Proceedings of 8th Annual London Business Research Conference Imperial College, London, UK, 8 - 9 July, 2013, ISBN: 978-1-922069-28-3 Social Capital Governance in Community-Based Cooperatives of South Africa Lizl Steynberg and Jan Grundling With the drive to decrease poverty and unemployment in South Africa since the establishment of the first democratic government in 1994, there has been an increased interest in cooperatives to provide employment, social development and community care. This research attempted to provide baseline information on social capital governance in South African community-based cooperatives. The research was based on a survey design involving 62 community-based cooperatives in South Africa. Data was compiled by means of a structured questionnaire focusing on the governance aspects of social capital beliefs and values. The results revealed that a high importance was attached to the Ubuntu African humanism belief indicative of a still alive ancient worldview of intense humanness of caring, sharing, respect, compassion and associated values which offer a solid foundation for the establishment of family, village or tribal cooperatives. An area of concern is that the expressed importance of values achieved higher ratings than the way in which these values are lived within cooperatives. This may erode trust levels in these cooperatives the essential element for cooperative sustainability. This could be resolved by means of education, active conversations to promote understanding and all inclusive cooperative practices. JEL Codes: Management: Entrepreneurship 1. Introduction Across different types of economies, people around the world have found various ways to cooperate in the production and distribution of goods and services. Worldwide, some 800 million people are members of cooperatives, and it is estimated that cooperatives employ about 100 million people (dti, 2006). According to the United Nations, the income of approximately 3 billion people, or nearly half of the world‟s population, was secured through cooperatives (ICA, 2006). South Africa has a long history of agricultural cooperatives extending back to 1824. These were developed predominantly within the white farming areas and typically developed a top down management structure. More recently, attempts were made to improve wealth creation and development within impoverished communities by encouraging entrepreneurship, innovation and community development. Lizl Steynberg, Department of Management and Entrepreneurship, Tshwane University of Technology, South Africa. PO Box 680, Pretoria 0001, South Africa, Tel: +27-12-382-4849, E-mail: steynbergl@tut.ac.za Jan Petrus Grundling, Department of Management and Entrepreneurship, Tshwane University of Technology, South Africa. PO Box 680, Pretoria 0001, South Africa, Tel: +27-12-382-5583, E-mail: grundlingjp@tut.ac.za Proceedings of 8th Annual London Business Research Conference Imperial College, London, UK, 8 - 9 July, 2013, ISBN: 978-1-922069-28-3 The South African government has recognised cooperatives as “an important avenue for collective advancement of sustainable livelihoods at community level” (Davies, 2006:3) and encouraged cooperative development to simultaneously grow entrepreneurship, innovation and community development. As such the South African governmental structures such as the Department of Trade and Industry (dti), Small Enterprise Development Agency (SEDA), Umsombomvu Youth Fund, the National Development Agency (NDA), the micro Agricultural Finance Scheme of South Africa (MAFISO) and the South African Micro-Finance Apex Fund (SAMAF) have attempted to launch small scale cooperatives amongst impoverished communities. Few of these attempts have been successful and many resulted in top down management styles, a lack of accountability, financial losses and a loss of direction. Statistics in 2010 revealed the seriousness of the situation in that 22 030 cooperatives registered in South Africa, only 2 644 are operational (Ndumo, 2010). According to 2012 statistics 54 461 cooperatives were registered and was the statistics of operational cooperatives not available (Ndumo, 2012). However, it must be acknowledged that many unregistered cooperatives operate successfully. 