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Strengthening

the Cooperatives as Agents of Participative Development


The Philippine Case
By Asuncion M. Sebastian
12th December 2011

Under Dr. Antonette Raquiza

DVS532P Participation and Development

Abstract
This paper looks into the century-long history of the cooperative movement in the Philippines and identifies the factors to which the unsustainable cooperative operations (or failures) are attributed. The common factors across the three stages of cooperative development are poor governance, lack of capital, no or low government support, and lack of managerial competence. Based on the propositions of Nicholls and Opal, and Banks on cooperatives and on the arguments of various authors in deliberative or participative development, this paper thus argues that cooperatives in the Philippines need both institutional support and managerial capacity to become sustainable and effective agents of participative development in the country. From the experience of select cooperatives in the country and other materials on cooperatives, recommendations are drawn, which are mainly enhancing existing or exploring possible institutional partnerships with the following: local government units, Cooperative Development Authority, other cooperatives, non- government organizations, and the microfinance institutions and social enterprises.

Table of Contents
Introduction...........................................................................................................................................1 Research Question .........................................................................................................................2 Limitation ..........................................................................................................................................2 Methodology.....................................................................................................................................2 Review of Literature ..........................................................................................................................3 Cooperatives in the Philippines ....................................................................................................6 The Cooperative Described........................................................................................................6 A Sector Overview..........................................................................................................................7 Brief History: Why Cooperatives Failed ...............................................................................7 1895-1941....................................................................................................................................7 1941-1986....................................................................................................................................8 1986-present...............................................................................................................................9 Policy Environment.................................................................................................................... 10 Select Cases of Cooperatives in the Philippines.................................................................. 12 NGO-supported cooperatives................................................................................................. 12 SMMPC: A Faith-based Cooperative.................................................................................... 13 The Big Brothers.......................................................................................................................... 15 Conclusions and Recommendations ........................................................................................ 16 LGUs .................................................................................................................................................. 16 CDA .................................................................................................................................................... 17 Other Cooperatives..................................................................................................................... 18 NGOs ................................................................................................................................................. 18 MFIs and SEs.................................................................................................................................. 19 Works Cited ........................................................................................................................................ 21

Strengthening Cooperatives as Agents of Participative Development: The Philippine Case


Introduction
Cooperatives are the most widely spread organizational format in the world and have transformed economic and political power relations from Nicaragua to Dhaka. For example, by grouping small-scale producers into cooperatives the Fair Trade model has countered the problem of price monopsony often exploited by middlemen and returned more of the commodity value-chain back to the farmers. Nicholls and Opal, 2005

Cooperative is one, if not the most ideal form of organization in the light of participative development, because it is member-managed and in most of its forms, community-based (exemptions are the likes of employee cooperatives). In the Philippines, cooperatives comprise a significant portion of the civil society group, numbering 77,701 in 2008 (Mina, 2011), while the development-oriented non-government organizations (NGOs) in 2007 were estimated to be somewhere between 3,000 and 5,000 only (Asian Development Bank, 2007). The number of cooperatives in the country, however, shows interesting pattern over the last three decades: from over 3,000 in 1985, peaking to 77,701 in 2008, then dropping to 18,484 in 2010 (see Figure 1). Figure 1: Number of Cooperatives in the Philippines
Sources: Cooperative Development Authority website, Gray Wine Think Tank in Sibal (2001), and Mina (2011)

The growth in their number between 1985 and 1993 could be attributed to the support extended to the sector by the Aquino and Ramos administrations. The drop in 2009, on the other hand, may have been caused by the issuance of a circular by the Cooperative Development Authority (CDA) that required cooperatives to register and confirm with the authority within a certain period. This process required the cooperatives to submit their articles of cooperation, bylaws, and latest audited financial statements, which many cooperatives failed to comply with. The result was unsurprising because to begin with, only 28 percent of the cooperatives in 2008 were operating; the rest were dormant, dissolved, or cancelled. As the Asian Development Bank (2007) observed the civil society sector in the Philippines is large and vibrant by developing country standards, even though a large number of organizations are small, struggle financially, and have weak capacity.

Research Question
The phenomenon of non-surviving cooperatives is not unique to the Philippines. Two authors attributed this global concern to these factors: 1) Nicholls and Opal (2005) explained that social market failures at a grassroots level are typically the product of a lack of institutional support at either a macro or micro level that generates the need for a new community action; and 2) Banks (1972), in his analysis of different approaches to management and their values-orientation with reference to Robert Owen (and his cooperative movement), noted that managerial skills could be deployed to address social problems. This paper thus argues that cooperatives in the Philippines need both institutional support and managerial capacity to become sustainable and effective agents of participative development in the country. It then aims to answer this question: How can institutional relations and managerial capacities of cooperatives in the Philippines be strengthened to make them more sustainable and effective agents of participative development?

Limitation

This paper considers only the case of primary cooperatives, which comprise almost 99 percent of the sector and whose members are individual persons; it will not look into the secondary cooperatives (such as unions and federations where members are primary cooperatives) or tertiary cooperatives (an apex organization composed of secondary cooperatives).

