UNIT 1: COOPERATIVE MACRO ENVIORONMENT

Contents
1.0 Aims and Objectives

1.1 Introduction

1.2 The concept of cooperation

1.3 Market Vs government: a historical perspective

1.4 Policies of different economic systems and cooperatives

1.5 Cooperative Models

1.6 Summary
1.7 Answers to Check Your Progress
1.8 Model Examination Questions
1.9 References

1.0 AIMS AND OBJECTIVES

This unit aims at providing the major direction of the government finance.
After reading this unit students should be able to:
Understand the concept of cooperation.
Distinguish between market and government.
1.1 INTRODUCTION

This unit introduces the concept of cooperation, cooperatives under different economic
systems and different models of cooperatives. Cooperatives, system of economic action
and business enterprise, characterized by the absence of the profit motive and involving,
as its primary function, the distribution of goods and services.
Economic system in which individuals, rather than government, make the majority of
decisions regarding economic activities and transactions is called market economy.
1.2 The concept of cooperation

Cooperation touches no man's fortune, it seeks no plunder, it causes no disturbance in

society, it, gives no trouble to statesmen, it enters into no secret associations, it
contemplates no violence, it subverts no order, it envies no dignity, it asks no favor, it
keeps no terms with the idle it will break no faith with the industrious. It means self-help,
self-dependence and such share of the competence as labor, skill or thought can win and
this it intends to have.
Cooperative enterprise is a form of organization through which individuals voluntarily
undertake certain joint activities and share in the benefits or proceeds of their collective
effort. The cooperative movement is broad in scope, ranging from the production and
marketing cooperatives to the credit unions and consumer cooperative associations.

Cooperatives, system of economic action and business enterprise, characterized by the

absence of the profit motive and involving, as its primary function, the distribution of
goods and services. Traditionally, it is a movement of consumers who unite on the basis
of their mutual interest in reducing living expenses and benefiting from the ownership
and control of production facilities and of accommodations shared by all. Some
cooperatives, however, serve the interests of people functioning as producers, not as
consumers. Producers' cooperatives include associations of workers who cooperatively
own and operate factories or farms. Producers also form associations for the purposes of
economically purchasing supplies and of profitably marketing their produce. Such
associations have been important elements of the cooperative movement in the U.S.,
especially among farmers. Should social changes result from the operation of consumer
or producer cooperatives, they are usually regarded as by-products of an economic
motivation.

1.3 Market Vs government

Market Economy, economic system in which individuals, rather than government, make
the majority of decisions regarding economic activities and transactions. Individuals are
free to make economic decisions concerning their employment, how to use or accumulate
capital, what expenditures to make, and whether to use their resources now or to save
them for later consumption. The principles underlying market economies are based on
laissez-faire (non-intervention by government) economics and can be traced to the 18th
century British economist Adam Smith. According to Smith, individuals acting in their
own economic self-interest will maximize the economic situation of society as a whole,
as if guided by an “invisible hand.” In a free-market economy the government's function
is limited to providing what are known as “public goods” and performing a regulatory
role in certain situations.

Public goods, which include defense, law and order, and education, have two
characteristics: consumption by one individual does not reduce the amount of the good
left for others; and the benefits that an individual receives do not depend on that person's
contribution. One individual's use of light provided by a lighthouse does not reduce the
ability of others to use it. In addition, the lighthouse owner cannot restrict individuals
from using the light. The latter illustrates the “free-rider” phenomenon of public goods
both those who helped pay for the lighthouse and those who did not will enjoy the same
amount of light. The “free-rider” problem can be eliminated if governments collect taxes
and then provide public goods.

Government's role in a market economy also includes protecting private property,

enforcing contracts, and regulating certain economic activities. Governments generally
regulate “natural monopolies” such as utilities or rail service. These industries require
such a large investment that it would not be profitable to have more than one provider.
Regulation is used in place of competition to prevent these monopolies from making
excessive profits. Governments may also restrict economic freedom for the sake of
protecting individual rights. Examples include laws that restrict child labor, prohibit toxic
emissions, or forbid the sale of unsafe goods.

