The Politics of the Cooperative Sector in Developing Countries: Insights from Argentina, Brazil and Colombia

This is part of a series of think pieces by scholars and practitioners working on a broad range of issues within the field of Social and Solidarity Economy. The series is being published in tconjunction with the UNRISD conference “Potential and Limits of Social and Solidarity Economy”. The conference took place on 6-8 May 2013 in collaboration with the International Labour Organization and the UN Non-Governmental Liaison Service.

Although cooperatives are widely recognized as key drivers of economic and social development, the type and scope of the policies aimed at promoting the formation, expansion and consolidation of this form of social business vary considerably across the developing world. Even in countries with a long tradition of cooperative entrepreneurship, government policies toward the cooperative sector differ considerably.

The question that naturally arises is: What accounts for such divergences? The broad political economy literature on policy decision making and policy processes suggests at least two possible explanations. On the one hand, advocates of the so-called “politics matters” school of thought contend that policy outputs are influenced by partisan variables. According to the traditional Left-Right characterization of the political spectrum, Leftist incumbents are driven by ideals and concerned with equality and progress, whereas Right-wing governments are mainly motivated by interests and tend toward inequality and conservatism (Bobbio 1997). On the other hand, promoters of the economic theory of regulation argue that political and regulatory outcomes are the result of complex interactions between the supply of government-bestowed benefits and the demand for those benefits by consumers and firms (Stigler 1971). From this perspective, the degree of concentration of a given industry is one of the major determinants of its ability to influence political and decision-making processes.

Andrés Spognardi is an Argentine-born Italian political economist previously working at the Italian Institute of Human Sciences in Florence. His research work, which focuses almost exclusively on Latin American countries, covers two main topics: the political economy of the cooperative sector, and the institutional and socioeconomic aspects of natural resource management.

Testing the theories: The cases of Argentina, Brazil and Colombia

This think piece examines whether it is possible to use the above mentioned theories to explain differences in the policy framework for cooperatives among developing countries. Are Left-wing governments more prone to support and promote the cooperative model of business than Right-wing governments? Do tightly-integrated cooperative movements exert more influence on public policy making than loosely connected or fragmented cooperative movements?

The experiences of Argentina, Brazil and Colombia over the last 20 years provide the ideal comparative setting to address these questions. Although the three economies share a long tradition of cooperative ownership and have relatively similar size cooperative sectors, the organizational configuration of their cooperative movements differs significantly, ranging from a tightly-knit vertical structure in Brazil to a highly fragmented one in Argentina. At the same time, the recent history of the three developing democracies offers an interesting mix of political ideologies. While Colombia has seen an uninterrupted succession of Right-wing administrations, Brazil and Argentina shifted from the Right to the Left in the early 2000s.

Cooperative movements in a hostile political environment

In the 1990s the Right-wing administrations of Argentina, Brazil and Colombia implemented a series of neoliberal reforms which, among other measures, included public programme cutbacks, liberalization of the domestic economy, and reduction of protectionist barriers to trade and investment. From the government’s perspective, cooperatives were not an important part of the development strategy. Their desirability was almost entirely based on their ability to operate efficiently in a free-market economy.

Although these conditions created some business opportunities for large companies, many small and poorly capitalized cooperatives suffered from the increased competition, as well as from market deregulation that did not adequately take into account their social, not-for-profit nature. In all three countries, the organizational structure of the cooperative movement was a key determinant of the sector’s ability to react to the challenges posed by the Right-wing agenda.

In Argentina and Colombia, a divided cooperative leadership was unable to cope with the complexities of the hostile political and economic environment. In some cases, the divisions undermined the political strength of cooperatives and their ability to challenge restrictive policies and regulations. When in the mid-1990s the Argentine Central Bank raised the capitalization requirements for both commercial and cooperative financial institutions, the fragmented cooperative leadership was politically too weak to challenge the decision. Since most cooperatives were unable to meet the stricter regulatory standards, the measure spurred a series of mergers, transformations and liquidations that ended with the collapse of the entire credit cooperative system.

In other cases, the divisions within the cooperative movement hampered the development of a concerted political and economic strategy. While the openness of the economy provided opportunities for the politically influential and economically powerful Argentine agricultural exporting cooperatives, the increased competition in the domestic market and the concentration of credit supply toward less risky customer segments led to the disappearance of hundreds of smaller, less efficient and politically defenseless cooperative organizations.

The lack of cohesion within the cooperative movement also helped exacerbate the crisis of the credit cooperative sector in Colombia. Initially, when a liquidity crunch started to affect a relatively small number of credit unions in the late 1990s, the solid and well-established cooperative banks remained indifferent. In the absence of a strong response from the cooperative sector, the authorities intervened to protect the rights of depositors and forced the liquidation of more than two-thirds of the struggling entities. Ironically, the intervention of the government also undermined the public’s confidence in cooperative banks, and eventually led to their transformation into commercial or public institutions.

In contrast to what happened in Argentina and Colombia, the tightly-integrated Brazilian cooperative movement exerted substantial influence on the policy-making process. Its coordinated political efforts led to the implementation of policies and programmes that helped most cooperatives adapt effectively to the new conditions of the economy.

In 1995, five years after the closure of the state-controlled National Bank of Cooperative Credit, the sector successfully lobbied the government to allow credit unions to create and run their own cooperative banks. At around the same time, the influential Organization of Brazilian Cooperatives (OCB)—designated by law as the exclusive representative body of the national cooperative movement—strengthened its ties to political power by officially relaunching a multi-partisan coalition of legislators committed to advancing the cause of cooperatives in the national Parliament. Acting as a unified voice for the sector, the OCB’s strong influence on the Brazilian Congress led to the development of a refinancing plan for critically indebted agricultural cooperatives, and to the creation of a fund for training and technology transfer that has helped Brazilian cooperatives improve their efficiency and increase their presence in the market.

