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Cooperatives and Social Capital: Innovative approach toward definition of an interconnection

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Abstract

Significant changes have taken place in the social studies, first of all in the sphere of economic sciences during recent decades. These alterations impact the theoretical and methodological foundations of investigation and involve reconsideration of old economic theories and advent of new ones, and they create new theoretical and practical relationships between different concepts. One such example is interconnection between cooperatives and social capital. This article defines the specifics of social capital and cooperatives and considers cooperatives as a subject of social capital. The paper develops common characteristics of social capital and cooperatives, such as a voluntary association of people, mutual interests, conjoint goals, the necessity of investment, personal participation etc. The paper develops also the common principles of operation of the social capital and cooperatives, mainly specific norms and rules of behavior, transparency of work activity and relationships.
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Cooperatives and Social Capital: Innovative approach toward definition of an
interconnection
Giorgi Kepuladze
Tamila Arnania-Kepuladze
Abstract:
Significant changes have taken place in the social studies, first of all in the sphere of economic sciences during recent
decades. These alterations impact the theoretical and methodological foundations of investigation and involve
reconsideration of old economic theories and advent of new ones, and they create new theoretical and practical relationships
between different concepts. One such example is interconnection between cooperatives and social capital.
This article defines the specifics of social capital and cooperatives and considers cooperatives as a subject of social capital.
The paper develops common characteristics of social capital and cooperatives, such as a voluntary association of people,
mutual interests, conjoint goals, the necessity of investment, personal participation etc. The paper develops also the common
principles of operation of the social capital and cooperatives, mainly specific norms and rules of behavior, transparency of
work activity and relationships.
Keywords:
Social capital, Cooperation, Cooperatives, Trust, Norms, Transparency
Introduction
The term “Capital” is one of the most popular and frequently used in the economic science
and practice. The theory of capital has a long history. It seems that the first use of this term
belongs to Adam Smith (1723 - 1790), who described capital as a form of wealth and considered
its impact on the wages of labour and profit (Smith, 2007). Representatives of the classical
school of political economy David Ricardo (1772-1823), Thomas Robert Malthus (1766-1834),
John Stuart Mill (1806-1873), Jean-Baptiste Say (1767-1832), Karl Marx (1818-1883), etc.
investigated the nature, essence and forms of capital and its impact on different sides of
economic, social and political life of a society. Later the economic category “Capital” was
studied by followers of neoclassical political economy Léon Walras (1834-1910), Alfred
Marshall (18421924), Fisher Irving (1867 1947), John Richard Hicks (1904- 1989) and
others.
In XX century researchers, including neoclassical economists, continue to develop the theory
of capital and formerly injected new forms of capital into the area of research and explore their
features. In the scope of researchers’ investigation came different forms of capital such as Fiscal
Capital, Economic Capital, Real Capital, Production Capital, Financial Capital, Property Capital,
Human Capital, Intelectual Capital, Spiritual Capital, Living Capital, Symbolic Capital, Social
Capital, etc.
In the general theory of capital, a special place belongs to social capital. A systematic
investigation of social capital started in the 1980’s although a phenomenon that later was
expressed under the term “social capital” was described in the first half of XIX century.
The first person, who drew attention to the relations, which in future were reflected in the
term “Social capital, was French politician and the leader of the Conservative Party, French
Foreign Minister Alexis de Tocqueville (1805-1859). Later, in 1900, American philosopher and
psychologist John Dewey (18591952) created a social pragmatism theory, which examines the
peculiarities of cooperation and association process and its impact on the civil society. In 1916 a
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public figure, head of rural schools Lyda Judson Hanifan (18791932) introduced (Putnam,
2000, p. 19) the concept social capital and in 1969 political scientist Robert Salisbury (1916-
2003) advanced the term social capital as a critical component of interest group formation
(Salisbury, 1969).
