Toward a New Central Europe

C O O P E R A T I V E S :

PROBLEMS AND SOLUTIONS

GEORGE KELER

BESIDES the Secret Police and the Communist party, cooperatives are probably among the most hated institutions behind the Iron Curtain, at least as far as the rural population is concerned. This applies first of all to the so called "Producers Cooperatives," the collective farms known in the free world under their Russian name "Kolkhos." For many years, the governments of the communistdominated countries of Central and Eastern Europe have used every means of enticement and coercion in order to persuade the farmers to give up their independence and join such producers' cooperatives, handing over their land, animals, and farming equipment to them. The results of these endeavors depended entirely on the measure of the coercion applied and, accordingly, the extent to which collectivization has been carried through varies considerably among countries. It is nearly one hundred per cent in Hungary, Rumania, and Bulgaria, much less in Czechoslovakia and Eastern Germany, and the least in Poland where many of the collective farms were dissolved by the members after the thaw in 1956. The same happened, of course, also in Hungary during and after the October uprising, but there, not only the formerly existing collective farms were soon restored, but even the still independent farmers were subjected to increased pressure with the above-mentioned result.

In the communist countries both the producers cooperatives and the independent farmers, as far as there still exist any, are under the obligation of selling the greater part of their products to the government at prices fixed by the authorities. These products have to be handed over to the so-called "Farmers' Cooperatives"ómulti-purpose cooperative societies whose other tasks are to supply the rural population with all kinds of goods and to further the activities of the producers' cooperatives. As there are no private traders, commodity distribution in the countryside is the monopoly of these cooperatives and the rural population depends entirely on them even for the supply of its most essential life needs.

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Commodity distribution in the towns and the industrial areas is a state-monopoly and, as far as I am informed, Eastern Germany is the only communist country where there consumers' cooperatives in towns still exist, while in the other countries they have been dissolved and their shops have been taken over by the government. This, of course, was accomplished under "strictly democratic" forms! like in Budapest where about 100 of the more than 120,000 members of the local society attended the general meeting which unanimously voted for its dissolution. No mention at all was made of the assets of the society, and it was only natural that they became government property.

One category of cooperatives to be found in all the communist countries, both in the towns and in the countryside, are the cooperatives of handicraftsmen. Practically all craftsmen. with the exception of village barbers and cobblers, had to join these societies and hand over to them their machines and tools. Here the procedure was extremely simple, as those who refused were cut off from all supplies of raw materials and had no other choice than to give Up resistance. Even though there exists everywhere an extensive black market in materials stolen by the workers from the factories, it is too risky to rely entirely on this source of supply, although it does serve as an indispensable supplement to meager allocations by the authorities.

There are also other kinds of cooperatives, such as those of the lawyers and solicitors. They portion out the cases among the members whose fees are paid in to a common pool out of which each member draws a salary fixed by the Board of the Society.

According to the Indian Constitution, the country is to be transformed into a "Cooperative Commonwealth" based on the high ideals of mutual aid and unselfish work for the common welfare of the people. To a superficial observer it may appear that the communist countries have reached this ideal stage but, unfortunately enough, the real state of things is very different. The difference between genuine cooperatives and those behind the Iron Curtain is exactly the same as between democracy and a peoples' democracy. On the paper, the constitution of the communist cooperatives is fully in keeping with the famous Rochdale principles but, as we have seen, membership is far from voluntary. Besides, and this is perhaps the most fundamental difference, the election of the functionaries of the cooperatives, just like the parliamentary elections, takes place on the basis of one single list of candidates nominated by the almighty Party. As a matter of principle, the elections are secret and the members have the right to cancel the names of candidates, but in practice very few dare take the risk. Anyway, whatever happens, there is always a majority of about 99.5 per cent.

It is a question of paramount importance to the countries concerned whether after liberation from communist dominance the

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cooperatives, reorganized on a democratic basis, would be able to fill the vacuum created by the complete suppression of private enterprise, and if so, to what extent? When trying to find an answer to this question I shall depart from agriculture which, in spite of the progressing urbanization of the population, still represents a substantial sector of the economic life of these countries.

