A PNA dispatch
archives: 1997

Alternative economic structures and business enterprises
by Dieter Dambiec

The basic reason for having cooperatives as a form of economic enterprise
in an economy is to help people work together and move forward in a
collective way. Cooperatives are considered to be the best form of
economic enterprise because they are capable of seeking a balanced
adjustment between collective spirit and individual rights. Dieter
Dambiec summarizes PROUT's views on cooperatives.

Cooperation means getting things done with collective effort. The benefit
of cooperatives is that they combine the wealth and resources of many
individuals and harness them in a united way. To help achieve this,
however, cooperatives should be structured so that individual interest
does not dominate collective interests. Individual dominance can
adversely effect the welfare of different social groups and the

Essence of cooperatives
Cooperatives as a form of economic enterprise involve getting things done
between free human beings with:
(i) equal rights;
(ii) equal human prestige (and mutual respect for each other);
(iii) equal locus standi (eg, legal standing) so that everyone's welfare
is considered.

This is called "coordinated cooperation" and is needed for equilibrium
and equipoise in social life. A socio-economic system should be based on
coordinated cooperation not subordinated cooperation.

"Subordinated cooperation" involves people doing something individually
or collectively, but at the same time keeping themselves under other
peoples' supervision or control. This can degenerate the moral fabric of
an enterprise and should be avoided when structuring cooperative business

Avoid communes
A collective economic enterprise that lacks coordinated cooperation as
its primary mode of functioning is a commune or communist system. It ends
up being based on subordinated cooperation and the predominant
relationship is that of supervisor and supervised or master and servant.
According to PROUT founder P.R. Sarkar, these relationships are ultra
vires to the psychological needs of the human mind and retard progressive

Such systems force production down, not increase it. This is because
workers do not feel oneness with their job, nor do they have freedom to
express all their potentialities. Communes or collectives in communist
countries were not cooperatives. They were simply production distribution
mechanisms under a regimented system of control.

The major distinctions between communes and cooperatives are:
(i) Communes lack personal ownership; this is one reason for their
failure. Without a sense of personal ownership people do not work hard or
care for property. Suppression of personal ownership sentiments results
in sluggish production and psychic oppression. In cooperatives, to
compare, there is personal ownership, subject to social limitations on
concentration of wealth but also part of a mechanism to ensure
progressive increase in everyone's living standards.
(ii) Communes lack a proper incentive system, which discourages
individual initiative by talented people. The result is that people do
not work hard.
(iii) Organisational behaviour and outlook in communes tends to be
materialistic and the imposed leadership crude and unsophisticated.

Avoid capitalism
Cooperative economic enterprises must also avoid becoming capitalist in
nature. A key feature of capitalism is the import of raw materials from
other countries or regions in order to manufacture finished products.
Cooperatives must not encourage this form of economic imbalance. An
economy based on cooperatives must develop its own raw materials through
research so that cooperatives are not dependent on foreign raw materials.

For example, apple orchards (raw materials), sericulture, apple
processing, packaging, transportation and marketing should all be
regarded as part of the farming industry of a region and function as

However, in capitalism raw material producers like farmers, timber
growers, fishing fleets, etc. have to sell their produce immediately
through large commodity exchanges or multinational companies in order to
pay off loans for irrigation, seeds, labour, equipment, etc. Because
capitalist enterprises control markets for these raw materials, producers
often sell at lower prices than they could get under other arrangements.
A good example of the squeeze on primary producers' income by capitalist
enterprises can be seen in the steep decline in wool prices in Australia
over recent years. Commodity exchanges and multinational corporations act
as or dominate raw materials markets to the detriment of their suppliers.

In a cooperative system, raw materials producers like farmers would not
be faced with the same financial pressures, and so not be forced to sell
produce immediately after harvesting at sub-market prices. By advancing
money to individual farmers, cooperatives will allow farmers to better
control the conditions of sale and thus enjoy more financial security.

A properly conceived and structured cooperative should be capable of:
(i) determining how much to sell;
(ii) determining the most favourable time to sell in order to get the
best price;
(iii) fixing the price of its own produce within certain price limits.
In this way cooperatives will get the profit which is presently taken by
middlemen and profiteers in the capitalist system.

In a cooperative farmers sell their produce to the cooperative at a rate
fixed by the cooperative. When the market price is reasonable the
cooperative sells the aggregate. The farmers then receive their
percentage of the profit, which will be proportional to the amount of
their land shareholding in the cooperative. At least this can be an
initial arrangement.

Membership requirements
Cooperative members have to be local people who, by virtue of their
established residence, can make a commitment to the cooperative and the
region it services. Therefore the problems of a floating population and
immigrant labour which may disturb the economy by increasing the
availability of labor will not occur in a cooperative system. The
requirement of a worker's or shareholder's longer term commitment to the
cooperative means there is no scope for floating labourers to be
cooperative members. Elimination of immigrant labour will also protect
the social life of the cooperative from possible adverse social
influences created by mobile populations.

