The Big Challenges of Venezuelan Cooperativism Today

In Venezuela, at the beginning of the 21st Century, propelled by the government, there was an unusual growth in the number of legalized cooperatives resulting in a jump from less than 1,000 cooperatives to more than 180,000 in about a 5-year period. However, there is no exact knowledge of how many of these function or will continue to function.

In Venezuela, at the beginning of the 21st Century, propelled by the government, there was an unusual growth in the number of legalized cooperatives (with mere legal registration) resulting in – according to official data – a jump from less than 1,000 cooperatives to more than 180,000 in about a 5-year period.

However, there is no exact knowledge of how many of these function or will continue to function. The official estimates are a 35 percent rate of survival, which would mean about 60,000 cooperatives in operation. However we believe that the real rate of survival (those that are effectively active) does not exceed 15 percent, which means approximately 30,000 cooperatives. This is still very high for a country the size of Venezuela.

In this presentation we will try to give an orientation to the members of cooperatives, not only about the immediate things to be done, but also our understanding of the six big challenges to be faced in the coming years. It may seem too audacious to claim to know this, but we think that we should give our opinion, as a way of enriching the debate about what should be done.

First Task: To Survive As Enterprises

We acknowledge the efforts of numerous Venezuelans who have been able to manage very successful projects with the cooperative structure and spirit. They are people who have taken advantage of the opportunities that have been presented and who struggle with great determination to develop their cooperative enterprises in very diverse socio-economic activities. However, we observe that:

The very high rate of cooperative mortality in the sector is a product–among other causes–of having started many cooperatives without having first proven their viability by means of corresponding socio-economic project proposals; of the reduced capacity of administration of most of the people involved in them; and of the fact that they were capitalized exclusively with the economic contribution of the State and were not forced to take into consideration the means of commercialization of their products and services.

We are aware that–just as during the sixties–people again feel the call of “the cooperative myth,” according to which it is supposed that merely with the presence of a single cooperative one has the key to solve a socio-economic problem, without taking into consideration that to create a cooperative many times can be the source of a true problem.

It is a certain fact that most of the cooperatives in operation today are of very small dimensions, they are located fundamentally in the area of services, many of them are doing activities of the public sector, in areas of reduced profitability, with a high component of manpower of low qualification, and with scanty technological content.

With few exceptions, they suffer from weak management due to such factors as not having structured effective managerial teams, having serious problems with the financing–sustained and growing–of their operations, lacking stable sources of supply of their raw materials and, most important, no efficient channels to commercialize their products.

To somehow turn this situation around, we believe we should:

1. Develop educational media programs that help the population to internalize the concept that cooperatives are truly both economic and social enterprises of autonomous character.

2. Design serious cooperative administration training programs for the members, with the collaboration of the autonomous public universities, and also support the creation and expansion of specialized training centers in this field. For this purpose, cooperatives should use – in a coordinated way – part of their education funds to co-finance these training programs.

3. Demand that the granting of government bank loans to cooperatives should depend on the preparation and positive evaluation of a project proposal that considers the financial, social and educational variables and the commercialization according to the cooperative’s characteristic identity.

4. The project proposals should be prepared by professionals specialized in the area and evaluated by trained personnel, who are located in the same area in order to appreciate–in situ–their particular characteristics, taking into consideration the opinion of the supervising organizations.

5. Motivate voluntary processes of merging small unviable cooperatives, to create enterprises with more capacity and size, with greater potential to penetrate and survive in the market, preserving the socio-economic homogeneity of their members, as well as their own specific identity.

Second Task: To Become True Cooperatives

While some cooperatives function as such, it is lamentable the widespread use that has been made of them to obtain generous public financing that is granted to cooperatives under special conditions for the director’s personal use; for the unfair benefit of public sector contract preferences or tributary benefits, while at the same time avoiding labor obligations and the social security of the workers, making their working conditions precarious.