Methodology
This paper shall use secondary materials on the cooperative movement in the Philippines as well as case studies, both published and unpublished, covering three general categories: a group of cooperatives supported by an NGO; a faith- based cooperative; and the general view of the big players in the sector.
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Review of Literature
The following materials on participative development are hereby examined: Cornwall, A., & Brock, K. (2005, November). Beyond Buzzwords: "Poverty Reduction", "Participation", and "Empowerment" in Development Policies. Overarching Concerns Programme Paper (No. 10). United Nations Research Institute for Social Development (UNRISD). Evans, P. (Winter 2004). Development as Institutional Change: The Pitfalls of Monocropping and the Potentials for Deliberation. Studies in Comparative International Development, 38 (4), 30-52. Grindle, M. S. (2004). Good Enough Governance: Poverty Reduction and Reform in Developing Countries. Governance: An International Journal of Policy, Administration, and Institutions, 17 (4), 525-548. March, J. G., & Olsen, J. P. (1986). Sovereignty and the Search for Appropriate Institutions. Journal of Public Policy, 6 (4), 341-370. Stiglitz, J. E. (2002). Participation and Development: Perspectives from the Comprehensive Development Program. Review of Development Economics, 6 (2), 163-182. Evanss work serves as the foundation of this review. Evans and Grindle discussed institutions and their role in development at different levels: Evans presented a model or approach in development from macro or strategic perspective of institution building, while Grindle viewed them mainly from project/program standpoint. The work of Stiglitz is included in the review because it supports Evanss argument with a macro level analysis of development strategies. Likewise, March and Olsens discourse was on the functions of the institutions in the midst of changing global trends, albeit without a specific focus on development. The discourse of these authors will be used in the analysis of the institutional reforms and relations of the cooperatives. Cornwall and Brock, on the other hand, provided historical discourse of development programs that relates well to the arguments of Grindle. Thus the combined works of Cornwall and Brock and of Grindle, both taking on the project or micro perspective, will serve as guide in the analysis of cooperatives management capacities. Evans proposed a deliberative development which relies on popular deliberation of set goals and allocated goods, and requires a participatory form of political institution. He explained that uncoordinated and decentralized actions of civil society are insufficient for the emergence or sustenance of deliberative (or participatory political) institution, thus the formal organization apparatuses of politics play a central role. (p.43)
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In support of Evanss foundation of participatory political institutions, Stiglitz espoused the development strategies arrived at through open, transparent, and participatory processes that extend the fruits of development in a sustainable way to all citizens (p.179). Stiglitz defined participation not only as a desired outcome but, more importantly, as a process that addresses both the issue of equity and the principal-agent problem, that is, the discrepancy between the action taken by the representative and the interests of those represented. (p.165). Cornwall and Brock offered some explanation as to how this problem arises. In practice, they said, participation could be interpreted as merely engaging the intended beneficiaries rather than involving the people in defining their own development, and that participation has been reduced at times to cost sharing and consultation, without the explicit goal of empowerment. (p.7). At times, too, participation runs under time constraints that often push the development agents to expedite the process to meet their deadlines, sacrificing the level or quality of participation along the way. Further, participatory process may be done merely out of compliance such that development agents would invite civil society organizations but whose views seldom find their way into the final document. And even if reforms are made participatory, it can be invested with meanings that are radically different from the consensus narrative: the process may mean that participants cannot ask questions or are told what to do, (p.12- 13) hence the resulting principal-agency problem. Participation then simply becomes a ritual necessary to make the exogenous development agenda palatable. March and Olsen recognized the same agency problem, adding that peoples preferences could be influenced by the political leaders themselves and the media. (p.355-356) These narratives could very well be the reason why citizen education is crucial, as emphasized by Evans and Stiglitz (Evans, 2004: 31; Stiglitz, 2002: 169) without it, people could be used, abused, and even manipulated by the external development proponents. Highly educated citizenry should be able to make their own choices and bring in information, their commitment, and effort to the process. (Evans, 2004:36; Stiglitz, 2002:168) On the institutions side, March and Olsen proposed a way of assessing both the competence and integrity of integrative institutions1, which essentially include cooperatives. Questions of competence, both in technical knowledge and in understanding community needs and possibilities, are thus: Does the process develop and use genuine expertise of relevance to the problem? Does it strengthen the capabilities of citizens to understand and act on issues on public policy and to select competent representatives and advisors? Question of integrity, based on a set of publicly defined values, is basically this: Does the process ensure that participants act in a manner dedicated to the common good and uncorrupted by their personal ambitions or interests?
1 An integrative institution presumes an order based on history, obligation, and reason and is concerned with rights and reasoned deliberation in search of the common good, as opposed to aggregative institution that presumes an order based on rationality and exchange and is concerned with efficiency, preferences, and endowments. (p.344)