2. Brief Historical View of South African Cooperatives In South Africa, with the exception of the large agricultural cooperatives, the cooperative movement remains largely underdeveloped. The cooperative movement began in all earnest after the end of the Anglo-Boer war in 1902 when the agricultural sector in the former Boer Republics of the Free State and Transvaal came to a complete standstill due the British Scorched Earth Policy. This policy set the stage for the establishment of the first cooperatives. The then South African government supported attempts to establish cooperatives in the Transvaal, the Cape Province, the Free State and Natal. The primary aim of the agricultural cooperatives was to market farmer produce and procure inputs such as seeds, fertilizers and live stock. With the establishment of the Land Bank in 1912 as well as the introduction of the Cooperative Act in 1922, agricultural cooperatives were strengthened. The 1940s marked an era during which the country strived to improve the buying power of consumers through cooperatives led by the Ekonomiese Volkskongres (Economic People‟s Congress) of the Afrikaner National Movement. By 1948 approximately 275 consumer cooperatives were established (SEDA, 2006). Due to retrenchments and increased unemployment in the 1980s, worker cooperatives were initiated which led to the starting up of new enterprises, which built on local initiatives between non-profit organizations, government departments and cooperative movements. The worker cooperatives were mainly started by the Democratic Movement in South Africa, namely the trade unions, churches, and community organizations. In 1981 for example, the Cape Credit Union League in association with the Roman Catholic Church was formed with the primary aim to start and support credit cooperatives. According to the National Stokvel Association of South Africa, it is estimated that a total of 800 000 stokvels Proceedings of 8th Annual London Business Research Conference Imperial College, London, UK, 8 - 9 July, 2013, ISBN: 978-1-922069-28-3 (buying clubs), burial societies and credit schemes exist in South Africa, totalling a membership of 8.25 million (ECI Africa, 2003). 1994 when the first democratic government of South Africa came into existence also marked the establishment of the first village cooperatives and the first village financial services cooperatives. These new cooperative movements focused primarily on the establishment of village-owned and family-driven cooperatives in various economic sectors such as agriculture; credit; retail; work, social services and housing; and operation and production related cooperatives. Data released by the Department of Trade and Industry (dti) in 2006, indicated that the existence of 2,437 cooperatives in South Africa. Statistics by Ndumo (2012) indicated that 54,461 cooperatives were registered in South Africa, but that the majority of these registered cooperatives were either not operational, made extreme financial losses or experienced loss of direction. It may be speculated that a causing factor for lack of direction may lay in the status of social capital in these new cooperatives. By design a cooperative is a network organization supposes to have more social capital than any other business organization. It is formed with a motivation of mutual benefit and the expectation of collective actions amongst members. As such cooperatives are dependent on social capital. The importance of social capital in successful cooperatives is well illustrated in the British, German, and Italian models of cooperatives. Where membership was amongst others opened to members of good character, good cooperative governance principles, common needs and goals, strong bonds of solidarity, deep religious/philosophical values, trust and leadership (Huss, 1928; Freundlich, 1998; Thompson, 2003). 3. Theoretical Considerations on Social Capital The creation of social capital requires the involvement of people in terms of intentions and actions as well as the collective internalisation of all the externalities inherent in the formation of a social structure (Chou, 2006) to benefit all those who are part of the social capital formation structure on aspects relating to feelings of membership, feelings of influence, integration of needs and emotional connections, collective efficacy and the accomplishment of goals (Chewar, McCrikard & Carrol, 2005). As such it is an asset available to individuals or collective actors that could contribute to business performance (Maurer & Ebers, 2006; Hu & Kronelliussen, 1997). Putman (2000:19) defined social capital as consisting of social networking among individuals and the norms of reciprocity and trustworthiness, implying that social capital is a vital component within a cooperative to ensure coordinated and cooperative actions (Beem, 1999; Woolcock, 2001; Daniel, Schwier & McCalla, 2003; Grafton, 2007; Smith, 2007) by participating in associational activities (Chou, 2006). The viewpoint of Groen et al. (2002) corresponds with the above definition as they explain social capital as a community of people in which diverse members of an organization are tied together and their ability to interact with others. This viewpoint is further extended by Chewar, Proceedings of 8th Annual London Business Research Conference Imperial College, London, UK, 8 - 9 July, 2013, ISBN: 978-1-922069-28-3 McCrikard and Carrol (2005) who view social capital as managing real elements of