In numerous other cases, a political party role is given to the cooperatives as the local agents to implement plans and programs unilaterally directed by the government, and exclusively for its benefit. In this way, enormous public resources are wasted in groups of people that through precarious cooperatives, assume populist programs that are neither profitable nor sustainable.

On the other hand, the Venezuelan Law of Cooperative Associations diverges from the universal principles of cooperation that throughout the world identify a cooperative enterprise, allowing the existence in the country of false cooperatives that are legal. Indeed, the law proclaims like a principle that the economic contributions of the members should be equal instead of fair; it allows different forms of voting instead of “one person one vote”, and it accepts the distributing of surpluses in proportion to the contributions.

The law also lacks indispensable standards regarding different types of cooperatives, which impedes the description of its operating specifics and, most crucially, of the specific services that each cooperative provides to its members. Equally, it lacks the minimum standards that guarantee a legitimate decision-making process.

The clause which obligates all employed workers of the cooperative to become members appeared to be a great social advance. It makes their remunerations of a non-salary character, irrespective of what type of cooperative it is, removing them from the sphere of the labor legislation. However, in many cases the same workers refuse to do so because they fear to lose–indeed they have lost–social benefits consecrated in this legislation. Also, this takes away from the judicial bodies the knowledge of the controversies that cooperatives can have, and it subjects them in a binding way without appeal (except to nullify) the reconciliation systems and arbitration of the cooperative movement that, by the way, have not been constituted.

Also, certain official plans grant absolute priority to the organization of cooperative associations of property, work and collective administration, without giving due respect to the mentality, the group identity of interested people and the specific characteristic of the productive activities to which they are dedicated.

To somehow turn this situation around, we believe that it becomes necessary to:

1. Develop an ambitious plan for the formation of a holistic strategy with a high sense of cooperative identity, based on the values and the universal principles of cooperativism.

2. Promote the teaching of cooperativism in all levels of the educational system, and support the creation and operation of school cooperatives.

3. Incorporate the methodology of the Cooperative Social Balance established by the International Cooperative Alliance, to verify the compliance of the universal principles of cooperativism (the only thing that really characterizes an enterprise as a cooperative). This methodology would become the valid tool to certify cooperatives, and whether they are eligible for public benefits.

4. Require the Public Ministry and the public authorities in labor issues to punish cases of fake cooperatives that were wrongfully set up to obtain government contracts, to cheat workers, to avoid social security payments and to swindle money.

5. Promote the creation of insurance cooperatives which strictly follow the principle of having the necessary, permanent, and simultaneous double condition of associate insurer and insured, thereby preventing those unscrupulous capitalists who make great profits in this sector that has very few owners (insurers) that insure many people who are not members.

6. Without the necessity of promoting uncertain legal reforms, the different types or branches of cooperatives could voluntarily adopt appropriate models of statutes. Promoted by supervisory associations, re-shape the cooperatives of the country to the universal principles of the cooperation. Prepare basic standards that guarantee judicial security to the process of decision making and fix common minimum standards for their operation and specific services.

7. In cooperative bylaws, it should be guaranteed to all associate-workers at least the same social benefits guaranteed in labor legislation. Except in the worker cooperatives of associate which cannot have labor relationship in exceptional cases, the hired salaried employees should be accepted as associate members, in defense of the principles of work freedom and of the free and voluntary entrance to the cooperative.

8. Admit collectives of peasants, fishermen, miners and other laborers as valid forms of economic organization, whenever the universal principles of cooperation are respected and they are adapted to the specific requirements of their productive activity.

Third Task: To Strengthen Collaboration amongst Cooperatives

Whereas one of the cooperative principles is collaboration amongst cooperatives, the total disintegration of thousands of cooperative enterprises demonstrates that they are acting in isolation and alone. Their failure is due not only to their lack of economic strength, but also to this sector’s lack of social strength and labor union, which is not compatible with its quantitative dimensions.