One can safely presume that as soon as the peasants will be free to decide about their future their traditional individualism and their aversion to all forms of collectivism will result in a rapid dissolution of most of the "Producers' Cooperatives." On the other hand, the land reforms carried through by the then still semi-democratic governments immediately after the war had brought about the dismemberment of the land into small and often quite uneconomic units, partly because the main purpose of the reform was to satisfy as many people as possible, and also partly because the communists were already strong enough to bring their influence to bear in order to create in this way the prerequisites for future collectivization. Besides, as a result of urbanization and the insufferable working conditions in the "producers cooperatives,', there is in the countryside a rapidly increasing lack of manpower, especially as far as the younger generation is concerned. The communist governments are making great efforts to make up for this deficiency by gradually replacing manpower by agricultural machines; and even if the supply of machines is still lagging far behind actual need, the mechanization of agriculture is a fact to be taken into consideration when planning for the future.

It is quite probable that most countries will undertake a revision of their abortive land reforms without, however, creating units large enough to allow the use of modern agricultural machines. There are also other installations, such as storage facilities, stables for breeders, milk separators, etc., which no individual small farmer can afford. There must be, therefore, a collective ownership and use of such machines and installations, and this is possible only on a cooperative basis. During the late thirties a certain number of cooperatives were formed in Hungary in order to secure small farmers facilities similar to those enjoyed by bigger landowners. And even if they have been in existence only a few years, the results achieved have been rather promising. I must admit, however, that, while there exist in many countries cooperatives for the joint ownership and use of agricultural machines, the type of cooperatives I am thinking of is relatively new and unproven. In Sweden, e.g., they have attempted encourage the formation of cooperatives of such type by legislative measures, but, as far as I am informed, only very few have been founded and at present only two of them are in function. Although it is true that they do not infringe upon the principle of private ownership they nonetheless involve to a certain extent the surrender

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of independence by the farmers, and it will therefore certainly need much persuasion to convince them of the advantages of the system.

As I mentioned before, in the Communist-dominated countries the bulk of agricultural products has to be handed over to the multipurpose village cooperatives which, however, only act as agents of the respective governments. All processing, marketing, and exportation of products is done by state enterprises. In all these countries there existed before the communist takeover cooperative marketing organizations which, in competition with private enterprise, have played an importantóin many cases dominantórole in this field. They owned numerous modern processing plants where the products collected by the local societies underwent the necessary treatment before being sold on the home market or abroad. The profits were returned to the farmers in the form of higher prices or patronage refunds.

It is wishful thinking to imagine that once the communist system has been abolished private industry and trade will be able to take over the role of state enterprise in the field of processing and marketing agricultural products. The reorganization of marketing cooperatives capable of operating the processing plants and carrying on the marketing of the products will be, therefore, one of the most urgent tasks.

When, about 80 years ago, the first marketing cooperatives were formed in Denmark, the small local societies not only collected the products from their members but also processed them on the spot. National organizations were set up merely to handle the export of the processed products, such as butter, bacon, etc. The Danish system served as an example for the other Scandinavian countries, and even some countries of Western Europe organized the cooperative marketing of agricultural products on more or less similar lines. In Central Europe, however, processing was mostly the responsibility of the national or regional organizations and the role of the local societies was limited to the collection and delivery of the products. Very often no separate cooperatives were formed for this purpose, but a special department of the local credit or consumers' society was entrusted with the task. Recent technical developments in the field of food processing, transport and storage, and the invention of entirely new processing methods for many products, such as deep-freezing and dry-freezing, have created entirely new conditions for the cooperative processing and marketing of agricultural products and even the Scandinavian cooperatives are increasingly changing over to large-scale processing plants run on a national or regional basis.

