Pilot model of workers' co-operatives

One of the alternatives that can be used as a strategy to restructure the public service may be the creation of more co-operatives within employees employed in the public service.

The major reason why co-operatives may be an alternative in the Maltese economy is that, while the public sector is being restructured, Government will then lower the amount paid in salaries and also lower expenditure by the amount paid to private contractors, as works will be carried out by co-operatives.

In 1994, a consultative committee for co-operatives (KKK) was set up, formed by the Management and Personnel Office in the Office of the Prime Minister, the Office of Co-operatives and the unions. Even at that time authorities were already feeling the need for a financial incentive to be given to employees to increase productivity and be more efficient.

The recommendation of this committee was the creation of co-operatives. The steps of the model aimed to motivate employees and help them administer and manage themselves.

To reach this aim two schemes were launched - Scheme 'A' for employees from a certain scale to form a co-operative which can operate and manage autonomously; and Scheme 'B' for employees to form a co-operative, based more on a partnership system under which the department administers and manages the activity while workers/members manufacture the product or render a service allocated to the department.

Because these schemes had to be experimental, they were focused on the interests of the employees rather than on how co-operatives were going to operate. The committee did not consider, for example, whether these were to be operated in a practical and commercial way and without adopting the bureaucratic system of the government.

For instance, they must have market protection, when at that time the local councils were created. In other words there was no clear structure of how these co-operative had to operate.

These and other questions were not addressed because within this committee there was no expertise in the field of accountancy, auditing, marketing and management from the private or public sectors.

From a certain point of view this experiment succeeded. Members already registered in a co-operative fostered flexibility, efficiency and productivity, but there was no improvement in mentality from that of an employee to that of an owner.

In 1999 the Co-operatives Board commissioned two reports, one by a private company and the other internally, to analyse the development of the two co-operatives registered at that time at the MSD Department.

These reports were not published and the proposed recommendations were not implemented. Co-operatives continued to operate with the same difficulties, but no aid was given for development for them to reach the level of scheme 'A', the consultative committee's intention.

It seems that it wasn't the proper time to commission these reports, especially that carried out by the private company.

The co-operatives were not given the necessary professional administrative staff to help them develop themselves, and besides, no operational guidelines existed.

Maturity

With the assistance of a co-operative officer assigned to the department, members became more aware that with the partnership system model they could not develop themselves. They could not invest, because to do this they had to organise themselves.

The department was convinced to abolish the partnership system and revise the conditions to give the necessary autonomy so that co-operatives can operate in a commercial environment.

Strengthening of conditions

After intensive work, in April 2001, new conditions between the MSD Department and the co-operatives were signed. The fundamental conditions were:

Contract of works: works to be awarded directly to the co-operative against a quotation or a tender. The co-operatives are to assume full responsibility for the conditions imposed in the contract.

They must be VAT operators and also registered as an entity with the Inland Revenue Department. A public liability insurance policy is to be made to cover third parties.

Finance: Modern systems of accounting have to be adopted, based on an accrual system. All income is to be made payable to the co-operative and deposited into its bank account.

The co-operative has to set up its own stores, to purchase all requisites. This is necessary to acquire best quality and prices. Payments are to be paid directly from the co-operative's funds.

A public auditor is to be employed, to perform the necessary audit inspections and prepare an annual financial report.

A guarantee in favour of the department is to be placed in case of payments due, for members' salaries and for services which are not honoured.

Membership: Members are to be declared as employees, therefore earn a fixed salary and also as owners, so profits are distributed in the form of dividends and a 15 per cent tax at source will be paid to Inland Revenue.

Members are to be covered by a personal accident insurance policy.

Administration: While the department is to abolish the partnership system, and the 10 per cent commission out of the profits were being passed to the department as administrative fees, a full-time officer is to be assigned to every co-operative, to cover government interests and at the same time administer the co-operative's financial system.

Developments: The new conditions strengthen the financial system of co-operatives and create an adequate cash flow to invest. In a short period, there was investment in vehicles, machinery, tools and even office equipment.

There was an increase in the number of co-operatives and also an increase in membership, which to date in MSD Department only, there are three co-operatives with 40 members.

Other objectives

There are more objectives that must be addressed to improve the model of a co-operative.

Among these is the procedure of how departments pay for works carried out by co-operatives, and the issue of signatories in the case of funds,

¤ To restructure the public sector employees have to be made aware of the advantages of forming part of a co-operative.

¤ Authorities must create more awareness on the concept of co-operatives through the media, circulating leaflets to public service employees and by holding direct meetings.

¤ A co-operative officer is to be assigned to departments that have the potential of creating co-operatives.

¤ The establishment of a unit/directorate under the responsibility of the Prime Minister's Office must be another objective.

¤ Revise the schemes and set up a general model with a set of guidelines for all employees wishing to form a co-operative. Abolish the scale restrictions for an employee to join a co-operative.

¤ No replacements are to be requested in case of an employee wishing to join a co-operative and have to be transferred from a department to another.

¤ Reconstitution of a consultative committee in case a unit/directorate will not set up.

¤ Confirm the procedure of the right of first refusal given to co-operatives on contracts given by Government or government entities.

The five per cent commission out of profits, instead of being paid to the Central Co-operatives Fund, will be administered by the unit/directorate to be invested in education and promotion of co-operatives within the public service.

Mr Desira is a co-operative officer