THE IMPACT OF COOPERATIVE SOCIETIES IN ECONOMIC DEVELOPMENT OF A COUNTRY

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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