Anyone who wishes to be part of the socio-economic life of a region,
however, can settle there and become a member of local cooperatives.

Sarkar further states that in the cooperative system unemployment will be
solved. This is because as production increases the need for more human
resources and for the construction and operation of more facilities will
also increase. Educated people can be properly employed as skilled
workers. There will also be a need for tractor drivers, labourers,
cultivators, etc. who as cooperative members will naturally do this work.

In times of economic downturn everyone's labour will be proportionately
reduced so that no one suffers the stigma of being unemployed. In this
way economic downturns will always be short and temporary.

Sarkar is confident that cooperatives will solve the unemployment problem
and states that in the cooperative system there should be no compulsory
date for superannuation. People should be free to work as long as they
like providing their health permits. This is in contrast to some
government policies which encourage older people to retire in order to
make room for younger people. Following is a look at other aspects of
Sarkar's cooperative concept.

Workforce composition
All groups in the cooperative workforce will benefit from the
cooperative's profits. The members of a cooperative will be composed of:
(i) shareholders - who receive salaries for their work plus a return on
their shares;
(ii) non-shareholders or labourers - who enjoy stable employment and
favourable wages.

Non-shareholding labourers can be further categorized into those who are:
(i) permanent labourers - who get bonuses and premiums (dividends) as
incentives besides their wages; and
(ii) casual or contract labourers - who only get wages for their labour.

Labourers or workers also include those who are engaged in cooperative
management. They will be entitled to draw dividends and salaries on the
basis of their membership in and services they render to the cooperative.

This structure allows cooperatives to develop a proper incentive system
so that individual initiative by talented people is encouraged. An
incentive system should ensure that intelligent people are not forced to
do work which is unsuitable for them, or be paid the same wages as
ordinary workers. If skilled workers get paid more than unskilled workers
there will be an incentive for all to become skilled and work harder. In
this way the cooperative will encourage the educational and skill
upgrading of its members.

In addition, workers who give the greatest service to the cooperative
should get the greatest bonuses. Bonuses should be paid in proportion to
wage rates and should reflect both the skill and productivity of the

Shareholder composition
Members who purchase shares in a cooperative should have no power or
right to transfer their shares without the permission of the cooperative.
Such a pre-emptive right allows existing shareholders to determine the
basis of membership, and prevents capitalist entrepreneurs from
purchasing large numbers of shares in a cooperative and speculating in
the market. Speculative activity can easily lead to a depression and this
will of course effect the cooperative.

Shares can however be inherited. The shares of cooperative members
without descendants simply pass on to their legally authorised
successors, who become members of the cooperative if they are not already
members. Different countries have different systems of inheritance, so
the right of inheritance should be decided according to the system in
vogue. In western common law countries if someone inherits shares in a
business enterprise and does not want to become a member of that
enterprise, existing shareholders simply buy that person out. Presumably
the same reasoning can be applied to cooperatives. Following this
arrangement will help cooperative members avoid litigation.

Because cooperative members will be from the same vicinity they will all
know each other, so there should be no difficulty in deciding who should
be able to buy such shares due to ignorance about potential shareholders.

Disadvantaged persons can also benefit from the cooperative system. A
widow, disabled worker or minor can all own shares and derive an income
based on the number of shares they own. Therefore even if as cooperative
members are unable to work, they will still be entitled to an income from
cooperative profits. Establishing such a structure on a large scale
should be able to do away with the welfare state mentality prevalent in
capitalist societies.

Dividend distribution
In a cooperative system there will be no preference shares. Today
preference shares are used by some financial institutions as a substitute
for debt investments (ie., loans to businesses). Preference shares really
mean that a lender in the guise of a shareholder has first grab at co-op
dividends and therefore co-op profits. Such investors should become
ordinary shareholders like other co-op members and share proportionately
in the success (or perhaps otherwise) of the co-op.

Cooperative management
Cooperative members should elect a board of directors from amongst the
cooperative members. The position of director should not be honorary.
Directors must be moralists.

The board decides the amount of profit to be divided amongst members,
ie., the dividend to be paid to each shareholder. However, not all profit
should be distributed in the form of dividends. Some should be kept or
used for:
(i) reinvestment, purchasing capital items or repair and maintenance;
(ii) increasing the authorised capital of existing shareholders;
(iii) deposit into a reserve fund to be used to increase the value or
rate of dividends in years when production is low. This also ensures that
shareholder capital is not adversely affected.

