Education for Rural Management: Challenges and Possibilities (I)

Worker-owned companies can be made efficient if they are managed like privately owned firms, and then, the surplus that is generated can be used for the welfare of all workers. This may need the limiting of employment to an optimum number of workers on each day (there can be a rotation system so that all workers get work on a certain number of days) but all workers can benefit from the consequent surplus.

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Abstract

There is a certain consensus on the meaning and contents of education for managers’. However, the difference between management’ and rural management’ is somewhat vague and dynamic. This paper attempts to understand this difference along multiple dimensions. Though the starting difference is spatial (rural versus urban), this need not be the core or the sustaining difference over time. Hence, the paper discusses the differences along with other dimensions, such as products, which are produced by a large number of small players, but which require the infusion of a substantial amount of capital for processing and distribution/​marketing versus others; organisational forms, such as collective ownership of small producers, workers and customers, versus conventional firms; goals, not-for-profit versus for-profit and; business-environment, underdeveloped versus developed contexts. The possible changes along each of these dimensions and their impacts on education for rural management’ (ERM) are discussed in the paper. The second issue is the signalling role of higher education in general (due to the problem of information asymmetry). It is argued that this particular role of higher education may pose serious challenges for the operationalisation of education for rural management’ (with the kind of differences that are mentioned earlier.) It also discusses some possible areas where education for rural management may continue to be relevant despite the urbanisation, modernisation and homogenisation of the economy.

Introduction

There is a global consensus on what the components of education for managers’ are. This education is mainly for creating managers’ for for-profit organisations even though there are attempts to extend such education to not-for-profit and public organisations. This essay looks into the nature and dynamics of the education for rural management’ (ERM). This is an additional contribution to the literature on ERM.1

One way to think about rural management is as a set of proficiencies that are required to manage production/​operations, people, finance, marketing (sales) in organisations that are operating in rural areas.2 The location of such firms in rural areas may pose certain specific challenges, and these have to be addressed by the ERM. There could be for-profit and not-for-profit organisations that use ERM for the creation of managers for their rural operations. These may include the purchase of inputs (like agricultural outputs as raw materials) and the sale of products or services in rural areas. There could be a need to deal with producers/​community organisations in rural areas to procure inputs and market outputs. Banks may have rural branches and rural operations, and these spaces may require a few additional skills. For example, dealing with a large number of small (volume of business), women customers could be a challenge. The ERM can have as a goal developing these additional capacities. To a great extent, the placement of students from IRMA in corporate organisations is based on this aspect of ERM.

If we view ERM from this perspective, rural versus urban may be a passing distinction. There is a process of urbanisation happening in all poorer countries, and what may be distinct in rural areas may disappear over time. Secondly, there could be similar challenges in urban areas too as in the case of organising micro-finance activities among the urban poor. For these reasons, the rural focus of the ERM may not be very important over time.

What about ERM focussing on the poorer sections of the country? There are two aspects here. Reducing poverty and the provision of public goods to these people may require one kind of actions. However, there can be activities to deal with their production and consumption of private goods or livelihoods in general. We may consider the latter here. (The former is taken up in a later section.) There could be a higher transaction cost in dealing with such customers (employees may need to spend more time to deal with each of these customers who may bring only a small volume of business). There could be limits on improving productivity in such operations3 and that may limit the compensation of employees dealing with such operations. Then ERM may be viewed as a process of creating a lower-level hierarchy of managers who may deal with customers who have lower net-worth, who buy/​sell smaller quantities and so on. This may lead to a situation where the products of ERM, if they focus on poorer people, may be forced to occupy the lower tiers of the management machinery of large for-profit or corporate organisations. Then, a separate education for rural management may become unsustainable or less vibrant in the long run. Management positions in the lower tiers may be taken up by people with regular management education who could get top-tier jobs (because they have passed out of less reputed management institutes).

The other approach is to view the ERM as one which creates managers for different kinds of organisations. One of these is firms owned by small producers and the relevance of ERM for such organisations is discussed in the following section.

ERM for small producer organisations

Such organisations were the focus of IRMA when it started the ERM.4 It was shaped by the historical connection between National Dairy Development Board (NDDB) and IRMA. The answer to the question of the need for small producer-owned organisations is clear if we take the case of milk production. The processing of milk and its marketing are scale economies. Among the different ways to organise these downstream activities (of milk production), small producers’ organisations have certain advantages, such as that these may not be as bureaucratic and inefficient as a government department, and these may share a higher level of surplus with the farmers who produce milk than private companies. However, the organisations owned by small producers may need technical and managerial support from professionals.

