COTTAGE INDUSTRY AND THE EASING OF RURAL POVERTY IN THE PHILIPPINES: A

COMPARISON OF AN ENTREPRENEURIAL AND A COOPERATIVE APPROACH

Author(s): Rosanne Rutten
Source: Philippine Quarterly of Culture and Society , March/June 1982, Vol. 10, No. 1/2
(March/June 1982), pp. 12-25
Published by: University of San Carlos Publications

Stable URL: https://www.jstor.org/stable/29791751

JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide
range of content in a trusted digital archive. We use information technology and tools to increase productivity and
facilitate new forms of scholarship. For more information about JSTOR, please contact support@jstor.org.

Your use of the JSTOR archive indicates your acceptance of the Terms & Conditions of Use, available at
https://about.jstor.org/terms

is collaborating with JSTOR to digitize, preserve and extend access to Philippine Quarterly of
Culture and Society

This content downloaded from

49.149.131.117 on Tue, 21 Dec 2021 07:00:59 UTC
All use subject to https://about.jstor.org/terms
 Philippine Quarterly of Culture & Society
10(1982): 12-25

COTTAGE INDUSTRY AND THE EASING OF RURAL

POVERTY IN THE PHILIPPINES:
A COMPARISON OF AN ENTREPRENEURIAL AND
A COOPERATIVE APPROACH1

Rosanne Rutten

INTRODUCTION

Current development policies attribute an important role to cottage industries. The

small-scale, labor-intensive nature of cottage industry production, which requires little
capital and a simple technology, seems well adapted to the development needs of
countries faced with growing underemployment, a lack of capital, and an abundance of
raw materials. The Philippines, which provides the present case material, has these
conditions.
The Philippine government has become a staunch supporter of cottage industry, not
only because of the employment and income opportunities it offers, but also because of
the foreign exchange it provides through the export of its products. Forced by large
foreign debts, incurred by the Marcos administration, support has been directed prima?
rily to export-oriented cottage industries, in particular handicrafts. Philippine cottage
industry employed an estimated one million people in 1976?around two-thirds of the
total industrial labor force?and handicrafts ranked in 1978 as one of the country's
major dollar earners (World Bank 1976:23; Bulletin Today, Oct. 10, 1978).
The concrete support that the government provides consists of exemptions from taxes
and from observance of the minimum wage law, and help in technology, marketing,
supply of raw materials and export promotion from, among others, the National
Cottage Industries Development Authority (NACIDA). Loans are made available by
several large banks such as the Development Bank of the Philippines.

1 Working Paper no. 6, Universiteit van Amsterdam, Vakgroep Zuid- en Zuidoost Azie, Sarphati
straat 106A, 1018 GV Amsterdam.
The observations in this paper are based on research done among handicrafts producers and entrepre?
neurs in Aklan province from April to November 1978, and visits to cooperatives in Albay and Antique
in January and February 1979. Cooperative organization of handicraft production was not the main
object of this study, and the information I gathered therefore touches only on a few aspects and problems
of it. A detailed study of the hat weaving industry in a municipality of Aklan is forthcoming. I wish to
thank Otto Van den Muijzenberg, Charles Rutten, Pieter Streefland and Koen Verhagen for their
valuable comments on an earlier version of this paper.

This content downloaded from

49.149.131.117 on Tue, 21 Dec 2021 07:00:59 UTC
All use subject to https://about.jstor.org/terms
 COTTAGE INDUSTRY IN THE PHILIPPINES 13

1. H?w*?vtagloAi?iy,Akkii =/ /""Ufif^S^ | 1
3? BywhoocwftsooopciirivcrAntique u '?'if*1*??? ?

fig. 2: The Philippines, showing the location of the handicraft industry cases discussed.

