Are co-ops still social enterprises?
The British claim they invented industrial age social enterprises, referring to the births of the co-operative model in 1761 and the Rochdale movement in 1844. Other social sector movements such as community and faith-based enterprises may have had longer histories but let’s not dwell too much on the historical debate for now. Let’s take it at face value that co-operatives are the oldest forms of modern social enterprises. After 250 years, are co-ops still social enterprises today? Are they still autonomous, member-owned, member-run, member-serving and democratically-controlled businesses that follow the original co-op principles and aspirations?
Social enterprises belong to a loose and baggy sector that has been given a number of different names. Among them are Third Sector, Citizen Sector, People Sector, Social Sector, Civil Society, Big Society, Voluntary Sector, Joint Sector, Solidarity Economy and Social Economy. Other members of this varied sector include charities, philanthropists, NGOs, non-profits, community organisations, associations, clubs, common-interest groups, faith-based institutions, provident societies, mutual societies, co-operatives and credit unions.
The term Third Sector appeared around 50 years ago and is used to distinguish the sector from the 2 more familiar sectors – the public or government sector and the private or capitalist sector. The public or government sector is driven by politics and feudalism, the private sector is driven by profits, capitalism and wealth creation, and the third sector is generally driven by social value creation for the people at the lower end of the pyramid. Experience of the last 300 years has shown that the public and private sectors can’t serve the economic and social needs of the disadvantaged as good as the third sector.
The Rochdale Society co-ops were created for the benefit of the disadvantaged and underprivileged people at the lower end of the pyramid – poor workers, farmers, artisans, villagers, laid off factory workers, lower working class, etc. whose needs were not being served by the free market economy or who were victims of exploitation by unethical commercial and industrial firms. To pursue their collective economic and social agenda, the co-op pioneers crafted a democratic mutual-help or solidarity business model and the principles of co-op economics as an alternative to capitalism and feudalism.
Armed with the co-operative principles or the Rochdale Principles, the poor and disadvantaged in the 19th and 20th century Britain got together and pooled their resources to run co-op grocery stores, mills, factories, plants, and other co-op ventures to provide affordable goods and services to their members. The co-ops put a high value on ethics and social responsibility. They treated their workers fairly and organised educational activities for the benefit of the members. In addition to paying lower prices for goods and services, members received their share of profits, and had a say in how the co-ops were run.
From a humble beginning some 250 years ago, the co-op movement has grown by leaps and bounds and spread across the globe. Major co-op enterprises in the world today include national network of retailers and wholesalers, agriculture and food conglomerates, diversified global trading groups with global operations and global supply chains, large industrial and utility groups, and big players in banking, insurance and healthcare. Co-ops are present in almost every economic sector with over 1,300 co-ops generating a turnover exceeding US$100 million.
The global co-op movement now has 2.6 million co-ops, 1 billion members, supports the livelihood of 3 billion people and provides employment in various categories to 250 million people. The largest 300 global co-ops generate a combined turnover of US$2.2 trillion (over half of it from financial services. I’m not sure if they add the right numbers for banking and insurance businesses, e.g. insurance premiums are not turnover, and the largest co-op is an insurer).
True co-ops are very different in many aspects from capitalist firms. Due to historical background, virtuous qualities such as ethics, responsibility, equality, autonomy, democratic control and solidarity are deep-rooted in the values and practices of the co-op movement. To stay relevant in an ever changing world, the custodian of the co-op principles, the International Co-operative Alliance (ICA), has over the years made a number of tweaking and fine-tuning to the original co-op principles. However, the ICA may not have in place a comprehensive compliance programme to ensure that co-ops remain true to the co-op values and principles or perhaps a certain degree of compromise is unavoidable for the sake of good sector statistics.
Co-ops during the time of Robert Owen, William King and their peers were about getting the poor out of poverty and improving themselves through education, about the weak getting together to form solidarity groups to be economically self-reliant and to improve their quality of life, and about the poor, underprivileged and disadvantaged creating their own social solidarity economy as an alternative to the capitalist free market economy. Members were active economic participants and had close association with their co-ops either as workers and family members or as customers. Co-ops and their members were mutually dependent. Members trusted co-ops highly and co-ops clearly put people over capital.
However, many co-ops today are more like clones, replicas or imitations of capitalist business models in disguise. Larger ones with institutionalised or hybrid ownership structures and operating in highly sophisticated or regulated markets, tend to operate and behave like capitalist firms and share the same master – profit, return on capital and dividend payout, and big bonus for the management. It’s capital over people. They no longer have real autonomy. The ‘one member, one vote’ or democratic control is no longer practical as investors, regulators, capital markets, customers and competitors rank higher in the food chain. Co-op members have become passive shareholders and micro-investors by different names. After what happened to The Co-op Bank and its (then) parent The Co-op Group, and Fagor, part of Mondragón, the co-op movement should revisit the spirit, struggle and aspirations of the co-op pioneers.
In Malaysia, there are over 11,000 co-ops with over 8 million members. The largest co-op, Bank Rakyat is controlled by the government and regulated by the Central Bank. Members are passive shareholders or desperate borrowers who are highly unlikely to have a say in how the bank is run. Although it is a co-op bank (at least technically) it does not lend much to the co-op sector. The second largest co-op, Koperasi Felda operates as an investment vehicle. It is highly improbable for Felda settlers to have a say in the co-op’s investment decisions. There are many more co-ops like Koperasi Felda that invest in other businesses rather than running their own. Credit co-ops are among the bigger co-ops but they operate like are ah longs, charging high interests on money lent to uncreditworthy members. There are politically-linked co-ops whose business ethics and practices are questionable. There are racial and political-based co-ops that practice racial and political discrimination.
The Malaysian co-op sector has had far more scandals and hot air than success stories. Rochdale values and principles are still alien to the Malaysian co-ops that have been around for over 90 years. That probably explains why Malaysia is unable to create a successful consumer co-op with 30 million population whereas Fairprice can make it to the top 300 global co-ops with Singapore’s 5 million population. Despite the very big number of co-ops and members, the sector’s contribution to the GDP is insignificant. Half of the sector revenue and 80% of the assets are attributable to Bank Rakyat.
I propose that many co-ops are no longer genuine social enterprises or do not really belong in the Third Sector. Some are just fake co-ops. Social impact does not appear to be very important to them, it’s not their primary KPI and they don’t measure it. They seem to be disconnected from the struggle and aspirations of the co-op pioneers. Or they may be suffering from identity crisis or personality disorder. Or they may have lost their way or made a deliberate decision to abandon the aspirations of the Third Sector.