Proponents of free-market economies believe they provide a number of advantages. They

see free-market economies as encouraging individual responsibility for decisions and
they believe that economic freedom is essential to political freedom. In addition, many
people believe that free markets are more efficient in economic terms. Free markets
provide incentives both to individuals to allocate resources, such as labor and capital,
among the most productive uses, and to firms to produce goods and services that the
public wants, using the most efficient means of production.

Free-market economies are also criticized. Opponents believe that a free-market economy
cannot ensure basic social values, such as alleviating poverty, or that the income
distribution that results from a free-market economy may not be equitable. A free-market
economy may also permit the accumulation of vast wealth and powerful vested interests
that could threaten the survival of political freedom.

Alternative economic systems include communism and mixed economies. In

communism, the government plans the economy and all means of production are publicly
owned. The economy of the former Union of Soviet Socialist Republics was an example
of a planned economy: all decisions regarding production and distribution were made by
the government. In contrast, a mixed economy is one where the government does some
planning and owns or controls more industries than in a free-market economy.
Governments may own key industries such as steel, aviation, and banking, while the
individual still plays an important role.

1.4 Policies of different economic systems and cooperatives

An economic system is defined as a set of customs laws, rules and regulations dealing
with the production, exchange and consumption of goods and services. Economic
systems vary greatly in the manner in which resources are controlled by individuals,
business organizations and governments.
Regardless of the type of economic system, there are at least five basic features which
characterize any system. These are: ownership of property, initiation of enterprise,
economic incentives, pricing mechanism and market competition.

Policies provide the infrastructure that underpin and justify the cooperative's activities in
different economic systems. Without them chaos would occur in that decisions would be
taken in one set of circumstances and others in a different set of circumstances which,
without any structure of coherent policies to which they can be referred, would quickly
produce a situation where one set of decisions bore no relationship to the others and even
produce situations where they might conflict.

1.5 Cooperative Models

Kibbutz cooperative model in Israel.

In the nation of Israel there are communities known as kibbutz. The first kibbutz to be
established in Israel was Degonia, near the Sea of Galilee, in 1909. These communal
farming settlements were established to avoid the mistake of earlier immigrants. Their
motto was "Work and Believe"

There are about 230 kibbutzim in Israel. They started at the turn of the century as
agricultural cooperatives protected by armed settlers. Life on a kibbutz varies somewhat
according to the man focus of each particular group. Most are mainly agricultural, while
others make toys, shoes, blow glass, or a number of other things. A number of kibbutzim
operate tourist facilities or arrange for young people from other countries to spend time
living at the kibbutz and sharing in the work and other aspects of life there.

There are different levels of prosperity in kibbutzim. There are kibbutzim where the
people live comfortably and there are poor kibbutzim where life is hard. No matter what
type it is, they all use the same form of government. Committees are what govern kibbutz
life. The various parts of community life are dealt with by committees dedicated to the
aspect. There are committees of finance, education, and care of children--just to name a
few. They have a special meeting once a year where they confer and elect officers, take
care of policies, and other aspects of kibbutzim life.

In a kibbutz all property is shared equally by everyone living in a certain village. There is
equality of opportunity and responsibility. Residents do not receive salaries but they are
given housing and other necessities, including medical services and education.

Women work as the men do, and everyone eats at a common table. Some kibbutzim have
modern kitchens, swimming pools, and gymnasiums. There are art galleries, concert
halls, and cultural centers. Kibbutz hotels are popular vacation spots.

Originally the children on a kibbutz lived in a separate house apart from their parents.
Their parents were working all day. They could visit in the afternoons and on weekends,
but the children slept n special quarters and not with their parents. Today, n an effort for
more family stability and closeness, the children spend there days with other children but
sleep in their parent's at night

Members from one kibbutz can transfer to another or move to independent farms or other
jobs.
Less than 4% of the people of Israel live in kibbutzim. Others look up to those who do
because they are responsible for most of Israel's successful scientific farming.

The Moshav - a model of a super multi - purpose cooperative in Israel

A Moshav is a village and multi - purpose cooperative. There is a complete identification

between the village and the cooperative. To make matters simple, we may say that a
person who lives in the village is necessarily a member of the cooperative and if we
encounter a person who is a member of a multi - purpose cooperative, which is a Moshav,
it is known that he necessarily lives in the village. Thus village equals multi - purpose
cooperative, but it is not for that reason a Moshav. The most advanced multi - purpose
cooperative integrates with the village. In the village we find all the municipal services
such as: education, culture, leisure, health, youth, sport, gardening, religion, roads and
refuse, hygiene, public lighting and old age facilities.

