Indonesian Cooperative Reform: Cooperative as A True Nation Economic Actor (part 1)

Updated: Apr 26


Blog by Moh. Faishol Khusni, MICRA Regional Manager East & Central Java.

 

The Covid-19 pandemic is forcing many things to change very quickly as if bringing the future to come earlier than it should. Truly merciless, anyone who was reluctant to transform at full speed would surely be left behind. This, of course, also applies to organizations or business entities, including cooperatives.


In this era of disruption, cooperatives should have a better capacity to make themselves and their members recover swiftly. Birchall and Ketilson (2009) examined the resilience of cooperative business models during the financial crisis and found that they have a comparative advantage over other types of businesses. This comparative advantage is their membership and an emphasis on providing benefits to its members, rather than simply increasing profits.


As a case study, cooperative membership in Greece jumped during the 2007–2008 financial crisis. In 2009–2017 debt crisis, cooperatives also became key actors in responding to the public health epidemic during the AIDS/HIV outbreak in Swaziland and Vietnam and during the natural disaster response in Japan and Australia. Cooperatives also play an important role in the post-conflict environment in Sri Lanka and Rwanda (ILO, 2020). One of the key factors of this success is its members. Since cooperatives are membership organizations, the more members can benefit from a cooperative, the more loyal they will be (Münker, 2012).


In the context of Indonesia, cooperatives – as one of the pillars supporting the Indonesian economy – has their own place among their service users and have a strong presence. Cooperatives have proven themselves to be able to survive during the onslaught of the economic crisis in the country and can be considered parallel to other business entities in developing the economy.


Considering this, the role of cooperatives should not only be measured by their contribution to the country’s GDP, (currently, cooperatives contribute to a GDP of 5.2% in 2021) but should be in a broader aspect. Likewise, it is not a priority to measure the success of a cooperative in terms of the number of its members, but far more important than that is how cooperatives have the potential to become an extraordinary force in building a vision of togetherness. By uniting common strengths through empowering real socio-economic movements, the progress of cooperatives will provide wider economic and social benefits. This includes the expansion of business units and an increase in the scale of the cooperative economy in creating jobs, stabilizing commodity pricing, and reducing poverty.


Related blog: Indonesian Cooperative Reform: Change Paradigm, Cooperative-build not building cooperative (part 2)

Policies for cooperatives

Macroeconomic policies focusing on economic growth supported by large-scale businesses were created with the assumption that these businesses will create a trickle-down effect. However, it resulted in greed that did not benefit the majority and even strengthened the oligarchy. Indeed, the development of growth is necessary, but the achievement of this growth should be through fair distribution.


In dealing with situations like these, cooperatives can appear to gather their own strength – both economic strength and socio-political – to improve their bargaining position in determining national economic policies. This is not an impossible feat since there are a big number of MSMEs and cooperatives that spread throughout the archipelago and can be a fairly large force when combined.


President Joko Widodo of Indonesia in the early days of his leadership once gave a strong message to push national cooperatives in competing with other economic actors. Strong and independent cooperatives are believed to be capable of competing with large corporations and state-owned companies by quickly adapting to the times with mutual cooperation. "For that, innovation is needed, because it's not a big country that beats a small country, but a fast country that beats a slow country. Therefore, we must move quickly in order to compete with other countries," said the President.


This was reiterated by President Widodo who said that it was not only big investors who could invest in Indonesia as the government also provides equal access for MSMEs and cooperatives to become investors. "I want to underline [this], investment should not only be seen as a big investor. The government also provides equal access to MSMEs and cooperatives. MSME-based investors and cooperatives are the same with big investors, foreign investors," said Jokowi, at the Virtual Investor Daily Summit 2021.


What President Widodo said can be interpreted in two dimensions:

  1. As head of government, President Widodo values the protection of the 1945 Constitution, especially Article 33 paragraph (1) which states that the Indonesian economy is structured as a joint effort based on the principle of kinship. In his explanation before the amendment of the 1945 Constitution, Article 33 clearly stated that the prosperity of the community will be prioritized and that the establishment of a company is through a cooperative. The elucidation of Article 33 places cooperatives both in their position as pillars of the national economy and as an integral part of the national economic system.

  2. President Widodo orders all elements of the government and society to wake up the "cooperative giant" so that it can become the strength of the nation. Indonesia was said to be controlled by the oligarchy and a handful of elites and it's time for Indonesia to rise and make cooperatives not just a business entity in the community but as a building block for the nation's economy.

By placing cooperatives as part of building the nation's economy, it will help have a forum for growing and developing the people's economic potential. With the ideals of togetherness, kinship, and openness, cooperatives will become extraordinary economic actors of the nation in elevating the life of Indonesians.

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