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Stiglitz presented the current debate about the participatory process inhibiting the kind of quick decision-making required for rapid economic growth. (p.170) Grindle, acknowledging that consolidation of good governance can take a great deal of time, thus suggested that greater tolerance be extended to the less-than- ideal institutions while economic growth occurs and poverty is reduced. (p.533) Besides, adopting institutional changes that are not strictly necessary can have serious opportunity cost implication, as institutions are costly to establish and run. (pp.526-530) Therefore, Grindle proposed that short-term, direct ways of responding to the needs of the poor be undertaken, while the longer-term institutional changes for good governance are debated, discussed, and initiated. (p.535). Further citing Rodrik and others (2003) and Goldsmith (2002), Grindle argued that institutional innovations can be introduced in the wake of reform rather than as a pre-condition to it and that getting the institution right, especially in terms of accountability and transparency, was not a necessary condition for development. (p.531). Thus the author proposed a good enough governance which refers to minimally acceptable government performance and civil society engagement that do not significantly hinder economic and political development and that permits poverty reduction initiatives to go forward. (p.526) This argument is in contrast with that of Evans: participatory institution is a pre- condition to development, and that existing institutions are likely to reinforce rather than dissolve poverty traps (p.32), thus the debate between reforming institutions in order to achieve the desired development outcomes and working on both institutional reforms and poverty alleviation simultaneously. However, Rodrik and Subramanian (2003) supported Evanss point: in countries where institutional pre-conditions such as transparency and accountability were missing, conditionality (of policies and target outcomes) was less likely to succeed, and therefore finding the right institutional pre-conditions is more essential than micromanaging the outcomes. (p.34) Evans was right in arguing that that existing institutions are likely to reinforce rather than dissolve poverty traps, which is especially true in the Philippine case: how much of the local government units budget is allocated to basic social services and poverty reduction programs and how much is allocated to the executives administrative and discretionary expenses? How much is earmarked for the next election? How much is actually lost to corruption? The Philippine case therefore challenges Goldsmiths claim that getting the institutions right especially in terms of accountability and transparency was not a necessary condition for development. In the Philippines, it is. Sustainability of institutional reforms or of deliberative institutions is yet another issue. Evans said that the technocrats have to be patient with the process while the people, who might find the process a bit too demanding, must have some kind of staying power. (p.38) What could enrich Evanss model is providing immediate impact economic intervention based on Nederveen Pieterses (2000) discourse on alternative development, which the author equated to participative development. Nederveen Pieterse differentiated the development model driven by social transformation, such as participative
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development, from that driven by growth using various contours. Among these contours is developmental method. While growth model uses industrialization, import substitution and the like, social transformation uses participation, sustainability, democratization, and microcreditthe first three are consistent with Evanss propositions. What Nederveen Pieterse contributes to the discussion is the inclusion of a mechanism, not necessarily micro credit, which has immediate economic impact on the poor. In their study, Bebbington and Bebbington (2000) also observed that the most successful initiatives of the participatory groups, aside from the literacy training, was the organization of village banks (which is a mechanism for micro credit). (p.14)

Cooperatives in the Philippines


The Cooperative Described

The Cooperative Code of the Philippines of 2008 defines cooperative as an autonomous and duly registered association of persons, with a common bond of interest, who have voluntarily joined together to achieve their social, economic, and cultural needs and aspirations by making equitable contributions to the capital required, patronizing their products and services and accepting a fair share of the risks and benefits of the undertaking in accordance with universally accepted cooperative principles. (Art.3) It is as a practical vehicle for promoting self-reliance and harnessing people power towards the attainment of economic development and social justice.(Art.2) These definitions hence make cooperative a form of organization that is ideal for participative development. Cooperatives are distinct from the NGOs in that the former are not necessarily non-profitthey do business, earn profit, and distribute these profits to the owners/members in the form of dividends. They are distinct from the regular business, however, in that they are organizations of the poor aimed at self-help and economic empowerment. While cooperatives are member owned, the NGOs are typically middle-class led and managed. (Abao, 2011) In terms of operations, the cooperatives service areas are normally limited to their local community, while the NGOs do not have the same geographic restriction and therefore can expand their operation much faster than the cooperatives do. Historically, the NGOs played a role in cooperative development. Aside from the several NGO-assisted cooperatives, NGO coalitions were also formed to promote the formation of cooperatives and to help them become self-reliant. (Encarnacion-Tadem, 2010) What is very similar to the functions and operations of cooperatives are the POs. Both are members-owned and aim to promote the interests of the low-income group. However, POs, like NGOs, are strictly non-profit. They do not do business but instead, advocate public interests. As of 2010, POs have the largest estimated number of 100,000 among the civil society groups. (Abao, 2011)

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A Sector Overview
Cooperatives work on seven basic principles, which are congruent with that of participative development: 1) voluntary membership; 2) democratic member control; 3) member economic participation; 4) autonomy and independence; 5) education, training, and information; 6) cooperation among cooperatives; and 7) concern for community. Most of these principles are mentioned in Evans and Stiglitzs literature on participative development. However, nice theories do not necessarily translate to effective and successful practice, as in the case of the cooperatives in the Philippines that is marked by successes as well as failures over the years. There are 20 different types of cooperatives according to their services offered; the more popular ones are credit (comprised 9 percent of the sector), marketing (2 percent), consumer (3 percent), producer (3 percent), service (5 percent), and multi-purpose (combination of any two or more of the other types, 77 percent). As of 2010, the cooperative sector had an asset base worth Php158 billion and a membership of over 7 million. Of the 18,484 cooperatives in 2010, 76 percent are micro2 in size but they accounted for merely 5 percent (at Php8.5 billion) of the total asset base of the sector. On the other extreme, only 1 percent of the cooperatives are considered large-scale3 but they accounted for 55 percent (Php87 billion) of the total assets of the sector. Around 16 percent are small4 while the remaining 6 percent are medium-sized5 cooperatives. The ADB is therefore accurate in describing the sector as having a large number of organizations (that) are small, struggling financially.