The first systematic investigation of the social capital as a phenomenon and as a term was
done by French sociologist, anthropologist, and philosopher Pierre Bourdieu (1930-2002) in
1970-1980th. Pierre Bourdieu distinguished four forms of capital: economic capital, cultural
capital, social capital, and symbolic capital. In Bourdieu understanding "social capital is the sum
of the resources, actual or virtual, that accrue to an individual or a group by virtue of
possessing a durable network of more or less institutionalized relationships of mutual
acquaintance and recognition" (Bourdieu, Loïc , Wacquant,1992. p. 119). Later the investigation
of social capital was done by Alejandro Portes (born October, 1944), Coleman S. J. (1926-1995),
Raymond W.Baker (born October, 1935), M.Belliveau, Ronald Burt (born 1949), Allen Wallis
(1912-1998), Ellen Wall, Keith Ferrazzi and others.
Today the concept of social capital has a large theoretical and practical meaning. Social
capital is recognized as a factor of political consolidation, economic prosperity, civil society
development, and a personal success.
At the same time today becomes very important to find new and develop already-existing
forms of social consolidation and economic development. One of such forms is recognized
cooperatives. Do cooperatives bring the same benefits as social capital? Can people take the
same advantage of cooperative membership as from social capital?
The given paper concentrates attention on the interconnection of social capital and
cooperatives.
Methodology of the research
The study rests on the interdisciplinary approach and on the theoretical methods, such as
abstraction, the dialectical method, induction and deduction methods, the comparative analysis
method, scientific classification, and the modeling method. The paper is largely based on
analysis of appropriate scientific literature regarding the terms and phenomena “social capital”,
“cooperation”, and “cooperative”, developed by researchers-sociologists, political analysts, and
economists.
Social capital and its features
There is a number of definitions and interpretations of social capital. Social capital is
considered as a variety of different entities, with two elements in common: they all consist of
some aspect of social structures, and they facilitate certain actions of actors - whether persons or
corporate actors - within the structure" (Colleman, 2000, p.S98), as “connections among
individuals - social networks and the norms of reciprocity and trustworthiness that arise from
them" (Putnam, 2000, p.19), as “features of social organization, such as trust, norms, and
networks, that can improve the efficiency of society by facilitating coordinated actions”
(Putnam,1993, p.167), as “resources embedded in one’s social networks, resources that can be
accessed or mobilized through ties in the networks” (Lin, 2005, p.4). All of the different
interpretations of the term “social capital” are based on the perception that social capital is a
resource available in and through personal and business networks and there is a direct link
between social capital and the quality, purpose, and meaning of life (Baker, 1964).
An American political scientist and political economist, a famous investigator of social capital
Francis Fukuyama (born 1952) also evaluated social capital in terms of informal relations,
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norms, trust, obligations, and reciprocity (Fukuyama, 2000). Trust is considered as
“manifestations of social capital” (Fukuyama, 2000, p.13).
Social capital is based on the facilitation of collective and individual action that are
generated by certain networks, reciprocity, trust, and social norms, developed in a network
(Fukuyama, 2000, p.433; Woolcock, 1998; Putnam, 1993, p. 167), it promotes individual and
collective action, cooperation and mutually supportive relations between people (Putnam, 2000).
Social capital is a specific arrangement of social organizations which has a certain features and
supports the efficiency of society.
Social capital could not be attributed to any separate person. It exists as an interpersonal
phenomenon, as a “person-to-person” relation. Social capital arises and is maintained between
individuals. Therefore, social networks are considered as the core of social capital that is
common to all authors and conceptualization of social capital (Putnam, 1993, p.167; Putnam
2000; Fukuyama, 2000; Sato, 2013, p.1 etc.). Not all social networks always create social capital.
Social networks have a “situational” character, which means that social networks become social
capital only for some people in a defined situation but for other people in a different situation it
does not become social capital. In other words, social networks can be viewed as a necessary but
not sufficient criterion for social capital creation.
Apart from the social networks in the capacity of the social capital are qualified components
or elements such as trust, norms (Putnam, 1993, p.167; Fukuyama, 2000, p.402, 433), resources
for actors (Lin, 2001, p.29), social closure (Coleman, 1988, 1999), reciprocity, common interest,
goals, motivation (Norris, 1996, p.474; Quddus, p.189), in-group solidarity (Fukuyama 2000, p.