This content downloaded from

49.149.131.117 on Tue, 21 Dec 2021 07:00:59 UTC
All use subject to https://about.jstor.org/terms
 14 PHILIPPINE QUARTERLY OF CULTURE AND SOCIETY

The main goal of this support, according to the government, is to raise the standard
of living of the rural (and urban) poor, and to create a class of independent small
entrepreneurs to bridge the gap between the rural classes. President Marcos stated that
the promotion and development of cottage industries will help fulfill his wish "to
democratize wealth in our country and lift the mass of our people from poverty" and
"to build a truly strong, broad and viable middleclass which will constitute the solid
backbone of Barangay village democracy.'' Others are confident that the industry will
contribute "to the ideal of an equal distribution of the country's wealth.''
Yet a look at the present condition of handicraft producers ? i.e. those who
produce with their own hands ? shows that the benefits of employment and added
income are counteracted by problems of low payment, dependency and an unstable
income. Lasting economic improvement has been had only by a happy few ? by the
traders and entrepreneurs who control the link between producers and the export
market, and appropriate part of the profits. Though government rhetoric lauds small
independent producers, in reality large entrepreneurs receive the most support and gain
the most benefits.
By comparing an entrepreneur-dominated handicraft enterprise with two handicraft
cooperatives in different regions of the Philippines, I will suggest how a cooperative
organization may provide producers with higher, more stable income. I will indicate
some problems and limitations of handicraft cooperatives, together with some
conditions under which they would seem to have the best chance of success. The three
cases I examine are drawn from provinces officially designated as "depressed, " where
a swelling population tries to survive on a combination of handicraft production and
small-scale rice and coconut farming. Both cooperatives were established on private
initiative and, like the entrepreneur-dominated enterprise, they both produce for the
export market.

DEPENDENCY AND LOW PAYMENT IN THE ENTREPRENEUR-DOMINATED

HANDICRAFT INDUSTRY

Philippine handicraft producers are in general dependent on entrepreneurs. They

make the goods in their own homes and use raw materials either acquired by themselves
or supplied by an entrepreneur, and sell their goods to entrepreneurs who have capital
and access to market outlets. When they depend on raw materials supplied by an
entrepreneur, they are paid a piece-wage for the goods produced, i.e. they are
home-workers rather than independent producers. This arrangement is sometimes called

2Message of President Ferdinand Marcos to the First Metro Manila Cottage Industry Conference,
August 6, 1977.
Message of Jose J. Leido, Jr., Secretary of the Department of Natural Resources, to the First Metro
Manila Cottage Industry Conference, August 6, 1977.

This content downloaded from

49.149.131.117 on Tue, 21 Dec 2021 07:00:59 UTC
All use subject to https://about.jstor.org/terms
 COTTAGE INDUSTRY IN THE PHILIPPINES 15

the ' 'putting-out system.'' Middlemen or sub-contractors often buy up the products at
village level and thus form a link between producers, who live mainly in the rural areas,
and large entrepreneurs, who are mostly based in towns or cities.

Entrepreneurs prefer to distribute the work among home producers in the villages
rather than concentrate production in large workshops. The former arrangement is
cheaper for them, since home workers are not covered by protective labor laws and are
not entitled to social security, health insurance and other rights and benefits. Moreover,
whenever entrepreneurs do not need the labor of their home producers, they can easily
' 'drop'' them without having to provide severance pay. Large entrepreneurs often have
a workshop in the town or city where the goods are assembled and packed, but the
number of workers employed in such workshops is usually a small fraction of the
number of home producers. Most producers, many of whom are women, prefer to work
in their own homes, since although it weakens their bargaining position, it allows
them to combine handicraft production with household and other chores. Many would
not be able to participate in handicrafts if it meant an eight hour working-day away
from home.

Producers are, it seems, mainly women who belong to poor rural households. Their
households subsist on a combination of several marginal sources of income, and
handicraft production is a necessary "sideline." In general, they get a very low price
for their products. Entrepreneurs appropriate part of the proceeds, and keep selling prices
low in order to survive competition with other entrepreneurs. Also, the producers'
urgent need for cash income forces them to agree to low prices or wages. Their income
may be slightly higher if entrepreneurs have to compete for their labor and products.
Such competition is especially acute when entrepreneurs have to meet export orders
within a limited period, and need a secure labor supply. They then try to attract
producers by offering them slightly higher prices or piece-wages than those offered by
their competitors, or by giving cash advances. In the province of Albay, for instance,
where the cultivation and processing of hemp (abaca) is concentrated, fifty-seven
exporters of hemp products compete for the labor of home producers by temporarily
raising their purchasing prices or piece-wages. Whereas the entrepreneurs complain that
this competition may kill their business, it gives the producers more bargaining power
and a temporarily higher income.