Brief History: Why Cooperatives Failed


According to Mina (2011), the cooperative history may be divided into three stages or periods: 1) between 1895 and 1941 when western-educated Filipinos introduced cooperatives to the country; 2) between 1941 and 1986 which was the growth period of cooperatives and of federations and union; and 3) after the 1986 EDSA revolution up to present when the cooperatives have become a political force. Failure is used here to refer to cases of cessation of operations, which may include dormancy or having no business transactions, dissolution, cancellation of certificate by the authority, or failure to renew its registration. 1895-1941 Cooperatives existed in eighteenth century in England, long before the participative development thought. In the Philippines, the first cooperative, the Agricultural Credit Cooperative Association of Cabanatuan, Nueva Ecija, was organized in 1916 under the Rural Credit Law. At the end of 1926, there were 544 rural credit cooperatives organized in the 42 provinces and by 1930 there were 571 associations formed all over the country. In 1927, the Cooperative
2 That is, they have an asset base of Php3 million or less 3 Assets amount to over Php100 million

4 Assets are worth between Php3 million and Php15million 5 Assets are worth between Php15 million and Php100 million

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Marketing Law was enacted and approved to bring the agriculture products to the market more efficiently. In 1935, however, about 90 percent of these cooperatives were inactive with no funds left in their treasury. By 1939 only 164 societies were actually organized with a total membership of around 5,000 farmers and only 20 percent were active. The experiment on rural financing through cooperatives was a failure. (Cooperative Development Authority, 2011) Figure 2 on page 10 enumerates the reasons cited by cooperatives failed then. 1941-1986 In the 1940s, cooperatives primarily served as instruments for trade and relief operations of the government. In the 1950s, the government focused on agricultural development, passing several laws that supported the farmers on national scale including the establishment of Farmers Co-op Marketing Associations (FACOMAS). The following decade, credit services to the farmers were further intensified, while non-agricultural cooperatives, such as electric cooperatives, began to rise. (Naces) Alongside with this event was the issuance of the Roman Catholic Church of a resolution in 1957 calling for the organization of credit cooperatives in parishes all over the country as part of their social action projects. (Sibal, A Century of the Philippine Cooperative Movement, 2001) Sibal (2001) reported, however, that the state-initiated FACOMAs failed as in the past, again due to corruption and incompetent management. Only 99 of the 255 FACOMAs survived and of the millions lent, only 28 percent remained collectible (sic). (p.5) He added that the church-based and/or organized cooperatives proved to be more successful and sustainable. The cooperative movement was given a shot in the arm with the issuance of Presidential Decree 175 Strengthening the Cooperative Movement in 1973. The law aimed to foster the creation and growth of cooperatives as a means of increasing income and purchasing power of the low-income sector. The sectors performance hardly change thoughthe state-initiated cooperatives grew but were too politicized that the programs failed, except for the electric cooperatives that were in charge of the rural electrification program and the least politicized. (Sibal, A Century of the Philippine Cooperative Movement, 2001) Figure 2 on page 10 enumerates the constraints that caused cooperatives to fail during this period. Nevertheless, what could be considered cooperative movement's most dramatic accomplishment during the period was in the area of establishing strong federated structures at the regional and national levels. Enhanced coordination between cooperative federations and unions had, by the early 1980s, effectively transferred leadership responsibility for the development of the cooperative movement away from government to the private sector. (Van Steenwyk, 1987) Perhaps it would have been more accurate to say that the leadership responsibility was transferred from government to the civil society, although the

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author was correct it saying that this transfer was indeed an accomplishment, solving the oxymoron concept of state-initiated participation. 1986-present The Aquino Administration, which began in 1986 and which marked the third stage of cooperative development, learned from the past failures of excessive government loans or credit support to cooperatives as in the FACOMAs. This time, government agencies, which were prevented from organizing coops, channeled their development programs through the network of cooperatives, NGOs and peoples organizations (POs) especially in food distribution, family planning, barrio facilities and livelihood projects. Further, under the Local Government Code of 1991, which decentralized power to the local government units (LGUs), the local development councils at the LGUs were established, giving the cooperatives, NGOs, and POs the opportunity to actively participate in local governance. Because the succeeding administration of Ramos had the same stance, cooperatives continued to grow so much so that from 1985 to 1993 their number had grown by 6.5 times. (Sibal, A Century of the Philippine Cooperative Movement, 2001) Despite this number and the asset growth of viable cooperatives by 100 times over (from P 1.05 billion in 1985 to P 118.4 billion in 1995), there was still a considerable rate of failure since more than 80 percent of the total registered coops in 2000 were not functional. The main reasons for failure are presented in Figure 2 on page 10. Figure 12 is constructed to see patterns in the causes of failures of the cooperatives. Over the three periods of cooperative development, four factors were consistently mentioned: 1) incompetent management; 2) poor governance; 3) low level of capitalization; and 4) lack of government support. These results very well support Bankss (1972) claim that cooperatives need to build their managerial/management capacities, and partly Nicholl and Opals (2005) proposition that grass-root organizations such as the cooperatives need institutional support, in this case, from the government. However, both poor governance- and capitalization-related concerns may be addressed by harnessing the support of other institutions, which will be discussed later in this paper. The issue of poor governance also affirms the principal-agent problem mentioned by Stiglitz (2002), Cornwall and Brock (2005), and March and Olsen (1986). Quite remarkable, however, is the movements ability to develop its human resources and organizational culture in line with cooperative principle, and to overcome the issues of politicization, such that these problems were not anymore mentioned as causes of failure in the period beginning 1986.

