The Malta Independent 26 May 2024, Sunday
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Co-operatives: which legislative model is best?

Mark Said Sunday, 12 May 2024, 07:07 Last update: about 15 days ago

Last June, the Nationalist Party organised a national conference under the theme "Co-operatives in Malta: The Way Forward." While advocating for changes in legislation, the PN leader stressed that a shift in mentality and the presence of political will are equally crucial for tangible progress. At the same conference, European Parliament President Roberta Metsola underscored the urgent necessity for a new economic model in Malta, emphasising that failure to adopt one would result in stagnation and hardship for workers.

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The pivotal role co-operatives play in fostering economic development, empowering workers, and driving positive change within our communities can never be stressed enough. Co-operatives are one of many forms of doing business that have the potential to cope with new challenges. Not only will the future show whether the trend towards "companization" of business enterprises continues or whether old and new problems like unemployment, health care, services for the elderly, environmental protection, leisure time management, etc. will continue to be tackled by co-operatives. The future will also show that co-operatives are a suitable form of performance in a changed business world.

Where knowledge production and management gradually replace those of goods and services, individuals become the centrepieces of the production process since knowledge is generated, applied, and passed on by people. Our current standard co-operative model is one where, according to the identity principle, members are the co-founders and the members are co-financing the co-operative enterprise of which they are the co-owners, co-administrators/managers, co-controllers, co-users, and co-beneficiaries, and for the debts of which they have co-liability, and where member promotion is preferred over producing high returns on invested capital (principle of member promotion). However, they cannot miss out on giving in to new economic necessities through a number of adaptations of these principles.

Thus, we must update our legislation while not allowing for any deviations from the co-operative principles. We need effective legislation that provides for state-assisted and independent co-operatives. We need a law that allows one group of cooperators to follow the co-operative identity principle and another to depart from it, a law that supports the idea of co-operatives belonging to the social economy alongside an independent business-minded sector and regulates a simplified form of co-operative.

Undoubtedly, the role of government in co-operative affairs should be restricted to four functions: legislation, registration, dissolution or liquidation, and monitoring the application of the law by the co-operatives. Co-operative law is a reflection of economic, social, and political circumstances. Population patterns and demographic structures have changed. Economic decision-making processes have been concentrated. Rapidly accelerating urbanisation has aggravated the ensuing social problems. These developments have occurred amidst a reciprocal process of globalisation and technological innovations and a growing concern for sustainable modes of production and consumption.

Our policymakers and lawmakers must come up with a number of initiatives aimed at creating a level playing field for co-operatives, both on the national and EU levels, that would allow them to compete with investor-oriented firms without giving up their social and cultural orientation. For example, should one consider having separate co-operative laws for each sector? While small and emerging co-operatives need more targeted funding and assistance with capacity-building and organisational aspects, larger co-operatives require more EU and national-level support in order to achieve their aims in terms of professionalisation.

The organisational form of co-operatives is changing in the direction of increasingly hybrid structures. In order to be more competitive and international, many co-operatives are introducing managerial entrepreneurship. In addition, they are becoming more product-based and less region-based, which has an impact on member representation. They are also tending to change their ownership structures in order to attract more equity capital. Is it time, therefore, to have more exemptions for co-operatives in competition law in order to rebalance market power?

With this background, it is worthwhile to seriously reconsider the Malta Co-operative Federation's (MCF) electoral proposals for the last general election. It had called for government intervention to provide the best possible environment that could enable co-operatives to develop and prosper. The MCF had rightly requested acknowledgement of the co-operative potential at the political level, a strengthening of the legislative framework, the provision of the right environment for effective community participation, and more education and awareness by encouraging the setup of more co-operatives in different sectors of the economy.

Our co-operative legislation must consolidate and modernise existing provisions and introduce modern corporate governance, financial reporting, and compliance requirements, thereby making co-operatives more attractive to investors. We must make it easier to set up and operate a co-operative society, for example, by reducing the minimum number of founding members. Also, there could be an extension of the categories of founding members to include bodies corporate, audit exemptions for smaller co-operatives, and a provision for virtual and hybrid participation at general meetings. Not least, we must empower co-operatives by providing them with the flexibility to reflect in their rules what best suits their own particular circumstances.

We need to allow co-operatives to operate under a modern, fit-for-purpose legislative framework and provide an attractive alternative to the company law model for those entities that subscribe to the co-operative ethos.

Co-operatives that develop long-term public policy programmes to complement their long-term business plans have the greatest chance of achieving their overall objectives. Co-operatives without a public policy programme forfeit the opportunity to influence government decision-making to competitors and other interests that do. Such co-operatives become decision-makers’ contacts for advice and responses on various issues.

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