When producing for export, producers are even more dependent on large
entrepreneurs for access to market outlets. Production for export is based on large
orders from abroad, which only entrepreneurs with sufficient capital and contacts with
foreign buyers are able to obtain. Moreover, the instability of the export market for
handicraft products makes the producers' income unstable. Due to changing fashions in
importing countries, the demand for specific handicraft articles is usually short-lived. In
1976, for instance, the foreign demand for shell necklaces dropped sharply, causing the
near collapse of the shellcraft industry concentrated in the province of Cebu. In the
same year, the demand for bags and baskets more than doubled, only to fall again by

This content downloaded from

49.149.131.117 on Tue, 21 Dec 2021 07:00:59 UTC
All use subject to https://about.jstor.org/terms
 16 PHILIPPINE QUARTERLY OF CULTURE AND SOCIETY

more than half in 1977.4 Entrepreneurs constantly change their products and designs in
order to keep abreast of these developments, and invest in the production of different
goods in different regions. In this way many succeed in surviving the fluctuations in
demand. The producers, on the other hand, may easily lose their source of income as
entrepreneurs switch their capital to the production of more lucrative handicraft goods in
other regions. Producers are mobilized to make the goods as ordered, but are
' 'dropped'' as soon as the order has been met.
The following case will illustrate the situation of handicraft producers dependent on
a large entrepreneur.

Entrepreneur and hat weavers in Aklan province

In Aklan, a province of the island Panay in the central Philippines, people engage
in various kinds of handicraft production, ranging from raffia-making to weaving of
sinamay (hemp fiber) cloth and the weaving of hats and mats. Each activity is
concentrated in a region where a large supply of the needed raw materials is available.
One large handicraft export enterprise based in the capital of the province is the main
buyer of these products. Assembled in the enterprise's warehouses in Aklan and
Manila, the goods are made into bags, plant-hangers and the like, and exported to the
United States, Europe, Japan and Australia.
At the time of my research, woven hats were the main products for the enterprise.
The entrepreneur, a widow, had received an order for 1 1/2 million pieces (to be sold
as plant-hangers) from a chain store in the United States. She mobilized the people of
one of the province's coastal municipalities to make these goods for her in their own
homes. The women of this municipality have long been making hats and mats, which
they weave from the leaves of the buri and baliw palms that cover the nearby hills.
Their households subsist on a combination of small-scale rice farming (as owners or
tenants), copra production, handicrafts and some wage labor, and those living along
the coast try to make a living by small-scale fishing. Since the returns of rice and
coconut cultivation are season-bound, the women (and children) who weave hats and
mats provide their households with a regular cash income that is badly needed to cover
daily household expenses. When extra cash is necessary, for instance to buy school
supplies at the start of the new school year, they weave more than usual. When other
more lucrative jobs are available during the rice planting and harvesting season, they
temporarily shift to agricultural work.
Before the export enterprise entered the local hat weaving sector the weavers in the
town and the surrounding villages used to sell their goods in the town market, either
directly to customers or to traders who would market the products in other towns, other

4Mina T. Gabor, president of the Philippine Chamber of Handicraft Industries, in a speech delivered
on the occasion of Cottage Industry Week, Manila, Oct. 7, 1977.

This content downloaded from

49.149.131.117 on Tue, 21 Dec 2021 07:00:59 UTC
All use subject to https://about.jstor.org/terms
 COTTAGE INDUSTRY IN THE PHILIPPINES 17

