LESSON TWO: FOUNDERS AND THEORIES OF CO-OPERATIVES

FOUNDERS OF THE CO-OPERATIVE MOVEMENT

Robert Owen

Robert Owen (1771–1858) is considered the father of the cooperative movement. A Welshman
who made his fortune in the cotton trade, Owen believed in putting his workers in a good
environment with access to education for themselves and their children. These ideas were put
into effect successfully in the cotton mills of New Lanark, Scotland. It was here that the first co-
operative store was opened. Spurred on by the success of this, he had the idea of forming "villages
of co-operation" where workers would drag themselves out of poverty by growing their own food,
making their own clothes and ultimately becoming self-governing. He tried to form such
communities in Orbiston in Scotland and in New Harmony, Indiana in the United States of
America, but both communities failed. His efforts bore fruit when the international cooperative
movement, launched at Rochdale, England, in 1844. Owen died on November 17, 1858, in his
home town of Newtown.

William King

Although Owen inspired the co-operative movement, others – such as Dr William King (1786–
1865) – took his ideas and made them more workable and practical. King believed in starting small,
and realized that the working classes would need to set up co-operatives for themselves, so he saw
his role as one of instruction. He founded a monthly periodical called The Co-operator,[9] the first
edition of which appeared on 1 May 1828. This gave a mixture of co-operative philosophy and
practical advice about running a shop using cooperative principles. King advised people not to cut
themselves off from society, but rather to form a society within a society, and to start with a shop
because, "We must go to a shop every day to buy food and necessaries - why then should we not
go to our own shop?" He proposed sensible rules, such as having a weekly account audit, having 3
trustees, and not having meetings in pubs (to avoid the temptation of drinking profits).

Charles Fourier
He should also be mentioned as an important influence. The Pioneers established the first consumer
cooperative, leading to a worldwide movement. They also experimented with a producer
cooperative, which soon failed.
Beatrice Webb
She was the author of The Co-operative Movement in Great Britain (1891).

The Rochdale Pioneers

In modern form, cooperatives date from 1844, then a group of 28 impoverished weavers of
Rochdale, England, founded a mutual-aid society, called the Rochdale Society of Equitable
Pioneers. As the mechanization of the Industrial Revolution was forcing more and more skilled
workers into poverty, these tradesmen decided to band together to open their own store selling food
items they could not otherwise afford. With lessons from prior failed attempts at co-operation in
mind, they designed the now famous Rochdale Principles, and over a period of four months they
struggled to pool one pound sterling per person for a total of 28 pounds of capital. On December
21, 1844, they opened their store with a very meager selection of butter, sugar, flour, oatmeal
and a few candles. Within three months, they expanded their selection to include tea and tobacco,
and they were soon known for providing high quality, unadulterated goods.
As its initial project, the society organized a grocery store, a venture that rapidly prospered. The
Rochdale Pioneers, as they became known, set out the Rochdale Principles in 1844, which have
been highly influential throughout the cooperative movement.The principles developed for the
guidance of this enterprise and others organized by the Rochdale Society have served, with
codifications in emphasis, as the basic code of the consumer cooperative movement since that time.

The successful example of cooperative business provided by the Rochdale Society, which also
established between 1850 and 1855 a flour mill, a shoe factory, and a textile plant, was
quickly emulated throughout the country.

By 1863 more than 400 British cooperative associations, modeled after the Rochdale Society, were
in operation. Thereafter the English movement grew steadily, becoming the model for similar
movements worldwide.
By the mid-20th century, it comprised almost 2,400 associations of all types. The Cooperative
Wholesale Society is the largest distributive agency in England upto date

