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Role of Cooperatives in Economic Development
Post: #1

Role of Cooperatives in Economic Development


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
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 incomprehensive.
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 organised 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.
form of organization.
The Role of Cooperatives in Economic Development
Cooperatives are community-based, rooted in democracy, flexible, and have
participatory involvement, which makes them well suited for economic development
(Gertler, 2001). The process of developing and sustaining a cooperative involves the
processes of developing and promoting community spirit, identity and social
organisation as cooperatives play an increasingly important role worldwide in poverty
reduction, facilitating job creation, economic growth and social development (Gibson,
Cooperatives are viewed as important tools for improving the living and working
conditions of both women and men. Since the users of the services they provide
owned them, cooperatives make decisions that balance the need for profitability with
the welfare of their members and the community, which they serve. As cooperatives
foster economies of scope and scale, they increase the bargaining power of their
members providing them, among others benefits, higher income and social protection.
Hence, cooperatives accord members opportunity, protection and empowerment -
essential elements in uplifting them from degradation and poverty (Somavia, 2002).
As governments around the world cut services and withdraw from regulating markets,
cooperatives are being considered useful mechanisms to manage risk for members and
keep markets efficient (Henehan, 1997).
Ahmad Bello Dogarawa, Department of Accounting, Ahmadu Bello University, Zaria 7
The Role of Cooperative Societies in Economic Development
In a number of ways, cooperatives play important role in global and national
economic and social development. With regard to economic and social development,
cooperatives promote the “fullest participation of all people” and facilitate a more
equitable distribution of the benefits of globalization. They contribute to sustainable
human development and have an important role to play in combating social exclusion.
Thus the promotion of cooperatives should be considered as one of the pillars of
national and international economic and social development (Levin, 2002).
In addition to the direct benefits they provide to members, cooperatives strengthen the
communities in which they operate. According to Somavia (2002) cooperatives are
specifically seen as significant tools for the creation of decent jobs and for the
mobilization of resources for income generation. Many cooperatives provide jobs and
pay local taxes because they operate in specific geographical regions. According to
Wikipedia (2006) and Levin (2002) it is estimated that cooperatives employ more than
100 million men and women worldwide.
In Nigeria, cooperatives can provide locally needed services, employment, circulate
money locally and contribute to a sense of community or social cohesion. They can
provide their employees with the opportunities to upgrade their skills through
workshops and courses and offer youth in their base communities short and long-term
employment positions. Students could also be employed on casual-appointment basis
during long vacations. Through these, cooperatives will contribute to economic
marketplace while doing so.
Challenges of Cooperative Societies
Cooperatives the world over are in a state of flux. In almost all parts of the world,
cooperatives face one or more of the following crises: crisis of ideology, crisis of
capital, crisis of credibility and crisis of management (Taimni, 1997).
Cheney (1995) identified five challenges facing cooperatives. These are cultural
transformation, competition and expansion, wage solidarity, centralization and
reorganization, and programmes to increase productivity and participation. Groves
Ahmad Bello Dogarawa, Department of Accounting, Ahmadu Bello University, Zaria 14
The Role of Cooperative Societies in Economic Development
(1985) on the other hand, posits that one of the major problems of cooperatives is how
to keep balance in the two parts of cooperative business, efficiency and democracy
since those who are charged with the operation of a cooperative chiefly the board and
manager must serve two masters: the imperatives of good business practice and the
social purpose of a community of people. Hence, to maintain their special character,
cooperatives must be two things in one: a business organization and a social
movement. This is what makes a cooperative a business enterprise with a human face
and so, very difficult to manage. In striving for efficiency, cooperatives often tend to
imitate other business, but in pursuing a social purpose they bring out the features,
which make them different (Laidlaw, 1974).
Educating, training and retraining of members in general and officers in particular is
always a challenge to cooperatives especially in developing countries. A cooperative
without a strong component of education is in danger of losing its essential character,
that is, the human and personal characteristics which distinguish it as a cooperative.
Education is of paramount importance to the cooperative sector. Unless all those
responsible for cooperatives (directors, officers, members, staff) are well informed
and knowledgeable, cooperatives are likely, in some countries, to become much like
capitalist, profit-seeking business, or in other countries to become handmaids of the
State. Education makes people easy to lead, but difficult to drive; easy to govern but
impossible to enslave.
Assuming the validity of the sector concept (the "mixed economy", as it is often
called), cooperators face such questions as what type of business activity is most
suitable for each of the three sectors, public, private and cooperative? Are there
certain kinds of business that rightfully belong to the public sector? Are there others,
which are best left to private enterprise? What kinds, ideally, are most suitable for the
cooperative way of business? Are there some fields in which all three may engage and
compete? Hence, one other challenge that cooperative societies face is the choice of
business most suitable for the enterprise.
Ahmad Bello Dogarawa, Department of Accounting, Ahmadu Bello University, Zaria 15