provinces and even other islands. The weavers did not get cash advances or raw
materials from the traders. They bought their own palm leaves from people in the
upland villages who own or tenant palm trees. Not bound to traders by credit, they
could sell their goods to the highest bidder.
But as soon as the large entrepreneurs tried to control the production and marketing
of hats, the weavers1 situation changed. Weavers were now confronted with a high
demand for a hat of different design, and for this new design they were offered a higher
price. Through traders recruited by the entrepreneur to serve as her agents and
sub-agents in the town and in the villages, the weavers were supplied with wooden
moulds of the hat, with cash advances, and with goods such as rice and clothes on credit.
These were attractive offers, and a massive shift from production of hats and mats
for local use to weaving of hats for export followed. The entrepreneur for her part
succeeded in mobilizing the available labor force for her own enterprise: around 800
women and children began weaving for her an average of 20,000 hats a week. Each
week, thirty sub-agents from the town and the surrounding villages collected the
woven hats from their ''clients'' and supplied these on market day to three agents
posted at the town's central market square, whence the hats were transported by truck
to the entrepreneur's warehouse in the provincial capital. The agents and sub-agents,
almost all of them women, were paid a commission of 0.05 pesos per hat (Pi .00 was
equivalent to about $0.14 at the time).
There were some clear advantages for the weavers in the new marketing
relationship. First, they were able to earn more. The price they got for the "export
hat" was higher than the price for the hat for local use (P0.70 per hat compared to
P0.40 for the "local hat"), and the "export hat" was easier and faster to make.
Second, the entrepreneur supplied them with cash advances and goods on credit, which
were not offered by the traders of the "local hat." Through the sub-agents they
received small interest-free loans, and repaid these loans on installment from part of
their earnings. They could also buy rice on credit, which was especially welcome to the
women of landless households and of households with only a marginal plot of land.
Although the amount demanded by way of repayment was higher than the market
price, the interest was relatively small compared to the interest asked by local rice
dealers. Other goods available to the weavers ranged from bananas and bread rolls to
umbrellas and clothes, also to be repaid on installment.
But apart from those advantages the shift towards production for one exporter
intensified the weavers' dependence. The market was even more beyond their reach,
and although they were paid more than before, they had less control over the price,
which the entrepreneur ? who was the only one buying the "export hats" ? was
free to dictate. The entrepreneur lowered the price to the minimum for which the
weavers would still be willing to produce for her. After the first month of her
operations, having achieved a shift towards production of the "export hat," she
reduced the price from P0.70 to P0.60 per hat. In the following months the price of
the "local hat" rose to Pi.00 per piece because of the sharply reduced numbers

This content downloaded from

49.149.131.117 on Tue, 21 Dec 2021 07:00:59 UTC
All use subject to https://about.jstor.org/terms
 18 PHILIPPINE QUARTERLY OF CULTURE AND SOCIETY

produced. Still, most weavers continued to produce the "export hat" since they were
indebted to the sub-agents for the cash advances and goods received on credit. How
much could a weaver earn a day, when paid P0.60 a hat? A woman weaving hats
full-time, around eight hours a day, could produce about forty hats a week, for which
she got P24. Deducting the cost of raw material ? which amounted to one-third of the
earnings, and which was met by the weavers themselves ? this left her with a net
income per week of P24 - P8 = Pi6. Thus her daily income amounted to about
P2.50. Considering that the local price of rice was then P2 a kilo, and that a household
of five persons consumes about 2.5 kilos rice a day, the income derived from handicraft
work did not even cover the daily food costs of a weaver's household. It was not
surprising, then, that most children were also busy weaving hats. In the slack farming
months, when some households depended solely on their income from hat weaving, the
whole household would be doing this work.
The producers lack of control over the price they were paid was closely related to
their lack of control over profits. Profits were appropriated by the person who took the
order, supplied the capital and exported the product (the entrepreneur) and to a much
smaller extent by the middlemen who organized production and marketing on the local
level (the agents). The producers themselves were paid only a small part of the final
proceeds of the sale of their products.
Finally, since producers did not control marketing, they could easily be cut off from
export market outlets. After a year, the weaving of "export hats" stopped. The
production target had been reached and no new orders had come in, so the
entrepreneur stopped her operations in this municipality. The weavers had no choice
but to return to producing ' 'local hats,'' the price for which dropped back to its former
level.
In what ways then did the situation of the rural population improve as a result of
handicraft production (specifically production for export)? After all, according to the
policy makers, that is what was supposed to happen. It is true, of course, at least in the
case of the hat weavers, that the handicraft industry has provided additional
employment and income to rural households. And by producing temporarily for the
export market the weavers earned slightly more than by producing for the local market.
But if we look at the potential long range benefits of this industry to the rural
population, we may conclude that they have been far from realized. Problems of low
pay, dependency and instability must be solved before there can be a true and lasting
improvement in the producers' condition. These problems are at least partly caused by
the producers' lack of control over capital and over the marketing of their products. Are
these problems overcome by cooperative organization, through which producers jointly
control the production and marketing of their goods?

