Cooperative Model Business: New Awareness Needed

As judged by delegates at a meeting on drafting the Law on Cooperatives, a cooperative is an economic model for disadvantaged and poor people to gather for doing business, and where there are many disadvantaged people in the market, there is development of cooperatives. This is the thinking of old cooperatives’ operation.

 

Facts have shown that during the development process of Vietnam, the cooperative model also undergoes ups and downs according to different development stages.

 

Cooperative is a communal enterprise of members and this model is characterized by high humanity. As such, the Law on Cooperative 2003 regards cooperatives as a special type of enterprise.

 

However, what is hard to understand is the key content indicating that cooperatives are to be considered like enterprises, not considered as a special enterprise, in the amended law 2012. This leads to unnecessary arguments over the nature of a new cooperative, which brings about huge corollaries for cooperatives and their members, as well as negatively affects their survival, competition and sustainable development.

 

According to delegates at the meeting on the draft of the amended law, cooperatives in developed countries are recognized as enterprises since they have undergone over 100 years of establishment and development. In Vietnam, cooperatives have not been founded for long, so they can neither be regarded as enterprises nor operate like enterprises. However, in fact, right from the beginning, cooperatives in developed countries are recognized as enterprises. Cooperatives are the communal enterprises of disadvantaged and poor people, aiming at generating economic benefits for them, helping them to be more competitive and thereby improve their economic activities.

 

Mr Nguyen Son, Head of Red River Transport Cooperative, said, “Cooperatives are special enterprises and operate like other types of enterprises. Once regarded as enterprises, it is impossible to limit the legitimate rights and self-control of cooperatives. Other issues regarding members, markets and assets, etc. are decided by cooperatives via congresses among their members. The demand of members is satisfied and benefits are generated for them. In new cooperatives, members can make their own decisions and no tax will be imposed, which facilitates development of cooperatives.

 

According to Article 49 of the 14^th draft law or Article 50 of the 15^th draft law (the latest draft version), income after tax of a cooperative and provision for fund establishment is distributed among members according to the principle: mainly according to level of use of products and services supplied by the cooperative and cooperative alliance. Dividing interest and profit involves accurate figures. The word “mainly” is not appropriate and inapplicable in this case.

 

Representative of Chien Cong Cooperative, Mr Dinh Huy Chien, believed that the above regulation in the draft law interferes in the self-determined right to distribute profit of cooperatives. Compared to the Cooperative Law 2003, this is a big step backward since the profit after the payment of tax and other financial obligations to the State and reservation for provisions, must be owned by the cooperatives and usage of this amount, regulated by members’ charters or resolutions.  

In order to establish and develop cooperatives, devotion, efforts and fund are required. Members are requested to contribute capital, not just pay an annual fee, once they wish to join a certain cooperative. Similar to other types of enterprises, cooperatives are hungry for capital for their operation. Capital is extremely needed in the very beginning of cooperatives’ foundation. So far, interest has been divided among members for the amount of capital they contributed and the applied rate is decided by the cooperatives through their congresses. This is practical, appropriate and in line with international practice and being implemented according to the existing Cooperative Law 2003.

 

If accurately understood, the above mentioned division of interest is, in fact, directly discounted into the selling prices (or addressed as discount or promotion for buyers). In this case, it is decreased sales turnover or increased selling cost that leads to decreased profits. According to the draft of the amended Law on Cooperatives, that split of interests is not entirely based on the amount of capital contributed by members but priority is given to the level of use of service will lead to a situation in which members who make large contribution of capital but have low level of service usage will be given very small pieces of the interest cake.

In Vietnam, the concept of cooperatives has emerged for decades. The most successful example is the People's Credit Fund. There are currently over 1,300 funds operating across the country. The cooperative model has made important contribution in the period of the construction of socialist North of Vietnam and reunification efforts. However, it is the cooperative model of the former centrally planned and self-sufficient economy. As time passes by, the old type of cooperative economic models become backward and failed to develop in the market-oriented economy.

 

The concept of a new type of cooperative is gradually accepted. However, the interpretation of the new type of cooperative model is still half-way. There exist many ambiguous perspectives on cooperatives. They are seen as social organizations rather than businesses. Cooperatives are even regarded as administrative units, self-sufficient organizations without autonomy in business, not being recognized and treated fairly as other businesses in the market.

 

Therefore, this model should be seen as the core component of the inclusive collective economy with close association with other economic sectors. Cooperatives are supposed to operate under market mechanisms, being indeed economic entities bearing both cooperation and competition features in the socialist-oriented market economy.