Cooperatives
Cooperatives
The pattern outside Great Britain
Farmers' purchasing cooperatives
The beginnings of the cooperative movement are usually associated with the name of Robert Owen. The real association lies, however, more in Owen's ultimate ideals than in his immediate plan of organization. Owen's central plan was for a self-supporting community, such as Fourier's phalan-stère, where producers and consumers were one and the same people, not for an organization either of producers or of consumers. In contrast to some Utopians, however, Owen knew by practical experience the consequences of the industrial revolution for working-class producers and consumers, and he urged production, by voluntary associations, for the use of consumers and not for profit. Although he regarded them as mere steppingstones to his communities, Owen approved of the few short-lived cooperatives that existed prior to the foundation of the Rochdale society, which is still alive today. These societies claimed his authority for their activities and were, together with the Rochdale pioneers, composed mostly of his adherents. Owen appears to have been the first (Digby 1948, p. 15) to apply the term “cooperative” to these activities. So Owen may be accepted as the father of the cooperative movement, if not of its precise type of organization.
The characteristic trait of the cooperative as a form of organization of economic activity is the absence of any special capital-providing class. In producer cooperatives, the workers put up the capital; in consumer cooperatives it is the consumers. Apart from farm marketing cooperatives, producer cooperatives have not proved successful unless some outside individuals or some outside organization, such as a consumer cooperative, helps substantially in providing capital and in supervising production. In practice, workers in industry have been found to be too unwilling, or else unable, to put up and risk the amount of capital required for modern equipment. They have not always been the best judges of an efficient manager, and in spite of enthusiasm and high morale, they often have not exercised sufficient discipline over their own operations.
Consumer cooperatives have, on the other hand, proved very successful in many countries, notably Great Britain and Sweden. British cooperative organization will, in the following paragraphs, be taken as the prototype. Like other cooperatives, the consumer societies rely on no special capitalist class. In addition they have certain particular economic and organizational characteristics.
British cooperatives
The main economic characteristic of the British consumer cooperative is the payment (after provision for depreciation and a fixed interest on a limited amount of the shares held by consumer members) of a dividend on member purchases. Its main organizational characteristic is control by the consumer in place of the nonexistent capitalist. All consumers, even members who have paid only a small deposit on their shares, have the right to vote at the quarterly or half-yearly meeting. One man, one vote is the rule. The members vote for a management committee, or board of directors, which is usually unpaid. This committee appoints the paid manager and, usually meeting every week, exercises general supervision over the conduct of business. In form, the organization is thus extremely democratic. The existence of a number of autonomous retail societies of widely varying size is a further manifestation of democracy. The complete independence of the locally organized societies distinguishes the cooperatives in free enterprise and mixed economies from the communist cooperatives, which are not covered in this article.
Organization and growth
In Great Britain the retail societies formally control the two wholesale societies, English and Scottish, each of which conducts large-scale production. In appointing the wholesale societies' full-time directors, one society, one vote is not the principle, however; voting is weighted according to the value of the goods that the retail society has bought from the wholesaler.
For purposes other than trading, such as settlement of disputes or legal and financial advice, the British retail societies have formed the Cooperative Union. The final authority of the union is the annual congress, to which societies send a number of delegates roughly proportionate to their membership and which, in its discussion of policy, has been described as the focus of cooperative democracy. Most societies are affiliated with the Cooperative party, which, in 1964, had 19 members in Parliament—normally voting with the Labour party.
The opportunities for democratic control offered by cooperative constitutions are, however, not fully exercised, particularly as societies grow larger. Only a minute fraction of the members attend their retail society meetings. An inquiry in 1955 (Ostergaard 1963) revealed that only 0.5 per cent attend business meetings and only 1.65 per cent vote for the management committee. If the actual informal practice of consumer cooperatives is less democratic than its formal constitution presupposes, it is, however, more democratic in worker participation. In theory, the position of the labor employed is no different from that in capitalist enterprises. But when few consumers attend meetings, a small group of members, who are also employees, can elect workers or committeemen favorable to the workers' interests. About one-third of the places on the committees of the larger societies are now occupied by cooperative employees or former employees (Ostergaard 1963, p. 60). Democracy is also manifest in the emphasis on education in cooperative principles, particularly at the Cooperative College, in the many publications discussing all aspects of cooperatives, and in the organization of local discussion groups such as the “women's guilds.”