The given pattern for the future organization of the processing and marketing of agricultural products in the Communist-dominated countries is, therefore, a number of strong central organizations,

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each handling the processing and marketing of a certain category of products. They should be linked up in a federation, the task of which would be to safeguard their common interests and to deal with cooperative education and propaganda. From having been the agents of the communist national enterprises, the local multi-purpose societies, reorganized on a truly cooperative basis, should become the agents of the new central organizations for the collection of the products from the farmers. It would also remain the task of these societies to supply the farmers with agricultural equipment, fertilizers, seeds, etc., and even with consumers' goods. One may safely presume that as soon as the freedom of establishment is restored it will not take long before enterprising people will open shops, but this will most probably be the case in towns where it will be easier for them to get the necessary supplies than in the countryside. One must keep in mind that there are no wholesalers left in these countries and it is no doubt a much more difficult problem to rebuild wholesale trade than to start retail shops.

It is very possible, of course, that in all these countries foreign enterprise will play an important role in the reorganization of commodity distribution. In the Western world a revolution is currently taking place in this field, a characteristic feature of which is the increasing interest of powerful financial groups for retail trade. Already, big American and Canadian firms are erecting supermarkets, especially in the countries of the European Common Market where this form of distribution is still in an initial stage of development. Similarly, chain store organizations and department stores are extending their activities to nearly every country of Western Europe. For these groups and organizations a Central and Eastern Europe liberated from communist dominance will mean virgin land and they will not be late in availing themselves of the opportunities for further expansion. But they, too, will, at least in the beginning, concentrate their efforts on the towns and communication centers where, as mentioned before, the only existing form of commodity distribution consists in the sate shops. The obvious solution would be to hand these shops over to consumers' cooperative societies formed for this purpose since nowhere would there be people with enough experience and capital to run them. On the other hand, no country would be willing to abandon commodity distribution entirely to foreign enterprise.

In all the Communist-dominated countries the formerly existing cooperative wholesale societies have been dissolved and the multipurpose village cooperatives receive their supply of goods from the so-called "national enterprises" on the basis of official allotment, a most bureaucratic and inefficient method of distribution. It will be urgently necessary to set up in each country a new cooperative wholesale society in order to secure the supply of goods not only

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for the multi-purpose village cooperatives but also for the consumers' cooperative societies to be formed in the towns. Considering the complete lack of wholesalers in these countries, it might even prove an incentive to entrust the wholesale societies, as a temporary measure, and their supply of goods to private traders who, of course, should be free to decide whether they want to avail themselves of this possibility or not.

While it is not my intention to enlarge here upon the extremely difficult prob em o,' the restoration of private ownership in the industrial sphere, I would like to mention in this context that, as far as light consumers industries are concerned, it might be the best solution to let the cooperative wholesale societies operate such factories which, for one reason or other, cannot be handed back to their former owners. If the factories are handed over to the cooperative wholesale societies they will come underóif only indirectó democratic control and will presumably be run in a business-like and efficient way. In all the countries concerned, the cooperative wholesale societies used to operate factories of their own. In Great Britain and in many other countries of Western Europe factories owned by the cooperative wholesalers are often among the leading enterprises of the respective branches of industry.

So far I have only been speaking about the contribution which the cooperatives might be able to make towards the reorganization of agricultural production, the processing and marketing of agricultural products, and the supply of goods to the farmers of the Central and Eastern European countries after their liberation from communist domination. I have purposely left until last the most difficult problem to solve: the problem of agricultural credit. It is generally known that the communist governments have completely destroyed the credit system of these countries. Not only the big commercials banks, but also the mortgage-institutes, the communal and private savings banks, the Post Office savings banks and, of course, the cooperative credit societies, have disappeared. In each of these countries the State Bank is the only source of credit. In order to be able to revert to a freer economy they will be in urgent need of foreign capital and it may be safely presumed that. to begin with, the Western world will be willing to assist them with loans and grants. In the longer run, however, they will have to make every possible effort to further the formation of capital, an endeavor for which the existence of a sound banking system is an inescapable prerequisite.