Farmer cooperatives
All people have the right to be guaranteed minimum requirements such as
food (including water), clothing, housing, education and medical care.
These basic requirements should be cooperatively produced because they
are essential collective requirements.

The importance of food means there has to be maximum and safe utilisation
of agricultural land. The best way to achieve proper organisation of
agriculture is on a cooperative basis, as will be seen.

Land is very important in the psychology of farmers so a proper
cooperative system has to be built up to give farmers a sense of
ownership of their land and permanent usufructuary rights to the land
while it is managed cooperatively. This will also give a better outturn.
The cooperative system has to be psychological and subtle so that farmers
do not feel adversely affected or insecure.

This can be achieved by farmers pooling their land in cooperatives and
keeping records of their shares based on the size of their individual
land holdings. In this way many small plots can be merged and boundaries
for adjoining lands broken down, removing needless division of land into
small individual holdings. This allows for an increase in the area of
land available for cultivation, benefiting farmers collectively.

Small plots are also detrimental because farmers have to lease their land
to someone who can cultivate it as an aggregate, as in the share cropping
system. This results in lower (if any) return to the farmer.

In the cooperative system there is also great scope for agricultural
research and development into new ways to better utilize and prolong the
vitality of land. The ill effects of chemical fertilizers, which are
common in individual farming and relatively unavoidable because of lack
of individual capital, could be minimized or eliminated.

Phase-wise socialisation
Sarkar's theory also advocates the gradual socialisation of all
agricultural land according to a phase-wise plan. Socialisation does not
mean nationalisation or loss of an ownership interest as in the commune

A main objective of socialisation is to ensure that everyone's economic
needs can be met (particularly by having enough purchasing power to get
access to the basic necessities of life). It also ensures that there is
maximum utilisation and rational distribution. Another objective of
socialisation and the phase-wise process is to allow for individual
psychic expansion, with a consequent change in collective psychology, so
as to create a more congenial social environment in which people learn to
think for the collective welfare rather than for their own self-interest.

There are 4 phases.

In the first phase all uneconomic land holdings should be taken over by
cooperative management for the benefit of those who own the land.

In the second phase all landowners should be requested to join the
cooperative system.

In the third phase there should be rational distribution of land and
redetermination of ownership. It appears that in this phase questions
such as the excessive concentration of wealth are to be fully addressed
after having instilled in people's minds the purpose and practice of

In the fourth phase conflict over land ownership should disappear.
Therefore after land has been vested in the cooperative and ownership of
shares determined (as well as a proper policy of distributions of
dividends to shareholders and wages to workers determined), conflicts
amongst landowners and landless rural workers will no longer exist.

Initial stages
In the initial stages (phases 1 and 2) agricultural cooperatives can be
formed by farmers consolidating their lands into a cooperative and having
shares in the consolidated holding in proportion to the amount of land
they put into the cooperative. For example:

Farmer Hectares (numbers) Shareholding Percentage
A 5 10
B 10 20
C 15 30
D 20 40
TOTAL 50 100

Adjustments to this simple structure will be required where the number of
shares has to be allocated to take into account the productivity of the
land. For example, if a farmer has 20 hectares of land of which 10
hectares are highly productive and 10 hectares are of low productivity,
the share allocation to that farmer should take into account the
differences in productivity accordingly.

Profits from crop sales by the cooperative should be shared in proportion to:
(i) the number of shares each shareholder has in the cooperative; and
(ii) the labour rendered for crop production.
In this way farmers receive profits according to the number of their
shares in the cooperative and their labour.

The system is flexible so that landowners who do not want to work in the
cooperative will still have their land included in the cooperative and be
considered cooperative members. They will get shares based on the size
and productivity of their land but if they do not want to work they will
not be entitled to wages.

Producer cooperatives
Cooperatives which are strictly agricultural, in Sarkar's system, should
sell their produce to producer cooperatives, which in turn can
manufacture a wide variety of consumer goods.

Raw materials which are of non-farming origin, such as limestone for the
production of cement, should also be processed by producer cooperatives.

Thus, producer cooperatives need to be formed for agro industries, agrico
industries and non-agricultural industries.

The total profit of such cooperatives should be distributed amongst the
workers and members of the cooperative according to their individual
capital investment (shares) in the cooperative and the service (labour)
they render to the production and management of the cooperative.

Farmer-producer cooperatives
Farmers in agricultural cooperatives may also create producer
cooperatives to produce items for various industries. Thus, some
cooperatives may function as both farmer and producer cooperatives.

Farmer cooperatives which also function as producer cooperatives have the
opportunity of increasing their profitability in various ways. For
example, producer cooperatives functioning with agricultural cooperatives
could produce rice as well as oil from the husks.

