Capital Formation and Cooperatives and Their Importances

As you know already various means and resources are needed for production. They are called means of production which include land, capital, labor, raw materials, tools, machinery and other necessities required in the manufacturing process. Here we are talking exclusively about capital which is a very important means of production. Capital means a certain amount of money available or needed for a certain enterprise. It is needed to meet

the cost of production. Without capital, the producer cannot pay rent to land and wages to workers, buy raw materials and machinery, etc and cannot make production.

But capital is not always readily available. Instead it should be collected. In other words, funding is necessary for a certain enterprise. Simply, the collection of money required to invest to start or run a certain enterprise is called capital formation. In other words, the transfer of savings from individuals and governments to businesses for investment is called capital formation. It is also called capital accumulation as the term is more commonly used in the modern world. Capital formation is a very important part of economic growth. Generally, the higher the capital formation of an economy, the faster an economy can grow its aggregate income.

Cooperatives are very common and popular means of capital formation. A cooperative means a business that is jointly owned by the people who run it, with all profits shared equally. In other words, a cooperative means a farm, business, or other organization that is owned and run jointly by its members, who share the profits or benefits. Each member contributes equity capital, and shares in the control of the firm on the basis of one-member, one-vote principle.

Robert Owen (1771-1858) is regarded as a pioneer of the cooperative movement.

Cooperatives have proved to be very important in the economic development of developing countries. Their importance can be highlighted as under:

• Cooperatives encourage capital formation and investments in different sectors. People can get loans from there to start business enterprise.
• Therefore they help in mobilization of human and natural resources.
• They help in employment generation and poverty alleviation.
• They develop the habit of saving among ordinary people.
• They encourage public participation and cooperation.