As far as agriculture is concerned, if the "Producers' Cooperatives"óthe "Kolkhoses"óare dissolved and the private ownership of land is restored, many farmers will have neither farm buildings nor houses in which they can live. More fortunate ones will be lacking only animals and equipment, but there will most probably be

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very few who will not need either long or medium-term credit for some purpose or another. Besides, all of them will certainly need short-term credit for the purchase of fertilizers, seeds, etc. The most urgent needs will no doubt have to be satisfied by means of foreign capital, but this can only be a temporary solution, and later on the farmers will have to rely upon self-help, at least as far as short-term credit is concerned. In all the communist-dominated countries there have been in the past networks of cooperative credit societies with a strong central clearing institute. Experience as well as the example of many other countries shows that this system is best fit to satisfy the requirements of the farmers. A credit society based on the joint responsibility of the local farmers and directed by functionaries elected by them from among themselves offers them greater safety for their savings deposits than an impersonal banking institute and the leaders of the cooperatives. Thanks to their knowledge of the character and standing of their fellow-farmers, the farmers themselves are the best qualified to form a judgment about their credit requirements and their solvency and to control whether the credit is being used for the purpose for which it has been granted. The existence of a central credit institute makes it possible to divert idle funds from one credit society to another where they are better needed. Besides, such a central institute can also obtain deposits and loans from sources outside the farming community and eventually act as an agent of the government for the distribution of state loans to farmers and their cooperatives.

Cooperative credit societies can only grant short-term and, to some extent, medium-term credits, but they are no solution for the problem of long-term credits. For this purpose there existed in these countries, like in many other countries of the world, cooperative mortgage institutes, and it is highly desirable that even in the future the satisfaction of the needs of the farmers for long-term credits should be organized on a cooperative basis since this is the best way to secure their active collaboration and develop their sense of responsibility. To begin with, of course, the contribution of the farmers to the capital of the mortgage institute can only be more or less symbolical and the government will have to supply most of it in the form of loans and guarantees, but here, too, self-help must be the leading principle in the long run.

After the abolition of the communist system in these countries the craftsmen will be in a position very similar to that of the farmers They, too, have been forced to join so-called cooperatives and they, too, will be eager to regain their independence. But, even if the cooperatives are dissolved and the machines and tools divided among the members, most of the craftsmen will need credit in order to be able to start on their own again. The purchase of the necessary raw materials and, for certain categories of them, the sale of the finished

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products, will also present serious problems. These, of course, are no new problems but have also existed before the communist takeover, and they also exist in the free world. Cooperative methods have been and are being used for their solution in many countries, and even in most of the no v communist-dominated countries craftsmen have in the past formed cooperatives for this purpose. It is, therefore, desirable that instead of dissolving the cooperatives based on compulsion, the craftsmen of Central and Eastern Europe should reorganize them on a voluntary basis. In such a case the activities of most of the societies would probably be restricted to the provision of credit, the supply of raw materials and the sale of the finished products, but there would no doubt also be quite a number of cooperatives, the members of which would of their own accord prefer to maintain a common workshop in order to use more expensive machines jointly and perhaps even to work on a joint account. As in the case of farmers cooperatives, central organizations will also have to be set up for the cooperatives of craftsmen in order to serve as clearing centers and to organize the joint purchase of raw materials and the sale of finished products, especially their exports.

