ILO Online: Why does the ILO promote cooperatives?
Hagen Henry: The ILO views cooperatives as important in improving the living and working conditions of women and men globally as well as making essential infrastructure and services available even in areas neglected by the state and investor-driven enterprises. Moreover, values that are at the heart of the cooperative movement are central to creating decent jobs. Cooperatives are close to a democratic, people-centred economy which cares for the environment, while promoting economic growth, social justice and fair globalization. Cooperatives play an increasingly important role in balancing economic, social and environmental concerns as well as in contributing to poverty prevention and reduction.
ILO Online: What is the impact of the current global economic crisis on cooperatives?
Hagen Henry: Available information suggests that, with few exceptions, cooperative enterprises across all sectors and regions are relatively more resilient to the current market shocks than their capital-centred counterparts. However, as for other enterprise types, the situation of cooperatives with regard to the crisis varies with the degree of dependency on demand and external financing, the degree of their diversification and also with the sector. We just commissioned a study, which will provide us with further, more in-depth information.
ILO Online: Can you give us a concrete example?
Hagen Henry: At the peak of the crisis cooperative banks were faced with an increase in membership and savings deposits and found it difficult to respond to this sudden growth in demand. So far cooperative banks have not announced any significant losses due to this crisis. Nevertheless, losses incurred by the German central bank of cooperatives (DZ), itself a stock company, show how cooperative banks could put themselves at a financial risk. In this reported case, cooperative specific control mechanisms were either not in place or failed. However, most cooperative banks have lessened their vulnerability and increased transparency mainly by investing in their proximity and in the real economy. Ethiopian coffee growers seem to be less affected by world market fluctuations than coffee producers who are not part of cooperative specific value chains.
ILO Online: Cooperative banks are more resilient to the financial crisis?
Hagen Henry: No cooperative bank seems to have applied for state aid so far. As the German example shows, this may not be interpreted as them not having been impacted negatively by the crisis. But self-help mechanisms, like member liability to further call, inter-cooperative bank guarantees, or reserve liabilities are being used before applying for external support. Both in the US American credit union system and in the German cooperative banking system these mechanisms have prevented member customers from losing any money ever since the Great Depression was over. What’s more, bankruptcies of cooperatives due to the crisis have not been reported, nor have employee lay offs.
ILO Online: Do the financial crisis and the new perception of cooperatives represent an opportunity for the ILO and its constituents?
Hagen Henry: Cooperatives are not “just” another form of business, they are not enterprises “en miniature”, but a specific, value-based business model for all sizes and activities. Just to mention famous examples like KPMG, the London Philharmonic Orchestra, Best Western hotel chain, AP, which are all cooperatives. The crisis has led to a self interrogation about the right business model. Cooperatives are one interesting alternative model. They put a premium to longer term sustainability and profitability, to sharing benefits between their members who are the capital owners and the main users (lenders, borrowers); they factor in the needs of the local community, are highly transparent and – fundamentally - have a social agenda which does not prevent them from being sustainable and profitable at the same time.
ILO Online: What is the economic and social impact of cooperatives worldwide?
Hagen Henry: The top 300 cooperatives in the world in terms of turnover are of the size of the GDP of Canada. In Colombia, Saludcoop, a health co-operative, provides health care services for 15.5 per cent of the population. In Ethiopia, 900,000 people in the agriculture sector are estimated to generate part of their income through cooperatives. In France, 9 out of 10 farmers are members of agricultural co-operatives; co-operative banks handle 60 per cent of the total deposits and 25 per cent of all retailers in the country are co-operatives, while in Japan 9.1 million family farmers are members of cooperatives who provide 257,000 jobs. In India, the needs of 67 per cent of rural households are covered by cooperatives, and in Switzerland, the largest retailer and largest private employer is a cooperative.
ILO Online: How can the ILO support the promotion of cooperatives?
Hagen Henry: Policy makers must ensure that laws and administrative practices (registration procedures, taxation policies, accounting standards, capital standards for financial institutions as well as the ability to access funding, etc.) do not hinder the development and growth of cooperatives. Just to give an example of a highly complex problem we face: In some countries, women still need the permission of their husbands to join agricultural cooperatives. ILO Recommendation 193 on the Promotion of Cooperatives provides guidance on cooperative policy and legislation stressing the need for a level playing field for cooperatives and other enterprises. It also provides guidance on how to ensure that cooperatives are managed and audited according to their specific features and that education and training curricula include cooperatives.
See also ILO Online No. 2 on microfinance institutions as an alternative business model in times of crisis.