A Short Course on Cooperation

In fact, if we unite a whole gubernia or uyezd [district] into one partnership, there will be no way to control its members' economies, its economic turnover, and the purposes for which the borrowed money is spent. Many believe that even a volost is too large for activities of the partnership; it is better for every five or six villages to establish their own credit partnerships. However, with such a small size, the turnover of the partnership cannot be big; therefore, all kinds of expenses -- travel, bookkeeping, and record-keeping costs -- become burdensome overhead expenses per every ruble lent by the partnership.

Suppose that the management costs are 1,000 rubles. If the partnership loaned 100,000 rubles this year, then, per every ruble loaned (without the interest paid by the partnership) it will have to take one kopek from its borrowers. If the partnership lends only 10,000 rubles per year, then it will need ten kopeks per every ruble lent to repay its overhead expenses.

Raiffeisen believed that it was not possible to expand the area of activities and the number of members in order to increase the turnover of the partnership. He recognized the need to reduce overheads and interests on loans; that is why he tried to somehow reduce the costs of maintaining the partnership. His most important suggestion was to consider the work of members of the board, the treasurer, and secretary-accountant as public duties and honorary positions, i.e., not compensated. Such a definition of the work of the board as honorary and unpaid workers significantly reduced the overhead expenses and the interest on loans, which made the credit more affordable.

These are the main rules introduced by Raiffeisen, the “father' of credit cooperation.

We know five of them:Mutual property liability of all members of the partnership for its debts.

1) Loans for productive purposes only.

2) Loans to members of the partnership only.

3) Small area of activities of the partnership.

4) Declaring the work of the partnership board honorary and, therefore, unpaid.

Raiffeisen fervently preached these principles. That is why he not only found the Geddesdorf partnership but also took a trip to the villages of his neighborhood, where he managed to establish twelve more credit partnerships.

Their exceptional success and the incessant preaching of the “father' of credit cooperatives contributed to the wide dissemination of new ideas. When he was dying in 1888, Raiffeisen was left with a feeling of deep satisfaction and could count up to 400 German partnerships based on his rules.

This is how the two most important cooperative ideas emerged and developed, showing the working peasantry the ways of revival.

Subsequently, as the cooperative movement spread, rural cooperation expanded far beyond its initial tasks. In addition to credit and joint purchases, cooperation began to organize joint sales of the products of peasant labor and often combined them with the processing of agricultural products. Cooperation was also responsible for some special undertakings in cattle breeding, machine use, land improvement, etc.

In its basic idea, each of these new types of cooperation in one way or another followed the principles described in this chapter. However, the new forms of cooperation, its unprecedentedly wide scale, and especially its new tasks that came to the fore, such as some tasks of the state-planned economy, have put forward new ideas for cooperation, which we will present in the final chapters of the book.

Chapter 3. The rural consumer community

We will begin our narrative about different types of cooperative organizations with the rural consumer community.

Among all other types of cooperation, consumer cooperation is the most well known, due in part to the fact that this kind of cooperation is also practically known to all townspeople. It is also known even more so because, until 1921, in the economic life of Soviet Russia, almost all cooperative work consisted of consumer cooperation, and E.P.O. [UCC -- United Consumer Community] was almost the only cooperative cell in local cooperative work. Other kinds of cooperative movement began to evolve only with the development of a new economic policy and new forms of our economic life. Today the organizers of rural life focus primarily on the following production formsof cooperative work: dairy, flax, credit and other types of agricultural cooperation. This focus is quite understandable, because these are теория the sectors that can increase the income of the peasant economy and well-being of the village and ensure the reorganization of farming and animal husbandry on new principles.

However, when focusing on these issues, the organizer of rural life should not forget the consumer cooperative work, because the properly organized co-operation leads to savings from cooperative purchases of consumer goods and provides the peasant with huge savings for improving his economy.

This is especially true now, when in many provinces and districts, even close to Moscow, our lack of cooperative skills and organization allows the private shopkeeper to dominate again. Therefore, the funds, which could be used to increase production and strengthen the peasant economy under a strong cooperative organization, again today increase the profits of private capital.