4) etc.
All social relations and social structures facilitate some forms of social capital (Coulman, p.
S105). Different forms of social capital - structural, cognitive and relational (Nahapiet and
Ghoshal, 1998; Uphoff, 1999; Edelman et al.) - comprise various elements of social capital.
Thus, the cognitive form of social capital implicates norms, beliefs, attitudes, and values, the
relational form of social capital employs motivation, reciprocity, attitudes, control and
compliance while the structural form of social capital includes social networks, rules,
precedents, roles, procedures.
Trust primary impacts the social capital (Fukuyama 2000, p.433). Trust and its various
forms such as trustworthiness as well as its different levels (personal trust, social trust,
generalized trust) are employed as one of the most important component/indicator of the social
capital. Trust means that members of a community are conducting their relations based on the
good faith. Such interrelations assume that no one will act solely out of self-interest.
Social norms or standards of behavior set from within the community itself, are socially
constructed (Fukuyama, 2000, p.402). Norms that are chosen by a particular group of people are
result of cultural and biological predisposition (Fukuyama 1999, p.188).
Norms are “a powerful but fragile form of social capital” [Coleman, 1988] that exists in case
the socially defined right to control an action could be executed by an individual actor but is
possible to be executed by others (Coleman, 1990). Social norms directed on the restriction of
self-interest actions and maintain the collective interests. Social norms “reinforced by social
support, status, honor, and other rewards, is the social capital that builds young nations (and then
dissipates as they grow older), strengthens families by leading family members to act selflessly
in "the family's" interest, facilitates the development of nascent social movements through a
small group of dedicated, inward-looking, and mutually rewarding members, and in general
leads persons to work for the public good” (Coleman 1988, pp. S104- S105). Solid networks of
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social norms and social trust enable people to o cooperate in the pursuit of shared interest. Social
capital supports sharing of information and resources.
Social closure is considered as a kind of high density social network [Sato, p.2] that
promotes information exchange between association members. As far as acquisition of
information is costly, one way to get information is social relations.
Researchers distinguish various levels of social capital (Picture 1).
Picture 1 Levels of social capital
The micro-level of social capital operates on the individual level; the meso-level of social
capital acts on the community or organisational level; and the macro-level of social capital
functions in the society as a whole. Different authors judge different levels of social capital
investigation. P.Bourdieu and Roland Burt more typically study social capital from the position
of individuals. Coleman and Putnam consider social capital on the meso- (community) as well as
on the macro- (societal) levels.
Cooperation and Cooperatives
As it is recognized, humans are cooperative beings that strive to cooperate because
“cooperation within a group is highly beneficial to its members” (Bowles, Gintis, 2011, pp.
46,196) and humans cooperate with a purpose to share information and other valued resources
with a purpose to get a benefit. Cooperation is incorporation and interaction of two or more
individuals in order to fulfill a particular task and achieve common goals in various areas of
economic activity.
The benefits associated with cooperation lie in reduction of costs through joining efforts of
people and optimization of available resources, mutual aid and collaboration, sharing of
information and knowledge, etc. Cooperation means “engaging with others in a mutually
beneficial activity” (Bowles, Gintis, 2011, p,2). Cooperation is based on the certain norms of
interrelations (Bowles, Gintis, 2011, p,4) that predetermines a human behavior within
cooperation.
People apply different forms of cooperation (partnership, associations, unions, alliance, etc.)
one of which is cooperative. According to an independent, non-governmental organization which
represents cooperatives worldwide, International Co-operative Alliance (ICA) (Pezzini Enzo
2006, p.3), “a co-operative is an autonomous association of persons united voluntarily to meet
Levels of Social Capital
Micro-level of Social Capital
Meso-level of Social Capital
Macro-levels of Social Capital
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their common economic, social, and cultural needs and aspirations through a jointly owned and
democratically-controlled enterprise”.