The growth of the British consumer cooperatives is usually traced from 1844, when the Rochdale pioneers adopted the principle of dividend on purchase. During the next half century, the development was rapid, aided by the Industrial and Provident Societies Act of 1852. This act allowed the privileges of incorporation to cooperative societies, provided no individual member held more than £200 in shares. The limit is now £1,000. When the act was amended in 1862 to permit one society to hold unlimited shares in another society, the retail societies founded the two wholesale societies. By 1900, these wholesale societies had over 12,000 workers engaged in production. Roughly the same number were employed in production by the larger retail societies together with the local federations of societies.
British consumer cooperatives continued to develop well into the twentieth century. Between 1901 and 1931, membership in the retail societies rose from 1.75 million to 6.5 million. During the same period, the total value of sales of both the retail and the wholesale societies quadrupled, while the retail price of food rose by only one and a half. By 1931, the English wholesale society owned 171 factories, employing 40,000, and the Scottish society had 56, employing 9,000. Both societies singly, or jointly, produced a wide range of goods, conducted integrated warehousing, provided shipping and business services (such as building the retail societies' premises), were involved in banking and insurance, and even owned tea and other plantations abroad.
Throughout the history of the consumer cooperatives in Great Britain, success has been greatest in Scotland and in the North. In 1939, for instance, annual cooperative retail trade per head of population was £8.8 in Scotland, £7.2 in the North, and £6.4 in the Midlands, as against £4.5 and £4.0 in the southwest and south, and this in spite of the much higher per capita income in the London area of the south.
The causes of this cooperative success must be sought in the emergence, which occurred first in Great Britain (particularly in Scotland and northern England), of an industrial and mining wage-earning proletariat. This group was cut off, in contrast to the village community, from the middle classes and developed a strong sense of class solidarity. The more intensive development of cooperation in the North, away from the “squirearchy,” is some indication of this. Until the Education Act of 1902, education in England beyond the age of 13 was a rarity for working-class children, and, in the absence of opportunities for moving up any education ladder, potential leaders were lost to their class.
The British cooperatives were in fact firmly based on the same class solidarity as the British trade unions and the political labor movement. And the membership of the cooperatives had the same cautious, solid financial approach. To this fundamental condition of success of the cooperatives— their solidarity in two senses of the word—must be added two specific economic “techniques,” the attraction of the dividend on purchase and the branch store.
The first British Census of Distribution, taken in 1950, showed that retailing as a whole was operated by 403,839 organizations with 528,450 establishments, an average of 1.3 stores per organization. Among retail cooperative societies, however, some 1,000 organizations owned 27,263 establishments, an average of 27.3 stores per society.
The efficiency of the multiple stores is attested to by the present rapid increase in their sales, to be indicated shortly. The British cooperatives were first in this field, and for a considerable period they were without large rivals.
Recent stagnation
At first sight the continued progress of the British cooperative societies seems to be indicated by the further rise in their membership from 6.5 million in 1931 to almost 11 million in 1952, and almost 13 million in 1962. But sales per member have fallen, and total sales have, since 1950, remained fairly constant in volume with a definite fall relative to the sales of the multiple (chain) stores.
The British Board of Trade now publishes an index number of the value of retail sales of cooperative and other forms of retail organization. Taking sales in 1950 as 100, the cooperative index was 176 in 1962. But although higher than the corresponding general department store index of 160 and the index of 165 for independent retailers, it was much lower than the index of 239 for multiple stores and indeed lower than the general retailing index of 181 for all organizations.
A part of this relative decline is due to the relative decline in population and income of the regions where cooperation was most successful—Scotland and the North. But several more general causes are at work, and to predict the future of consumer cooperatives in Great Britain and, as we shall see, in other countries too, an analysis of these causes is essential.
Fortunately analysis can be firmly based on two very detailed inquiries into the British consumer cooperatives, which, while sponsored by the cooperatives themselves and so allowed full access to their records, were conducted by independent authorities. The first inquiry, an “examination” by Sir Alexander Carr-Saunders, Professor Robert Peers, and the author (1938), dealt with all the activities of the movement. The second inquiry was by the Cooperative Independent Commission (1958), which had Hugh Gaitskell as chairman, and which had terms of reference limited to “a survey of cooperative production and marketing.” These two inquiries will be referred to as the 1938 examination and the Gaitskell report.