social identities in a business or how the personal self relate to the social environment in which the person operates. This could for example, imply the extent to which the belief system of members in a cooperative corresponds with one another. Revising the essential characteristics of social capital through the viewpoints of Field (2003), Putman (1993, 2000), Beem (1999), Woolcock (2001), Smith (2007), Daniel, Schwier and McCall (2003), Coleman (1994), Paxton (1999), and Acevedo (2007) it is clear that social capital can be defined in terms of a: Content dimension – This include intangible substances like goodwill, fellowship, sympathy, trust and love that exist within a social structure; Structural dimension – This involves networks, ties and connections within a social structure that provides solidarity and protection to the members; and A governance dimension – This represents social organization to allow members in the social structure to cooperate based upon set norms and sanctions, a shared set of values and beliefs, virtues and expectations, applying democratic practices and the trust that exist between members also known as bonding social capital. It can therefore be concluded that: social capital represents features of social organization and associational life that can either be positive or negative depending on the circumstances; social capital accumulates stock from which spawns certain benefits because of social network management; social capital can be analysed in terms of its content, structural and governance dimensions; and social capital functions as a resource to encourage or inhibit certain actions within a social structure. In this paper, the focus of investigation will be on the governance aspects of social capital in South African cooperatives as it relates to beliefs and values. 4. Purpose The purpose of this paper will be to explore the status of social capital governance in South African cooperatives to propose recommendations on how social capital could be enhanced to improve cooperative success. 5. Research Design and Methods Use was made of a survey design method to study an estimated 500 functioning cooperative population in South Africa. From this population a sample of 62 cooperatives were selected according to the convenience sampling technique. The collection of the empirical data was done by means of a five-point Likert scale structured Proceedings of 8th Annual London Business Research Conference Imperial College, London, UK, 8 - 9 July, 2013, ISBN: 978-1-922069-28-3 questionnaire focusing only on the governance aspects of social capital as it relates to beliefs and values in cooperatives. The Cronbach‟s Alpha was performed to calculate internal consistency of the measuring instrument. Due to the fact that in the case of some cooperatives, the respondents could only speak the indigenous languages, two fieldworkers were employed to assist with interpretations. Of the 62 cooperatives selected, 32 cooperatives were defined as successful, whilst 30 as unsuccessful in terms of sales, activity level, and production. For the purpose of this paper, only descriptive statistics are presented in terms of graphs, central values, and discrepancy of data. 6. Findings The first interpretation dealt with the effect that different beliefs had on trust and cooperation in a South African cooperative. The three beliefs that generated the highest motivation for trust and cooperation were Ubuntu ( =4.65), trust yourself ( =4.61) and create your own future by interacting with others ( =4.50). On these same questions, the consensus amongst respondents was also high as indicated by relative small standard deviations of 0.89, 0.93, and 1.00 respectively. The respondents reported only a fair amount of trust in others. This could be a cause for concern as various researchers like Maxwell (1998), Benjamin (2007), Borzaga and Spear (2004) and Fukuyama (1995) indicated that trust between members is the foundation on which a successful cooperative is built. It is interesting to note that the African concept „Ubuntu‟ received a higher mean evaluation as a trust influencing factor than the religious beliefs held by respondents. The lower frequency percentages of 58.1% (n=36) for the effect of religious belief and 32.3% (n=20) for “you cannot trust anyone in the modern world” indicated that respondents were still probable fairly trusting (Figure 1 and Table 1). Proceedings of 8th Annual London Business Research Conference Imperial College, London, UK, 8 - 9 July, 2013, ISBN: 978-1-922069-28-3 Figure 1: The Basis of Belief within Social Capital 10% (N=6) 15% (N=9) 11% (N=7) No trust 32% (N=20) 32% (N=20) 5% (N=3) 2% (N=1) 3% (N=2) 19% (N=12) Own future 71% (N=44) 3% (N=2) 1% (N=1) 7% (N=4) 8% (N=5) Trust 81% (N=50) 3% (N=2) 2% (N=1) 3% (N=2) 11% (N=7) Ubuntu 81% (N=50) 3% (N=2) 10% (N=6) 8% (N=5) 21% (N=13) Religious