Consumer cooperatives
Consumer cooperatives will distribute consumer goods to members of the
public at reasonable rates. These cooperatives should be formed by
persons having an interest in selling goods to the public (ie., not
hoarding), and will share profits according to the standard criteria of
individual labour and capital investment (shares).

Consumer cooperatives will be supplied by both agricultural and producer
cooperatives. For example, agricultural or producer cooperatives which
produce cotton or silk thread will sell the thread to weaver
cooperatives, which can produce cloth using the appropriate or latest
technology. Weaver cooperatives will in turn supply consumer cooperatives
that sell the cloth to the public.

Commodities which do not go directly from agricultural cooperatives to
consumer cooperatives will be produced by producer cooperatives. These
non-farming commodities should be compulsorily produced by producer

This arrangement will prevent artificial shortages or the non-supply or
unavailability of essential goods and commodities. This can cause
suffering to ordinary people who have little means for circumventing
these problems.

This structure also ensures there is no accumulation of essential
commodities by capitalists for the purpose of maximizing profits, or
price inflation in essential commodities. If the distribution of
essential commodities is done through consumer cooperatives linked with
producer cooperatives, middlemen and profiteers will be eliminated.

Service cooperatives
These are special cooperatives which should be formed by people involved
in service-type industries, such as doctors.

Satellite cooperatives
PROUT advocates the formation of many small satellite cooperatives to
supply various items to large producer cooperatives. For example
different parts of a motor car can be locally manufactured in small
cooperatives (and even carried out at home as cottage industries). The
main function of the producer cooperative will be assembly. This has two
(i) large cooperatives will not require many labourers, minimizing labour
unrest; and
(ii) labour costs will be reduced, keeping the cost of commodities low.

Electronic commerce and digi-cash will make it easier to establish
cottage industries because links can be made electronically between
various satellite coops, avoiding many costs and delays potentially
arising from decentralized production.

The question of transportation of goods or parts still needs to be

The state and cooperatives

Taxes, levies, excise duties, etc. should be paid collectively by the
cooperative, not individuals. This frees individuals from financial
pressure and economic exploitation through personal taxation systems.

The primary source of taxation revenue in a PROUT system would appear to
be at the point of production. This makes sense in that enterprises which
make first use of resources have a social responsibility to ensure proper
utilisation and rational distribution; taxation imposes some restraint to
ensure this responsibility is carried out.

Trademark regulation
A useful device that can stop black-marketing or the sale of stolen goods
is trademark law. Laws can be passed which prevent the sale of goods
without the producer co-op's trademark. Thus, if black marketeers try to
sell any clothing without trademarks, they can be caught easily.
Trademarks specifying cooperative ownership will also help the public
support the cooperative movement.

Essential commodities
Commodities can be divided into three categories:
(i) essential commodities, like rice, pulse, salt, clothing, etc. People
are willing to borrow money to buy these;
(ii) demi-essential commodities, like oil, antiseptic soap, shoes etc.;
(iii) non-essential commodities, like luxury goods.

The number of items of essential commodities should be continually and
progressively revised and expanded with changes in time, place and
preferences. These revisions should be made by the government and not by
the board of directors of a particular cooperative. What is considered a
demi-essential commodity today may be treated as an essential commodity
tomorrow. Demi-essential commodities which may be affected by artificial
shortages, causing suffering to common people, should be produced by
producer cooperatives. The production of luxury goods can be left in the
hands of the private sector. Essential commodities or services of a
non-farming nature which require large capital investment, like the
railway system, should be government managed.

During shortages of non-essential commodities ordinary people will thus
not be affected.

Pressure groups
Farmers in agricultural cooperatives should be able to exert collective
pressure on local, state or federal governments for different benefits
and facilities. For example, government assistance may be needed to
develop an irrigation infrastructure.

Scientific advancement
As science advances, cooperatives will develop and manufacture a great
variety of commodities from synthetic raw materials.

Socio-economic units lacking sufficient supply of raw materials will have
to manufacture synthetic raw materials. Suppose a unit or region lacks an
adequate supply of fodder to feed its cattle, sheep, etc. Will it import
fodder from another unit or region? No, it should manufacture artificial
fodder instead. Similarly, it takes a substantial volume of cotton to
produce one "dhoti" (the traditional garment worn by men in northern
India). To transport large amounts of cotton also requires much energy,
and so if it is not readily available, synthetic fabric can be produced

Thus through the cooperative system human society will progress with
accelerating speed, ushering in a new revolution in science and causing
the intellectual capacity of human beings to increase. Every nook and
corner of natural and human potential will be properly used. In this way
progress and development can be maintained in every field of life.

To encourage common factors and discourage all fissiparous factors in the
physical realm, human sweetness is required. The best expression of human
sweetness in the socio-economic world is the cooperative system.

Dieter Dambiec practices law in Australia and New Zealand.

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