The Role of Cooperative Societies in Economic Development
Another challenge facing cooperatives is adaptation. No business in a national
economic system is completely independent and self-sufficient but operates in
conditions of dependence and interdependence. Both capitalist business and
cooperatives depend to some extent on the State and services provided by the State
(highways, water supply, the postal system, etc.). Similarly the State and public
enterprise depend greatly on private enterprise, or on cooperatives. Sometimes
private-profit business depends on cooperatives. And, of course, the reverse,
cooperatives depending on private business in some way or other, is quite common.
Thus, cooperatives cannot be thought of as an exclusive economic system but rather as
one section of the total economy. They constantly operate in co-existence with other
forms of business and sometimes in conjunction with them. Co-operatives therefore,
have to adapt themselves by struggle in one place, by agreement in another - to the
elements of a complex environment, partly free and partly organized. It must now
decide what place it means to claim for itself in the new economy, either organized or
in process of organization.
In addition, the cooperative sector suffers from an internal handicap of its own
making: the frequent failure of various types of cooperatives to work closely together
as a sector. Because of their voluntary and democratic nature, cooperatives have been
reluctant to impose strict disciplines on themselves - they much prefer to act by
common consent and persuasion. Often, management of cooperatives relies on
relationship or is moved by sympathy to act against even the societies’ bylaws. This
indeed has a lot of repercussion particularly in the developing economies and is
against the 6th principle of cooperatives: Cooperation among Cooperatives.
The different needs of customers, members, patrons, and owners challenges the
cooperative’s board of directors and manager to make good business decisions.
Business earnings of the cooperative must be great enough to systematically rotate the
investment of members, pay patronage, and offer goods and services at reasonable
prices or pay fair market value for customer’s products. This unique business structure
dictates that the manager, board of directors, and members understand the business
and cooperative structure.
Ahmad Bello Dogarawa, Department of Accounting, Ahmadu Bello University, Zaria 16
The Role of Cooperative Societies in Economic Development
To better tackle the above problems, Taimni (1997) suggested, in addition to fore
mentioned, that cooperatives should make optimum use of all resources and strive
continuously to enhance productivity of resources; ensure highest efficiency while
providing services to members; improve management capabilities and competencies
through effective organizational designs and structures; mobilize capital and lay
greater stress on internal capital formation and accumulation; develop and retain
human resources - members, leaders, staff and managers; forge strategic alliance with
key institutional actors in the new environments; evolve and sustain integrated,
vertical structures; increasingly focus on directly enhancing socio-economic
conditions of their members by undertaking value-added operations; encourage
members' participation through improved, diversified services; and strictly adhere to
the values of honesty, openness, caring and concern for community and environments.
Once this is done, it is hoped that cooperatives would be able to overcome the
problems and challenges facing them. It however, calls for maintaining balance
between economic and social purposes, emphasizing differences, relating with other
cooperatives both at national and international levels, and maintaining a favourable
public image.
Summary and Conclusion
A cooperative is a unique form of business used by people and businesses for their
mutual benefit. Regardless of its purpose or membership, starting a cooperative
requires considerable time, energy, commitment, and technical resources. Recognition
of a common need is fundamental to the formation and successful operation of a
cooperative. Potential members must devote much time and energy to developing their
new business. A cooperative requires member commitment to finance and use the
business and select knowledgeable directors who hire a competent manager. A
strategic business plan is important to harmonize all of the elements for the
cooperative’s success.
Ahmad Bello Dogarawa, Department of Accounting, Ahmadu Bello University, Zaria 17
The Role of Cooperative Societies in Economic Development
In order to achieve their maximum strength and effectiveness, cooperatives of various
kinds must regard themselves and, as far as possible, act as a distinct sector within the
national economy of any country. As business organizations, cooperatives are partly
private, partly public, but essentially different from both private enterprise and public
enterprise. They are a "middle way", an economic sector in their own right.
Cooperatives must play the role of a Third Force, an alternative and countervailing
power to both Big Business and Big Government. A cooperative is a business
enterprise in which the elements of ownership, control and use of service are united in
one group of persons. The distinguishing feature of cooperative business is its dual
nature as economic enterprise and social organization.
An economy based on one form of business organization alone is neither desirable nor
possible in modern times. The best economic order is achieved through a mixed
economy. To justify their existence and fulfill their purpose, cooperatives must make a
significant and unique contribution to solving some of the massive problems facing
mankind today.
Governments are expected to provide a supportive policy, legal and institutional
framework, provide support measures based on activities, provide oversight on terms
equivalent to other forms of enterprise and social organization, adopt measures to
improve access to finance for disadvantaged groups, and topically, to promote the
formalization of the informal economy. Government can contribute significantly to
improving cooperative performance by facilitating access of cooperatives to support
services, particularly support to cooperative human resource development.

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