Leftist governments, cooperatives and the perils of fragmentation

Since the election of more progressive governments in 2003, both Brazil and Argentina have abandoned the discredited neoliberal paradigm and adopted a more proactive approach toward the cooperative sector. In contrast to what happened in the 1990s, the Argentian and Brazilian Left-leaning administrations started to acknowledge the potential socioeconomic benefits of cooperatives and explicitly included them in the national development agenda. But contrary to what one might have expected, the authorities’ new attitude has not necessarily translated into better policies.

Although both countries have channeled significant resources into the cooperative sector, the differences in the organizational structures of the two cooperative movements have been reflected in their ability to exploit the opportunities provided by the favourable political environment.

While maintaining its influential, multi-partisan ties to the Congress, the strong and cohesive Brazilian cooperative leadership has been able to establish a largely constructive relationship with the national Leftist administration. Taking advantage of the friendly political context, Brazilian cooperatives have become major actors in the policy-making process. They have used their leverage to exert considerable influence on the policy agenda, and have fruitfully collaborated with the authorities in the development and implementation of important policy initiatives, such as the Brazilian Cooperative Plan—a national strategy aimed at providing support to cooperative businesses.

In Argentina, things have been different. The existence of several representative organizations that often overlap or even compete with one another has added complexity to the policy debate and hampered the effectiveness of some well-intentioned reforms. Almost 10 years after the government passed a Credit Union Act aimed at revitalizing the sector, not a single credit cooperative has opened its doors in Argentina. The inability of the movement to articulate a proposal and actively participate in the drafting of the law was one of the main reasons for this failure.

At the same time, the fragmentation within the cooperative movement has given the authorities the chance to take different approaches to different cooperative segments. In some cases, this multipronged strategy has helped accelerate an ongoing process of division and identity dissolution. The government’s decision to increase the tax burden of highly productive agricultural companies without distinguishing between their capitalistic or cooperative nature has prompted the leaders of the politically isolated agricultural cooperative movement to distance themselves from the sector and forge a political alliance with some of the main representative organizations of the old agrarian capitalist oligarchy.

Perhaps worse, the inability of the divided cooperative movement to adequately represent and protect the best interests of the sector has created room for opportunistic behaviour on the part of the government. In a context where democratic institutions are weak, and thus incapable of preventing certain abuses of power, the self-interested actions of politicians who seek to portray themselves as keen champions of social causes have resulted in the harmful politicization of many cooperative entities. Using state resources, the authorities have been able to co-opt some representative bodies of the urban cooperative movement and enlist their services in the top-down construction of a vast network of publicly-funded “worker cooperatives”. Deprived of the basic characteristics of a social enterprise, and unable to become self-sustainable entrepreneurial projects, most of these government-sponsored “cooperatives” have been acting in practice as clientelistic vehicles of the ruling party.

The trap of ideology and the challenge of integration

Two interesting points related to the politics of the cooperative economy and with important implications for the prospects of the sector in developing countries emerge from this comparative overview. Firstly, the ideology of the government appears to have a mixed impact on the policy framework for cooperatives. Although Right-wing administrations seem to be less responsive to the demands of the cooperative sector, the presence of a Left-leaning government, as indicated in the case of Argentina, does not necessarily imply a virtuous policy environment.

Secondly, the degree of integration among cooperatives appears to be a key determinant of their political leverage. As the Brazilian case shows, regardless of the political ideology of the government, a tightly-integrated cooperative movement can exert considerable influence on the policy-making process. Integration can help cooperatives both to adapt to a hostile political context, and to exploit the opportunities provided by a more progressive environment. Moreover, in developing countries like Argentina, where democratic institutions are weak and opportunistic politicians are not uncommon, integration might also act as a barrier against political manipulation by opportunistic authorities.

The considerations above suggest that the creation of strong and cohesive representative bodies is a critical step in the development of a vibrant, autonomous and sustainable cooperative sector. This, however, can be a long and challenging task. The decade-long efforts of the Colombian cooperative leadership to create a solid and unified system of representation have produced only partial results. Although in recent years the movement’s developing representative organizations have been largely successful in fighting against restrictive legislation, the persistence of internal divisions and organizational problems has limited their ability to articulate and push forward the sector’s own development agenda.

Even the successful Brazilian model of cooperative representation is currently facing some critical challenges. The recent proliferation of small grassroots cooperatives has given rise to a number of representative bodies that question the philosophy of the traditional cooperative movement and the legitimacy of OCB’s representational monopoly. The sector has gained in diversity, but the loss in cohesion has complicated the policy debate and hindered the implementation of important reforms.

Paradoxically, the success of the Brazilian cooperative economy seems to have undermined the integrity of its representative structures, and thus the sector’s ability to shape the policy environment. It is still unclear how a rapidly expanding and increasingly diverse cooperative movement will manage to defuse conflict and constructively channel the expression of multiple viewpoints. But what is certain is that the coming years will provide us with valuable lessons about the operating principles that must underpin efforts to build a cohesive and influential cooperative leadership.


REFERENCES

Bobbio, N. 1997. Left and Right: The Significance of a Political Distinction. Chicago, University of Chicago Press.

Stigler, G. 1971. “The Theory of Economic Regulation.” Bell Journal of Economics and Management Science, Vol. 2, No. 1, pp. 3-21.