Alternative Economic Structures and Business Enterprises – I

The basic reason for having cooperatives as a form of economic enterprise in an economy is to help people work together and move forward in a collective way. Cooperatives are considered to be the best form of economic enterprise because they are capable of seeking a balanced adjustment between collective spirit and individual rights. Dieter Dambiec summarizes PROUT’s views on cooperatives.

Dieter Dambiec
Cooperation means getting things done with collective effort. The benefit of cooperatives is that they combine the wealth and resources of many individuals and harness them in a united way. To help achieve this, however, cooperatives should be structured so that individual interest does not dominate collective interests. Individual dominance can adversely effect the welfare of different social groups and the environment.

Essence of cooperatives

Cooperatives as a form of economic enterprise involve getting things done between free human beings with:

(i) equal rights;

(ii) equal human prestige (and mutual respect for each other);

(iii) equal locus standi (eg, legal standing) so that everyone’s welfare is considered. This is called “coordinated cooperation” and is needed for equilibrium and equipoise in social life. A socio-economic sys tem should be based on coordinated cooperation not subordinated cooperation.

“Subordinated cooperation” involves people doing something individually or collectively, but at the same time keeping themselves under other peoples’ supervision or control. This can degenerate the moral fabric of an enterprise and should be avoided when structuring cooperative business enterprises.

Avoid communes

A collective economic enterprise that lacks coordinated cooperation as its primary mode of functioning is a commune or communist system. It ends up being based on subordinated cooperation and the predominant relationship is that of supervisor and supervised or master and servant.

According to Prout founder P.R. Sarkar, these relationships are ultravires to the psychological needs of the human mind and retard progressive movement.

Such systems force production down, not increase it. This is because workers do not feel oneness with their job, nor do they have freedom to express all their potentialities. Communes or collectives in communist countries were not cooperatives. They were simply production distribution mechanisms under a regimented system of control.

The major distinctions between communes and cooperatives are:

(i) Communes lack personal ownership; this is one reason for their failure. Without a sense of personal ownership people do not work hard or care for property. Suppression of personal ownership sentiments results in sluggish production and psychic oppression. In cooperatives, to compare, there is personal ownership, subject to social limitations on concentration of wealth but also part of a mechanism to ensure progressive increase in everyone’s living standards.

(ii) Communes lack a proper incentive system, which discourages individual initiative by talented people. The result is that people do not work hard.

(iii) Organisational behaviour and outlook in communes tends to be materialistic and the imposed leadership crude and unsophisticated.

Avoid capitalism

Cooperative economic enterprises must also avoid becoming capitalist in nature. A key feature of capitalism is the import of raw materials from other countries or regions in order to manufacture finished products. Cooperatives must not encourage this form of economic imbalance. An economy based on cooperatives must develop its own raw materials through research so that cooperatives are not dependent on foreign raw materials.

For example, apple orchards (raw materials), sericulture, apple processing, packaging, transportation and marketing should all be regarded as part of the farming industry of a region and function as cooperatives. However, in capitalism raw material producers like farmers, timber growers, fishing fleets, etc. have to sell their produce immediately through large commodity exchanges or multinational companies in order to pay off loans for irrigation, seeds, labour, equipment, etc. Because capitalist enterprises control markets for these raw materials, producers´ often sell at lower prices than they could get under other arrangements.

A good example of the squeeze on primary producers’ income by capitalist enterprises can be seen in the steep decline in wool prices in Australia over recent years. Commodity exchanges and multinational corporations act as or dominate raw materials markets to the detriment of their suppliers.

In a cooperative system, raw materials producers like farmers would not be faced with the same financial pressures, and so not be forced to sell produce immediately after harvesting at sub-market prices. By advancing money to individual farmers, cooperatives will allow farmers to better control the conditions of sale and thus enjoy more financial security.

A properly conceived and structured cooperative should be capable of:

(i) determining how much to sell;

(ii) determining the most favourable time to sell in order to get the best price;

(iii) fixing the price of its own produce within certain price limits. In this way cooperatives will get the profit which is presently taken by middlemen and profiteers in the capitalist system.

In a cooperative farmers sell their produce to the cooperative at a rate fixed by the cooperative. When the market price is reasonable the cooperative sells the aggregate. The farmers then receive their percentage of the profit, which will be proportional to the amount of their land shareholding in the cooperative. At least this can be an initial arrangement.