AN ALTERNATIVE: A HANDICRAFT PRODUCTION AND MARKETING COOPERATIVE

The main goal of a marketing cooperative is to obtain the most advantageous prices

This content downloaded from

49.149.131.117 on Tue, 21 Dec 2021 07:00:59 UTC
All use subject to https://about.jstor.org/terms
 COTTAGE INDUSTRY IN THE PHILIPPINES 19

on behalf of its members. By pooling individually produced goods, handicraft producers

may obtain large orders otherwise beyond their reach, and sell directly to wholesalers or
exporters. This enables them to bypass the middlemen and get higher selling prices for
the products and a higher income. Members of a production cooperative usually own
the enterprise's capital and decide about the organization of production. The members
are not independent producers, but work for the cooperative in return for a piece-wage
and a share in profits. The cooperative supplies raw materials, markets the goods, and
decides on the labor remuneration of its members. In general, then, a cooperative
approach, in contrast to an entrepreneurial one, will provide handicraft producers with a
higher income, more control over the production and marketing relationships, and thus
a greater chance of developing a stable and self-sustained enterprise.
But do members of a cooperative really benefit from these potential advantages?
The following case-studies of two handicraft cooperatives show that the success of a
handicraft cooperative depends, among other things, on a strong competitive position
vis-?-vis profit-oriented enterprises, as well as on good management and contacts with
potential buyers. Since my information is limited, I have not discussed problems
concerning members' motivation, management honesty, and organizational democracy
(the importance of which many authors have stressed). (See e.g. Hart 1955; Makil
and Hunt 1981; Montemayor 1969).

The abaca crafts cooperative in Albay province

Abaca crafts are the dominant handicraft industry in Albay, a province in the Bicol
region where rice, coconut and abaca (hemp) are the main crops. The rising demand in
the United States, Europe and Japan for abaca plant hangers, place-mats and handbags
has led to a mushrooming of private handicraft enterprise in the province. In 1978 as
many as fifty-seven entrepreneurs exported around $11.5 million worth of handicraft
products from Albay (NACIDA, Bicol Regional Office, 1979). The entrepreneurs
mostly follow the ''putting-out'' pattern of production. Through middlemen they
supply raw materials to rural producers and have the products assembled in their
workshops in the towns; the producers are paid a piece-wage for their work. There is a
marked division of labor in the industry ? most handicraft producers make only part of
the end-product, like woven twine or burlap for handbags ? and different
specializations are often found in different municipalities. Since most entrepreneurs deal
in the same kinds of products, they engage in fierce competition, which keeps export
prices low. On the other hand, this competition has somewhat raised producers'
bargaining power.
The abaca craft cooperative, located in a coastal municipality north of the provincial
capital, has been able to bypass middlemen and to bring small producers into direct
contact with exporters and even with foreign buyers. In addition, the member-producers
are owners of the cooperative's capital and thus exert control over both production and
marketing. But the cooperative is confronted with problems which have up to now

This content downloaded from

49.149.131.117 on Tue, 21 Dec 2021 07:00:59 UTC
All use subject to https://about.jstor.org/terms
20 PHILIPPINE QUARTERLY OF CULTURE AND SOCIETY

prevented the desired increase in members' income.

The cooperative set up in 1975, is so far the only handicraft cooperative in Albay.
Organized through the initiative of an employee of the municipal post office, a member
of the local credit union, it got its initial capital in the form of a loan from the National
Electrification Administration (NEA; this government organization is entitled to give
loans to labor-intensive projects organized on a cooperative basis). Membership is open
to all the municipality's inhabitants. In 1978 the cooperative had 152 members,
mostly women, of whom 20 worked in the cooperative's town workshop and 132
worked in their own homes in the town and the surrounding villages. Each member has
followed a one-month training course in craft skills. This training is provided free of
charge, and members in training are paid similar wages to those of other members. The
principal products are place-mats, bags and plant-hangers made from abaca twine or
sinamay, and abaca rugs and doormats. The cooperative buys the necessary abaca fiber
in bulk and distributes it among its members for further processing. Since the
cooperative supplies its members with raw materials and with capital goods like sewing
machines, members are paid piece-wages for the goods they produce.
Members of the cooperative enjoy some clear advantages over other handicraft
producers. First, they jointly own the cooperative's capital. Each member becomes
co-owner by paying a so-called ' 'capital contribution" which amounts to 5 percent of
the wage. Consequently, all members share in the "profits" of the cooperative
through a "patronage refund": every year 10 percent of net income is divided among
the members; the remaining 90 percent is reinvested. This yearly refund may be very
small. More important is that the capital, owned by the members, is used to obtain
regular orders and thus to secure steady employment. Second, members are offered the
chance to become the owner of a sewing machine, by means of a "soft" loan provided
by the Albay Electrical Cooperative (which is part of the NEA). The cooperative owns
eighty sewing machines, some of which are kept in the workshop and others of which
are distributed among members' homes. Third, the export market has come within reach
of small producers, since the cooperative has established direct contacts with exporters
in Albay and Manila.
One would expect that, with these marketing contacts, the members would be able
to get a markedly higher income than other handicraft producers, but this is not the
case. At first, the cooperative did try to get for the members an income comparable to
official minimum wage standards, and calculated piece-wages on the basis of a desired
income of P8 a day. But the cooperative lost money, and wage rates had to be cut
back. At the time these data were collected, members were paid piece-wages which
were equivalent to the standard wage rates applied by local entrepreneurs plus P0.05.
Members producing at home (most of whom do not work full-time) earn an average of
P4 a day, and those who worked eight hours a day in the workshop earned an average
of P6 a day. In the entrepreneurial abaca crafts industry, piece-wages yielded an
estimated income of Pi to P4 a day, dependent on the kind of work.
The main reason the cooperative has not yet succeeded in securing a subsistence