A cooperative is defined as a “member-controlled association for producing goods and
services in which the participating members, individual farmers or households share the risks and
profits of a jointly established and owned economic enterprise” (Koopmans, 2006), as “a
company based on the labour activity of its members or established for developing the business
and increasing the income of the members. The objective of a cooperative shall be the
satisfaction of interests of the members. A cooperative shall not aim primarily at gaining profit”
(Georgian Law on Entrepreneurs, Chapter V, Article 60).
In 1895, the International Co-operative Alliance (ICA) adopted the general principles and
values of cooperatives and today all cooperatives around the world are based and function
according to the same seven core principles (Co-operative Principles for the 21st Century;
Guidance Notes to the Co-operative Principles 2015):
1. Voluntary and Open Membership. Cooperatives are voluntary organizations, open to all
people able to use their services and willing to accept the responsibilities of membership,
without any kind of discrimination. Voluntary association in cooperatives that means a
voluntary membership and voluntary partnership in a cooperative.
2. Democratic member control. Cooperatives are democratic organizations controlled by their
members. It means that all members participate in the management and business of the
cooperative, that every member of a cooperative can elect and be elected a person to manage
and supervise a cooperative.
3. Members’ Economic Participation. Members contribute equally to, and democratically
control, the capital of the cooperative. This benefits the members in proportion to the
business they conduct with the cooperative rather than to the capital invested.
4. Autonomy and Independence. Cooperatives are autonomous, self-help organizations
controlled by their members.
5. Education, Training and Information. Cooperatives provide education and training for
members, elected representatives, managers and employees, so they can contribute
effectively to the development of their cooperative. The members also inform the general
public about the nature and benefits of cooperatives.
6. Cooperation among Cooperatives. Cooperatives serve their members most effectively and
strengthen the cooperative movement by working together through local, national, regional
and international structures.
7. Concern for Community. While focusing on member needs, cooperatives work for the
sustainable development of communities through policies and programs accepted by the
members.
Therefore, all forms of cooperatives promote wide participation in the economic and social
development through which cooperative members can, on the one hand, effectively improve their
lives and, on the other hand, contribute to the development of their community and nation.
Cooperatives as a Form/Subject of social capital
A cooperative, as a network by its nature and an organization with independent members, is
a voluntary association of separate entities that is established with a purpose to solve common
problems and achieve interests of the members through joining their common force.
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Trust is recognized as one of the important foundations of cooperatives. Cooperation and
trust are intimately related (Good, 1990, p.33) and “cooperation requires trust in the sense that
dependent parties need some degree of assurance” (Williams, 1990, p.8).
The common particularities of social capital and cooperatives can be defined as follows
(Picture 2):
Picture 2 Common features of Social Capital and Cooperatives
Source: Author’s own
Social capital and cooperatives have common features, such as voluntary association of
people, common interests and motives, common goals, necessity of investment, private and
direct participation. The operation of social capital and cooperatives is based on common
principles, in particular: trust, accepted norms and rules, transparency of relations and business
activities.
Proceeding from the common features of social capital and cooperatives, their general
characteristics can be described as follows (Table 1).
Social Capital
Cooperative
Voluntary association of people
Common interests
Common goals
Investment necessity
Private and direct participation
Trust
Transparency of relations and business activities
Reciprocity
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Table 1 General characteristics of common features of Social Capital and Cooperatives
Features
Social Capital / Cooperatives
Organizational basis
Purposive organization; Voluntary association of people
Voluntary membership and voluntary partnership; Mutual
acquaintance and recognition; Coordination of actions
Character of
interrelationship
Close ties; Mutuality and recognition; Intergroup trustworthiness
of relationships; Voluntariness
Basis of interrelationship
Social capital, as well as cooperatives, is a trust-based relation
system of human. Norms and intergroup (inter-collective) rules
support and provide effective actions for high achievement.
Norms and rules forgo selfish interest of actors’ behaviour and
support common interests of the collective. If the norms and rules
are violated, sanctions start to operate. Sanctions could be
effective and capable of overcoming the public goods problem
and solving free rider issues.
