Meaning of the cooperative sector

The cooperative sector can be defined as that sector of the economy carried out by cooperatives, defined by the International Cooperative Alliance as “autonomous association of persons united voluntarily to meet their common economic, social, and cultural needs and aspirations through a jointly-owned and democratically-controlled enterprise.” The cooperative sector is distinguished from the state or public sector, which is carried out by the State and its instrumentalities including public corporations, and to the so-called private sector, which is carried out by private individuals and organizations.

This categorization has its disadvantages or limitations. For one, cooperatives are generally considered part of the private sector. They are composed of private individuals usually or generally pursuing private economic ends. The probable exception would be such cases in which cooperatives are de facto instrumentalities of the state or under its control and direction.

Moreover, several associational forms that are organized for the mutual aid of members and their common welfare cannot, formally speaking, be classified as cooperatives. These would be the trade unions or labor organizations, the occupational and professional associations, and various community associations. Then there would also be entities that are usually labeled as non-government organizations (NGOs), including foundations and non-profit non-stock corporations. These entities are commonly not being considered as part of the “private sector.” In radical discourse these are instead generally seen as belonging to the “popular sector” of the economy, in contrast to the state sector (controlled by the bureaucratic elite) and the private sector (controlled by ‘big’ capitalists).

Peter Drucker sees a public or state sector as the first sector, all wealth-creating business organizations including cooperative enterprises as comprising the second sector, and all non-profit organizations whose common function is not wealth creation per se but “human services” – including volunteer organizations, churches or religious groups, and non-profit schools, hospitals and charitable institutions – as comprising the third sector.

For the NGOs, the concept of “civil society” is based on a set of values by which a third sector (composed of civil society organizations) distinguishes itself from a first sector (the state) and a second sector (the market). Civil society organizations undertake ‘private action for the public good’ in contrast to the state, which undertakes ‘public action for the public good,’ and market sector, which is about ‘private action for private good,’according to Civicus, an international NGO alliance. Civil society is broadly defined as the self-organized section of society. On one hand, it is composed of indigenous and induced community groups, mass organizations, cooperatives, religious societies, trade organizations and professional organizations as membership organizations to help their members. On the other hand, it is composed of local philanthropic institutions, of NGOs (the private voluntary welfare and development organizations), area-based benevolent societies, service clubs, and non-profit companies as non-membership organizations to help others, observed Isagani Serrano. This definition can claim comprehensiveness as it includes practically all organizations that are non-state and not-for-profit. It places co-ops as part of civil society—the citizen-initiated, service-oriented section, instead of lumping coops with ‘private business.’ In Civicus definition, the state sector conduct public action for public good, the market sector is where private entities pursue private action for private good, while civil society is private action for the public good. One may argue that the problem with this definition is that some corporations can be much more effective in saving the environment and providing assistance to others than some NGOs. Moreover, some cooperatives are nothing more than extended private partnerships.

In cooperative discourse, there exists, according to Koenraad Verhagen, in each country a third sector composed of economic organizations that are neither state-owned enterprises nor private capitalist companies. These are usually composed of formal cooperatives and informal self-help groups that together constitute the “cooperative or associative sector” of the economy. In France, some cooperators call the third sector as the “social economy” composed of membership organizations such as cooperatives and even mutual fund organizations.

The definitions by Verhagen and by Drucker are positivistic. The “popular sector” and the “civil society” definitions, on the other hand, emphasize normative and ideological connotations. Verhagen’s definition does not include non-profit and voluntary organizations that are not actually cooperative in organizational form. Drucker’s definition is more encompassing in that it includes the non-profit but lumps co-ops with private business, thus failing to make a normative distinction between the two. Some definition of the civil society concept is broad enough (as Serrano’s). Civicus’ definition is somewhat confusing in that it tend to consider trade unions and cooperatives (which are organizations pursuing the collective private good of their members) as part of the market sector. There is no need belaboring the fact, however, that, in our normative connotation, cooperatives are both market institutions with civil society concerns (as emphasized by the seventh cooperative principle “concern for community” adopted by the ICA in 1995.)

In Verhagen’s definition, membership organizations, composed of formal cooperatives and informal self-help groups, constitute the associative sector of the economy, which is not to be confused with the so-called “informal sector.” The associative sector includes both registered cooperatives and informal self-self groups, in the same way that the private sector has registered enterprises and informal entrepreneurs. However, Verhagen’s definition also has normative connotations. He noted, “The development of an associative sector in itself is unable to solve problems of rural poverty or to change positively the position of low income groups, if the structure of organization’s membership is predominantly high and middle income.” For instance, a credit facility cooperatively owned by a group of well-paid employees or a marketing co-op of well to do planters is an associative economy in itself. Where this tends to happen we may, however, at the same time see the emergence of associative forms of organization among the poor whose success can be attributed to their effectiveness in counterbalancing trends of centralized authoritarianism and capitalist exploitation.