Harper (1984a) reports that in certain countries the word “co-operative” should not be used when talking to potential entrepreneurs, due to the history of failure of co-operatives and the devastating affect this failure has had on participants and the economy of a country.
Failure can often be attributed to the inability of the members to agree on activities of the co-operative; issues regarding money and inexperienced management. Co-operatives with members of different economic and social positions often experience exploitation by a powerful minority (Harper, 1984a). Individuals with more power (due to social status or higher income) often become leaders and motivated by a desire for more wealth and power, rather than for the good of the group. Leaders start to take decisions that benefit themselves rather than the group (Harper, 1984a).
Democratic groups display a power structure with a definite leader and all group members are involved in group activities and committed to a democratic process for decision making (Gastil, 1993). Gastil’s (1993) understanding of democratic groups is illustrated in a study by Toury (1996), that shows that women’s groups work well together if their major duties are clear. People that worked well together in the study knew what authority they had within the group; they knew what role they played in any team operation and they had the ability to organise themselves to address vulnerabilities such as lack of raw material, poor equipment and marketing problems.
FAO (1995) states that a group enterprise stands a better chance of succeeding as a small enterprise rather than individual enterprises, as in a group, people may have different skills that make it possible to combine skills to the advantage of the enterprise. Groups have bigger bargaining power and government agencies tend to give advice and services to groups rather than to individuals (FAO, 1995). The potential advantage of a co-operative over an individual enterprise is that the co-operative could provide a service or product at a lower cost than an individual enterprise, because the co-operative has the ability to purchase raw materials in bulk, lowering the price of materials (FAO, 1995).
Contrary to what is generally believed, studies by Harper and Roy (2000) indicate that it is to the advantage of co-operatives to have subsidies and technical support withheld from them at the initial stages. It may be better to assist groups that have managed to overcome constraints and have passed the test of surviving without help. Case studies by Harper (1992) indicate that co-operatives and groups that have come together by their own choice, without being forced together by an outsider, or on a promise of financial or other assistance showed a great deal of success as co-operatives. Government officials and developing agencies need to find the balance between giving advice and support and allowing the group to grow by themselves. Advisors need to be able to provide information to the group in order for the group to make the best decision for the enterprise (Harper, 1992).
When financial assistance is provided to the group or co-operative, it must be made very clear whether it is a loan that has to be repaid, or whether it is a grant. If a grant, it must
also be clear who owns the items that are purchased with the grant, to avoid conflict later between the donor and the group (Harper, 1992). Donor agencies should refrain from giving loans that are too big for the group to manage, since this could lead to the misuse of funds (Harper, 1992).
The case study of the Ibadan Co-operative Tailors’ society in Nigeria demonstrates the problems related to over-funding and interference from outsiders such as government departments (Harper, 1992). In this case study, groups of tailors decided to work together informally when they obtained large contracts. Under pressure from a government official, the group formed a co-operative. The government official convinced a co-operative bank to lend them an amount of 30 times more than the co-operative’s own financial contribution. The co-operative failed to repay any of the money loaned in the first year, because they did little work but still paid themselves salaries. After the second year without any repayment the bank manager threatened to take the co-operative to court. The government official promised to assist the group to obtain contracts. This led the co- operative members to believe that it was the government’s responsibility to get contracts.
After some time it became obvious that the contracts obtained by the official were through corruption and not because of good prices and quality. The co-operative members were unable to secure their own orders after the official was transferred. The co-operative members started to secure individual orders, without declaring it as income for the co- operative. When the co-operative did manage to get orders, they failed to complete them in time since they preferred to work on their individual orders. The co-operative only managed to repay the interest on the loan but not the actual loan amount. Although annual monitoring visits by government officials showed poor record-keeping and chaotic management within the co-operative, no correctional steps were implemented. After 15 years of wasted time and money, the co-operative reverted to the informal working arrangement they originally wanted.
Despite all the recorded failures in co-operatives successful co-operatives are found (Harper, 1984a). Reasons for the success of entrepreneurial groups or co-operatives have been highlighted by various authors (FAO, undated; FAO, 1995; Harper, 1984a) and are summarised in Table 2.12.
Table 2.12 Factors contributing to the success of groups or co-operatives
Contributing Factor FAO,
undated
FAO, 1995
Harper, 1984 b
Accepted leadership * * *
Active participation in meetings and activities * * *
High degree of solidarity between members * *
Well-defined income-generating activities * *
Managerial abilities * *
Sufficient group savings/resources within group * *
High level of self-reliance * *
The initiative for the enterprise comes from the participants themselves
*
Small number of people in a group * *
No compulsion to join the co-operative *
Group discipline *
At least one literate member *
*= Contributing factor as listed by author
Harper (1984b) suggests that the very poor and the relatively well off are more likely to succeed in forming co-operatives than those with average incomes. A very poor person has little to lose and the relatively well off would have a realistic understanding of how a group enterprise could assist him in achieving his or her goals in life.