Part 1: Co-operatives

Ronald Eglin looks at co-operatives and their benefits but warns that communities need to know all the facts before they decide on this housing model. In the second part of the article, the pros and cons of the different co-operative models are weighed up

THERE is a growing interest in co-operatives across all sectors of society.  An agreement was reached between government, business, labour and community organisations, at the national Growth and Development Summit in 2003, that all parties would support the development of the co-operative sector in South Africa. 

How should this be interpreted? Government sees co-operative promotion as an important poverty-alleviation strategy. During a co-operative conference on 14 March 2005, the Minister of Trade and Industry, Mandisi Mpahlwa, remarked: “The development of co-operatives has become a critical component of the government’s strategy to grow our economy and create an economy that has broader participation by all South Africans. 

“A strong autonomous, self-reliant and self-sustaining co-operative movement can play a major role in the economic, social and cultural development of South Africa. Co-operatives are able to contribute to the creation of jobs, income generation, resources mobilisation, and broad-based economic empowerment, thereby enhancing sustainable human development in South Africa.” 

All this is very promising for co-operatives, but there is a concern that many people, from communities to government, are promoting co-operatives because it is the “flavour of the month” which they hope will provide a “magic” solution to the development challenges facing this country. Many of the co-operatives that are being promoted will fail if the concept of co-operatives is not properly unpacked and a clear co-operative support strategy developed and implemented. It would be disastrous for the co-operative movement in South Africa if they failed to deliver what people are expecting of them. 

A co-operative is a jointly owned and democratically controlled institution set up by a group of people to address a common need that can be better addressed collectively than individually. The main features of a co-operative are:

• Member benefit: The co-operative addresses the needs of its members. This usually involves an economic advantage (like cheaper housing) but this is not always the case;
• Member ownership: Each member is an owner of the co-operative, in that they own a share in the co-operative; and
• Member control: The decisions of the co-operative are made by the members through elected directors and/or through general meetings.

There are two basic types of co-operatives – “user” co-operatives and “worker” co-operatives. A user or service co-operative provides a service to its members (who are users of that service).  A worker co-operative creates employment for its members in a certain business setting. Co-operatives can be used in a wide range of situations and contexts.    

It must also be remembered that co-operatives are just one form of organisational structure that can be used.  In certain contexts other forms of for-profit or non-profit organisations may be more appropriate. 

Examples of other forms of for-profit organisations include:  a) sole trader; b) partnership; c) close corporation; and d) company.  Examples of non-profit organisations include: a) section 21 companies; b) trusts; and c) voluntary associations. Co-operatives fall within the for-profit sector.

Preliminary observations from Afesis-corplan’s experience working with housing co-operatives are that co-operatives will fail if the group forming the co-operative is not clear what need they are addressing. Stating that the group’s need is “housing” is not specific enough. 

The group needs to unpack this more and address questions like: Do they want to own the land together, do they want to collaborate to buy material, do they want to help each other build the houses, or do they want to arrange their own housing savings? 

Often members of the group may have different views of what priority need they actually want to address. Some may see housing savings as the priority need, while others may see job creation in the construction sector as the priority need, while a third group may just want to get keys to a house.

It also appears that many people join a co-operative because they see that they will be able to access funding if they set up or join the co-operative. For example, did people set up school feeding co-operatives because they wanted to work together to provide food, or was the main motivation in setting up these co-operatives that they could only get school feeding contracts if they were a co-operative? 

Another example would be to ask: Do people join housing co-operatives because it is just an opportunity to get a house, or do they join because they want to collaborate with other homeless people to arrange housing for themselves?  Do these people know what is involved in running these co-operatives? Have they considered other organisational forms for achieving the same results – for example, partnerships to provide school lunches or voluntary associations to negotiate for land for housing? Is the first co-operative principle of voluntary participation in play?

Before people get involved in setting up and participating in any form of co-operative they need to understand how a co-operative works and how it is different from other organisational types.  Awareness raising and capacity building is crucial before any co-operative programme is rolled out. 

For a co-operative to succeed it is important that the members of the co-operative are all fully behind the objectives of the co-operative. The communication channels between members and directors and among members of the co-operative need to be efficient and effective.

In summary, there are four questions that need to be asked when setting up any form of co-operative:

1) Who is the group that is coming together?
2) What is the need that this group wants to address?
3) How does co-operation benefit the group as opposed to working alone?
4) Would another form of organisation not be more suitable in achieving the results that the group is aiming for?

The Local Government Transformer August/September 2007