The figures of the drop in village prices in the very rural hinterland in the years before the war, when consumer cooperatives first appeared there, show how large these profits can be, provided the weakening of consumer cooperation. For instance, in the Stavropol district of the Kursk Province, in the years when consumer shops first opened, prices of tea and caramel fell by 10 percent; of sugar -- by 13; of matches and buckwheat -- by 20; of biscuits and rice -- by 15; of lemons and other snacks for tea -- by 25; of vinegar and herring -- by 25; and of yeast and soda -- by 50, i.e., by half. And this happened at such a brisk place in the Kursk Province where it is not difficult to get to the city. We see a quite different situation on the outskirts. What was done by cooperation in the Cherdynsky district of the Perm Province can be called fabulous. [Dmitry] Bobylev, who studied the Perm cooperation, pointed out that with the development of cooperation, the prices changed in the following way: the price of sugar fell by 60 percent; of kerosene -- by half; metal scissors, the price of which is 60-50 kopeks, cost up to 1 ruble 20 kopeks; velvet, which costs up to 3 rubles, was sold at 7 rubles. However, the prices for different little things, especially of nails, increased the most. As soon as consumer shops opened in the district, everyone began to buy goods on average at half price. Bobylev calculated for the Cherdynsky district that, thanks to cooperation, an 800,000-rubles purchase of peasant economies would save them 400,000 rubles, i.e., an amount that exceeds all local and state taxes and leaves a huge sum of money for the improvement of the peasant economy. In recent years, there have been many equally good examples, when consumer cooperation supported by the state has repeatedly prevented the frenzied speculations of private traders by fixed moderate prices.

These are the results of cooperative work in the districts where consumer cooperation confidently stands on its feet.

As the above example shows, consumer cooperation provides the population with large savings and, thus, has a great industrial sig-

nificance, because it allows the conversion of these savings into ag-

ricultural machinery, livestock and improved seeds. This is the consumer cooperation's deep “production significance'.

However, it should be noted that there are no other cooperatives a Short Course on that are so much in danger of perishing as consumer shops. They are Cooperation the weakest cooperatives. They are weak not by their foundations established by the Rochdale weavers, but by the fact that members of the consumer shop often forget their cooperative interests and break cooperative rules.

Moreover, consumer shops more than any other have to withstand a heavy rural struggle with shopkeepers and small traders. When opening a credit partnership or a dairy cooperative in a rural municipality, we add to the local economy new sources of income, which were not previously available and can now be used to varying degrees by all local people. And by ensuring incomes for many people, we do not make enemies.

The situation is different in consumer cooperation. The consumer shop immediately makes enemies among local shopkeepers. Its struggle is for life and death, and cooperation triumphs only if it manages to completely oust shopkeepers completely. Therefore, it is no wonder that the latter use all their influence and money to undermine cooperation and turn local peasants from it. Often cooperation fails, because its members do not buy goods in their own shop and prefer other shops.

However, no matter how many consumer shops fail, if we consider the reasons of failure, we will see that they are not the rules of cooperation but the cooperator himself who is not responsible and does not follow these rules.

In Russia, already in the 1860s, after the peasant liberation, there were first attempts to spread consumer cooperatives, but they were established in cities among workers and petty officials. For instance, in 1878 in Kharkov, there was a large consumer shop that even had relations with cooperatives of Western Europe and sold English cooperative cloth. When time passed and the wave of broad social interest had subsided, consumer cooperation was forgotten, and, only in 1897 with the first normal charter of consumer cooperation, did its new development start. However, before the war, consumer cooperation was growing slowly, and only during the revolution did it quickly develop and acquire exceptional power.

What rules do we have for cooperatives, and how do we establish a cooperative shop? We need a few peasants who clearly understand the benefits of consumer cooperation and wish to establish a consumer community for themselves and their fellow villagers. The founders should draft and adopt the charter of the consumer community. A standard charter can be found in any cooperative union. The signed charter is sent for registration according to an established order, and the consumer community can start its activities.

In the previous chapters, we have already mentioned the main differences between a consumer shop and a commercial enterprise. Let теория us consider how these differences are presented in the charter.

For greater clarity, let us compare the organization of a consumer, cooperative community with the organization of a private, joint- stock company that sells the same goods. Suppose that some people have agreed to contribute their shares, formed the capital, and begun to trade. The number of shares was fixed and limited, and our partners, while trading and receiving profits, have no longer accepted anyone into their company, because any increase in the number of shareholders would reduce their profits.

In the consumer shop, the number of members and shares is unlimited: every worker has the right to demand to be included in the consumer union, and the more members, the stronger the consumer community. This is the first difference.