This content downloaded from

49.149.131.117 on Tue, 21 Dec 2021 07:00:59 UTC
All use subject to https://about.jstor.org/terms
 COTTAGE INDUSTRY IN THE PHILIPPINES 21

daily income for its members is that it has to compete with a large number of private
enterprises which all vie for orders from exporters. This competition keeps prices low
and limits the maximum prices the cooperative can obtain for its products. One could
argue that if private entrepreneurs can make profits, then so should the cooperative,
and that it could then return these profits to the members in the form of higher wages.
In this case, however, the cooperative is hardly making any ' 'profit" at all. Much of its
extra income is absorbed by high overhead costs, such as staff salaries and loan repay?
ments. In contrast to many private handicraft enterprises, a cooperative needs a salaried
staff to perform the managing and bookkeeping functions otherwise carried out
by a hard-working entrepreneur. Large entrepreneurs may have a bookkeeper and a
secretary, but the large turnover of goods and subsequent high income enables them to
employ a small staff. For the cooperative, however, overhead costs pose a problem,
since the turnover is not large and it is in a line of production where profit margins are
low. To solve this problem, it plans to sell directly to foreign buyers. The managers
of the cooperative have already established export contacts with non-profit organiza?
tions in Germany and the United States. These buy handicraft products from coopera?
tives in non-western countries, and offer above market prices. By directly exporting
to these organizations, the cooperative hopes to get higher prices for its goods and thus
to increase the income of its members.
This case illustrates some structural constraints that prevent a big increase in the
income of members of a handicraft cooperative. Cooperatives are always to some extent
subjected to, and restrained by, market forces outside its immediate control. This is
particularly true when a cooperative has to compete with profit-oriented enterprises
engaged in the same line of production. In such a case, a cooperative may obtain only
very small price increases, and these may be further limited by high overhead costs.
(From the producers' viewpoint, however, these "small" price increases may already
be of great importance to the household's subsistence.) A cooperative may then survive
either by keeping members' wages low and thus maintaining a competitive selling
price, or by calling in the help of non-profit buying organizations. This last solution is a
way of subsidizing cooperative production.
Some handicraft cooperatives, however, did succeed in gaining a strong
competitive position and in securing a relatively high income for their members, as the
following case shows.

The bamboo crafts cooperative in Antique province

The bamboo crafts cooperative, which is located in a coastal municipality close to

the provincial capital, produces handicraft articles that are new to that province.
Unconstrained by competition, in due course it has been able to get a relatively high
price for its products.
It is part of a broader cooperative movement in Antique. The province at present
has around forty cooperatives: credit unions, consumers' cooperatives, fishermen's

This content downloaded from

49.149.131.117 on Tue, 21 Dec 2021 07:00:59 UTC
All use subject to https://about.jstor.org/terms
22 PHILIPPINE QUARTERLY OF CULTURE AND SOCIETY