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Figure 2: Causes Explaining Cooperative Failures


Policy Environment
The countrys legal framework supports growth and formation of cooperatives as people power at the local level, especially after the 1986 revolution when a new space for civil society was created. Among the most significant legislations are the following: The 1987 Constitution recognizes cooperatives as a legitimate, private sector force within society to contribute to the furtherance of social justice and economic development objectives (Van Steenwyk, 1987) Creation of CDA in 1990 (R.A. 6939) whose mandate is to promote the viability and growth of cooperatives as instrument of equity, social justice, and economic development. The Local Government Code of 1991 (R.A. 7190) mandates the local development council be formed at the village level, with a stipulation that at least one quarter of the local development councils membership must come
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from civil society or the private sector and that the civil society representatives must come from locally-accredited organizations. It also contains a provision for the establishment of other local committees, such as cooperatives. (Chapter I-Sec. 17.2.i, 3.i; 50.b.i)

Tax Code of 1997 (R.A. 8424) and the Revenue Regulation 20-2001 exempt cooperatives transacting with their members from taxes while the members transactions shall be exempt from taxes such as tax on deposits and documentary tax. Transactions with non-members shall also be tax-exempt provided that the cooperatives total reserves and net savings is not more than Php10 million (usually these are the micro and small cooperatives, which account for 92 percent of the sector). The 2008 Cooperative Code of the Philipines (R.A. 9520), amending the 1990 Cooperative Code of the Philippines (R.A. No. 6938), outlines in greater detail the requirements in professionalizing the management and operation of cooperatives, while providing a monitoring and evaluation tool for the cooperatives to conduct assessments of its managerial, financial, and social objectives. In Congress, as well, a Committee on Cooperatives has been established to govern all matters relating to cooperatives, both urban and rural-based, including but not limited to farm credit and farm security, cooperative movements, marketing and consumers' organization, and the implementation of the Cooperative Code of the Philippines. (Rule X, Section 13 (11)) (Senate of the Philippines) At the national level, the government is not amiss in providing support to the sectorbeyond giving recognition it has created a policy framework, a governing body, and a political space in Congress both in terms of governing committee and in representation were extended to it. In the 1998 and 2010 party list elections, for example, three and five sector representatives, respectively, from cooperative movement were elected in the Congress. According to Sibal (2011) the cooperative movements involvement in parliamentary struggle avoided politization (sic) and too much state intervention under the principle of subsidiarity. (Sibal, The Philippine Cooperative Movement: Problems and Prospects (1986 Present), 2011) Among the laws passed included the Cooperative Code in 2008, expansion of tax exemption incentives for cooperatives, Comprehensive Agrarian Reform Program Extension with Reforms Act, and strengthening of crop insurance program. (Mina, 2011) Incentives are also generousin fact, too generous that it has led to the formation of many fake cooperatives, (that is) corporate cooperatives seeking tax exemptions and government subsidies. (Munoz and Battulayan, 1989 in Sibal)
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With the devolution of power to the local government units (LGU), however, the national government can only do so much and thus the LGUs play an important role in promoting and supporting the cooperative sector. Based on the cases following this section, the LGUs in general (except for a few) seem to be an inactive entity in the cooperative movement and development.

Select Cases of Cooperatives in the Philippines


NGO-supported cooperatives6

Beginning 1994, this NGO has engaged in providing training programs to the senior technical personnel, trainers, leaders, and second-liners of various cooperatives nationwide. Its goals are to develop cooperatives along the concepts and framework of Germanys credit unionism and to establish knowledge and resource centers. However, over the years, these goals have evolved from engaging the cooperatives in business value chain (that is, from raw material production to delivery of goods to the buyers), to developing management capabilities, to promoting consolidation among cooperatives, to posing a challenge to the cooperatives for them to achieve economic development. Although the NGO admitted its weakness in the program design (not learner-centered) and consequently in its impact assessment, it had made contributions to its partner-cooperatives, as summarized in Figure 3. These statements were results of the various focus group discussions (FGDs) conducted with the representatives of partner-cooperatives, where they were asked, what impact have the training programs had on their organizations. Figure 3: Impact of the NGOs Training Programs on Its Partner-Cooperatives
6 This section is based on unpublished documents of the subject NGO, which has not given its permission to reveal its identity at the time of writing.

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Comparing this table with Figure 2 on page 10, three of the impact areas identified by the participating cooperatives in the FGDs matched with three of the four top causes why cooperatives failed in the past: governance, financial approach/condition, and government support. This means that the training provided helped the cooperatives address these three failure factors. Although two groups (Visayas and Mindanao 2) are yet planning to approach their respective LGUs for support, their stance is proactive or empowered. The same thing is true with the financial approach and more specifically, in the area of governancemembers actually made their demands known to their leaders and set rules for them (e.g. whereas in the past, membership was based solely on the candidates interest to be part of the board or on their popularity, now the candidates have to meet certain requirements). Since the NGO provided these cooperatives with only training programs, three things can be drawn from its experience: 1) that Evans and Stiglitz are correct in their argument that citizen education is crucial in the participative process, as highly educated citizenry can make their own choices and bring in information, their commitment, and effort to the process; 2) that Evans is correct in saying that participatory institution is a pre-condition to development, and that existing institutions are likely to reinforce rather than dissolve poverty traps (imagine if members do not address the issue of corruption in their cooperatives); and 3) with the participatory institutions, i.e. the cooperatives, compelling the LGUs for their support they are actually improving the quality of other institutions and eventually of development performance. (Evans, pp.31, 45) This case also provides evidence to two statements: 1) that principal-agent problem is real; and 2) that institutional reform and management capacity building are indeed needed by the cooperatives.

