Cooperatives is not a dirty word

Majyd Aziz

The exploitation and abuse of the word “cooperatives” in the early 90s in Pakistan put the whole system of cooperatives in disarray. In actuality, the misuse of the word “cooperatives” in setting up pseudo-financial entities encouraged many gullible people to fall for this domestic version of the Ponzi Scheme. The lure of easy money coupled with lack of financial knowledge and the business dynamics induced many to make a beeline to deposit and earn mind-boggling “profits” unheard of in the banking sector. The irony became more intense when even businessmen, bureaucrats, politicians, and even armed forces personnel fell for this temptation and, in the ensuing aftermath, many of them lost their lifetime savings. No tears need to be shed for those who deposited their ill-gotten wealth. They deserved their just punishment. Alas, the future of many innocent citizens was shattered.

However, in reality, a cooperative is not a scam but is a tried, tested and successful model of autonomous association of people or enterprises driven by a common objective through pooling of resources such as capital, skill, idea and even power. The basic idea is to develop a framework where these individuals and enterprises can work together, negotiate together, innovate together and also learn together. One prime reason why cooperatives are not in vogue in Pakistan is that there is a display of independence and individuality or there is recourse to cartelization if the enterprises are few and have a solid defence over market forces.

Nearly three decades ago, I unsuccessfully tried to convince the members of Pakistan Silk and Rayon Mills Association to band together not only as PSRMA members and trying to lobby, albeit ineffectually, with government, but instead to make a paradigm shift and form a loosely-based cooperative where they could have more control over their enterprises as well as over their destiny. I proposed that they should develop a Silk City spread over atleast fifty acres and have a cluster of small weaving units as per the financial strength of each member. The outcome, I explained to them, would be substantial savings in many respects.

First and foremost would be their Purchasing Power. If, for example, sixty members decided to club their requirements of machinery and, say, planned to procure 300 shuttleless looms, imagine the discount they would have got compared to each unit buying maybe four to five looms. Going further, they would pool their yarn requirements and purchase a formidable quantity, whether imported or domestically produced, at a considerable discount. Moreover, they would have the same bargaining power in buying auxiliaries, spare parts, and other common essential requirements.

The advantages accrued on the human resources front would be a blessing too. The cooperative would maintain a pool of workers and thus absenteeism could be controlled since workers in the pool would be asked to substitute for an absentee worker. A skill development center could be part of the cooperative and new entrants to the labor workforce could be easily provided on-job-training. Setting wages and emoluments could be centralized and adhered to in letter and spirit.

The topmost advantage would be in support services. Instead of each unit maintaining own vans and trucks, or hiring auxiliary staff such as accountant, drivers, cleaners, tax advisors, etc, the cooperative would either provide a common human capital base or could outsource the services to others. An accounting firm could be retained to perform the required services and each unit would be paying a smaller fee rather than a heavy salary. A transport company could be formed or the same service could be outsourced to transportation-providers.

There is an imperative need to form cooperatives in many sectors. Pakistan is building up the livestock and dairy farm sector but again these are individual efforts and not formal joint ventures. Thus the operational cost factor is disadvantageous in many items. Take the case of larger units set up by textile and leather tycoons in Punjab with each having between 1000 to 2000 heads of cattle. If they had formed a cooperative and had 20,000 to 30,000 heads, they would have had the critical mass to be cost-effective, powerful, and more profitable.

The establishment of a cooperative has a host of comparative advantages and these favorable points should have been the basis for setting up sustainable and formal cooperatives. These, in some ways or other, can be applicable to all kinds of cooperatives, such as, purchasing cooperatives, labor cooperatives, marketing cooperatives, and of course the all-encompassing cooperatives. 

The comparative advantages could be enumerated as follows. In today’s cut-throat competition, achieving economies of scale is paramount. As stated above, cooperatives obtain bargaining power, stability and protection. Being united gives worthwhile value to members, gives a voice to them to confidently participate in decision making, enables them to take benefit of strong representation, and helps in division of labor thus freeing precious time from distracting activities. More importantly, a cooperative gives protection to members wherever required, such as interference, pressure, or demands by governmental agencies, political forces, financial fatigues, physical and enterprise security, and other exigencies or constraints.

It is, therefore, crucial that economic policymakers and representatives of trade bodies revisit their fogged up thinking about cooperatives. It is time to move away from the very distressing Crab Syndrome that is so prominent in Pakistan which relates to putting a number of crabs in the bucket and being confident that no crab would allow the other to get out of the bucket because the escaping or active crab would get its claws pulled by the other crabs. It is often said that no man is an island. Sadly, the thinking of most of the entrepreneurs in Pakistan is like the lyrics of the Dave Davies and Ray Davies song, Got My Feet on the Ground that says:

I wanna get lot out of life, but I know my limitations
Guess I want a lot of things and got my inclinations
Got my feet on the ground, and I'm standing on my own
I don't need no one
I don't need no one