belief 58% (N=36%) 0% Mean Variance Std. Dev. Skewness 10% 20% 30% 40% 50% 60% 70% 80% Table 1: The Basis of Belief within Social Capital Religious Trust Ubuntu Own future belief yourself 4.210 4.645 4.613 4.500 1.316 0.790 0.864 1.008 1.147 0.889 0.930 1.004 -1.370 -2.989 -2.682 -2.460 90% 100% No trust in anyone 3.629 1.778 1.333 -0.694 The second interpretation dealt with the importance of expressed values versus how these values are lived within cooperatives, whilst the mean scores in both categories achieved relatively high scores the extent to which the values were lived on all categories were lower than the importance attached to these values. This implies that the living values do not meet the expectations of its members. The value that achieved the highest mean score for both the stated ( =4.90) and living ( =4.65) values were fairness and justice within cooperative membership, followed by solidarity (standing together) between members of the cooperative for both the stated ( =4.89) and living ( =4.58) values. On both statements the consensus between respondents slightly deteriorated for the category living values. Proceedings of 8th Annual London Business Research Conference Imperial College, London, UK, 8 - 9 July, 2013, ISBN: 978-1-922069-28-3 Table 2: Cooperative Values Stated ( 1) Living ( 2) 4.76 4.48 0.28 0.53 0.86 Number of paired responses (N) 62 4.74 4.57 0.17 0.70 0.86 62 4.77 4.52 0.25 0.58 1.04 62 4.90 4.65 0.25 0.30 0.77 62 4.89 4.58 0.31 0.37 0.84 62 4.79 4.44 0.35 0.63 0.95 62 4.89 4.47 0.42 0.37 1.04 62 4.60 4.21 0.39 0.86 1.10 62 Mean ( Statement Self help within the cooperative Self responsibility within the cooperative Equality within the cooperative Fairness and justice within cooperative membership Solidarity (standing together) between members of the cooperative Openness between members of the cooperative Honesty between the members of the cooperative Social responsibility towards the surrounding community Standard Deviation (s) ) 1- 2 Stated (s) Living (s) The greatest deviation between the stated values and the living vales occurred on the following statements: honesty between the members of the cooperative ( 1- 2=0.42), social responsibility towards the surrounding community ( 1- 2=0.39), and openness between members of the cooperative ( 1- 2=0.35). In all of the above statements the respondents expressed a higher expectation in values than what materialized in the actual operations of the cooperatives which could result in a feelings of mistrust, that the cooperatives should contribute more to the surrounding community and that greater transparency between members should be promoted. Unless the discrepancies between what members regard as good values and the living values are reduced, it remains problematic whether cooperatives in South Africa will truly be able to develop a shared set of values which is a building block for trust (Beem, 1999). These findings are also supported by the Feng (2013) that investigated the role of township enterprises on local economic development (Table 2). 7. Conclusion and Recommendations The high importance attached to the Ubuntu African humanism belief which implies “I am a person through other persons” is indicative of a still alive ancient African worldview based on the values of intense humanness of caring, sharing, respect, compassion and associated values, ensuring a happy and qualitative communal way of life (Broodryk, 2006). This spells good for the establishment and running of a cooperative in South Proceedings of 8th Annual London Business Research Conference Imperial College, London, UK, 8 - 9 July, 2013, ISBN: 978-1-922069-28-3 Africa as the “we” (inclusiveness and communal) is considered to be more important than the “I” concept of exclusiveness. However, the concept “Ubuntu” also have downside implications such as that respect for elders implying a hierarchy in decisionmaking by showing respect for authority, irrespective of whether one agrees or not with their viewpoint may cause problems in the proper running of a cooperative. Further, as the Ubuntu philosophy suggests that self motivation should make provision for others such as relatives, could result in nepotism, a decrease in quality delivery and constrain open membership of cooperatives. However it might provide an opportunity for the establishment of small family, village or tribal cooperatives. The fact that the results revealed that the respondents in general were trusting each other combined with trust in oneself provides a solid foundation on which to build small cooperatives which could serve as a vehicle for job creation to enhance livelihoods and reduce poverty especially in the rural area of South Africa. However, as indicated by Woolcock (2001) trust may best be seen as a consequence of social capital over time. This indicates that trust must be built