SMMPC: A Faith-based Cooperative


While Sibal (2001) thought that church-based cooperatives proved to be more successful and more sustainable, Fr. Antonio Pascual, Chairman of Simbayanan ni Maria Multipurpose Cooperative (SMMPC), believed that government- and church-supported initiatives hardly succeed, if at all, because people think these institutions are doing charity and thus never pay back their loans. (Sebastian, SMMPC (C): The Cooperative Revisited, 2005) But while other cooperatives were having problems, SMMPC had grown its membership from 1,220 in 1998 to over 5, 900 in 2004 cooperators, and its capital build-up from Php16 million to almost Php52 million over the same period (it has not done evaluation yet on the improvement in the lives of its members thus success here is purely economic in nature). Sibal could be right after all. Established in 1991, SMMPC is based in Taguig where only 10 percent of the cooperatives established in the 1960s survived through the 1990s. As in the previous case, one of the main issue identified by the cooperatives was the lack of LGU support: representatives lack of experience and initiative to organize the cooperatives, call a meeting, or even draft programs intended to rehabilitate the cooperative movement. The cooperatives are also often perceived as taking
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political sides, thus making it difficult for them to establish an alliance with the LGU. This is not because of the inherent political empowerment in the organization, but because of people who have indeed used the cooperatives to run for public office. Even the public has started perceiving cooperative activities as mere politicking. (Sebastian, SMMPC (A): The Beginnings of a Cooperative, 2005) Perhaps that a priest or church leader runs it has helped SMMPC and hence people do not see the cooperative as part of someones political ploy. Other issues identified have to do with leadership and governance (vested interests, lack of skills and professionalism), operational concerns (people management, poor attendance) and financial matters (lack of capital, credit delinquency). Note that these issues are quite similar to the ones presented in Figure 2 on page 10. SMMPC has identified two things that are crucial in cooperatives survival and success. One is governance; the other is having professional, efficient, and effective management. Faith-based cooperatives have a different culture from the regular, community- based. People in faith-based cooperatives tend to choose board candidates based on sincerity of intent or servant-leadership, not on competence. People also tend to trust the church leaders much easier than they trust the lay so much so that they often blindly follow whatever the priest or the church leader says. (Sebastian, SMMPC (C): The Cooperative Revisited, 2005) Although this kind of environment of trust is good in any organization in general, it defeats the participative design of a cooperative. Further, March and Olsens argument on the importance of integrative institutions having both competence and integrity proves to be true in SMMPCs case, albeit at the individual level that governs the institution. SMMPC tried to professionalize this culture by implementing strict selection of board members based on competence, for example. Aware, too, that people need to be empowered amidst this culture of (absolute) trust, SMMPC structured its membership by dividing them into small groups called Pook Tulungan (PT) with each having a group-elect PT leader and a PT secretary. PT is a venue for information dissemination and gathering of feedback, monitoring of loans and obligations, and policy discussions, thus keeping the process within SMMPC still participative despite the trust-based leadership of a priest. Education both at the board and management level, and at the membership level plays an important role in the success of SMMPC. It is one way of improving the skills of the people running the cooperative as well as keeping them attuned to the principles of the cooperatives. As well, it shapes the values of the members, promoting responsibility, sincerity, honesty, service, and unity. Two things can be concluded from this case: 1) both propositions of Nicholls and Opal on institution, and of Banks on managerial capacity of cooperatives proved valid; and 2) Evans and Stiglitzs argument that citizen education is crucial in the participative process holds true. Further, the case shows that the concerns of the
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cooperatives are not necessarily culture-sensitive, that is, common trends and issues apply despite the unique, trust-based culture of the faith-based cooperative.

The Big Brothers


Aside from political empowerment of cooperative movement, as discussed under Policy Environment, another achievement of the sector is the asset base or financial strength of the cooperatives. However, there is this notion of rich cooperatives with poor members. This is especially true among the medium- and large-scale cooperatives whose assets in 2010 average Php36million and Php339 million, respectively. One wonders where in the economy the billion- peso worth of asset lies. Some people defend that although the cooperatives become rich and the members remain poor, the organizations are not amiss in using their surplus to expand and reach out to more poor members of the community. (Mina, 2011) On the other hand, cooperatives are also criticized for not attracting the poorest members of the communityfor one, the membership fee and capital build-up required readily exclude the poor from the organization. According to Mina (2011), while it is true that cooperatives are not successful in attracting the D-E households, it is because (they) require a different strategy for poverty alleviation. Add also to this the cases of cooperative-only-by-name cooperatives. Because of this situation, some camps believe that cooperatives are on a strategic drift, that is, they have lost sight of their uniqueness. They have become so focused on their commercial viability that they forget what makes them different from the regular business entity (Mina, 2011) and that they are first and foremost agents of development. Ironically, while they have concentrated on commercial viability, they fail to apply the basics of business knowing what the customers, or in their case the members, want. Either that, or they have gotten pre-occupied with doing business with the non-members. Lastly, cooperatives, even the big ones, have weak documentation, which include impact assessment of their programs. Thus, there is no established evidence yet showing how cooperatives have contributed to poverty alleviationonly how it contributes to the countrys employment and gross domestic product (GDP) has been reported. Hence, although the membership has been increasing (peaking at 5 million in 2003), there is no guarantee that the cooperative members belong to the targeted marginalized members of the communities and if those who do have had better lives after joining the organization. This case of the big cooperatives shows that 1) principal-agency problem is real and even tend to get worse as the cooperatives becomes more aspiring to achieve commercial viability; 2) that even agents of development such as cooperatives could become a microcosm of the socio-economic reality in the Philippine society where the benefits of economic growth are captured by a few and do not trickle down to the bottom.
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Conclusions and Recommendations