It would be a tragic mistake if the countries of Central and Eastern Europe, after having regained their freedom of decision, would revert to the economic nationalism of the years between the two world wars. One must hope that they will form a close economic union which will make it possible for their central cooperative organizations to collaborate to the benefit of their members. A first attempt to establish such collaboration was made about 30 years ago by the leaders of the Hungarian, Rumanian and Yugoslav cooperative marketing organizations, but general conditions in those days were not favorable for initiatives of this kind. Close collaboration between cooperative organizations is possible and desirable not only in the marketing of agricultural products but also in the purchase of goods. I am thinking here of the example of the Scandinavian cooperative wholesale societies of Denmark, Finland, Iceland, Norvay and Sweden, founded in 1916, which, by pooling the purchasing power of the consumers of the five countries, have acquired a unique position on the world market. Their success, of course, is partly due to the similarity of the needs and consumption habits within the region. Conditions are in this respect equally favorable in Central and Eastern Europe. Close collaboration between the cooperatives of the region would in no way preclude intimate relations with other European cooperative organizations but, on the contrary, would strengthen the basis for such relations. Besides the joint purchase of goods certain results have also been achieved within Scandinavia in the form of the rationalization of cooperative production through a division of labor between the cooperative factories of the region. The proposed extension of the European Common market will

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create the prerequisites for a similar division of labor between productive enterprises owned by cooperative wholesale societies everywhere in Western Europe. If, as may be hoped, the liberation of Central and Eastern Europe will bring about a further integration of the European economy, nothing would prevent the cooperative organizations of the region to become partners in such a continental partnership .

When reviewing the possibilities cooperation offers for the solution of some of the problems of the transition from the communist system to a system of free economy it was not my intention to draw up the contours of a utopian ìCooperative Commonwealth.'' Cooperation is not a panacea, and even less is it a socialist alternative to state-directed communism. It is a product of economic liberalism and an indispensable corrective to the abuses of freedom. Coop, ratives do not aspire to a monopolistic position and they thrive best in free competition with private enterprise. But the great difficulty of the period of transition will lie precisely in the complete lack of private enterprise in the countries concerned and it is not impossible that until this deficiency can be made up for, the cooperatives will have to play an even more important role than would appear from what has been said previously. This would not be without precedent. For example, during the agricultural crisis of the early thirties, cooperatives had to assume tasks far beyond their original goals, and in certain cases even to exercise monopolistic functions which were contrary to their fundamental principles. On the other hand, a de facto monopoly due to the absolute loyalty of the members to their cooperative organization does not imply an infringement on these principles. Thus, in several Scandinavian countries, as much as 90-95 per cent of the marketable surplus of certain products is handled by cooperatives.

The contribution which cooperatives will be able to make to the solution of the economic problems arising from the abolition of the communist system will, however, ultimately depend on the extent to which people in the countries concerned will understand and follow the true cooperative ideals. In all these countries, cooperation has an old tradition but there are not many left of the generation from the ranks of which the elected functionaries of the societies have been recruited. The members of the present generation only know cooperatives as a means of communist compulsion. There will probably be enough trained staff to do the administrative work which in many respects will not be too different from the work they are doing at present. But it will need considerable effort to educate competent leaders both on the local and national level, and all the assistance the International Cooperative Alliance and cooperative organizations in the Western world will be able and willing to grant to this effect will be most welcome. However, the Hungarian uprising

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and all the manifestations of the resistance movements in the communist-dominated countries have clearly shown that the years of oppression have not only left the love of freedom in the hearts of the people unaffected but have also fostered in them an unprecedented spirit of solidarity which is bound to make them receptive to the high ideals of cooperation.

Cooperation, as does every human institution, certainly has its limitations, but if one has seen, on the other hand, cooperatives run efficiently by e.g., illiterate natives of Central Africa and Southeast Asia or the oil wells and up-to-date refineries of the farmers' cooperatives of Kansas, or if one knows the history of the successful fight of the Swedish consumers' cooperatives against powerful international trusts and cartels, one may rightly say that the limits for cooperative activities are extremely wide. Today, the cooperative movement is facing the challenge of the very high hopes which, as it appears from the above-mentioned stipulation of the Indian constitution, the developing countries are setting on its capacity of solving their social and economic problems. Let us hope that the day is not too far when it will have to meet the challenge of new possibilities for cooperative action in Central and Eastern Europe. It will be up to men and ïvomen of good will to avail themselves of these possibilities in the interest of the people concerned and of humanity in general.

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Toward a New Central Europe