The conclusion is that in the Moshav, the person who is the village head is at the same
time president of the cooperative and both offices are held by one and the same person.
It is possible to judge the community structure of Moshav clearly when reviewing some
of the basic principle of the community development and organization. A central aim is
to create the maximum identification of the members of the community with the
community, based on their will to live in and be a part of the community. Participation in
the activities of the community must be voluntary and apply to all facets of life of the
community
At a Moshav, people make their own decisions, cook in their own kitchens, and eat at
their own tables. Each family owns their own farmland. They own their own homes.
Purchasing and selling are both done cooperatively

The individual can develop because he has faith in what he does and in his capacity to
solve the problems facing him. Of course democracy is a necessary condition for all
successful community action, where everybody is entitled to act according to his beliefs,
to progress and to contribute his best to the community. Community development aims at
influencing the environment and the situation of all. All these principles of community
development are shared by the Moshav.

In the Moshav there are four main elements: a multi - purpose cooperative; a village
which is identical to the cooperative; all municipal services; a community.

There is very important characteristic missing without which there is no Moshav. It is

mutual aid and responsibility that exist in the Moshav and among its members. This
factor has two aspects. One of them is the socialist sprit of the Moshav where each
member individually and the Moshav as a whole, are ready to come to help of any
member who has material, social or family problems. The other aspect is the mutual
responsibility of each member for all financial transactions of the Moshav.
The person in charge of the mocha's finances, knowing that he has that kind of guarantee,
can fulfill functions more easily and effectively. The above five factors together
constitute a Moshav.

Check Your Progress

1 What is the function of government in a free-market economy?
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2. Discuss the five basic features that characterize any economic system.
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1.6 SUMMARY

Cooperation causes no disturbance in society, it, gives no trouble to statesmen, it enters

into no secret associations, it contemplates no violence, it subverts no order, it envies no
dignity, it asks no favor, it keeps no terms with the idle it will break no faith with the
industrious

Traditionally, cooperative is a movement of consumers who unite on the basis of their

mutual interest in reducing living expenses and benefiting from the ownership and
control of production facilities and of accommodations shared by all.
Currently, cooperative models farming establishments called kibbutzim and moshavim
provide much of Israel’s agricultural output. Many of Israel’s rural Jews live in two
types of cooperative communities, the kibbutz and the moshav. In a kibbutz, residents
own all property collectively and contribute work in exchange for basic necessities. In a
moshav, families own separate farms but cooperate in some aspects of agricultural
marketing.

1.7 ANSWERS TO CHECK YOUR PROGRESS

1. According to Adam Smith in a free-market economy the function of government is

limited to providing what are known as “public goods” and performing a regulatory
role in certain situations.
2. Regardless of the type of economic system, there are at least five basic features which
characterize any system. These are: ownership of property, initiation of enterprise,
economic incentives, pricing mechanism and market competition

1.8 MODEL EXAMINATION QUESTIONS

1. Discuss the relationship between market structure and government.

2. Explain the Moshav model of cooperative.
3. Discuss the Kibbutz model of cooperative.

1.9 REFERENCES

1. Axelrod R. & Hamilton W.D. (1981): "The Evolution of Cooperation", Science 211, p.
1390-1396.
2. Axelrod R. (1984): The Evolution of Cooperation, (Basic Books, New York).
3. Christy Ralph (1987) “The Role Of Farmers Cooperatives in a Changing Agricultural
Economy”; Southern Journal of Agricultural Economy; July 1987
4. COPAC (2000) The Contribution of Cooperatives to Employment Promotion;
Reprinted for the International Day of Cooperatives
5. Porvali, H, et al (1993), the development of cooperatives and other rural organizations:
selected country studies, Agricultural and Rural development series No. 8. The World
Bank, Washington D.C.
6. Yaeger, J.F., The First Thirty years-Unico, United Co-operatives, Inc., Alliance Ohio.
1963.
7. Hellm, F.C., (1968), The Economies of Cooperative Enterprise, University of London
press Ltd., London.