Furthermore, in all private enterprises, the right to vote and the right to influence the course of the enterprise always correspond to the share contributions: if one partner contributes a large number of shares and another partner contributes a small number of shares, then the former has more influence over the activities of the trading company than the latter, according to the capital contributed. The situation is completely different in a cooperation, because its every member, regardless of the amount of money contributed -- 10 or 100 rubles, has one vote.

The biggest shares in the consumer community are small, usually no more than 10 rubles. Therefore, everyone can become a member of the community, especially because shares can be paid by installment. However, it is highly desirable that the wealthy members contribute not one but two or more shares, which will significantly strengthen the consumer community. Nevertheless, as we have already learned, the profit is distributed not by shares but by purchases.

Thus, in a trading company, the capital is the owner, and it makes profit on the consumer, whereas in the cooperative shop, the consumer is the owner. He unites with other members of cooperation and, thus, makes the capital to serve his consumer needs.

Let us now consider the structure of the consumer community.

According to the recent decrees about consumer cooperation, its membership is completely voluntary and accessible to all.

The activities of the consumer community are managed by a general meeting of all members. If there are too many members, then they are managed by a meeting of authorized representatives. The meeting solves all key tasks and elects the board that manages all activities of the shop. To control the work of the board, the general meeting elects a special audit commission, which monitors the correctness of the board's work. It is the responsibility of the board to develop a budget, obtain working capital, purchase all goods, set sales prices for goods, and, finally, to carefully keep records and books.

To sell the goods at prices set by the board, every consumer community hires a responsible clerk with whom it signs a detailed contract on how the goods should be stored and sold.

As practice has shown, to be successful, the consumer community a Short Course on needs at least 100 members. With a smaller number of members, the Cooperation consumer shop cannot pay off: usually a shop of 200 members has approximately 8-10 thousand rubles of turnover, and its capital has time to turn over approximately ten times per year.

Therefore, such a store, with a 10-thousand-ruble turnover, needs at least 1,000 rubles of capital. In other words, if the peasants who established the consumer community do not want it to constantly suffer from lack of money and owe suppliers, they should collect 1,000 rubles as its share capital. Every consumer should contribute shares in the amount necessary to supply the consumer community with goods.

If I buy products for 200 rubles at the consumer shop, of which half is bought by the consumer community for cash, then under the ninefold turnover of capital per year, I have to contribute ten rubles to the consumer community capital share.

When the necessary capital has been accumulated and the responsible clerk has been hired, the board should take care of purchasing goods. The consumer community entrusts purchases to one of the members of the board, the “purchaser'. He acquires most of the goods from the city Cooperative Union (textiles, flour, tea, sugar, etc.), but finds it much more profitable to buy good local products at home (sauerkraut, dried mushrooms, meat, handicrafts, etc.).

What goods and how many of them should be bought? The answer to these questions is given by buyers. Obviously, the consumer shop must have the goods that the consumer who created it needs -- the goods that he needs for everyday use in his household. Therefore, the range of goods in the city consumer shop will be different from the village shop, because the needs of townspeople are different from the needs of peasants. The city shop in workers' quarters will sell one range of goods, whereas the city consumer shop organized by wealthy townspeople will sell another range of goods. A village shop in the Poltava Province is unlikely to sell bread and cereals, because its peasant members have a lot of them. But, in the villages of the Moscow Province and Vladimir Province, bread and flour are very important products because peasants do not have enough bread for the winter.

The board should have in the shop all the basic products for which there is a constant demand among its members. Certainly, it is desirable to simplify the situation and to not have too many varieties of goods. At the same time, it should be remembered that, unfortunately, our peasants' cooperative consciousness is still not strong enough, and the private shopkeeper can ensnare the peasant from the cooperative with goods that are more to his taste. Therefore, the cooperative shop should have a more or less diverse range and such goods that, despite being to some degree luxuries, are sometimes used in a peasant's everyday life -- artfully painted cups, scented soaps, expensive sweets, etc.

How many goods should be bought? The amount of goods should correspond to the demand, so that they are always necessary goods. At the same time, one should not create stocks that are too large, because the cooperative needs capital that is taken out of turnover, which determines considerable losses for the community, i.e., constrains its already meager funds.

If the product can always be bought at a cheap price, it should be stocked in the smallest amounts. If it is difficult to find some goods or you need to go far to buy them, then you should willy-nilly acquire large stocks of such goods.

Large stocks should also be made for goods the prices of which fluctuate during the year (hay, oats, etc.). Their stocks should be made at the lowest price, and the stocks should be stored in the shop and warehouse.