cooperatives, and one handicraft or so-called ' 'industrial*' cooperative. These were set
up under the guidance of Dutch priests and Netherlands Volunteers, and are affiliated
with the Antique Cooperative Rural Extension Service (ANCORES). Established in
1970 with a loan supplied by ANCORES, the cooperative's aim is to create employ?
ment and income opportunities for the local population. It is not based on an already
existing group of small producers. Rather, it began from scratch, and anyone interested
in learning the necessary skills could join. The priest under whose guidance the coopera?
tive was formed opted for the production of goods for export, since they command a
higher price than those for local use. Moreover, he chose products which were not yet
locally produced in order to avoid competition from already established middlemen and
entrepreneurs. He chose bamboo craft articles, since bamboo is locally available in great
quantities.
At present [1979], the cooperative has some 300 members, women and men of
poor farmer or fisherman's households. They buy their own raw materials, produce at
home, and sell the finished products to the cooperative, which prescribes the designs.
They have all followed a free training course of one month. The articles produced
include bamboo baskets, trays and coasters which are sold to private exporters. Initially,
the cooperative sold to a non-profit organization based in Manila, which had export
contacts with foreign buying organizations. But according to the president of
ANCORES, the management of that organization was rather inefficient. Another
similar organization, when contacted, asked a higher commission for its services than
the private exporters on account of its high overhead costs. This caused the cooperative
to shift to private exporters, with whom it now has good business relations. Members
share in the capital by contributing 10 percent of their weekly income from handicraft
work. Part of the cooperative's net income is divided among the members through
' 'patronage refund" and interest on shares.
Members enjoy a relatively high income. The purchasing price of their products is
based on what the cooperative management deems a "just" labor remuneration; it
considers Pi5 a day the minimum income needed to make ends meet. Purchasing prices
are computed on the basis of (a) this income target, (b) the time needed to produce a
given quantity of goods, and (c) the cost of raw materials. Selling prices are based on
purchasing prices, plus 15 percent to cover overhead costs, and 30 percent to pay the
interest on loans and on shares and to cover other expenses including patronage refund.
Although the cooperative's selling prices are relatively high, exporters are usually
willing to accept them.
How did the cooperative succeed in reaching this strong bargaining position? It
learned much from some initial setbacks. At first, it put too much emphasis on
assistance, and the business aspect was neglected. This resulted in low quality
products, so that buyers refused to buy. To reverse the tide, the cooperative's leaders
imposed a strict quality control. Many producers left the cooperative because their
products did not meet quality standards and were consequently not accepted. Slowly,
due to improved quality, more orders started to come in, and new members were

This content downloaded from

49.149.131.117 on Tue, 21 Dec 2021 07:00:59 UTC
All use subject to https://about.jstor.org/terms
 COTTAGE INDUSTRY IN THE PHILIPPINES 23

recruited and trained. At present, the cooperative enjoys a reputation for high quality
products. It constantly creates new designs adapted to changing tastes. Since most
members have the skills to produce different kinds of bamboo products, they can easily
shift to other designs as the demand changes. Strict quality control and the subsequent
good reputation and stable contacts with exporters greatly reduce the cooperative's
vulnerability to competition. Should a bamboo craft enterprise in another province copy
some of the cooperative's products and offer them to exporters at a lower price,
exporters would still stick to the cooperative as their trusted supplier and not risk low
quality or late delivery by another enterprise, or so reasoned the president of
ANCORES. Locally, within the province, some competition results from private
dealers who try to buy from members directly at their homes. Members sometimes sell
to them (although they usually offer a lower price than the cooperative) because it saves
them a trip to the provincial capital to sell the products at the ANCORES office, or
because they have taken cash advances from the dealers and have to repay them with
products. To keep members from selling to private dealers, and to protect them from
exploitation by usurers, the cooperative has started to give cash advances to its
members; these cash advances are repaid by installments.
Until now, the approach chosen by the cooperative seems to be working. It gets
more orders than it can handle. It can set its own prices, and the producers are assured
of a relatively high and stable income. Unlike the abaca crafts cooperative in Albay, this
cooperative does not need help from foreign non-profit organizations to obtain high
prices for its products. It is left each year with a net income, and is becoming financially
self-sustaining.
It should be noted that "outsiders" have played a crucial role in organizing and
leading the cooperative, which is true also of many other cooperative movements. The
participation of the Netherlands Volunteers and the locally based Dutch priests provided
some advantages. Unlike local producers, they had access to some market outlets and
sources of credit through their contacts with national and international organizations.
They supplied technical and organizational know-how. And through their organizing
activities the local population became better acquainted with cooperative organization,
and more inclined to join it. However, such participation by "outsiders" may also
have less desirable effects. It may lead to a concentration of power in their hands. Some
argue that a powerful leadership is generally necessary to get a cooperative off the
ground and to make it financially successful. Others have pointed out that although this
approach might be advisable from a business point of view, it could harm the originally
democratic and egalitarian cause of cooperative organization. It may lead to members
having little say in matters concerning their own cooperative.5

51 lack information about how the members of the bamboo crafts cooperative have coped with these
potential problems.