Although the existence of numerous supervisory bodies has been reported (more than 100) it seems that, except for a few exceptions, most of them are only a formality, since they do not seem to respond to the interests and needs of their member cooperatives, rather they mostly represent the State and resemble mechanisms of political control.

Facing this situation, we believe that the following should be done:

1. Create grassroots labor unions that are representative and autonomous, or strengthen and unify the existing ones, financed by the investment of part of the surpluses of the affiliated cooperatives, and with management democratically elected by them, responsible to their members and periodically renewed.

2. Adopt some of the cooperative achievements that have proven successful and profitable, and expand them to become combined projects of regional and/or national reach that articulate the efforts of the whole cooperative sector. For example, a funeral network of national coverage; the massive and popular savings and loan associations in the neighborhoods and towns of the whole country, the service of people in the middle and lower classes; the extension to the whole country of the successful experience of the family consumer markets, or of the cooperative health care systems.

3. Establish and consolidate, at the micro and regional meso levels, associations, networks and/or groups or consortia of cooperatives that maintain their autonomy in certain areas, yet which voluntarily adopt a united direction to achieve specific tasks. These tasks could be the centralization of financial, technical, and human resources of a high level, the massive acquisition of inputs, the combined commercialization of production, the sharing of information and communication technologies, the shared participation in big bids and public contracts, among others.

4. To sign contracts of managerial collaboration among cooperatives of same or different types, environment or geographical location, such as franchise, factory, agency, financial leasing and others, to combine markets, to establish commercial chains, to share trademarks, patents or dominated technologies, to increase financial resources, to reduce costs, etc.

5. Create a superior national representative and labor union defense body of the cooperative sector, of autonomous and democratic character, with proportional participation of each one of the tendencies and orientations that it can have inside the same, with due respect for the political differences that can exist.

6. Participate promptly in the Latin American integration processes through legal bodies created for this purpose, of the Trademark Law for worker takeover enterprises of the Latin American Parliament, of the Mercosur Statute of Cooperatives and the possible Andean, Caribbean, bi-national or transborder cooperatives.

Fourth Task: To Assume the Self-Reliance of Cooperatives

It is an undeniable truth that the Venezuelan State has amply financed cooperatives, at least those created during the present government, for its own purposes, personal or political. Furthermore, it seems to have been done in excess, and this has, among other effects, produced almost a complete dependence on public financing and the absence of the members’ own economic contributions. Besides reducing the sense of ownership of the members, this violates one of the cooperative principles.

On the other hand, in spite of the importance that the government grants to cooperatives, we observe the low or nil participation of the same cooperatives in public planning and/or the execution of socio-economic policies, plans and programs that concern them. It appears as if the cooperatives have nothing to say or propose, and are limited to merely carrying out public policies.

We believe that to address this situation we should:

1. Create appropriate financial bodies of the cooperative sector dedicated to cooperative values and principles, which are autonomous in nature. These bodies should not be the creation of mercantile banks or governed by traditional bank logic, and by no means should they be public banks or banks controlled by the State, since that would be against the autonomy of the sector.

2. These could easily and quickly become regional in scope because of the massive affiliation of cooperatives of all types with successful savings and loan associations that can become – in this way – their financial operators. The capitalization would come from pooling their surplus financial resources and depositing a percentage of the reserves accumulated by the cooperatives to cover losses.

3. Systematically transfer public funds dedicated to financing the cooperative sector for the administration of these regional financial cooperatives. This would result in a smaller operating cost and an important reduction of the present delinquency in the repayment of cooperative loans by most of the cooperatives in the country. Also, a lot would be gained regarding the relevancy of projects, their speed and the effectiveness of their grants.

4. Prevent the public financing of cooperative projects from being exclusive or unilateral, rather ensure that it maintains proportion with the amount committed from the cooperative’s own contributions. In any event, the cooperatives should participate in the supervising organizations. Also their performance should be monitored by specialized cooperatives, in the sphere of the regional financial cooperatives.

