Cooperative model as an alternative to socialism and capitalism

Prime Minister Narendra Modi recently claimed that the cooperative movement in Gujarat has developed a successful alternative model to both socialism and capitalism. It has to be noted that, India’s 1st home minister Sardar Patel who as chairman of Ahmedabad Municipality had started India’s first cooperative housing society, Pritamnagar, in Ahmedabad in 1927.

What is socialism?

Socialism is a populist economic and political model dependent on the public or collective ownership of the means of production which include tools, machinery and factories utilised to manufacture goods for satisfying human needs.

What is capitalism?

Capitalism is an economic model in which the means of production are owned and controlled by private individual or businesses. The manufacture of goods and services is dependent on demand and supply in the market, rather than through central planning like that of socialism.

Most probable and repeated topics of upsc prelims

What is Cooperative model?

Cooperative model involves the organisation or firm which is owned, controlled and operated by a group of persons or stakeholders working for their own benefit. Each member provides equity capital and gets share in the control of the firm based on one-member, one-vote principle, rather than in proportion to his or her equity contribution like that of capitalism. Thus it is neither controlled by the government nor by capitalists, but by individual stakeholders.

What are the arguments in favour?

  • Cooperative movement will develop and grow with the involvement of farmers and everyone will be a stakeholder in it.
  • Cooperative model will improve production performance of an organization since members will start to identify their individual and collective efforts with the organization’s performance and cooperative problem solving happens.
  • It is democratic and the needs of the members will be met without one owner dominating the process of decision-making. The profits are also shared equally among members.
  • It is highly stable economic model since members can come and go without seriously affecting the business.

What are the arguments against?

  • They have less capital incentives which do not attract big investors. While it is appealing for smaller investors to know that a greater contribution does not lead to greater shares, it is less appealing to the big players.Hence the growth of the cooperative organisation will be slower.
  • Cooperatives may face difficulties in receiving loans from financial institutions, such as banks.
  • Underinvestment due to the apprehension of non-member financiers to lend to the cooperatives. Because these lenders would never risk their money within an organization over which they have little control. Hence they would be reluctant to lend funds.
  • When marketing through a cooperative, one might lose control of their unique brand, especially when it does advertising for all members. Further, one might get associated in with other businesses or competitors that he/she do not want to be associated with in the perceptions of their customers.
  • With centralization of power, decision-makers can speedily respond to issues as they arise, but under a cooperative model, all owners would involve in the decision-making process, that will be time consuming. In situations where decisions must be made fast, cooperatives might not be effective.
  • When purchasing through a cooperative, one will be sharing the same prices with your competitors. This means that one will not have an edge over competition, since this type of organization makes the playing field even for both small and big competitors.

In the end, while cooperatives are feasible for some, they do not work for everyone. They are recommended in case of starting a business where more peer support or financing are needed such as milk or housing cooperative society, but they shall be avoided if one wants to have more control over the direction of his/her business.

Practice Question:

How is the cooperative model of development better than socialism and capitalism? Also examine key challenges with this model.

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