The shop should be well equipped. There should be a basement with ventilation, a cellar for perishable food products, and all sorts of other warehouses; there should be scales, a counter, cash register and cabinets with shelves for goods. The goods should be put on shelves not randomly but reasonably: the most saleable articles often demanded in small quantities should always be at the clerk's hand so that he does not need to rush from corner to corner to get them. The goods should be presented neatly and beautifully to make a good impression on the buyer. The shop should be clean; its walls should be decorated with cooperative posters. The price of goods in the shop should be set before they go on sale.

The price is set in the following way: first, the goods are weighed and counted, and their future shrinkage taken into account; the weight and losses determine the purchase price of the pound, arshin, or piece. Then different overhead expenses are calculated -- for keeping the shop and its staff, the interest on capital if the goods are bought on credit, and the profit wanted from these goods.

If the goods are saleable, the capital turns over quickly: the goods were bought today and are sold tomorrow or the day after tomorrow, so the charge should be small. For instance, if we charge two kopeks per ruble for bread with a daily turnover of the capital, then for the year of 250 trading days, the gross profit will be 50 percent.

If the goods are unmarketable and turn over only twice a year (perfume, paper, etc.), then the overhead charges should be significantly increased. For instance, if with the capital turnover is twice a year, and we add at least 10 kopeks per ruble, we will get only 20 percent of the gross profit from which, to calculate the net profit, we will deduct the overhead expenses for keeping the shop and its staff.

Moreover, charges are high for the goods that are perishable or luxuries. The charge increases if, due to a profitable purchase, the calculated price turns out to be much lower than the regular retail

The goods with set prices go on sale. However, it is often neces sary to change the prices. The prices grow when there is a shortage of goods and the product increases in price in the market. The pric- es fall if, for some reason, the goods are not saleable and threaten to form large stocks, thus, burdening the warehouses of the consumer community. In general, large stocks in the consumer shop harm trade, so, if there are large stocks, it is better to sell them at a cheap price, even at a loss, than to let the current assets rot in the goods stuck in the warehouse.

For good trading, it is of great importance to ensure the right order, convenient hours for the consumer, and other seemingly insignificant terms of sale. If the board ignores them, it can disperse its members, who will find it more convenient to buy goods in a neighboring private shop.

We have already talked a lot about the distribution of profits from cooperative trade. Now we stress that when distributing profits between members of the consumer cooperative, the board should carefully calculate the cost of the purchases of all its members. The need for such records complicates the calculation and gives the countermen a lot of work.

The cooperative practice shows three ways to calculate the purchases of cooperative members. The first and the most troublesome is to record all purchases in the special clerk's book and on the membership card of every consumer. The second way is much simpler: at the time of payment the shop cashier gives each buyer special stamps for the amount of purchase. The total purchase of all members is calculated by the number of stamps given, and, at the end of the year, every member presents all his stamps received for individual purchases so as to calculate his purchase contribution. The third way is very beneficial for cooperatives and is called “advance payment”. Every buyer pays some amount of money to the shop in advance and receives a checkbook with tickets-checks for different amounts. When shopping, the buyer pays not with money but with these checks. Thus, the amount of advances paid is the total cost of purchases minus the unspent checks.

When the annual profit is calculated, a part of it is used to pay off the shop itself and its equipment. Another part is divided among the members of the consumer community, as we have already learned, according not to share contributions but to purchases in the shop. Suppose the calculations show that the profit for every 10 rubles of purchases is 2 rubles; during the year you took goods for 50 rubles, so you get 10 rubles; if you took goods for 100 rubles then you get 20 rubles. Thus, you use profit not as a representative of the capital invested in shares but as a consumer.

When dividing profits, there is often an interesting question. In most consumer shops, the goods are sold to everyone interested.

Therefore, the buyers of the consumer shop are not only its members but also outsiders. The goods sold to them bring a profit. The ques- teopma tion is how to distribute this profit. Certainly, non-members will not receive profits on their purchases; so the profit from a free sale goes to the benefit of community.

However, can we say that in such a way the community profits at the expense of outside consumers? We think that this cannot be said. According to the charter, everyone can join the consumer community, and its task is to ensure that the residents of all neighborhoods become its members. To attract them, it is necessary to ensure that each person joining the community clearly understands its benefits.

If non-members of the community could make a profit too, then what would be the point of becoming a member of the partnership: why pay fees, why buy shares, why watch and enter the board or revision commission, if you can profit from cooperation without being its member? The fact that no free buyer can profit from cooperation is determined mainly by the intention to make all free buyers become the members of a consumer community.