The historical background of why cooperatives failed and the select cases of cooperatives in the country support the claims of Nicholls and Opal (2005) that social market failures at a grassroots level are typically the product of a lack of institutional support at either a macro or micro level that generates the need for a new community action; and 2) of Banks (1972) that with reference to Robert Owen (and his cooperative movement)managerial skills could be deployed to address social problems. The failure factors are poor governance, financial inadequacy, lack of government support, and lack of management competence. The discussion has also supported the claims of the various authors on participative development: 1) that Evans and Stiglitz are correct in their argument that citizen education is crucial in the participative process, as highly educated citizenry can make their own choices and bring in information, their commitment, and effort to the process 2) that Evans is correct in saying that participatory institution is a pre- condition to development, and that existing institutions are likely to reinforce rather than dissolve poverty traps (imagine if members do not address the issue of corruption in their cooperatives) 3) that Evans made a point that participatory institutions can improve the quality of other institutions and eventually of development performance 4) that principal-agent problem is real even in a participatory institution like the cooperatives 5) in the political arena of participative development, there has to be a mechanism (vigilant membership, for example) that will keep the institutions in check, otherwise, a new political arena will likely be created for the new breed of local political elites Following are recommendations on how to strengthen institutional support and managerial capacities of cooperatives to help them become more sustainable and effective agents of participative development. They are arranged according to partner-institutions

LGUs
Foremost institution mentioned by the cooperatives that can and should support them is the LGUs. At the very least, the LGUs can fulfill its mandate to establish local development councils and allow participation of the cooperatives as prescribed by the law. At present, not all LGUs have created the local development council and/or appointed cooperative representatives in the said council. (Sibal, The Philippine Cooperative Movement: Problems and Prospects (1986 Present), 2011) Subsequently, appropriate budget can be allocated to cooperative development, without the intent to using the allocation for political favors. The budget may be used for training programs and/or overall reinvigoration of the cooperative movement in the locality.
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The LGUs resource allocation is an indicator of their support and commitment to the sector. While the allocation for the mayors office of the very few LGUs that make their budget public ranges between 27 percent and 36 percent of the total appropriation, the item cooperative development gets only 0.53 percent of the social development budget (one of the so many items under the total appropriation) in one of the even fewer LGUs that have allocation for cooperatives. Moreover, this measly 0.53 percent of the social development budget is even shared with the housing and community development item; of this budget, only 11 percent or over Php8,000 was actually spent during the fiscal year covered. One LGU does not even have an allocation for social development, defending that it is already embedded in the budget items. The LGU support need not be monetary all the time. Allowing the cooperatives to use public venues for free, for example, will facilitate the organizing functions of the cooperatives. It is also necessary that the LGU-cooperative relationship becomes depoliticized so they can work better and, more importantly, so people can start trusting the cooperative movement as agent of development. For some LGUs, cooperatives may be a threat to them given the political power of the organizations; on the flip side, they can also look at the cooperatives as allies who can share political power with them by connecting them to the grassroots. It is a matter of changing the LGU mindset.

CDA
According to Abao (2011), there seems to be tension between civil society and government, particularly in the issue of regulation. Although civil society recognizes the need for it to prevent the proliferation of fly-by-night organizations, they contend that they should remain self-regulating to maintain the spirit of voluntary and non-government functions. Still, there are some groups that want more regulation from the government. Over the century, the cooperatives wanting government support but not government interference, as presented in Figure 2, has existed. Perhaps the two parties can draw the line for government interventions. Clearly, however, the cooperative sector does not want the company of fake cooperatives and the CDA has successfully weeded them out in 2009. CDA should do such monitoring on a regular basis, working beyond mere collection of reports and documentary requirements from the cooperatives, and instead implement the cooperative rating standards. (Mina, 2011) The Department of Finance undersecretary also recommended that CDA cover cooperatives engaged in savings and credit operations. (Beltran, 2011) These kinds of cooperatives handling public funds should be closely guided as the banks are by the Bangko Sentral ng Pilipinas to safeguard public interest. Finally, some cooperatives think that the CDA should let the federations conduct
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the cooperative education or training programs unless only CDA can offer them. (Mina, 2011) Rightly so, for CDA can then focus on its more strategic functions. The abovementioned recommendations are specific actions but ultimately, CDA should have teeth in monitoring institutional performanceboth the social development and financialof the cooperatives.

Other Cooperatives
Cooperation and collaboration among cooperatives are not new conceptsthese are in fact the foundation why unions and federations were established in the first place. The secondary and tertiary cooperatives, as well as the big primaries, can help the smaller primaries through various ways: knowledge transfer, technology development, business opportunities, and even financing. What could be done further is cooperation among primaries. It is not unusual for a producer cooperative, for example, to turn down a sales transaction only because it cannot single-handedly meet the requirements. If a good number of primaries producing the same goods had pulled their resources together, then they could have made that sale, benefitting all of them. Another area of cooperation is along the business value chain, especially that the nature of cooperatives instinctively follows this model: from production of raw materials and production of finished goods (farmers and producers cooperative), to financing (credit cooperatives), to selling (marketing and consumers cooperatives). Given their number and their various locations in the country, the cooperatives must realize the power they have if they pull they acts together, in working to complete a value chain, for example. This cooperation will help address the issues of capital and cooperatives sustainability. At present, many social enterprises (which will be discussed later) are doing the linking of cooperatives to the business value chain. While this in itself is not bad, the cooperatives, if they do the linking themselves, will capture more economic value that now goes to the social enterprise-middleman. The term cooperation is deliberately used here to differentiate the concept from that of consolidation that has been proposed to the sector for years now. While consolidation is aimed at achieving operational and financial efficiency by merging the small primaries, cooperation will maintain the identities of the primaries and will allow them to function without changing any institutional element. In short, the concept of cooperation may be perceived more as economic than political.

