilisation of agricultural land.  The best way to achieve proper organisation of agriculture is on a cooperative basis, as will be seen.

Land is very important in the psychology of farmers so a proper  cooperative system has to be built up to give farmers a sense of  ownership of their land and permanent usufructuary rights to the land  while it is managed cooperatively.  This will also give a better outturn.   The cooperative system has to be psychological and subtle so that farmers do not feel adversely affected or insecure.  

This can be achieved by farmers pooling their land in cooperatives and  keeping records of their shares based on the size of their individual  land holdings.  In this way many small plots can be merged and boundaries for adjoining lands broken down, removing needless division of land into small individual holdings.  This allows for an increase in the area of land available for cultivation, benefiting farmers collectively.

Small plots are also detrimental because farmers have to lease their land  to someone who can cultivate it as an aggregate, as in the share cropping system.  This results in lower (if any) return to the farmer.

In the cooperative system there is also great scope for agricultural  research and development into new ways to better utilize and prolong the vitality of land.  The ill effects of chemical fertilizers, which are  common in individual farming and relatively unavoidable because of lack  of individual capital, could be minimized or eliminated.  

Phase-wise socialisation
Sarkar's theory also advocates the gradual socialisation of all  agricultural land according to a phase-wise plan.  Socialisation does not  mean nationalisation or loss of an ownership interest as in the commune  system.  

A main objective of socialisation is to ensure that everyone's economic  needs can be met (particularly by having enough purchasing power to get access to the basic necessities of life).  It also ensures that there is  maximum utilisation and rational distribution.  Another objective of  socialisation and the phase-wise process is to allow for individual  psychic expansion, with a consequent change in collective psychology, so as to create a more congenial social environment in which people learn to think for the collective welfare rather than for their own self-interest.  

Four Phases

In the first phase all uneconomic land holdings should be taken over by  cooperative management for the benefit of those who own the land.  

In the second phase all landowners should be requested to join the  cooperative system.  

In the third phase there should be rational distribution of land and  redetermination of ownership.  It appears that in this phase questions  such as the excessive concentration of wealth are to be fully addressed  after having instilled in people's minds the purpose and practice of  cooperatives.

In the fourth phase conflict over land ownership should disappear.   Therefore after land has been vested in the cooperative and ownership of shares determined (as well as a proper policy of distributions of  dividends to shareholders and wages to workers determined), conflicts  amongst landowners and landless rural workers will no longer exist.

Initial stages
In the initial stages (phases 1 and 2) agricultural cooperatives can be  formed by farmers consolidating their lands into a cooperative and having  shares in the consolidated holding in proportion to the amount of land  they put into the cooperative.  For example:  

Shareholding %

Adjustments to this simple structure will be required where the number of  shares has to be allocated to take into account the productivity of the  land.  For example, if a farmer has 20 hectares of land of which 10  hectares are highly productive and 10 hectares are of low productivity,  the share allocation to that farmer should take into account the  differences in productivity accordingly.  

Profits from crop sales by the cooperative should be shared in proportion to: 
(i) the number of shares each shareholder has in the cooperative; and 
(ii) the labour rendered for crop production.   In this way farmers receive profits according to the number of their  shares in the cooperative and their labour.  

The system is flexible so that landowners who do not want to work in the  cooperative will still have their land included in the cooperative and be  considered cooperative members.  They will get shares based on the size  and productivity of their land but if they do not want to work they will  not be entitled to wages.

Producer cooperatives
Cooperatives which are strictly agricultural, in Sarkar's system, should  sell their produce to producer cooperatives, which in turn can  manufacture a wide variety of consumer goods.  

Raw materials which are of non-farming origin, such as limestone for the  production of cement, should also be processed by producer cooperatives.  

Thus, producer cooperatives need to be formed for agro industries, agrico industries and non-agricultural industries.  

The total profit of such cooperatives should be distributed amongst the  workers and members of the cooperative according to their individual  capital investment (shares) in the cooperative and the service (labour)  they render to the production and management of the cooperative.

Farmer-producer cooperatives
Farmers in agricultural cooperatives may also create producer  cooperatives to produce items for various industries.  Thus, some  cooperatives may function as both farmer and producer cooperatives.  

Farmer cooperatives which also function as producer cooperatives have the opportunity of increasing their profitability in various ways.  For  example, producer cooperatives functioning with agricultural cooperatives  could produce rice as well as oil from the husks.  

Consumer cooperatives
Consumer cooperatives will distribute consumer goods to members of the  public at reasonable rates.  These cooperatives should be formed by  persons having an interest in selling goods to the public (ie., not  hoarding), and will share profits according to the standard criteria of  individual labour and capital investment (shares).  