up over time with interaction of members. Once the social capital has been enhanced, Beem‟s (1999:20) comments become relevant when he suggests that trust between individuals thus becomes trust between strangers and trust of a broad fabric of social institutions; ultimately, it becomes a shared set of values, virtues, and expectations within society as a whole. Acevedo (2007:1), when talking of the institutions, relationships, and norms that shape the quality and quantity of a society‟s social interactions suggested that social capital was the glue that holds them together. McClelland‟s motivational need of association reinforces this suggesting that association tends to increase motivation (De Vos, 2011). From this it must be understood that if democratic control and open membership is to underpin the cooperative, it must develop with the social capital over time. Coady (1939) emphasised that this process might take years, but it must develop as a “bottom-up” process. The cooperative group should interact and be taught about successful cooperatives until they ask “Would it be possible for us to do the same?” Within the cooperative, social capital is a key component as it encourages people to work together, to share values and thoughts with each. Field (2003:30) illustrates the importance of social capital with a quote from Alexis de Tocqueville which stated that “in their political associations the Americans, of all conditions, minds, and ages, daily acquire a general taste for association and grow accustomed to the use of it. There they meet together in large numbers, they converse, they listen to one another, and they are mutually stimulated to all sorts of understandings. They afterwards transfer to civil life the notions they have thus acquired and make them subservient to a thousand purposes” (de Tocqueville, 1932). It must be emphasised that this process must take place in the training period before the cooperative is established. Outcomes generally include improved relationships, fellowship, sympathy and a commitment to one another. Field (2003:47) has suggested that it acts as a counterweight to economic and social disadvantage. It is said to enhance educational achievement and economic growth (Putman, 2000). It also enables people to identify common interests and increases shared commitment (Daniel, Schwier & McCalla, 2003). Putman (2000) even suggests that where trusts and social networks flourish, individuals, firms, neighbourhoods and Proceedings of 8th Annual London Business Research Conference Imperial College, London, UK, 8 - 9 July, 2013, ISBN: 978-1-922069-28-3 even nations prosper. Beem (1999:20) reinforces this concept in suggesting that trust between individuals becomes trust between strangers and trust of a broad fabric of social institutions, ultimately, it becomes a shared set of values, virtues, and expectations within society as a whole. One way to build social capital is by means of education. Fukuyama (2000:128) suggested this when he stated the most direct way for the state to generate social capital is through education, which helps people build social skills and engage in shared norms and rules. The negative effects of social capital within cooperatives should be avoided. These result in the exclusion of groups of individuals from certain activities. They can also stultify individual thinking or inhibiting the development of new ideas (Smith, 2007). Another detrimental effect can be seen in nepotism causing a loss of efficiency and profitability. If members consider themselves to be outsiders, their loss of identity utility may result in other demands to compensate for this loss such as higher wages. This emphasises the need for all members to be involved in the running of the cooperative. References Acevedo, M 2007, Network capital: An expression of social capital in the network society. The Journal of Community Informatics, 3(2), [online] Available at: http:cijournal.net/index.php/ciej/article/view/267/317 [Accessed 28 March 2008]. Beem, C 1999, The necessity of politics. Reclaiming American public life. Chicago: University of Chicago Press. Benjamin, M 2007, Cooperatives act and labour law, Cape Town: Cheadie Thompson and Haysom Inc. Attorneys. Borzaga, C and Spear, R 2004, Trends and challenges for co-operatives and social enterprises in developed and transition countries. ISSAN: Fondazione Cariplo. Broodryk, J 2006, Ubuntu life – coping skills from Africa. Randburg, South Africa: Knowres Publishing (Pty) Ltd. Chewar, CM, McCrikard, DS and Carrol, JM 2005, Analyzing the social capital value chain in community network interfaces, Internet Research, Vol. 15, No. 3, pp.262280. Chou, YK 2006, Three simple models of social capital and economic growth. Journal of Socio-Economics, Vol. 35, pp.889-912. The Proceedings of 8th Annual London Business Research Conference Imperial