Up to 1938, consumer cooperatives were almost unreservedly praised by English economists. Professor Alfred Marshall served for a year as president of the Cooperative Congress, and Sidney and Beatrice Webb were enthusiastic (1921). The 1938 examination, however, was critical in several respects and foretold possible stagnation, while the Gaitskell report had to take account of some actual stagnation and foretold possible decline. Both reports tried to analyze stagnation and possible decline in terms of the cooperatives' own (1) financing, (2) management, and (3) local organization. A further internal factor (4) may be the weak incentive for growth. Both reports also stressed the external factor (5) of changes in the society that the cooperatives are trying to serve.
(1) Compared to large-scale capitalist trading, the cooperatives' investment in both fixed capital and research is low. This is partly due to fear of financial insecurity expressed, as the 1938 examination says, in such slogans as “no speculation with depositors funds” and “owe no man anything” (1938, p. 456). In consequence, the cooperatives have invested heavily in supposedly safe liquid funds, such as long-term government stock. Low fixed investment is also due to the high rates of dividend on purchases. In 1935 societies with 80 per cent of the retail trade paid dividends of between one shilling and two shillings on the pound, that is, 5 per cent to 12.5 per cent on turnover. This range is higher than the average capitalist dividends on sales turnover and meant less of the surplus was available for development.
(2) The cooperatives do not secure managers of the necessary ability and enterprise for growth under competition. This is due partly to the low scale of salaries they offer compared to their capitalist competitors and partly to the bias toward appointing persons from within the movement. The independent small retail entrepreneur was not particularly efficient, but the large British capitalist retail firms now displacing him are increasingly recruiting university graduates as future managers, while the British cooperatives still consider it unwdemocratic to recruit even grammar school graduates over the heads of those working their way up after leaving school at the minimum age. This view of democracy is becoming more and more damaging to efficiency because so many more university places are now available to the more intelligent children of the working class in England. Those now without degrees are likely to be unintelligent. This was not necesarily so previous to the Education Act of 1902 but has become particularly so since the act of 1944, which increased so greatly the number of “free places” in secondary schools.
The quality of management depends not only on the principles of appointment but also on those of discharge. The British working-class tradition, reacting against ruthless capitalist practice, seldom allows the removal of cooperative managers or indeed the unseating of elected directors, however inefficient they may prove to be. “In some societies,” to quote from the 1938 examination (Carr-Saunders et al., p. 87), “it seems to be assumed that the only cause which can lead to a member leaving the committee is death.” Once the managers are appointed, their actions are likely to be cramped by the elected directors, who tend, because of the principle of no unseating, to be old. This cramping varies from society to society, according to the personalities of the directors, but will probably be greatest wherever the directors are paid and are on the job full-time, as are the wholesale societies' directors.
(3) A criticism in the Gaitskell report concerned the uneconomically small scale of the nonfood sales, which is a result of the strictly local organization and control of retail societies not specializing in particular trades. The Gaitskell commission advocated (1958, p. 252) a national retail development society which would, among other activities, set up chains of specialized shops, notably in clothing and footwear, “in which the advantages of multiple shop organization are well-proved and in which local societies restricted by boundary agreements are in no position ever to attain to these advantages.”
(4) Looking into deeper economic causes of the relative cooperative stagnation, it is possible that the incentives to growth are weak. When income and prestige are in the form of a profit on capital, a strong motive exists to use that capital to capacity and to spread the overhead over the maximum possible output. But if income and prestige are in the form of a margin or dividend on sales, the motive is to cut costs per unit of output (even, possibly, by doing less business) so as to increase that margin. Empirical evidence to sustain this hypothesis can be found in the comparatively low distributive costs of cooperative retailing shown in the British Census of Distribution.
Cooperative shops achieve this low cost by trying to spread the load of shoppers. Some societies even avoid heavy peak loads by closing shops on Saturday afternoons, when the load would be greatest! By this means, the cooperative shops need not keep so large a sales staff; and sales staff, not capital overhead, is the heaviest item of cost in retailing. Since market prices are charged, this policy achieves a high margin of profit on the goods actually sold, but it does not stimulate growth as directly as does the increasing of profit on capital by the sale of more and more goods.
(5) With the distinct rise in the standard of living since World War II and the wider variety of goods demanded by the working class, the cooperatives have met much enterprising competition.