Consumer cooperatives will be supplied by both agricultural and producer  cooperatives.  For example, agricultural or producer cooperatives which  produce cotton or silk thread will sell the thread to weaver cooperatives, which can produce cloth using the appropriate or latest technology.  Weaver cooperatives will in turn supply consumer cooperatives that sell the cloth to the public.  

Commodities which do not go directly from agricultural cooperatives to  consumer cooperatives will be produced by producer cooperatives.  These  non-farming commodities should be compulsorily produced by producer  cooperatives.  

This arrangement will prevent artificial shortages or the non-supply or  unavailability of essential goods and commodities.  This can cause  suffering to ordinary people who have little means for circumventing  these problems.

This structure also ensures there is no accumulation of essential  commodities by capitalists for the purpose of maximizing profits, or  price inflation in essential commodities.  If the distribution of  essential commodities is done through consumer cooperatives linked with  producer cooperatives, middlemen and profiteers will be eliminated.  

Service cooperatives
These are special cooperatives which should be formed by people involved  in service-type industries, such as doctors.

Satellite cooperatives
PROUT advocates the formation of many small satellite cooperatives to  supply various items to large producer cooperatives.  For example  different parts of a motor car can be locally manufactured in small  cooperatives (and even carried out at home as cottage industries).  The  main function of the producer cooperative will be assembly.  This has two  benefits:  
(i) large cooperatives will not require many labourers, minimizing labour  unrest; and  
(ii) labour costs will be reduced, keeping the cost of commodities low.

Electronic commerce and digi-cash will make it easier to establish  cottage industries because links can be made electronically between  various satellite coops, avoiding many costs and delays potentially  arising from decentralized production.

The question of transportation of goods or parts still needs to be  addressed.

The state and cooperatives

Taxes, levies, excise duties, etc.  should be paid collectively by the  cooperative, not individuals.  This frees individuals from financial  pressure and economic exploitation through personal taxation systems.  

The primary source of taxation revenue in a PROUT system would appear to be at the point of production.  This makes sense in that enterprises which make first use of resources have a social responsibility to ensure proper utilisation and rational distribution; taxation imposes some restraint to ensure this responsibility is carried out.

Trademark regulation
A useful device that can stop black-marketing or the sale of stolen goods  is trademark law.  Laws can be passed which prevent the sale of goods  without the producer co-op's trademark.  Thus, if black marketeers try to  sell any clothing without trademarks, they can be caught easily.   Trademarks specifying cooperative ownership will also help the public  support the cooperative movement.

Essential commodities
Commodities can be divided into three categories: 
(i) essential commodities, like rice, pulse, salt, clothing, etc.  People  are willing to borrow money to buy these; 
(ii) demi-essential commodities, like oil, antiseptic soap, shoes etc.;  and  
(iii) non-essential commodities, like luxury goods.  

The number of items of essential commodities should be continually and  progressively revised and expanded with changes in time, place and  preferences.  These revisions should be made by the government and not by the board of directors of a particular cooperative.  What is considered a demi-essential commodity today may be treated as an essential commodity tomorrow.  Demi-essential commodities which may be affected by artificial shortages, causing suffering to common people, should be produced by producer cooperatives.  The production of luxury goods can be left in the hands of the private sector.  Essential commodities or services of a non-farming nature which require large capital investment, like the railway system, should be government managed.  

During shortages of non-essential commodities ordinary people will thus  not be affected.  

Pressure groups
Farmers in agricultural cooperatives should be able to exert collective  pressure on local, state or federal governments for different benefits  and facilities.  For example, government assistance may be needed to  develop an irrigation infrastructure.

Scientific advancement
As science advances, cooperatives will develop and manufacture a great  variety of commodities from synthetic raw materials.

Socio-economic units lacking sufficient supply of raw materials will have  to manufacture synthetic raw materials.  Suppose a unit or region lacks an  adequate supply of fodder to feed its cattle, sheep, etc.  Will it import  fodder from another unit or region?  No, it should manufacture artificial  fodder instead.  Similarly, it takes a substantial volume of cotton to  produce one "dhoti" (the traditional garment worn by men in northern  India).  To transport large amounts of cotton also requires much energy,  and so if it is not readily available, synthetic fabric can be produced  instead.

Thus through the cooperative system human society will progress with  accelerating speed, ushering in a new revolution in science and causing  the intellectual capacity of human beings to increase.  Every nook and  corner of natural and human potential will be properly used.  In this way  progress and development can be maintained in every field of life.  

To encourage common factors and discourage all fissiparous factors in the  physical realm, human sweetness is required.  The best expression of human sweetness in the socio-economic world is the cooperative system.

Dieter Dambiec practices law in Australia and New Zealand.