In developing countries, small producers and farmers must overcome the high cost of capital (interest rates of 10-20% per month are common in the rural areas) and must survive market fluctuations caused by influences beyond their control. Penetration of local markets by cheap goods manufactured in the modern industrial sector, inconsistent governmental tax and import/export quotas and restrictions and seasonal price cycles in agricultural produce are only a few of the difficulties faced by the small business enterprise.
But because a viable local economy depends on preventing the drain of resources out of the community, small manufacturing and other commercial units seem to be an especially "appropriate" form of business organization. Small business channel investments which improve local capital stocks; they develop local skills and increase job opportunities while using local materials; they allow the diversity which is crucial to a healthy, stable local economy. Significantly, locally owned small business are unlikely to abandon a community in search of lower wages elsewhere.
A relative neglect of institutional support for small businesses, worker-owned enterprises, and cooperatives is found in both the United States and the South. On the whole, small enterprises give a better return on investment (risks are higher, gains are higher) and create more jobs per unit of capital than large enterprises. Yet small enterprises have a great difficulty in obtaining capital, due to the poor match between their capital needs and the operating rules of the capital markets. Compounding the problem is the fact that small enterprises in rich and poor countries are often failing to make the best use of what capital and human resources they do have, and they face substantial difficulties in obtaining technical assistance to change this situation.
One promising type of small enterprise is the cooperative. By pooling resources and functioning as a unit, a group of producers or consumers can operate at a more efficient scale and share the benefits. They may be able to buy in quantity, or store and ship produce to more profitable markets, for example. The cooperative also has great potential as a mechanism for increased capital investment in the rural South. Groups of individuals pooling small monthly surpluses have been able to finance community improvement projects, and establish credit funds. Clearly cooperatives have great potential as tools to help break vicious circles of poverty and lack of opportunity, yet they have seen only limited success. Especially in the poor countries, cooperatives fall prey to distrust among members, unskilled or corrupt management, domination by ruling local interests, and manipulation by governments intent on using them for political purposes. Cooperatives have generally been unable to help those most in need. Often farmers are required to own land to qualify for membership in agricultural co-ops in developing countries; this excludes tenants and laborers.