The Role of Cooperative Societies in Economic Development


The Role of Cooperative Societies in Economic Development


Introduction 1

Today, in an era when many people feel powerless to change their lives, cooperatives
represent a strong, vibrant, and viable economic alternative. Cooperatives are formed
to meet peoples’ mutual needs. They are based on the powerful idea that together, a
group of people can achieve goals that none of them could achieve alone.
For over 160 years now, cooperatives have been an effective way for people to exert
control over their economic livelihoods. They provide a unique tool for achieving one
or more economic goals in an increasingly competitive global economy. As
governments around the world cut services and withdraw from regulating markets,
cooperatives are being considered useful mechanisms to manage risk for members in
Agricultural or other similar cooperatives, help salary/wage earners save for the future
through a soft-felt monthly contribution that is deducted from source, own what might
be difficult for individuals to own by their efforts, strengthen the communities in
which they operate through job provision and payment of local taxes. Cooperatives
generally provide an economic boost to the community as well.
Incidentally, cooperative despite its old age is not very popular in Nigeria. Only
recently worker cooperatives started gaining ground among working class citizens,
most of who find it difficult to save part of their salaries/wages for the rainy day.
Hitherto, cooperative societies were thought to be associations meant only for farmers,
small traders and other very low-income earners. This explains why quite a number of
cooperative farmers are found, particularly in southern Nigeria
1 This Paper has been published in the official journal of the Department of Public Administration,
Ahmadu Bello University, Zaria-Nigeria
Ahmad Bello Dogarawa, Department of Accounting, Ahmadu Bello University, Zaria 1
The Role of Cooperative Societies in Economic Development
The problem is that many people do not know much about cooperative, its
mechanisms and role in economic development, and how it is considered in the world
as a Third Force, an alternative and countervailing power to both big business and big
Against this background, this paper examines the role of cooperative societies in
economic development with a view to throwing some light on the nature and features
of cooperatives, the benefits and the formation and management of cooperative
societies. The paper investigates the ways in which cooperatives can act as agents
towards sustainable community development. The justification of the study
precipitates from the fact that although investigating the role of cooperatives on the
international scale is not a new phenomenon, in Nigeria, results of such researches are still scanty and incomprehension.

The paper is a descriptive survey, which involves the collection of data for the
purpose of describing the role of cooperative societies in economic development. The
remainder of the paper is organized as follows. Section two gives a background on
cooperatives, which serves as the theoretical framework. Section three assesses the
role and mechanism of cooperative societies. Section four highlights the steps
involved in starting a cooperative. Section five discusses the challenges facing
cooperatives and section six summarises and concludes the paper.
Background on Cooperatives
The International Cooperative Alliance (ICA) in its Statement on the Cooperate
Identity, in 1995, defines a cooperative as “an autonomous association of persons
united voluntarily to meet their common economic, social, and cultural needs and
aspirations through a jointly-owned and democratically-controlled enterprise.” It is a
business voluntarily owned and controlled by its member patrons and operated for
them and by them on a nonprofit or cost basis (UWCC, 2002). It is a business
enterprise that aims at complete identity of the component factors of ownership,
control and use of service, three distinct features that differentiate cooperatives from
other businesses (Laidlaw, 1974).
Ahmad Bello Dogarawa, Department of Accounting, Ahmadu Bello University, Zaria 2
The Role of Cooperative Societies in Economic Development
Although there is no consistency to the exact origin of the co-operative movement,
many academics argue the origins lie within Europe (Shaffer, 1999; Holyoake, 1908).
The first recorded co-operatives date back to 1750 in France, where local cheese
makers in the community of Franche-Comté established a producer cheese cooperative.
Within the decade, co-operatives had developed in France, United
Kingdom, United States and Greece. In 1844 the Equitable Pioneers of Rochdale
Society (EPRS) was formed. With the goal of social improvement, twenty-eight
unemployed community members saw the opportunity to pool their limited resources
and attempt cooperation for the good of the group. Even though co-operatives
appeared in the century previous, Rochdale is seen as the first ‘modern’ cooperative
since it was where the co-operative principles were developed (Wikipedia, 2006;
Gibson, 2005; and Abell, 2004).

The successful example of cooperative business provided by the Rochdale Society,
which also established between 1850 and 1855 a flourmill, a shoe factory, and a
textile plant, was quickly emulated throughout the country. By 1863 more than 400
British cooperative associations, modelled after the Rochdale Society, were in
operation. Thereafter the English movement grew steadily, becoming the model for
similar movements worldwide. Notable among the European countries in which
consumer cooperation received early popular support were France, Germany,
Belgium, Austria, Italy, Denmark, Finland, Norway, and Sweden (Abell, 2004).
In 1895, International Cooperative Alliance (ICA), a non-governmental organization
was established as umbrella organisation to promote friendly and economic relations
between cooperative organizations of all types, nationally and internationally. The
major objective of the ICA is to promote and strengthen autonomous cooperative
organizations throughout the world. In order to achieve its aims, the ICA organizes
international, regional, and sectoral meetings. The ICA also aims to promote exchange of information such as news and statistics between cooperatives through research and reports, directories, international conferences, and two quarterly publications: ICA Ahmad Bello Dogarawa, Department of Accounting, Ahmadu Bello University, Zaria 3