There could be certain additional challenges (and the need for additional skills) for the managers of such organisations. Profit-maximisation may not be the objective and instead, it could be the enhancement of the share of the surplus for the small producers. Is it the same as the maximisation of the value of (small) shareholders of a company? It may not be. When the value of shares of a company goes up, it need not be at odds with the monetary rewards of managers. However, the enhancement of the surplus share of small producers need not enhance the rewards of managers of organisations owned by small producers.5

These managers may need a higher level of skills to organise and maintain collective action. (One may argue that a corporate company also needs collective action among shareholders. However, there is a need for a higher level of collective action in the procurement of inputs, to ensure the quality and quantity of outputs, and so on in the case of such a small producers’ organisation.)

There are other jobs’ that require skills in managing collective action. For example, politics. In one sense, the manager of a private company and a politician are at two extremes of a spectrum of jobs that require collective action. The managers of organisations owned by small producers are to be somewhere between these two professions in this spectrum. This collective action is to be organised among people with certain socio-economic and educational prerequisites. Since managers of any organisation may require skills for execution and implementation, those who manage small producer-owned organisations may need these skills and those that are required to facilitate collective action.

There are many economic activities that are carried out by small producers. Most agriculture, especially in the developing world, is in the hands of small farmers. However, an organisation jointly owned by small producers (like AMUL) is needed for some activities, like milk production, wherein substantial inputs of capital and professional expertise are needed to ensure that their products are processed appropriately and reach a market of appropriate scale. Such an organisational form and managerial intervention may not be needed for certain other activities, like paddy/​wheat production (which may not require centralised processing, and local marketing of these products may not be disadvantageous. Or the existing private intermediaries may not be harmful due to a higher level of competition in this market). Hence, for activities like paddy production (though this is also carried out predominantly by small producers), producers may not make the effort to come together and act collectively to sustain a producers’ organisation like AMUL.

However, the situation may change over time. Let us consider other independent producers of goods and services. The running of taxies was a service that was mostly carried out by independent producers. However, technology-based aggregators (like Uber) have shown another possibility. This demonstrates that technology can enhance the capacity utilisation of taxies and also reduce the transaction costs to be borne by customers which, in turn, can enhance drastically the level of usage of this service. This kind of change would necessitate the need for a higher level of capital and professional expertise for the aggregation of taxi services. If this capital (and human capital) is provided by a for-profit company, then it may retain a higher level of surplus with itself. That seems to be happening with the Uber-like organisations currently. There could be an attempt to organise independent producers like taxi drivers into a producer-owned company.6 Such attempts are going on in different parts of the world. The management of these organisations may encounter certain specific challenges and may require skills like those in small producer-owned companies, like AMUL.

There could be other such attempts by small producers. When technology-based online trading becomes the main form of retailing, a large number of small producers of goods and services may lose power in bargaining with big retailers, like Amazon. There could be a demand for producer-owned, online-retailing firms which may share a greater part of the surplus with these producers. Creating managers for such organisations could be a mandate of an extended version of ERM.

ERM for worker-owned organisations

It is theoretically possible for either capital to hire workers or workers to hire capital. Ideally, there should be no difference in performance due to this. However, in reality, we may see more cases where capital hires workers and not the other way round. The historical distribution of power/​wealth that has led to a situation where the majority of the population are workers with only a limited amount of wealth (and hence limited access to capital) plays an important role. However, a proximate explanation is based on transaction costs.

Let us think about a car manufacturing company (A) and a consulting company (B). A’ requires a substantial amount of physical/​financial capital and a large number of workers. If A is a worker-owned company, all workers may have to come together (by solving the coordination problem) and negotiate, and make arrangements, with those who have the capital. The transaction costs for all these could be very high. Instead, one capitalist having the controlling stake and hiring a large number of workers may reduce the transaction costs.

On the other hand, the capital requirement of the consulting company (B) is small, and its most important input is the labour of a set of (as against a large number) skilled workers. It is relatively easy to solve the collective action problems here, and the transaction costs for that purpose may not be that high, and hence worker-owned firms can flourish in consulting. There are examples of a coffee house and even a construction firm that have operated as worker-owned companies in India. The capital content is relatively less important compared to the labour in these firms. There are worker-owned companies in relatively labour-intensive industries, like retail.

There are practical challenges in the management of worker-owned firms.7 One theoretically understood difficulty is that in a privately owned firm, the employment of workers would be based on their efficiency, and that would also maximise the surplus or wealth generated by the firm. The rule for efficiency, as discussed in basic economics, is that a new worker would be employed only if the value of the increase in (additional) production due to him/​her is greater than the wage to be paid to that worker.

However, in a firm, which is owned by all workers, and where the workers divide the net revenue (that is total revenue minus the cost of all non-labour inputs) equally among themselves, workers would be participating in the work of this firm if what they get from here is greater than (or at least equal to) what they can get elsewhere. What a worker compares in this case is the value of average production (when he/​she is part of the firm) with what he/​she can get elsewhere as wage. This situation may encourage more workers to be part of the worker-owned firm (compared to the situation where the firm is a privately owned company). The use of more workers can lead to the dissipation of the surplus, which is socially harmful.