In the food trades, capitalist multiple stores have paid increasing attention to the tastes of consumers. When the cooperatives were first founded, the cheap shops where the working class traded offered foodstuffs of inferior quality. The cooperatives, accordingly, stressed the “purity” of the foods they sold and produced—often to the neglect of their taste. Indeed, the 1938 inquiry organized tasting panels for identically priced foodstuffs, the makers of which could not be identified, and found a preference even among cooperative society members for a majority of capitalist food products.
Engel's law, moreover, has operated to make expenditure on foods a lower proportion of the working-class budget. The cooperatives, with their concentration on foods, do not seem to have risen to the occasion. While the British Census of Distribution for 1961 gives 14.8 per cent as the cooperatives' share of the total food trade (including as high or higher a percentage for the simpler wants, for example, around 35 per cent for milk), the cooperative share of the total dry goods trade is only 5.8 per cent (including 4.3 per cent of apparel and 4.5 per cent of furniture).
The pattern outside Great Britain
In countries other than Great Britain, consumer cooperatives started later and, judging by the percentage of membership to total population, still lag behind. In 1961, these percentages were Great Britain 24.7, Finland 23.0, Sweden 16.0, Switzerland 14.2, and Denmark 12.8. Lower down the percentage scale were France 7.1, Australia and Austria 5.8, Canada 4.7, West Germany 4.6, Italy 3.9, Argentina 1.8, and the United States 0.8. Underdeveloped countries—except Israel 6.9, Burma 3.2, Ceylon 3.0, Mauritius 2.2, and Pakistan 1.6 —all have a cooperative membership to total population below 0.7 per cent, in spite of government encouragement in many of them (Statistical Statement No. 1 in International cooperative Alliance 1963).
In total value of cooperative retail trade, Great Britain again comes first with about four times that of Finland or of Sweden, which have the next highest trade. But if the trade per head of population is used as an index, Finland ranks first, Switzerland second, and Great Britain is bracketed third with Sweden. The most striking impression in reviewing the activities and structure of consumer cooperatives throughout the world is the similarity of the pattern of organization and achievement (although deviations appear here and there):
(1) The local retail society is the original and basic unit; federations of retail societies, and wholesale societies controlled by retail societies, follow later and undertake production. The Swedish wholesale cooperative, the Kooperativa Forbandet, which was founded in 1899, has gone further in production activity than the two British wholesale societies. Its products form a higher proportion of the sales of the retail societies, and by price reductions it has successfully fought monopolies or near-monopolies in such products as electric lamps, detergents, and rubber overshoes.
(2) The wide variation in the size of the retail societies is pervasive. The largest own a great number of branch stores and undertake production for local consumption, such as baking. The smaller societies are being amalgamated and, with the enlargement in size, difficulties are encountered in maintaining a real democracy. In Sweden, members of large societies meet by districts to elect a local committee for the supervision of shops in that district. Delegates from the local committees form the general meeting of the society.
(3) Some income is spent on education and propaganda. Journals are published and discussion groups organized. Economic activities are not confined to distribution and production but have spread into insurance and banking, on which the French societies concentrate. But the main activity remains the sale of foodstuffs and household consumables, particularly the more standard goods such as milk, margarine, flour, and bread.
(4) The proportion of cooperative society membership to the total population is increasing, but the sales per member are diminishing. The rates of dividend on purchase are becoming lower, and although a rapid growth in business occurred at first, an approach to a ceiling of 12 per cent to 15 per cent of national sales is indicated in most countries. Finland, however, has broken through this ceiling.
Comparing the relative strength of consumer cooperation in different countries, the greatest contrast is seen to occur between the old (European) developed countries where cooperatives are strong and the underdeveloped and the new developed countries, such as the United States, Canada, and Australia, where cooperatives are weak. Weakness in the underdeveloped countries is due to the consumer's lack of spendable income. A high proportion of the population is engaged in agriculture, and most of that proportion are subsistence farmers with no cash income to spend.
The weakness of consumer cooperation in the new developed countries has no such simple explanation. It is partly due to the higher standard of living, which has, as we have seen, checked cooperative progress in Great Britain, checking food consumption relative to other consumption. It is also partly due to the relative absence of the class solidarity so characteristic of nineteenth-century Great Britain. Indeed, the few consumer cooperatives that exist in the United States are largely found on university campuses, not in industrial sections. Cooperative weakness may also, perhaps, be due to the greater efficiency of capitalist retail management. Certainly the specialized chain store that has proved so successful was introduced into America under capitalist, not cooperative, auspices.