The Role of Cooperative Societies in Economic Development
News and the Review of International Co-operation. It represents the cooperative
movement generally, for instance through its membership of the UN.
Since its creation, the ICA has been accepted by cooperators throughout the world as
the final authority for defining cooperatives and for determining the underlying
principles, which give motivation to cooperative enterprise. World membership in
ICA gives some idea of the size of the cooperative movement today. In 1895, the
founding congress had 194 members; in the mid-1980s the ICA recorded a
membership of about 355 million individuals; in 1999, the ICA’s organisations
represented 750 million people; and since 2002 it was estimated that more than 800
million people are members of worker, agriculture, banking, credit and saving, energy,industry, insurance, fisheries, tourism, housing, building, retailer, utility, social and consumer cooperatives societies (Levin, 2002; Encarta, 2005; and Wikipedia, 2006)
Cooperatives are based on basic values and principles. Cooperative values are general
norms that cooperators, cooperative leaders and cooperative staff should share and
which should determine their way of thinking and acting (Hoyt, 1996). The values,
which are articulated by the ICA in a statement in 1995, include self-help, selfresponsibility,democracy, equality, equity and solidarity. The values statement further articulates values of personal and ethical behaviour that cooperators actualize in their enterprises. They describe the kind of people cooperators strive to be and the traits they hope to encourage through cooperation. These are honesty, openness, social responsibility and caring for others.

Cooperative principles on the other hand, are guidelines by which cooperatives put
their values into practice. The principles rest on a distinct philosophy and view of
society that helps members judge their accomplishments and make decisions (Hoyt,
1996). Before 1995, the ICA has made two formal statements of the cooperative
principles, in 1937 and 1966. In 1995, the ICA redefines, restates and expands the
cooperative principles from six to seven in order to guide cooperative organisations at
the beginning of the 21st century. The principles are: Voluntary and Open
Membership; Democratic Member Control; Member Economic Participation;
Ahmad Bello Dogarawa, Department of Accounting, Ahmadu Bello University, Zaria 4
The Role of Cooperative Societies in Economic Development
Autonomy and Independence; Education, Training and Information; Cooperation
among Cooperatives; and Concern for Community.

The import of the above principles is that cooperatives are voluntary organizations,
open to all persons able to use their services and willing to accept the responsibilities
of membership, without gender, social, racial, political or religious discrimination.
They are democratic organizations controlled by their members, who actively
participate in setting their policies and making decisions. Men and women serving as
elected representatives are accountable to the membership. Members contribute
equitably to, and democratically control, the capital of their cooperative. At least part
of that capital is usually the common property of the cooperative. Members usually
receive limited compensation, if any, on capital subscribed as a condition of
membership. Members allocate surpluses for any or all of the following purposes:
developing their cooperative, possibly by setting up reserves, part of which at least
would be indivisible; benefiting members in proportion to their transactions with the
cooperative; and supporting other activities approved by the membership. Also,
cooperatives are autonomous, self- help organizations controlled by their members. If
they enter into agreements with other organizations, including governments, or raise
capital from external sources, they do so on terms that ensure democratic control by
their members and maintain their cooperative autonomy. They provide education and
training for their members, elected representatives, managers, and employees so they
can contribute effectively to the development of their cooperatives. They inform the
general public – particularly young people and opinion leaders – about the nature and
benefits of cooperation. They also serve their members most effectively and
strengthen the cooperative movement by working together through local, national,
regional and international structures. Further, cooperatives work for the sustainable
development of their communities through policies approved by their members.
Regardless of the type, size, geographical location or purpose, cooperatives provide a
unique tool for achieving one or more economic goals in an increasingly competitive
global economy. These goals include achieving economy of size, improving
bargaining power when dealing with other businesses, purchasing in bulk to achieve
lower prices, obtaining products or services otherwise unavailable, obtaining market
Ahmad Bello Dogarawa, Department of Accounting, Ahmadu Bello University, Zaria 5

The Role of Cooperative Societies in Economic Development
access or broadening market opportunities, improving product or service quality,
securing credit from financial institutions and increasing income (RBCDS, 1995).
Cooperatives operate very much like other businesses. They must serve a market
efficiently and effectively, they must be well managed, and they must survive
financially. However, there are important distinctions that make cooperatives unique.
Laidlaw (1974) examines the difference between cooperatives and other businesses in
relation to three main groups of people responsible for bringing them into existence
and keeping them in operation. The three groups are: the persons who own them (the
shareholders, the investors), the persons who control them (the effective decision makers)
and the persons who use them (the customers). According to him, in typical
capitalist business, especially large enterprise and multinational corporations, these
three are separate and distinct groups. In small private business the situation is
generally much better because of the close connection between shareholders
(investors) and control. In a small retail business, for example, the first two
components are often identical. But still the users, the customers, are a separate group.
In a cooperative, all three come together to form a unity; those who own, those who
control, and those who use are one.


The Role of Cooperative Societies in Economic Development

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