Rochdale Principles
1. Democratic control – believed that each member was entitled to one vote regardless of their
total shares.
2. Membership open to all irrespective of race, creed, class, occupation or political affiliation.
3. Payment of limited interest on invested capital.
4. Distribution of net profits usually, savings or earnings,to co-operative members in
proportion to the amount of their patronage.
Supplemental Principles
The Rochdale Society developed a number of supplemental principles, which are generally
observed in contemporary consumer cooperatives. According to these:
a. Part of cooperative earnings are utilized to expand operations.
b. Non-members may become members by letting their share of net profits be applied towards their
initial share stock;
c. Goods and services are sold for cash at prevailing market prices;
d. reserve funds are regularly accumulated for the purpose of covering depreciation and meeting
possible emergencies;
d. Educational activities, designed to increase and inform the cooperative membership, are
systematically sponsored and conducted.
e. Other supplemental principles hold that labour must be fairly treated and that cooperatives should
work together

SCHOOLS OF COOPERATIVE THOUGHT

Various institutions and scholars have defined cooperatives in a very vivid and lucid way,
with the main thrust on collective needs, ideas, aspirations and effort to augment
members’socio-economic status by doing joint enterprises. However, there are different
schools of thought regarding the concept of cooperatives.
1. Leader-Manager School
This type of school directly follows the case studies of success stories.
Taking into consideration the research undertaken on Indian cooperatives, most of these case
studies have found exceptional leaders behind the exceptional success of these cooperatives
Critique: A good deal of work in this tradition stops at eulogizing the leader and her/his
contribution and offers little insight in the evolutionary process through which the leader
and the cooperative went through.
Some recent work have, however, analyzed these processes and provided useful
insights into the role of successful leaders.
Since good leadership is scarce but necessary in all manners of human behavior, this
approach emphasizes the subject of leadership success rather than addressing the concern
over the performance of cooperative organization.
2. The Cooperative Principles School
This school is concerned primarily with creating cooperatives which follow, as far as possible, the
International Principles of Cooperation proposed by the International Cooperative Alliance (ICA).
In brief, this type of school argues that any member organization can be called a cooperative only
if it follows the following six normative principles: (i) democratic governance with each member
having one vote; (ii) voluntary participation with membership open to anyone without any
restrictions; (iii) equity, whereby surplus generated gets distributed amongst members in
proportion to patronage of the cooperative’s service; (iv) fixed limited interest on capital
contribution by the members; (v) cooperation with other cooperatives; (vi) cooperative education
to propagate the cooperative ideal in the society;
Crtiques:
• This school of thought is conceptually simplistic and empirically somewhat hollow.
• It is tempting to believe that the noble and good in the world are
also strong and successful.
• In this school, thus, normative judgments replace testable propositions, and
conditional predictions are substituted by hope and assertion of ideological
beliefs.
These beliefs might in fact be correct empirical propositions. However, until a body of systematic
evidence shows them to be so, the cooperative principles schools will convey much exhortation,
but little examination and evidence.
For several decades now, these principles have provided the ideological basis to the world
cooperative movement. These principles are not ethical guidelines valid forever but a normative
code which must change with time.
This has now been underlined by an international movement that advocates rethinking and
reformulating them. Whatever may be the new principles, it seems best that these are propagated as
an end in themselves rather than just a means to an end as we cherish values such as nobility and
honesty in our lives for themselves rather than as a route to personal success.
3. Domain-Context School
This type of school has by far the greatest intellectual appeal and content. This school has
attempted to go beyond what is readily observable.
Underlying its arguments is the constant refrain that whether a cooperative succeeds or not
depends primarily on the socio- economic and political conditions of its
domain/environment rather than what the cooperative leaders and managers do.
Indeed, it implicitly suggests that the peculiar feature of the domain (environment) within
which the cooperative is embedded also governs the attitudes and behavior of the actors-
members, managers, leaders, etc.
4. The co-operative enterprise school/ Co-operative Yardstick School
This school of thought“pace-makers”or“co- operative yardstick school” is based on
definition that the co-operative society is a voluntary association of independent
economic units, farm, business and households, to form a business” organized,
capitalized and managed of and for its member patrons.
The primary objective of a co-operative society under these auspices is the
improvement of member’s economic interests and protecting and maintaining their
economic independence i.e (within the existing system) through pooling resources, and
thus achievement economic of scale.
The members usually see in their society one type of economic organization, among others,
best suited to their particular situation and needs in a competitive economic system.

