Are cooperatives still relevant today?”: Mr Lim Boon Heng at the Service Sector Forum 202322 May 2023
NE Chairman, Mr Lim Boon Heng, shared his take on whether cooperatives are still relevant in Singapore today. Read his full speech below:
“Unity is strength!” Solidarity!
That was the mantra of trade unions when I joined the NTUC in 1981. Individually, workers were no match to the employer. By coming together in one body, ordinary workers had collective strength with which they could negotiate for better terms of employment.
The same principle led to the formation of cooperatives. Any group of individuals can leverage on their larger total requirements to obtain better prices and terms from suppliers. Throughout history, cooperatives have played a significant role in society – from farmers to consumers.
Rabobank in the Netherlands started as a farmers banking cooperative. The cost of operations was kept low. Officials received no remuneration. Only the “cashier” was paid. He was the one who took care of the deposits and loans.
Today any group of consumers can still band together to negotiate better prices through bulk purchase. It depends whether among them are people willing to lead, and whether they will take care of the distribution themselves. It is also a question of whether the margin of difference makes it worth their while.
In 1969, when the PAP government suggested that the NTUC set up cooperatives, the principle behind the idea was very familiar to the unionists. It was a question of whether they had the guts to embark on unfamiliar ground of running businesses. Both NTUC Welcome, the supermarket cooperative (now the NTUC FairPrice Group), and NTUC Income, the insurance cooperative (now corporatized into a company under the Companies Act), each started off with a capital of $1 million. Needless to say, in the early 1970s, it was no mean task to raise $1 million. It showed the mindset of the unionists at the time – their dare to do.
Primary cooperatives are cooperatives of individual members. The members of NTUC’s early cooperatives were both individuals and unions. The cooperatives set up by NTUC later were largely secondary cooperatives, made up of institutional members. Still, the underlying principle of the ordinary men in the street banding together was maintained, since the institutional members were unions or cooperatives, which in turn comprise individual members.
In the orthodox form, cooperatives benefit their members. One had to be a member to benefit from the services of the cooperative. When NTUC set up cooperatives, they served the wider public – members as well as non-members. Mr Devan Nair, when explaining the service philosophy of the NTUC cooperatives, used the example of NTUC Denticare – that it would pull the teeth of both unionists and non-unionists in equal measure!
From the outset, each co-operative that the NTUC set up has a clear social purpose. They were not set up to make money, and then contribute part of profits to CSR projects. NTUC Welcome was set up to combat profiteering, and moderate the cost of living. NTUC Income was set up to provide insurance coverage for the unserved lower income. Doing good is not an after-thought – it is inherent in the business itself. Both cooperatives also put aside part of their surpluses to help the disadvantaged in society. So, they do good two ways.
Five decades on, the world has changed.
First, Government has ensured the consumer get fair prices – through competition. This policy lever ensures that by and large, consumers get fair prices. This policy lever is powerful and effective, but not perfect.
Second, globalization has led to the growth of large corporations, which leverage on their scale to obtain the best prices for consumers. The large corporations are here to stay, though their clout may be lesser now as the world moves into what looks like “bifurcated globalization”. They also need to evolve to build resilience in their supply chains. Small enterprises will likewise be affected; and they will still be hard-pressed to match the large corporations in cost and price leadership.
Third, the rise of digital e-commerce platforms has enabled the consumer to source for the best prices, anywhere in the world. This heightens competition, adding to the competition lever used by the government. At the same time the small producers can sell to the global market. The e-commerce trade is supported by the rise of new logistics chains. But some of these e-commerce platforms have grown so big that governments now need to manage their monopolistic or oligopolistic tendencies.
Fourth, the business world is changing too – with much discussion on corporate purpose and stakeholder capitalism. Corporate Purpose is underpinned by a set of values. In Singapore, MCCY sponsored an Alliance for Action on Corporate Purpose, which launched a publication “Corporate Purpose: A Framework and Blueprint for Business in Singapore” at the Company of Good Summit on 12 January 2023. Doing good should therefore be inherent in the business itself. And they should continue to put aside part of profits to help the disadvantaged.
Fifth, there is also increasing use of another structure – the Company Limited by Guaranty, or CLG. This structure is seen to be more flexible than the cooperative structure. CLGs are largely similar to companies in the way they operate, except that no surpluses are paid to shareholders: all surpluses go back into doing the good that the entity was set up for. It is a particularly attractive structure if the entity receives large grant support from the government, and these grants are given to achieve a social purpose.
With these developments, are cooperatives still relevant?
I noted that cooperatives were absent at the Company of Good Summit. As one who has been with the trade union movement and the cooperatives for many years, I found this absence stark. It bears reflecting why there were no cooperative leaders there. Do cooperatives still have a significant public mindshare?
I believe that the five developments I listed pose huge challenges for the cooperative movement in Singapore.
As more and more leading businesses embrace stakeholder capitalism in their corporate purpose – some draw up ethical statements, incorporated in their articles of association – cooperatives can no longer claim that they are unique in doing good.
Businesses can leverage on scale to drive cost leadership, and offer the best prices. Most of Singapore’s cooperatives are very small, operating in the small Singapore market. They cannot benefit from economies of scale. They are too small to afford the best talent. As is well known, success depends not on the concept, but on the strategies and execution. The quality of talent determines the outcome.
Then, in businesses that are capital-intensive, it is difficult for cooperatives to scale. Share capital provided by members are classified as contingent liabilities by accounting rules. The inability to raise capital that count towards CAR (Capital Adequacy Ratio) was a key reason for NTUC Income’s corporatisation.
There is also poor understanding of cooperative principles, even among members. They often ask why cooperative shares cannot be traded like equities on the stock exchange!
There is much for the cooperative movement in Singapore to ponder over. How can they retain the low-cost model of the past? How can the lack of scale be overcome? One ‘no regrets’ move would be to form partnerships, which in concept is akin to the cooperators model. It is not easy, but still possible in niche areas.
However, we must remember that it is not the form, or the structure, that matters. What matters is the spirit of the enterprise. The underlying spirit is solidarity, collective action, power of aggregation for scale and cost leadership, to benefit all stakeholders. To stay true to corporate purpose, corporate values and individual values assure the outcome.