COOPERATION

THEORIES
LECTURE 4 NOTES
INTRODUCTION
• Different Schools of Thought which were based on ideologies over time
influenced development of cooperative theories.
• Classical cooperative theories looked at cooperatives as a social legal person, just
as a company or an IOF was being regarded as a commercial legal person. they
were looking at the cooperative just like a ‘black box’, without necessarily
inquiring what was happening in the box. They argued that a measure or a yard
stick which should be used to explain the cooperative phenomenon should be
that of an IOF.
• Theories which were developed on the side of the IOF include those that
regarded an IOF as a natural or artificial commercial entity theories. On the side
of the cooperative, they regarded it as just a social institution with no
commercial significancy.
THE ECONOMIC THEORY
• Economic Theory: Ivan Emelionoff (1942) Contends that cooperatives are
aggregates of economic units whose cooperative operations depend on the
interdependence nature of those economic units. While conventional
investor owned enterprises are focused on maximization of
shareholder return on capital, the interdependence nature of units in
the co-operative seeks to limit both the returns and the level of
ownership concentration. Thus, in a co-operative the focus is on an
equitable distribution of dividends based on patronage rather than
shareholding.
THE GAME THEORY
• Game Theory: Robert Alexrod (2004) Despite the individual’s
motivation for self-advancement in a game, which is premised on
competition, the threat of an action resulting in a counter-reaction by
the other actor will force both actors into a state of co-operative
behaviour out of self-interest if they realize that after several rounds
of playing the game cooperative movements of both result in making
both of them, the winners;
THE MUTUAL INCENTIVE THEORY
• Mutual incentive theory: Birchall and Simmons (2004) Individuals are
motivated to cooperate where they expect/anticipate similar
benefits/rewards in return from others (social exchange theories) or
in hesitation that if they do not cooperate members of the
community will retaliate by isolating them (social cooperation
theories):
THE SOCIAL CAPITAL THEORY
• Social Capital Theory: Putman (1993), Coleman (2000) Relational
interactions between individuals (whether legally based or otherwise)
built on mutual trust and reciprocity create a strong or powerful capital
which is a prime determinant of a successful economically
viable/developed institution, society or community.
• These relational interactions are built on: (i) structural social capital,
which reflects all objective or externally observable social structures to
govern social relationships such as contracts, rules, by-laws etc. and (ii)
cognitive social capital, which reflects more subjective and intangible
elements such accepted attitudes and norms of behaviors, shared
values, reciprocity and trust.
THE COOPERATIVE THEORY
• Jeffrey S. Royer (2011) argues that while most economic analyses of the
firm are based on the assertion that firms maximize profits for their
shareholders, there is no clear consensus about the objective of
cooperatives.
• In an IOF shareholders invest their money for the firm management use
to generate profits that should first and foremost be geared towards
shareholders profit maximization in the form of dividends.
• The purpose of the cooperative is to maximize services to its members,
maximize patronage refund to its members and minimize costs through
collective bargaining. The latter require active member participation, than
it is in the IOF.