Structure
Within associations (social capital and cooperatives), different
types of networks can be developed: with open structure and
closure. The open structure of a network means no relations
between some members and it can be impacted by negative
externalities. In the closure network, there are strong ties between
members that provide trustworthiness of social structures and
allow various kinds of benefits.
Obtained Results
Social capital, as well as cooperatives, is productive: it sprovide
achievement of certain ends that in the absence of cooperation and
voluntary association of people would not be possible; is specific
to certain activities; brings an advantage for an
association/collective and/or an advantage for its members
Legislative basis,
and
Transactional costs
reduction
Formal norms and bureaucratic rules change because of trust and
informal norms. This reduces costs associated with monitoring of
business activities and observation of the members’ behaviour.
Information
and
Transactional costs
reduction
Acquisition of information is costly. Reciprocal exchange of an
information within a tightly intertwined group of people cuts the
information acquisition costs to a minimum.
Common interests
Common interests are a crucial criterion for social capital as well
as for cooperatives. The existence of common interests is an
essential foundation for the social capital and cooperatives’
establishing.
Common goals
For social capital as well as for cooperatives, common interest and
common goals are important. The existence of common goals
contributes to mobilizing of members of coops and social capital
participants to solve their common problems.
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Investment necessity
For the creating and developing of social capital as well as
cooperatives the invest of money, time, own knowledge, own
efforts, etc. are necessary.
Social resources
Social capital, as well as cooperatives, refers to individuals within
a community and provides value to them and their organizations.
Social resources of social capital and cooperatives include
common identity, familiarity, trust, reciprocity, knowledge,
economic resources, etc.
These resources manifest themselves in minimizing the costs,
reducing the time and effort associated with obtaining the
common goals and reaching the common interest.
Vital elements
Norms, trust, solidarity, trustworthiness, transparency, codes,
sharing the common goals and interests, sharing of information,
sharing of knowledge.
Information Channels
Information is an important resource and a basis for decision
making and action. Social capital and cooperatives are
organizations of people that make it easier to get information by
use of social relations and social networks, and they distribute the
information among the members.
Source: Author’s own
Both social capital and cooperatives are “the dense networks of norms and social trust
which enable participants to cooperate in the pursuit of shared objectives” (Norris, 1996, p. 474).
Therefore, cooperatives as well as social capital are based on analogical foundations and
are characterized by similar particularities. Cooperatives and social capital have the same
principles of operation. Cooperatives bring the same benefits as social capital, and people can
take the same advantage of cooperative membership as of social capital.
Conclusion
As the given research has found, the social capital and cooperatives are trust-based relation
systems of humans that have common organizational foundations, such as voluntary association
of people, voluntary membership and voluntary partnership, mutual acquaintance and
recognition. Social capital, as well as cooperatives, is a trust-based relation system of humans
who recognize common norms and rules of behaviour that are directed towards achievement of
common interests and goals, that make it easier to get information by use of social relations,
social networks and sharing the information among members, that support reduction of
transactional costs and increase efficiency of coordinated actions. Cooperatives bring the same
benefits as social capital, and people can take the same advantage of cooperative membership as
of social capital.
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Kepuladze Giorgi, PhD candidate
Saint Petersburg State University, Russia
Botanicheskaya st. 66/3, room N1211,
Student Campus in Petergof , Saint Petersburg 198504, Russia
e-mail: kepuladze.giorgi@gmail.com
Tel.: +79 118 281 537(Russia)
Akaki Tseretely State University, Kutaisi, Georgia
Zurab Chavchavadze St. 26-209, Kutaisi 4600, Georgia
Tel.: +995 511 169 880 (Georgia)
Arnania-Kepuladze Tamila, Prof.
Doctor of Economics, Doctor of Philosophy
Akaki Tseretely State University, Kutaisi, Georgia
Tamar Mephe St. 59, Kutaisi 4600, Georgia
e-mail: tamila.arnania@gmail.com
tel.: +995 593 969 069 (Georgia)
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