5. The cooperative commonwealth school

The cooperative commonwealth school of thought found strong support in European
approaches to development of structure and had some influence upon a number of
early American pioneers such as Howard A. Cowden and Murray Lincoln (Gray et al.,
1997).
This school saw cooperatives evolving into the dominant form of business activity in
consumer and farm sectors, creating an economic and social order through utilization
of federations and other linkages between cooperatives and their allied support groups,
such as professional farmers associations and labor unions.
This school of thought is not satisfied with improvingthemember’seconomic position within the
existing economic system but wants, as a long –term objective, to eliminate the competitive,
capitalistic system and replace it by an economic system based on mutual co-operation.

6. The socialist co-operative school

It is based on the Marxist-lerin theory according to which co-operative can be an important step
in socialist progress.
It allocates to co-operatives the part of transitory stage which facilities transformation from
capitalism to socialism and eventually to communism, as part of the history process of
revolutionary development.
Under capitalism, you work for your own wealth. A socialist economic system operates on the
premise that what is good for one is good for all. Socialist systems emphasize equal distribution
of wealth among the people. Communism. In a way, communism is an extreme form
of socialism.
Under this aspect the co-operative society could be defined as the “economic and social
organization of the working people”, serving not only interest of the member but also social
progress’ which’ promotes, safeguards and realizes the interest an aspiration of the working
people”.

CO-OPERATIVE THEORIES
Olsons Theory
In general, the larger the cooperative, the less noticeable the actions of its individual
members, the higher the transaction costs of bringing them together, and hence, higher the
tendency to free ride. This is why large cooperatives frequently fail to provide collective
goods for their members.
Certain small groups can provide themselves with collective goods without relying on
coercion or any positive inducements apart from the collective goods itself. This is
because in some small groups each of the members, or at least some of them, will find
that her/his personal gain from having the collective goods exceeds the total cost of
providing the collective goods (Olson, 1971).”
An important implication of Olson’s theory for managing cooperatives is that if a
cooperative is very large and its membership heterogeneous, it should be divided into a
number of smaller cooperatives with relatively homogeneous membership and such
cooperatives may be federated into the mother cooperatives.
This is now being done in many milksheds in India covered by Operation Flood, where
more than one village milk producers’ cooperative society is established in large villages
to ensure the size of society is manageable and that members are, by and large,
homogeneous.
Transaction Cost Theory
The proponents of the Transaction Cost Theory view cooperative as a nexus of contractual
relationship among various stakeholders including farmer-members, board members, managers,
other employees and clients.
According to this theory, the main rationale for the emergence of cooperation is the
expectation on the part of potential cooperators that the cooperative will minimize the
transaction costs involved in doing their business and survival of a cooperative depends on
its ability to retain its competitive cost advantage vis-à-vis other alternative forms of
organization.
The transactions costs include the costs of gathering and processing the information required
to carry out a transaction, making decisions within an organization, negotiating contracts
with other parties, and drafting, enforcing, and monitoring the contracts.

Game theory
Game theoreticians look at the problem of cooperative behavior as analogous to various
types of game such as Prisoners’ Dilemma, Tender Trap, etc., and seek their redress in
terms of solutions of such games.The Prisoners’ Dilemma game is analogy of any
situations that prevail in the use of common pool resources (CPR) such as community
grazing lands, common pool surface and groundwater resources, marine fisheries,
community forests, etc. The Prisoners’ Dilemma has fascinated many scholars and its
analogy used to understand and explain so many complex problems related to the use of
CPRs.The outcome of the game is a paradox in that it shows that individually rational
strategies lead to collectively irrational strategies and thus poses a challenge to many
fundamental concepts in ethics, political philosophy, and social sciences.
The classic prisoners’ dilemma is a good theoretical construct that can be used to explain
why people do not cooperate and do not act collectively. It also points to the conditions
under which people might cooperate and act collectively.
There is quite a big school that subscribes to the proposition that charismatic leaders play a
very important role in bringing people together and organizing them around a common goal
or concern.Success stories of cooperatives, whose emergence and success are attributed
mainly to their charismatic leaders, around in the literature.