ARTICLE: THE IMPACT OF COOPERATIVE SOCIETIES IN ECONOMIC DEVELOPMENT OF A COUNTRY
INTRODUCTION
In
short, a cooperative society can be defined as "a jointly owned enterprise
engaging in the production or distribution of goods or the supplying of
services, operated by its members for their mutual benefit, typically organized
by consumers or farmers." Cooperative businesses are typically more
economically resilient than many other forms of enterprise, with twice the
number of co-operatives (80%) surviving their first five years compared with
other business ownership models (41%).Cooperatives frequently have social goals
which they aim to accomplish by investing a proportion of trading profits back
into their communities. As an example of this, in 2013, retail co-operatives in
the UK invested 6.9% of their pre-tax profits in the communities in which they trade
as compared with 2.4% for other rival supermarkets. The International Co-operative Alliance was
the first international association formed by the cooperative movement. It
includes the World Council of Credit Unions. A second organization was formed later
in Germany, the International Raiffeisen Union. In the United States, the
National Cooperative Business Association (NCBA) serves as the sector's oldest
national membership association. It is dedicated to ensuring that cooperative
businesses have the same opportunities as other businesses operating in the
country and that consumers have access to cooperatives in the marketplace. A
U.S. National Cooperative Bank was formed in the 1970s. By 2004, a new
association focused on worker co-ops was founded, the United States Federation
of Worker Cooperatives. Since 2002 cooperatives and credit unions could be
distinguished on the Internet by use of a .coop domain. Since 2014, following
International Cooperative Alliance's introduction of the Cooperative Marque,
ICA cooperatives and WOCCU credit unions can also be identified by a
cooperative ethical consumerism label.
IMPACT OF COOPERATIVE SOCIETIES
ECONOMIC DEVELOPMENT OF A COUNTRY
Corporate
power is a function of size for several reasons. First, larger companies are able to affect
the political process through lobbying. A long literature documents the effect
of lobbying by large corporations on political outcomes (Hillman et al., 2004).
Second, larger companies are able to shape consumer preferences through
spending large amounts of money on advertising. Third, larger companies are
able to exercise more power over employees and establish new labor practices,
especially in areas with high unemployment and as a result few outside options
for employees. Foxconn, the Chinese manufacturer which has been repeatedly
criticized for its labor practices, is still a preferred employer among Chinese
workers (Eccles et al., 2011). More generally, large corporations have been
shown to shape culture and society by establishing hierarchies and as a result
imposing a power structure in society (Perrow, 2002). The hypothesis that size
is associated with power is consistent with larger companies having higher
profitability margins, such as Return-on-Equity, experiencing slower mean
reversion in profitability (Healy et al., 2013), and increasing more their
profitability margins by the development of the financial system (Lundholm et
al., 2013). However, the people that the Global 1000 reaches, through its
operations and products, have a diverse set of interests in their roles as
employees, consumers, investors, and community members. Consumers want high
quality products at reasonably low prices. Employees want job security coupled
with fair compensation. Investors want a good return on the money they invested
in the company. Local communities want an undisturbed environment and some
compensation for giving the company a license to operate in their area. The
larger a company the more diverse are the interests of the different
stakeholders. For example, a company that produces locally and sells in the
same geographic region is likely to find its stakeholders have aligned
interests since many of its customers will be part of the local community and
also potentially employees. However, in the case of an oil and gas company that
extracts oil in Equatorial Guinea and sells downstream in the US the interests
of customers, employees, suppliers
and
local communities are likely to diverge significantly. It should come as no
surprise then that as a company becomes larger and exercises more power over
individuals with a greatly diverse set of interests, conflict erupts between
the individuals that wield the power and those subject to it. As there is a
continuous desire for power, there is also a continuous desire to make that
power the servant of the individuals affected (Berle and Means 1932).
As
we will see in the next section, it is readily observable across the world
that, in varying degrees of intensity, civil society is trying to subject
corporate activities to a test of public benefit. And with just a few
corporations comprising most of the economic activity, it has become easier to
locate and hold them accountable for their effects on society. However, the
ability to locate a corporate actor is a necessary but not sufficient condition
for civil society to increase pressure on corporations, especially given the
largely trans-national nature of the Global 1000 corporation. Civil society
must also have the resources and capability to exert this pressure. By looking
at the data, we can see that national and trans-national nongovernmental
organizations (NGOs) representing civil society have grown in power and
influence. NGOs in 26 countries account for 31 million employees, or almost 7 percent
of the total workforce of those countries. Annually, NGOs in these 26 countries
spend about $1.2 trillion, almost as much as the largest
1,000
companies of the world spend in capital expenditures. In emerging economies,
such as India, Brazil, and the Philippines, where traditionally local NGO
presence was weak, more than 200,000 NGOs were registered in 2007.12
As
a result of their expanded financial and human resources, NGO campaigns against
specific corporations or against whole industries are becoming more
sophisticated and more effective. These campaigns can have a significant effect
on a company by damaging its brand and decreasing its social capital. Many of
them have prompted regulatory actions that have affected the cost of doing
business, while others have shifted customer attitudes, thereby affecting
companies’ revenues. At the extreme, they have put the license to operate of
companies or even entire industries at risk.13In addition to large financial
and human resources that have increased campaign effectiveness, two other
trends have allowed NGO campaigns to become more effective. One is information
technologies, such as the internet and social media, which allow fast, low
cost, and wide dissemination of information. The ability to quickly and cheaply
disseminate information has enabled NGOs to inform people around the world
about their campaigns and to mobilize large numbers of people to participate in
protests and boycotts. The second is the ‘trust premium’ enjoyed by NGOs. In
many public opinion surveys, NGOs are ranked as one of the most trusted
institutions in society, with this trust premium increasing over time as trust
in business and government have declined. While the Global 1000 is increasingly
under pressure to assume responsibility for its societal impact, accountability
for corporate conduct is rarely asked by the shareholders of the Global 1000.
