Future Options for Cooperatives

    This document has been made available in electronic format
         by the International Co-operative Alliance ICA 
                         August 1992

               Future Options for Co-operatives

source : Janos Juhasz, Co-operatives in Eastern & Central Europe, ICA
Studies and Reports, Geneva, 1992, 62 pp. price 12 CHF

3.1  The major trends of changes 

The co-operative legislation reviewed above will obviously have a decisive
influence on both the transformation process and the features of a new
structure of co-operatives. The legal framework proviled for by the two acts
seeks to meet certain basic requirements which ensure a fair, and possibly
smooth, transition and the development of a viable and efficient
co-operative structure. 

The business shares to be distributed among the members will probably not
pay high dividends. The bulk of members is not used to having securities and
lacks the necessary skills and information to be able to estimate the real
value of their property shares. For these reasons, the market value of
business shares is going to be rather low. This would provide the
opportunity for the wealthier groups of the population to purchase a
considerable amount of property at a very low price. As a consequence, a

In the production co-operatives, both industrial and agricultural, a further
problem may be caused by the abrogation of the employment requirement of the
co-operative which may, and most likely will, result in a wave of dismissals
of co-operative members and in increasing rural unemployment. Obviously,
this situation would strengthen the dependency of members on the managers of
co-operatives. The regulations contained in the unified law are pointedly
permissive, rather general and loose. With these conditions there is a
danger of losing the co-operative characteristics themselves. In fact,
co-operatives and other economic associations alike could be established
based on the provisions of the unified co-operative act. Perhaps the only
real co-operative feature provided for by the law is the maintenance of one
member, one vote in decision-making. Taking into consideration the possible

It is very difficult to foresee the changes in the structure of
co-operatives but, without doubt, the most significant transformation is to
be expected in the production (workers') co-operatives. How}ver, a couple of
hundred agricultural production co-operatives and specialized agricultural
co-operatives will most likely continue to operate in more-or-less the same
organizational form. They will obviously reshuffle their internal relations
and organizational set-up, but will fundamentally maintain their urviving"
agricultural co-operatives could perhaps reduce rural unemployment to some
extent, too, and thereby ease social tensions. Their survival, of course,
does not mean that they remain unchanged. Many members or whole groups of
members will probably leave, the co-operative itself may divide into two or
more or merge with some other "sur viving" co-operative, etc. 

A number of agricultural production co-operatives may continue as
co-operatives but opt for another co-operative form. Some production
co-operatives will gradually convert into specialized agricultural
co-operatives. These increase the private (former household) plots of their
members and offer an increasing number of services to the private farms. The
services are extended to those who withdraw their land from the co-operative
and start independent private farming. 

Another tendency is that more and more individual, family-based or group
entrepreneurial links are established within the co-operative. These small
entrepreneurs are no longer waged workers and their relationship to the
co-operative centre is based exclusively on mutual interests. It seems
probable that the abolition of the co-operative's employment obligations
will further increase the number of this kind of co-operative-member

Many co-operatives cover more than one village, and sometimes 4-5
settlements belong to the same co-operative. In such co-operatives the
individual villages or parts of settlements strive to gain independence by
dividing or separating from the co-operative. They endeavour to establish an
independent co-operative in order to utilize their share of property for the
benefit of their own village. This tendency may be particularly strong in
the general consumer and marketing co-operatives. Such separations, h

Few co-operative members have left the co-operatives so far. Those who have
done so belong to the segment of land-owner co-operative members. In other
words, some of those members who had their land in common use have withdrawn
it and started private farming. Their number is expected to increase, but
the extent and pace of this movement will be influenced not only by
legislation but also by the technical, financial and infrastructural
conditions of private farming. 