NGOs
The NGOs have played a significant role in the history of cooperative development, thus an NGO-cooperative partnership is not a breakthrough solution. The NGO-cooperative partnerships are often in the field of education and training, as in the case of an NGO presented in this study. The value of education of the members or citizenry in participative development has been discussed in this paper in length, because without educated members
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participative development will likely just create a new political arena for the new breed of local political elites. And as presented in the case, the partnership between an NGO and cooperatives worked in empowering the cooperatives members, thereby strengthening the institutions themselves. At the same time, the cooperatives learned to professionalize their operations (writing feasibilities studies before project implementation, for example), thus building their management capacity. Unfortunately, however, the development-oriented NGOs engaged in training are slowly disappearing due to pressure to become financially sustainable. Although there are still grants available for education programs, they are not always enough to cover the costs. Generally, training programs in development are cost- centers and hardly generate revenues for the organization.

MFIs and SEs

Microfinance (MF)7 is relatively much younger than the cooperative movement yet it has gained recognition globally as a means to poverty alleviation at turn of the century. In the Philippines, some cooperatives reacted negatively to the rising popularity of the microfinance institutions (MFIs), saying that they were first to extend loans to the poorwhich is true, but the MFIs have had remarkable repayment/collection rates of between 95 and 98 percent over the years. Some even considered the MFIs as a threat, even blaming the MFIs for bringing in credit pollution to the low-income market. Some cooperatives, instead of competing with the MFIs, have joined the MF bandwagon. On the other hand, the concept of social entrepreneurship came later in the 1990s and gained popularity beginning the 2000s. According to Nicholls (2006), the general goals of social enterprises (SEs) include the provision of goods and services, which the market or public sector is either unwilling or unable to provide; development of skills; creation of employment; and social integration of the excluded. Among the specific activities of social enterprises are poverty alleviation through empowerment, such as the microfinance movement; health care; education and training, including widening of participation and the democratization of knowledge transfer; environmental preservation and sustainable development; community regeneration; and advocacy and campaigning, such as fair trade and human rights promotionessentially, these are the very same elements of participative development, only that SEs, as well as MFIs, use business models as means to achieve the social goals. These two institutions are placed together as potential cooperative partners because they both introduce a different take on business models as development method. Cooperatives may partner, if not learn, from the MFIs and SEs skills such as poverty profiling of their member, targeting or recruitment, product and
7 The microfinance methodology from Bangladeshsmall, uncollateralized loans, with weekly payments spread over at least six months, extended to the poor to finance their micro enterpriseswas first adopted in the Philippines in the 1980s. It grew rapidly in the 1990s, and was recognized as an affective mechanism for poverty alleviation in 2000s, with even the formal banking system adopting it.

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business development, among others (there are venues for knowledge sharing among civil society organizations where MFIs and SEs are already included). Many of these MFIs and SEs are deliberately targeting the marginalized communities by using various poverty index tools to prevent leakage to the better-off groups. In terms of providing basic needs, many of them have multi- product offering, going beyond credit and financial services (although there has been debate that access to financial services is indeed a basic need, if not a human right)business skills and livelihood training, medical assistance, and some even water and power supply in communities, among others. They also use local knowledge in designing more appropriate and responsive products and services. Finally, MFIs and SEs employ various means to measure and monitor impact of their programs on their served clients or members. With these lessons from the MFIs and SEs, the cooperatives will likewise be able to address their concerns on managerial capacity building. On the other hand, the MFIs and SEs can learn from cooperatives the bottom-up development approach. MFIs and SEs often use top-down development, normally for the purpose of efficiency following Stiglitzs point the participatory process inhibiting the kind of quick decision-making required for rapid economic growth. (p.170) However, a few MFIs and SEs, recognizing the empowering and equitable nature of cooperatives, have changed their legal personalities into cooperatives. Ironically, while cooperatives are supposed to work on self-help and economic empowerment of the poor, they are criticized for being a social justice force rather than economic development (Van Steenwyk, 1987). Similarly, participative development has been criticized for the insufficient attention (it pays) to the economic dimensions of alternatives (Bebbington & Bebbington, 2001)an issue addressed by both the MFIs and the SEs. Again, cooperatives may learn from the MFIs and SEs and adopt their economic development programs, or partner with them so while they (the cooperatives) work on the communities political empowerment, somebody else will work on their economic development. Besides, Nederveen Pieterses (1998) proposal to include a mechanism, which has immediate economic impact on the beneficiary- community but not necessarily micro credit, could enhance the sustainability of both the cooperative and its members. Of the five institutions mentioned, the roles and responsibilities of the LGUs and the CDA are not optional. Whether or not cooperatives choose to work with them, they should be doing their jobs and they should be doing them well. On the other hand, partnering with other cooperatives, primaries or otherwise, NGOs, and MFIs and SEs is the choice of the cooperatives. Since there is no one solution by a single development agent to a multitude of social concerns, institutional partnership is worth exploring. Besides, with the very essence of cooperatives, cooperation should not be difficult. The recommendations presented in this paper are not really newthey have been done and proved to have worked but replicating what works only makes sense so the cooperatives can avoid the failure factors that have been prevalent in the sector over the last century.
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