As among the old developed countries, in all of which class solidarity counts, the more classless ones, such as the Scandinavian countries and Switzerland, have an advantage because the class outlook does not preclude educated management and risk taking. In proportion to total population, Germany and Italy have a smaller number of cooperative members because of Nazi and fascist suppression in the 1930s.
Farmers' purchasing cooperatives
The cooperatives that have been discussed so far were formed by final, “household” consumers to provide for their own consumption. An important branch of the consumer cooperative movement, however, is engaged in the purchase of materials and supplies consumed in further production. In contrast to the cooperatives of producers formed to market their products, these purchasing associations are, logically, consumer cooperatives. They answer the same need for good quality commodities at reasonable prices. This need arises particularly among producers who operate on a small scale and are unable independently to buy in sufficient bulk to realize large-scale economies. Cooperatives have thus been organized among the small traders and craft industries in Germany and among fishermen, particularly in Spain (Digby 1948, pp. 76–77, 126–127). But farmers are the outstanding example of such small-scale producers, and cooperation has become firmly established in supplying requirements for agricultural production. These requirements include not only materials such as feedstuffs for livestock and seed and fertilizer but also petroleum products for operating tractors, electrical power equipment, and various farm implements. To this list, facilities for insurance and credit might also be added.
The use of cooperatives for obtaining these supplies varies among countries, largely because of different economic and technological circumstances. The cooperative provision of the mainly imported feedstuffs is important in Great Britain, and the provision of electrical power is important in the rural areas of the United States. The methods of organization also vary from country to country. In Great Britain, large purchases are made from the powerful consumers' wholesale societies already mentioned. In Sweden and Norway, the supply associations have their own wholesale organizations. Sometimes, as in Denmark, the cooperatives' supply organizations specialize in one commodity, such as feeds or fertilizers; sometimes, as in Finland, the organization does a general trade, both in farmers' supplies and household goods.
Beyond the main function of these various institutions—the function of supplying “reliable goods at reasonable prices”—Margaret Digby points out (1948, p. 95) that the farmers' societies “raise the standard of farming by keeping in touch, in a way which is sometimes impossible for the individual farmer, with developments in agricultural science and technology, and transmitting them to him by means of the improved seeds, chemicals and implements which it is able to put at his disposal.”
In the underdeveloped countries where primitive small-scale agriculture is the rule, supply societies should thus play a large role and are, in fact, substantially helping development. However, because of the almost universal shortage of enterprise and saving and the rate of population increase in these countries, considerable government subsidies have been required in order for the cooperatives to provide land, capital, organizers, and expert technicians adequate for economic growth.
P. Sargant Florence
[See alsoAgriculture, article onmarketing; Credit. Other relevant material may be found in the biography ofOwen.]
BIBLIOGRAPHY
Bailey, Jack 1955 The British cooperative Movement. London: Hutchinson's University Library.
Carr-Saunders, Alexander M.; Florence, P. S.; and Peers, R. 1938 Consumers' cooperation in Great Britain: An Examination of the British Cooperative Movement. London: Allen & Unwin.
Co-operative Independent Commission (Great Britain) 1958 Report. Manchester cooperative Union. ? Known as the Gaitskell Commission report.
Digby, Margaret 1948 The World cooperative Movement. London: Hutchinson's University Library.
Fay, Charles R. (1908) 1948 cooperation at Home and Abroad: A Description and Analysis. 2 vols. New ed. New York and London: Staples.
Hough, John A. 1945 Cooperative Retailing: 1914–1945. Unpublished manuscript, International cooperative Alliance (London).
International Co-operative Alliance 1963 Reports and Statistics. Unpublished reports of the Alliance (London).
Ostergaard, Geoffrey 1963 Democratic Control in British Retail cooperatives. Applied Economic Papers (Hyderabad, India) 3:55–65.
Stephenson, Thomas E. 1963 Management in cooperative Societies. London: Heinemann.
Webb, Sidney; and Webb, Beatrice 1921 The Consumers' cooperative Movement. London and New York: Longmans.
Woolf, Leonard 1918 cooperation and the Future of Industry. London: Allen & Unwin.