Membership requirements

Cooperative members have to be local people who, by virtue of their established residence, can make a commitment to the cooperative and the region it services. Therefore the problems of a floating population and immigrant labour which may disturb the economy by increasing the availability of labor will not occur in a cooperative system. The requirement of a worker’s or shareholder’s longer term commitment to the cooperative means there is no scope for floating labourers to be cooperative members. Elimination of immigrant labour will also protect the social life of the cooperative from possible adverse social influences created by mobile populations.

Anyone who wishes to be part of the socio-economic life of a region, however, can settle there and become a member of local cooperatives.


Sarkar further states that in the cooperative system unemployment will be solved. This is because as production increases the need for more human resources and for the construction and operation of more facilities will also increase. Educated people can be properly employed as skilled workers. There will also be a need for tractor drivers, labourers, cultivators, etc. who as cooperative members will naturally do this work.

In times of economic downturn everyone’s labour will be proportionately reduced so that no one suffers the stigma of being unemployed. In this way economic downturns will always be short and temporary.

Sarkar is confident that cooperatives will solve the unemployment problem and states that in the cooperative system there should be no compulsory date for superannuation. People should be free to work as long as they like providing their health permits. This is in contrast to some government policies which encourage older people to retire in order to make room for younger people. Following is a look at other aspects of Sarkar’s cooperative concept.

Workforce composition

All groups in the cooperative workforce will benefit from the cooperative’s profits. The members of a cooperative will be composed of:

(i) shareholders – who receive salaries for their work plus a return on their shares;

(ii) non-shareholders or labourers – who enjoy stable employment and favourable wages.

Non-shareholding labourers can be further categorized into those who are:

(i) permanent labourers – who get bonuses and premiums (dividends) as incentives besides their wages; and

(ii) casual or contract labourers – who only get wages for their labour. Labourers or workers also include those who are engaged in cooperative management. They will be entitled to draw dividends and salaries on the basis of their membership in and services they render to the cooperative.

This structure allows cooperatives to develop a proper incentive system so that individual initiative by talented people is encouraged. An incentive system should ensure that intelligent people are not forced to do work which is unsuitable for them, or be paid the same wages as ordinary workers. If skilled workers get paid more than unskilled workers there will be an incentive for all to become skilled and work harder. In this way the cooperative will encourage the educational and skill upgrading of its members.

In addition, workers who give the greatest service to the cooperative should get the greatest bonuses. Bonuses should be paid in proportion to wage rates and should reflect both the skill and productivity of the worker.

Shareholder composition

Members who purchase shares in a cooperative should have no power or right to transfer their shares without the permission of the cooperative. Such a pre-emptive right allows existing shareholders to determine the basis of membership, and prevents capitalist entrepreneurs from purchasing large numbers of shares in a cooperative and speculating in the market. Speculative activity can easily lead to a depression and this will of course effect the cooperative.

Shares can however be inherited. The shares of cooperative members without descendants simply pass on to their legally authorised successors, who become members of the cooperative if they are not already members. Different countries have different systems of inheritance, so the right of inheritance should be decided according to the system in vogue. In western common law countries if someone inherits shares in a business enterprise and does not want to become a member of that enterprise, existing shareholders simply buy that person out. Presumably the same reasoning can be applied to cooperatives. Following this arrangement will help cooperative members avoid litigation.

Because cooperative members will be from the same vicinity they will all know each other, so there should be no difficulty in deciding who should be able to buy such shares due to ignorance about potential shareholders.

Disadvantaged persons can also benefit from the cooperative system. A widow, disabled worker or minor can all own shares and derive an income based on the number of shares they own. Therefore even if as cooperative members are unable to work, they will still be entitled to an income from cooperative profits. Establishing such a structure on a large scale should be able to do away with the welfare state mentality prevalent in capitalist societies.

Dividend distribution

In a cooperative system there will be no preference shares. Today preference shares are used by some financial institutions as a substitute for debt investments (ie., loans to businesses). Preference shares really mean that a lender in the guise of a shareholder has first grab at co-op dividends and therefore co-op profits. Such investors should become ordinary shareholders like other co-op members and share proportionately in the success (or perhaps otherwise) of the co-op.

Cooperative management

Cooperative members should elect a board of directors from amongst the cooperative members. The position of director should not be honorary. Directors must be moralists. The board decides the amount of profit to be divided amongst members, ie., the dividend to be paid to each shareholder. However, not all profit should be distributed in the form of dividends. Some should be kept or used for:

(i) reinvestment, purchasing capital items or repair and maintenance;
(ii) increasing the authorised capital of existing shareholders;
(iii) deposit into a reserve fund to be used to increase the value or rate of dividends in years when production is low. This also ensures that shareholder capital is not adversely affected.

Part 2

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