5. Create cooperatives of reciprocal guarantees at the regional level. Presently State entities control societies of this type. Instead they should be protective partners with cooperatives, that is, financial partners without power of decision or control.

6. Strengthen the regional and national bodies of cooperative supervision that direct and implement – in a unilateral and autonomous form – the interests and rights of the sector regarding public planning and policies of economic and social activities that concern the sector.

Fifth Task: To Develop The Autonomy Of Cooperatives

Historically to some extent, and much more so today, effective supervision and control of the cooperatives by the State is impossible, because of the lack of both qualified personnel and financial resources. This is due to the high number of existing cooperatives, their small size, their extensive geographical dispersion, their wide socio-economic heterogeneity, and finally because of the extreme variety of the socio-economic activities that they do.

Also, there is a constant presence of a suffocating state bureaucracy that hinders, complicates, raises the costs and slows down the efficient operation of the cooperatives. It blocks their participation in public bids and contracts. Sadly it also allows the reoccurrence of unlawful practices.

For this reason, we believe that the following actions should be taken:

1. Develop a true culture of internal control that makes the correction, honesty, and absolute transparency in the administration the high-priority objective in each and every cooperative. It should be called “Zero Tolerance and Zero Connivance”.

2. Systematically install specialized cooperative entities in the control of cooperatives, that are preventive and guiding, instead of repressive. These entities should be able to control in a staggered form on descending levels inside the cooperative movement, a task that would be facilitated by being given an efficient and widespread internal control.

3. Temporarily support the efforts to strengthen a public entity specialized in the control of all cooperatives, while strengthening examples of self-control of the sector. Conditional backing of – in any event – the participation of the higher supervisory bodies in decision making for the sector.

4. Plan for the systematic transfer – in the medium term – to the specialized bodies of the sector, of the control responsibilities that at the moment are granted to the public authority. A precise timetable to achieve this should be negotiated with the State. Even the financial resources should be temporarily transferred to these bodies, while the sector strengthens its own resources.

5. Taking self-control by the cooperative sector should be gradual, increasing in stages of more harmony, responsibility and autonomy, starting from the role of technical collaborator, going to auxiliary supervision and representative supervision, until finally assuming full self-control of all cooperatives.

6. Develop training programs of personnel specialized in the supervision of cooperatives, composed for the main part of people that are working in them – professionalizing them – with the collaboration of the autonomous national universities that have expertise in this.

7. Refuse to accept in any way passing control and supervision of the cooperative savings and loan associations to the banking sector. This would be incompatible with their purpose, due to the substantial difference in nature of these institutions. The Latin American experience has demonstrated the fate that befell cooperatives that followed this practice.

Sixth Task: To Propel the Social or Solidarity Economy Sector

It is a sad reality that there is not even the most minimal articulation in cooperatives with other forms of the workers’ economic expression. In fact this is legally blocked, such as the case of the savings and loan associations that have extensive penetration.

It becomes imperative to systematically create a sector of the social or solidarity economy, by means of the following actions:

1. Promote cooperative links with savings and loan associations and the rural banks to advance socio-economic projects together. In this sense, the savings and loan associations have extra financial resources that could support such projects.

2. Support the conversion of the Institutes of Social Insurance of the public sector, which are non-democratic in nature, to become mutually participative associations. These should assume responsibility for the Obligatory Social Security of their own members, as well as the members of other cooperatives, savings and loan associations, the rural banks and other self-managing associative enterprises.

3. Advance the necessary study, research and alliances with other expressions of solidarity economy, taking the help of the autonomous national universities that have expertise in the area. Formulate from the grass roots legislation that regulates the organization and the operation of an autonomous social or solidarity sector. We are ready to help in this activity.

Dr. Alberto García Müller is an attorney and professor of law at the University of the Andes (U.L.A.) in Mérida, Venezuela. He can be reached at: [email protected]

Translated by Dada Maheshvarananda