The profit collected from outside buyers is often used for cultural-educational purposes and to popularize and promote cooperative ideas, i.e., to attract new members to cooperation. It is this desire to make everyone a real participant of the common cooperative business that is one of the most important features of cooperation.

If the capitalist buys stock of some trading company, it is important for him to get the highest return on his shares, although he can have absolutely no interest in the business itself. Despite receiving a return on shares, he can never visit the joint stock company in which he has shares, and he cannot even know where it is located.

In cooperation, the situation is completely different: it is a common business, and it needs to be monitored by the public; thus, every member of the consumer shop is morally obliged to participate in this public control. A member who is not interested in the work of the shop is a bad member: every disruption should interest him; he must watch everything; and often the consumer shop arranges the shift duty of its members. Such constant monitoring is necessary to ensure that the common business really pursues common benefits.

The cooperation's attitude to various fakes, falsifications, admixtures to, and spoilage of products is also quite different from the private trade. Many shopkeepers benefit from spoiling their products by adding sand to flour, water to milk, etc., because they get profit from such admixtures. However, they cannot be beneficial to the members of the consumer shop, because the profit here is distributed not by the number of shares you have but by the amount of goods you buy per year. If by admixtures you get a higher profit, then you will also eat more sand and more water added to your food.

If you want to eat sand and water for the sake of greater profits, you will falsify products, but every consumer will probably refuse such profit. Thus, the very essence of cooperative work makes falsification impossible, because it will immediately affect interests of all consumers as the owners of the common business.

Moreover, every trader, if he correctly understands his interests and wants to make a big profit, should keep in secret the prices at which he buys products, the places and companies from which he gets the goods profitably, and hanging and combinations of goods that increase their profitability. This is because, for his own profit, it is necessary to deprive his competitors -- neighboring shopkeepers -- of all the benefits that he enjoys.

The cooperative shop does not need to keep secrets because it has no competitors. Its members-buyers, if they correctly understand the common business, cannot go to a private shopkeeper after being lured by some bait. If the cooperative shop is bad, if its work does not get better, its members should rather reorganize it than run to neighboring shopkeepers to buy goods from them.

Therefore, in a private shop, traders strive to keep useful information only for themselves, but in cooperation, all good ideas realized in one shop become known to all other shops, and, thus, everything useful and indeed good gets widespread.

Recently, when cooperators-consumers want to achieve a larger turnover and to save more on overhead costs, they quite often do not organize small rural shops serving one or two villages. Instead they unite the population of dozens of villages in the consumer partnership, and, to serve these villages, they open not one but a whole network of shops of the same consumer community. Such large consumer associations, unlike petty ones, are called multi-shops.

Although the above-described small consumer community, not to mention the multi-shop, has a many times larger turnover than the peasant family, after eliminating a small trader it cannot buy all goods first-hand in large lots. In other words, a small shop does not achieve the main goal of consumer cooperation by eliminating intermediaries between the consumer and the producer. Therefore, to enlarge their turnover, small, rural, consumer shops create unions to make joint purchases for many tens and hundreds of thousand rubles.

In the USSR, such unions of cooperatives now exist in every district. They also unite in provincial and regional unions, which unite all the Russian consumer cooperations in the Central All-Russian Union of Consumer Communities located in Moscow and having a huge turnover.

This union with a turnover of hundreds of million rubles not only manages to buy all goods first-hand but also has many of its own factories, procurement stations, and other commercial enterprises.

Centrosoyuz [Central Union], as it is abbreviated, helps its members, local unions, and cooperatives not only to make purchases but also to manage the local cooperative work. There is a special instructor department in Centrosoyuz whose members study cooperative issues, visit local cooperative unions, help them to keep records, and reveal their mistakes. In contrast, one of the tasks of the non-trad- teopma ing department of Centrosoyuz is promotion of the ideas of consumer cooperation. Centrosoyuz publishes books, calendars, and booklets on cooperation, and constantly publishes magazines and newspapers.

This is the everyday work of consumer cooperation. However, when doing this seemingly unenviable small work, our rural cooperators should not forget that they are at the forefront of the village struggle against commercial capitalism. The success of their daily work determines the victory on this front. This victory should and can be achieved not by prohibitions or administrative persecution of the private shopkeeper, but only by the power of cooperative organization and the ability to organize the rural commodity turnover better than the private entrepreneur.

Chapter 4. Agricultural and credit partnerships