This does not mean that worker-owned firms have to be inefficient. They can be made efficient if they are managed like privately owned firms, and then, the surplus that is generated can be used for the welfare of all workers. This may need the limiting of employment to an optimum number of workers on each day (and there can be a rotation system so that all workers get work on a certain number of days) but all workers can benefit from the consequent surplus. This requires a much more effective collective action on the part of workers, and a management that is legitimate and capable of enforcing efficiency in the running of the firm. The managers of worker-owned firms need greater legitimacy and a higher level of skills to facilitate this collective action. This could be a reasonable target of ERM if we view it as an alternative to the regular management profession.

ERM for customer-owned companies

A common example of a customer-owned company in India is the consumer cooperative societies. Here consumers come together to operate a shop or a chain of shops. However, a cooperative society may be getting subsidies from the government. It is possible to have a consumer-owned retail chain without government support. There are such consumer-owned companies running retail chains in Europe.

Another case in which customers have a longer-term relationship with a firm is in financial services – savings or borrowing; credit cards and so on. It is possible for such a firm to be owned by its customers or users. One such firm (credit union), which is the largest in the world, has more than ten million members (and owners). Its financial assets of around 135 billion US Dollars are substantial for a financial services company.

There are challenges in the management of such customer-owned companies.8 First, the objective of these organisations is not the maximisation of profit. In fact, the financial services firm that I referred to here is a not-for-profit company and its objective is to provide the best services to customers. This would mean cost-effective services or higher returns to customers. For example, the credit union may provide a higher interest to the members who save money and/​or charge lower interest from those who borrow money.

The lack of focus on profits may have an impact on the strategies of the firm. There is no incentive to work for increasing profits. Private financial institutions are known for not so transparent strategies to enhance their profits. This may include incentivising its employees to work hard (even by paying them huge bonuses) so that they add significantly to the profits of the company. There is no such compulsion in credit unions.

The customers who become the owners of such a firm have an interest in its efficiency, and longer-term sustenance, even if they are not driven by profits. Hence, the owners have an interest in hiring capable and efficient employees by giving them the compensation that is needed to get them. The compensation cannot be significantly less than the market rate for such professionals since the organisation needs proficient employees to ensure its effective functioning. The firm may not be interested in giving excessive compensation to these professionals through bonuses – an issue that is of great concern not only with respect to the sustenance of financial organisations, the role of finance capitalism and the rising inequality in different parts of the world. The ownership of a financial firm by its customers may make the compensation to its executives normal’.

There are challenges in managing such a consumer-owned organisation. If it is owned by 10 million (or even half or one million) members, there could be severe problems of collective action and the probability of a coordination failure could be high. Like the worker-owned organisations, the managers of customer-owned companies too need a higher level of skills to manage collective action. Hence this could be another set of organisations that can be targeted by ERM.

In all these organisations owned by small producers, workers and customers, the salaries of managers could be notably lesser than that in corporate companies. This could be mainly due to the ownership structure of these organisations versus that of a corporate firm. The former may be interested in sharing a major part of the surplus with its primary producers or workers or customers. This can have a negative impact on the surplus retained by the organisation and the compensation for its managers. This may create an inherent hierarchy between managers of these organisations and corporate companies if monetary incentives are a major concern. On the one hand, the former need additional skills (say to address collective action) but there are limits to their monetary compensation on the other hand.

Author

V Santhakumar, Professor, Azim Premji University, Bangalore

Featured image credits: Anugrah Lohiya from Pexels

  1. These include Kumar, A., M. Bhadouriya and A. Kankar (2014) A Retrospect: Education of Rural Management in India, WP No. 2014-04-01, Indian Institute of Management, Lucknow.↩︎

  2. ‘There was a need for a programme where the content had to be management, and the context had to be rural’ noted in Kumar, A. Et al (2014: 3).↩︎

  3. For example, poor people may not be proficient in the use of technology, and this may work against its use to reduce the time of employees of organisations to deal with such people.↩︎

  4. https://practiceconnect.azimpremjiuniversity.edu.in/transition-of-institute-of-rural-management-and-what-it-means-for-azim-premji-university/↩︎

  5. Shareholders get higher returns when the profit is maximised. Managers’ rewards can also go up when profit is maximised. On the other hand, small producers are input suppliers. Giving higher returns to this category of input suppliers would mean increasing one particular cost to the maximum possible level. This can have a negative impact on the profits and the returns to managers.↩︎

  6. https://www.fastcompany.com/3021964/the-argument-for-worker-owned-tech-collectives↩︎

  7. A classic economic analysis of worker cooperatives can be seen in John H Pencavel (Ed.) The Economics of Worker Cooperatives, Stanford University Press.↩︎

  8. A classic economic analysis of worker cooperatives can be seen in John H Pencavel (Ed.) The Economics of Worker Cooperatives, Stanford University Press.↩︎