Can cooperatives replace companies?

By Sah Dong-seok

A growing number of people are in a rush to create cooperatives. More than 1,000 cooperatives have been established across the nation in only six months after a basic law governing them became effective on Dec. 1. It was a cooperative of substitute drivers that became the first to register with the Seoul municipal government. Interestingly enough, unique cooperatives such as one consisting of shamans have appeared one after another.

However, there is a long way to go before cooperatives ― an autonomous association of persons who voluntarily cooperate for their mutual, social, economic and cultural benefit ― take firm root in our daily lives. Unlike companies that put top priority on making profits, cooperatives are usually a business organization of the weak that cooperates in the production, sale, purchase or consumption of goods and services, thereby contributing to the development of the community and enhancing the rights and interests of members. They are distinguished from other forms of incorporation in that profit-making or economic stability is balanced by the interests of the community.

Cooperatives are ordinarily appropriate for services that share values on the basis of mutual aid and credibility. Under the basic law, anyone can form a cooperative in all industries except for finance, if he or she secures five members. What clearly sets cooperatives apart from other organizations is the principle of “one member, one vote,’’ regardless of the capital invested.

The government seems intent to fully support the cooperatives craze prematurely on expectations that they could help boost job creation and replenish the nation’s insufficient social safety net. The Ministry of Strategy and Finance aims to build an ecosystem of cooperatives by encouraging their creation in earnest, and Seoul Mayor Park Won-soon has pledged his all-out support for cooperatives so that 8,000 cooperatives can be set up in Seoul in the coming decade.

At a time when free market capitalism is facing a crisis amid ever worsening economic polarization, will the organizational scheme of cooperatives offer an alternative? An intriguing experiment is now getting underway in the world of journalism. Shareholders of Pressian, a progressive online news website that claims to be an alternative media outlet, voted earlier this month to transform from an incorporated company into a cooperative. Pressian says its conversion is a desperate move to “do work properly,’’ emerging from its heavy reliance on large conglomerates for advertisements and indulgence in sensational reporting.

Admittedly, cooperatives are unable to compete with private businesses ― which go through fire to make profits ― on an equal footing, and their seemingly slow decision-making is often quite problematic. In fact, many consumer cooperatives in foreign countries have gone under because of disputes over transactions on credit among members and their oft-repeated opportunistic behaviors. In reaction to these problems, they introduced the principles of cash transactions and dividends that are divided among the members according to their participation in the enterprise.

Most worrisome is that cooperatives may be tainted by politics ahead of local elections next year. There has been speculation that the latest cooperatives boom may have been spurred by the heads of local governments who capitalize on the fact that each cooperative can receive up to 80 million won for two years from a local government. This reflects public concern that cooperatives can help their election campaigns in return for taxpayers’ money given to them. The liberal opposition Democratic Party, in particular, is showing special interest in cooperatives in its belief that they can play the role of friendly forces in elections, given that cooperatives usually pursue liberal values, based on solidarity and equality. But there is lingering anxiety that the budding cooperatives movement may face a political backlash because the basic law prohibits cooperatives from engaging in political activities.

As far as cooperatives are concerned, Germany sets a good example. Cooperatives account for about 7 percent of the German economy with one out of four Germans registered as members. The number of cooperatives in Germany is tallied at about 7,600, which would provide nearly 780,000 jobs. Unlike Korea, the European country allows cooperatives in the financial sector, and most recently, there has been a boom of cooperatives operating solar power and wind power plants.

The latest cooperatives movement is also in line with the new administration’s “economic democratization’’ drive as both advocate the protection of the vulnerable. A case in point is that small merchants in a region can form a cooperative to take a united front against the tyranny of large businesses.

The United Nations designated 2012 as the International Year of Cooperatives and the government also designated July 6 as the Day of Cooperatives to organize various events. No one can deny the rationale behind the recent cooperatives boom, given that our growth led by large conglomerates has faced limitations and President Park’s ambitious welfare pledges are facing difficulties due to a shortage of financial resources.

What’s clear, however, is that cooperatives can be subsistent only when they create their own values at markets. This has been verified by the fact that social enterprises that once attracted the spotlight have been fading out. To achieve success, cooperatives must enhance their managerial skills and encourage members to exercise creativity on the basis of mutual aid, self-help and self-reliance.

The writer is the chief editorial writer of The Korea Times. Contact him at sahds@ktimes.co.kr.