This content downloaded from

49.149.131.117 on Tue, 21 Dec 2021 07:00:59 UTC
All use subject to https://about.jstor.org/terms
24 PHILIPPINE QUARTERLY OF CULTURE AND SOCIETY

CONCLUSION

The Philippine cases discussed above suggest that an entrepreneurial approach

leaves handicraft producers in a dependent and insecure position, since capital and
market contacts are controlled by entrepreneurs who can easily shift their capital to
investment in other lines of production. Moreover, the producers' urgent need for cash
income leads them to accept very low payment for their work. It seems that the rapid
development and financial success of the Philippine handicraft industry has been made
possible mainly by the continued poverty of the rural population.
A cooperative approach does not in itself guarantee a complete solution to these
problems of handicraft producers. True, producers are guaranteed more regular orders
and more regular employment and income when they control the capital and marketing
arrangements through cooperative organization. But whether they also get higher
incomes depends on how well their cooperative performs compared with private
handicraft enterprises. It seems that a cooperative cannot compete on an equal basis
with private enterprises; it is burdened by high overhead costs since the managing and
bookkeeping work that a motivated entrepreneur would do, have in the case of
cooperatives to be carried out by a paid staff.
A cooperative therefore has the best chance of givings its members higher pay if it
engages in a line of production where competition is not severe. A good management
and strict quality control are also necessary if this position is to be strengthened. It may
need to give its members cash advances, to make sure that they do not become short of
cash and accept credit from private dealers who will demand products in return. Thus
the bamboo crafts cooperative in Antique gained a strong competitive position by
producing goods which were new to the region; by main tainig high quality standards;
and by supplying credit to its members to counteract competition from a few local
traders.
On the other hand, a cooperative which is engaged in a line of production where
competition is cut-throat and where profit margins are low, can only survive by paying
its members low prices or low wages. Most of the "profits" of the abaca crafts
cooperative in Albay, for example, were absorbed by overhead costs. For cooperatives
in such a difficult financial situation, it may be useful to sell to non-profit buying
organizations which pay above market prices, which means in effect getting a kind of
subsidy.
Organizational problems may also endanger a cooperative's success. Apart from
problems such as lack of motivation among members and dishonest and inefficient
management, the richer and more powerful people in the local community might use the
cooperative to further their own interests. Some authors have pointed out that in a
society characterized by inequality a cooperative is likely to be dominated by the local
elite (Myrdal 1968 and Wertheim 1974) but this does not seem to be the case in the
cooperatives I have described here. Their members are all drawn from the poorer strata
of the towns and villages, and jointly own the cooperative's capital. Only labor and

This content downloaded from

49.149.131.117 on Tue, 21 Dec 2021 07:00:59 UTC
All use subject to https://about.jstor.org/terms
 COTTAGE INDUSTRY IN THE PHILIPPINES 25

skills are required for membership, and members become owners of the capital by
remitting part of their earnings to the organization. These cooperatives seem to be truly
for the poor.

REFERENCES

Hart, D.V.
1955 The Philippine Cooperative Movement. Far Eastern Survey 24: 27-30, 45-48.

Makil, L. and Ch. Hunt

1981 "Philippine Cooperatives: The Triumph of Faith over Experience," paper read at the
Second International Philippine Studies Conference, June 27-30, Honolulu, Hawaii.

Montemayor, J.
1969 Philippine Socio-Economic Problems. Manila: Rex Bookstore.

Myrdal, G.
1968 Asian Drama: An Inquiry into the Poverty of Nations. New York: Pantheon.

NACIDA
1979 Information sheet with export figures of the year 1978, National Cottage Industry Devel?
opment, Bicol Regional Office.

Wertheim, W.F.
1974 Evolution and Revolution, the Rising Waves of Emancipation. London: Penguin.

World Bank
1976 The Philippines, Priorities and Prospects for Development. Washington, D. C., The World
Bank.

This content downloaded from

49.149.131.117 on Tue, 21 Dec 2021 07:00:59 UTC
All use subject to https://about.jstor.org/terms