College, London, UK, 8 - 9 July, 2013, ISBN: 978-1-922069-28-3 Coady, MM 1939, Masters of their own destiny. Antagonish, Nova Scotia: Formac Publishing Company, Ltd. Coleman, JC 1994, Foundations of social theory. Cambridge, Mass.: Harvard University Press. Daniel, B, Schwier, RA and McCalla, G 2003, Social capital in virtual learning communities and distributed communities of practice. Canadian Journal of Learning and Technology, Vol. 29, No. 3, pp.113-139. Davies, R 2006, Accelerated shared growth in South Africa, implications and opportunities for small business, [online] Available at: http://www.anc.org.za/ ancdocs/speeches/2006/sp0412.html [Accessed 29 June 2012]. De Tocqueville, A 1932, Social capital. S.I. s.n. Vol. 2, No. 7. Publisher not available. De Vos, SA 2011, A Developmental Model for Cooperatives in South Africa, Unpublished MTech Dissertation, Tshwane University of Technology, Pretoria. Department of Trade and Industry (dti) 2006, What is a co-operative? [online] Available at: http://www.seda.org.za [Accessed 30 April 2006]. ECI Africa 2003, Third tier banking report: A review of the capacity, lesions learned and way forward for member-based financial institutions in South Africa, FinMark Trust. Feng, X 2013, The Impact of Township Enterprises on Local Economic Development, Unpublished MTech Dissertation, Tshwane University of Technology, Pretoria. Field, J 2003, Social capital, London: Routledge. Freundlich, F 1998, Mondragön cooperative corporation (MCC), [online] Available at: http://www.clcr.org/publications/html/Mondragön%20paper%20by%freundlich1198. htm [Accessed 14 March 2008]. Fukuyama, F 1995, Trust: The social virtues and the creation of prosperity, New York: Free Press. Fukuyama, F 2000, Social capital and civil society, IMP working paper, International Monetary Fund, Washington D.C. Grafton, RQ 2007, Social capital: A policy perspective, [online] Available at: www.quentin.grafton@anu.edu.au [Accessed 3 April 2008]. Groen, AJ, De Weerd-Nederhof, PC, Kerssens-Van Drongelen, IC, Badoux, RAJ and Olthuis, GPH 2002, Creating and justifying research and development value: Proceedings of 8th Annual London Business Research Conference Imperial College, London, UK, 8 - 9 July, 2013, ISBN: 978-1-922069-28-3 scope, scale, skill and social networking of R&D, Creativity and Innovation Management, Vol. 11, No. 1, pp.2-15. Hu, Y and Kornelliussen, T 1997, The effects of personal ties and reciprocity on the performance of small firms in horizontal strategic alliances, Scandinavian Journal of Management, Vol. 13, No. 2, pp.159-173. Huss, B 1928, Peoples bank or use and value of cooperative credit for African natives, Natal: Mariann Hill. ICA (International Co-Operative Alliance) 2006, What is a co-operative? [online] Available at: http://www.guava.xeriom.net/~gmitchell/coop/index.html [Accessed 24 April 2006]. Maurer, I and Ebers, M 2006, Dynamics of social capital and their performance implications: Lessons from biotechnology start-ups, Administrative Science Quarterly, Vol. 52, pp.262-292. Maxwell, JC 1998, The 21 irrefutable laws of leadership, Nashville: Thomas Nelson Publishers. Ndumo, J 2010, Agricultural policies and strategies: The state of cooperatives after the enactment of the Cooperative Act 14 of 2005: An overview, Consultative Workshop on Agricultural Cooperatives, Johannesburg, South Africa 18-19 June 2010. Ndumo, J 2012, Status of co-operative support and development in South Africa, 21 February 2012, Portfolio Committee on Economic Development, Cape Town, [online] Available at: http://www.thedti.gov.za/parliament/co-ops_support_inSA.pdf [Accessed 9 April 2013]. Paxton, P 1999, Is social capital declining in the United States? A multiple indicator assessment, American Journal of Sociology, Vol. 105, No. 1, pp.88-127. Phillips, R 1953, Economic nature of the cooperative association, Journal of Farm Economics, Vol. 35, pp.74-87. Putman, RD 1993, Making democracy work: Civic traditions in modern Italy, Princeton, N.J.: Princeton University Press. Putman, RD 2000, Bowling alone. The collapse and revival of American community, New York, N.Y.: Simon & Schuster. SEDA (Small Enterprise Development Agency) 2006, How co-operatives have developed in South Africa, [online] Available at: http://www.brain.org.za [Accessed 1 April 2006]. Proceedings of 8th Annual London Business Research Conference Imperial College, London, UK, 8 - 9 July, 2013, ISBN: 978-1-922069-28-3 Smith, MK 2007, Social capital, [online] Available at: http://www.infed.org/biblio/ social_capital.htm [Accessed 5 April 2008]. Thompson, DJ 2003, Clustering co-op development, [online] Available at: http://www. cooperativegrocer.coop/articles/index.php?id=483 [Accessed 23 August 2006]. Woolcock, M 2001, The place of social capital in understanding social and economic outcomes, Isuma: Canadian Journal of Policy Research, Vol. 2, pp.11-17.