International Day of Cooperatives

Cooperative enterprises remain strong in times of crisis

In a time of crisis cooperatives are a source of stability and resilience, and they provide an important channel for bridging market values and human values.

Statement | New York | 09 July 2013
STATEMENT BY KEVIN CASSIDY
SENIOR COMMUNICATIONS AND EXTERNAL RELATIONS OFFICER
ILO OFFICE FOR THE UNITED NATIONS IN NEW YORK

International Day of Cooperatives (July 6)
9 July 2013

Today, the world is looking for a more stable and sustainable business model that embodies a more responsible and principled governance than what many see as the irresponsible capitalism that contributed to the financial crisis.

Through this lens, we are witnessing a growing interest in cooperatives, employee-owned businesses, mutual organizations and other diverse forms of ownership.

Our research is showing that in a time of crisis cooperatives are a source of stability and resilience. We believe this is primarily due to cooperatives being structured around socially inclusive principles and their potential to empower vulnerable groups. Cooperatives provide an important channel for bridging market values and human values.

Growing power of Cooperatives

In many developing countries cooperatives are a major instrument for those working in the informal economy. Through cooperatives they can access productive inputs, markets, build self-confidence, and achieve self-organization and a collective voice. We see this in the case of domestic workers, construction workers, and street traders.

Cooperatives also help millions of workers in urban and rural areas connect with global value chains. The most important global value chains involve millions of small producers at one end, and millions of ordinary consumers on the other.

Over 100 million people are employed by cooperatives, making it evident that they are key players in the global economy. It is also estimated that more than 50 per cent of the global agricultural output is marketed through cooperatives. The Global 300 Report on the largest cooperative organizations around the world found that the largest cooperative enterprises have collective revenues of US$ 1.6 trillion: comparable to the GDP of the world’s ninth largest economy.

Cooperative enterprises also have economic significance beyond their members and employees, by also helping their immediate families and communities. Three billion people, half of the world’s population, have extensively improved their livelihoods from cooperatives.

Additionally, cooperatives are schools of democracy through their promotion of dialogue, consultation and negotiation. They are a powerful way of organizing and providing voice to many small economic and social actors that often do not have other ways of coming together. In this way they are an important channel to strengthen social dialogue, as they are often linked to both employer and worker organizations.

Financial Cooperatives

The current global economic crisis has increased the urgency of establishing a more solid economic and financial system that can generate decent work opportunities. Cooperative enterprises are re-emerging as a resilient and relevant solution that is not only durable, but timely.

The recent ILO study, entitled “Resilience in a downturn: The power of financial cooperatives”, says customer-owned banks were much more stable and more efficient than the big traditional banks.

Financial cooperatives - an umbrella term for cooperative banks, credit unions and building societies - out-performed traditional investor-owned banks during the global financial crisis on almost every rating level.

Unlike many investor-owned banks, they maintained very good credit ratings, increased their assets and customer-base and the minority that suffered losses quickly bounced back and are growing again.

The investor-owned banks are driven by the need to maximise profits for the shareholders, which leads some of them to take much bigger investment risks – the scenario which triggered the 2007-2008 global banking crisis.

In the years leading up to the crisis, the cooperative banks had a higher average stability rating, (known as Tier 1 ratios), than the investor-owned banks. They scored 9.2 per cent, compared to 8.4 per cent for the traditional banks. In France and the Netherlands, they were over 50 per cent more stable.

Financial Cooperatives made better use of their smaller assets and still made profits because they concentrated on recycling savings into loans rather than depending on the money markets – yet they were at least as profitable, and in several countries more profitable, than the investor-owned banks.

By April 2009, while many traditional banks were struggling, the ratings for cooperative banks were still at A and upward, with Rabobank - a full-range financial services provider founded on cooperative principles - maintaining its AAA rating.

Globally, credit unions registered significant increases in savings, reserves and loans between 2007 and 2010, although there was an initial slowdown in the immediate aftermath of the financial crisis. The figures show that customers in several countries were choosing to put their savings in a safer place than the investor-owned banks.

The banking crisis has confirmed that financial cooperatives are stable and risk averse.

Workers Cooperatives

The ability of worker cooperatives to save or maintain jobs are particularly important in an economic crisis when small and medium enterprises fail and leave their employees’ jobless. Enterprise reconversion into worker cooperatives can be an option to save the enterprise, jobs and maintain local economies.

The experience of Argentina with its multiple crises has seen the growth of “empresas recuperados”, a phenomenon with over a decade of experience. A recent survey shows that 210 enterprises have been converted into cooperatives employing 9,400 workers. Similar initiatives have been taken in other countries in Latin America.

Most recently, the United Steel Worker Union in the U.S. is examining the possibility of SME conversions into worker cooperatives as a means of reviving local economies as well as maintaining and creating new jobs.

The strong solidarity values at the core of cooperative principles also make cooperatives quite resilient with respect to employment generation and retention during natural disasters.

The entrepreneur or shared service cooperative is still another option to improving productivity or effectiveness and maintaining jobs. This form of cooperative is formed by businesses including individual entrepreneurs from formal and informal sectors or public bodies. They can provide a range of services – such as accounting, joint purchasing and/or marketing, research and development activities – or integrate a part of the members’ production processes into their operation. These cooperatives bring together micro-, small-, and medium-sized enterprises as well as large-scale enterprises.

It is very significant, that cooperative job creation and maintenance has a larger impact on communities, one that is potentially different from other forms of enterprise.

Cooperatives are in their majority locally rooted. They are formed by persons from the same community in a specific geographic location and as such, cooperatives enterprises stay in their community longer, not delocalizing to lower-wage areas in times of stress, but rather try to find solutions to maintain jobs and improve productivity.

As you can see, because of their original organisational and legal form, their values and principles, their ethical attitude and their widespread presence and diversifications across sectors, cooperatives are very well placed to persevere and overcome crises.

In closing I would like to mention the ILO’s initiative on Cooperatives and Sustainable Development which will look at the contribution of cooperatives to the proposed sustainable development goals through three dimensions of sustainable development (social, economic and environmental) to show how cooperatives facilitate the interaction between these dimensions.

The initiative will harness synergies between the ILO and other UN agencies in the field of cooperative development such as UN DESA, FAO as well as with the International Cooperative Alliance, along with their regional offices, and the Committee for the Promotion and Advancement of Cooperatives (COPAC) will be formed to promote and mainstream the cooperative movement contributions and perspectives into the UN SDG process.