Shareholders are hard to locate and be held accountable due to dispersed
ownership structures and the surrendering of
control
of these corporations. As of 2011, the ten largest institutional investors in
the world collectively held 27.1 percent of the outstanding shares, on average,
across Global 1000 companies. None of these investors holds more than five
percent in any of the companies and few if any would qualify as active
investors that engage and affect the management of the operations of the Global
1000; rather they are passive owners that tend to view equity holdings as
temporary investments. The rest of the shareholder base is widely dispersed
with none of the investors holding more than one percent of the outstanding
shares.
The separation of ownership and control has allowed shareholders to detach
themselves from the responsibilities of a corporation to society. For example,
there are hardly any cases I am aware of in which investors were heavily
criticized and held accountable for the behavior of their investee. Rather the
corporation itself and the senior management are held accountable for the
actions of the corporation. In contrast, investors are able to trade their
shares in liquid markets, and tend to do so quite often. The average holding
period has fallen between one and three years in the largest stock exchanges
over the last two decades. For instance, in the 1980s, the average holding
period in the New York stock exchange was over 5 years, compared to 5 months in
the late 2000s (OECD, 2011).
The
combination of larger corporations that exert more power over society and the
separation of ownership and control led to shareholders surrendering their
right that the corporation should be operated for their sole interest (Berle
and Means 1932). In the words of Walter Rathenau (1918), ‘The depersonalization
of ownership, the objectification of enterprise, and the detachment of ownership
from the possessor leads to a point where the enterprise becomes transformed
into an institution which resembles the State in character.’ Berle and Means,
while acknowledging that the stripping away of control from a shareholder’s
property right is essential to the creating of a liquid and freely tradeable
market for shares, went one step further, suggesting that giant corporations
could only survive if they would serve the community’s interests. “It is
conceivable,--indeed it seems almost essential if the corporate system is to
survive,--that the ‘control’ of the great corporations should develop into a
purely neutral technocracy, balancing a variety of claims by various groups in
the community and assigning to each a portion of the income stream on the basis
of public policy rather than private cupidity.” (pp. 312-313). As they pointed
out, the farmer is “married” to the horse, and needs the horse to thrive along
with the farm and the surrounding community. A disinterested shareholder
ownership of the farm does not obviate the pre-existing goals of the
interdependent and thriving horse, farm, and community.
While
economic activity was beginning to concentrate in a small group of companies
many decades ago, as Berle and Means documented, there are still important
differences that have led the large corporations of the early 21st to assume
more responsibilities compared to the large corporations of the
20th
century. First, the large corporations of today are much larger than they were
even twenty or thirty years ago; on an absolute basis, their scale is multiple
times what it was in the past. Second, their reach is significantly more global
than it was before. As a result, their impact transcends national boundaries
and makes the world more interconnected. Third, there is incredibly more
information available about corporate behavior, as compared to a few decades
ago. Information technologies, in particular the internet and social media,
have equipped civil society with very effective means to mobilize and counteract
the power of the Global 1000. Fourth, civil society has become increasingly
sophisticated in collecting, analyzing, and interpreting data about corporate
behavior. To match the increasing concentration of corporate power, NGO’s have
also experienced increasing concentration in power, with one percent of
NGOs
generating about 85 percent of the revenues to the non-profit sector in the
US.15 Fifth, while in the early 20th century there was a discussion of
companies’ social responsibilities, no mention was made of resource scarcity
and planetary effects such as climate change (Eccles and Krzus, 2010). The
combination
of
concerns about social responsibility, resource scarcity, and planetary effects
further exacerbated pressure on large companies to serve the interests of
society.
The
implication from the discussion in this section is that the largest companies
would exhibit higher environmental and social performance in terms both of
managerial commitments but also observable organizational outcomes. The next
section describes the increasing corporate involvement in sustainability issues
and tests the relationship between firm size and environmental/social
performance.
References
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