There is a strong tendency in both the agricultural and industrial
co-operatives to become involved in the establishment of non-co-operative
economic associations. Management, in particular, endeavours to operate the
property of the co-operatives within the framework of some kind of company.
In this respect, too, there are various options. The co-operative may be
transformed into a trustee organization with the centre of the co-operative
as trustee. Its former branches and units will become independent e

A further option, of course, is that the co-operatives will be transformed
into joint-stock companies. As mentioned, this process has started, though
on an experimental scale only. In all likelihood, limited liability
companies will be established in greater numbers by the co-operatives, and
within the co-operatives alike. Various organizational units, branches or
workshops belonging to the co-operatives may gain full independence this
way, and lose their co-operative character. Many co-operatives establ
perative sector. In fact, the establishment of small co-operatives,
particularly in the industrial co-operative sect or, may prove to be only an
"intermediate" phase before conversion into some form of joint-stock

Some of the "old" co-operative models will certainly operate successfully
under the conditions of the market economy. The model of specialized
agricultural co-operatives has been successful and is unlikely to lose its
significance. Indeed, there has already been an increase in the number of
specialized agricultural co-operatives very recently, and more production
co-operatives can be expected to convert into that form. 

However, new forms and models of co-operatives will obviously appear.
Without doubt, small-scale farming will gain a much larger significance in
the new agrarian structure than it had in the old one. The small- and
medium-scale private farms are very flexible, able to adjust to changes in
the market. However, their economic strength is small and that makes them
vulnerable under the hardening conditions. They are particularly weak
vis-a-vis large, sometimes  monopolistic, enterprises, commercial organizat
 of financial services, including loans and credit and insurance products

Finally, the changing environment will create new conditions for the
activities of co-operative federations. Representation and safeguarding
interests of agricultural co-operatives will become more important than
ever. Parallel with the diversification of co-operative forms and
activities, there will be a need for the diversification of the setup and
operation of their federations as well. Changes may occur in at least two
fields: new secondary co-operatives and national associations that specify

3.2  Need for international assistance 

One of the most important fields in which international co-operative
assistance would be important is in the influencing and mobilization of
public opinion in favour of co-operative action. Although this is not a
direct education issue, it is a learning process in which trainers,
educational institutions, national and international organizations have an
important role to play. The bad image of the co-operative movement referred
to in this study has to be improved and the confidence of people in genuine

In the case of the managers of "surviving" large-scale co-operative farms,
special co-operative education will be necessary. The new co-operative
legislation alone would be a good enough reason for that. The lack of
co-operative knowledge, even among co-operative managers, provides a further
motive to design and conduct special courses with international assistance. 

Since independent private farming will have to keep accounts, a new
phenomenon in present-day Hungary, its training needs are very wide and
complex. Although there was small-scale farming, mainly in the form of
household plots, in the course of the past 40 years, entrepreneurial private
farms did not exist. In addition, there has been a complete change of
generations. Hence the potential private farmers have no experience or
memories of real entrepreneurship of any kind. For these reasons, a full
range o

Routine training on co-operative matters is indispensable for private
farmers. In this respect the country's own experiences, even the negative
ones, have some lessons to teach. Nevertheless, studying and adaptation of
co-operative experiences in other countries, above all European ones, seems
to be a must for a successful new co-operative prosperity. 

Replacing the present unfavourable co-operative image with an honest
valuation of the potential and limitations of a genuine co-operative
movement would make a serious contribution to the healthy development of the
entire economic structure of Hungary. In this field, too, international
assistance is of crucial importance in terms of providing co-operative
models and management systems. 

Experiences gained abroad in the field of formal co-operative education
would also be useful. Furthermore, a significant improvement in the range
and quality of services offered by the co-operatives in general, and the
consumer and financial co-operatives in particular, is an indispensable
precondition for making the movement satisfying to present members and
attractive to potential members. In this respect any contribution of the
international co-operative movement to the technological development of th

In Hungary systematic co-operative education is carried out at the
University of Agriculture, in Godollo. This is the country's largest
agricultural university and offers a one-term course on co-operative affairs
to second-year students. It puts particular emphasis on the co-operative
forms and models which are new to Hungary, but are likely to gain great
importance, such as supply and marketing co-operatives, credit
co-operatives, etc. The course has been successful and is increasingly
attractive to stu