Adaptation of Polish Co-operatives to Free Market Requirements (1997)

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This document has been made available in electronic format
by the International Co-operative Alliance (ICA)
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April, 1997
(Source: ICA Review, Vol.90 No.1, 1997, pp.66-71)


Adaptation of Polish Co-ops to Free Market Requirements 
by Dr. Zofia Chyra-Rolicz*
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Political Aspect
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In spite of the fact that the first legal and organizational reforms, the goal of 
which was to reach market efficiency, were undertaken in co-operatives in
80s, decisive reforms of co-operatives were connected to the change of the
political situation in 1989. The new political forces recognized co-operatives
which were well developed in central planning economy, as a substantial
part of the old regime, which needed basic reforms. They decided to
dissolve big bureaucratic co-operative structures quickly and radically and
leave only primary co-operatives as the starting point for rebuilding a
genuine co-operative movement.

From the outside initiative of the government of Prime Minister, Tadeusz
Mazowiecki, the decision to liquidate the old co-operatives system was
carried into effect by the "Act on the changes of co-operative structure and
activity" passed by the Parliament on January 20, 1990. This act put all
central co-operative unions into liquidation and some rules of the Co
operative Law (of 1982) concerning co-operative unions and its auditing
activity were suspended until July 31, 1990. In a short time, co-operative
unions, which had served co-operatives for 40 years with many functions
such as: economical integration of primary co-operatives, instruction,
training, social and cultural activity, were put  into liquidation.

In the history of the Polish co-operative movement such a solution of
unexpected governmental interference in large scale, of radical eliminating
people and institutions which had belonged to the former political system,
was unprecedented. The possibility of the co-operatives to express opinions
and to defend their interests became dramatically limited. A very intensive
propaganda campaign against co-operatives by all mass media accompanied
the realization of this act. The "rebuilding" of the co-operative movement
was a long lasting process with a lot of conflicts.

According to the Act of January 20, 1990, all co-operatives had to very
quickly organize elections of their self-management bodies and to verify
their chairpersons and supervisory councils before the end of the first
quarter of 1990. 

In June 1990, the new Superior Co-operative Council was elected by
delegates chosen in democratic voivodship elections. The rejuvenated
directing body of the co-operative movement aimed to create the legal and
organizational basis for co-operatives in a new political and economical
system. 

Legal Aspect
----------------
The creation of new legal conditions for the activity of co-operatives (they
were still functioning under the old co-operative law of 1982 with multiple
amendments and changes) lasted until the first half of 1994 and was
accompanied by a struggle for autonomy of the co-operative movement.

Various opinions touched several groups of problems such as: scope of
changing the co-operative law, the shape of the representative bodies of the
co-operative movement, possibility of founding co-operative unions,
valorization of share funds, creation and functioning of legal liability (legal
persons') co-operatives, the possibility of using members' shares in the
society's turnover as well as joining the function in supervisory council
with the employment in the same co-operative.
	
In Polish political reality, governmental authorities proposed for the
transitional period (the time to prepare and pass new laws in the Parliament)
to undertake some preparatory actions such as: verification of co-operatives'
members, definition of the principles of members' shares valorization,
pricing and division of co-operators' property, liquidation or transformation
of legal liability (legal persons') co-operatives into other forms and
transformation of enterprises belonging to the dissolved co-operative unions
 into other forms.
	
The transformation of the Polish co-operative movement was also connected
with the adaptation of other legal regulations into the new political and
economic situation of the market economy. 
	
Amendment of the Co-operative Law appeared to be a very difficult and
long lasting process, because of political contentions. Work on this issue
had begun at the last Parliament of the Polish People's Republic, continued
during the next one, called the 1st Parliament of the Republic of Poland and
finished at the 2nd Parliament of the Republic of Poland, in which the left
political forces (Democratic Left Alliance and Polish Peasants' Party) held
the majority. 
	
Finally after long lasting discussions and consultation with many different
groups of people (co-operators, trade unions, scholars, political leaders), on
July 7, 1994, the Parliament passed  the remodelling (novelization) of the
Co-operative Law. In fact, it was the recast of the Law of 1982, changed 13
times in the period between 1982 - 1994; 139 articles (of a total of 267)
were changed or eliminated between 1990 and 1994.

The Co-operative Law of July 7, 1994, brings a new definition of a co
operative according to the Polish tradition of the Second Republic: it is
defined as a fully voluntary and autonomic association, working in the
interests of its members. The co-operative's property belongs to its
members as private property. Nobody can interfere in co-operative matters.
The co-operative self-management functioning has legal guarantees in the
Co-operative Congress and the National Co-operative Council, elected
during this Congress. This superior representative body consists only of co
operative leaders and is autonomous towards the government.
The Co-operative Law of July 7, 1994, has transferred many particular
solutions into the co-operatives' statutes. During one year the co-operatives'
statutes were to be adapted to the regulations contained in this law. This
means that co-operatives' members had a much larger area for decision
making and could better adapt their societies' activity to the conditions of the
market economy.

Besides the general regulations, the Co-operative Law of July 7, 1994,
brought particular solutions to such branches as farming, so called
"Peasant's Circles Co-operatives", workers' and housing co-operatives,
corresponding to the requests of these groups of co-operators.

The concern for European integration also makes the problem of a totally
new, modern co-operative law very topical. Introductory works in this
direction began in the spring of 1996 from inspiration of the National Co
operative Council.

Organizational Aspect
--------------------------
Before the liquidation of co-operative unions, co-operators looked for a new
shape of organization for common economical advising and training
activities. In autumn 1989 such new organizations, called Economical
Chambers were established by farming and peasants' self-help co
operatives. In spring 1990, a similar Economical Chamber was founded by
consumers' co-operatives.
	
The Economical Chambers, whose organizational forms differ from co-
operative unions, were not subject to the liquidation like central and 
voivodship co-operative unions under the law of January 20, 1990. The 
Economical Chambers survived the liquidation of co-operatives' unions 
and have became a new pattern for organizational work in conditions 
imposed by the law mentioned above. They have also tried to save co-op 
property and have become the base for undertaking later efforts to rebuild 
co-operative unions.

Another organizational co-operative form was foundations. During 1990-1992,
 ten co-operative foundations were founded in municipal and rural communities. 
They have tried to preserve co-operative property, have conducted training 
and social activities, have published co-operative literature, have taken care 
of disabled co-operators' health, etc.
	
The rebuilding of co-operative unions appeared to be a long-term process. On 
the one hand, the unions were dissolved under the law of January 20, 1990, 
which also forbid new ones to be established before July 31, 1991. On the
 other hand, prolonging legislative works on the changing of the old
 co-operative law delayed the process of creating new unions.
	
In autumn 1991, after two years of non existence, the first co-operative
 unions - regional and nation-wide - were established. Their goals were
 auditing member co-operatives as well as advisory and training activities.
 Some co-operatives also founded the legal liability (legal persons') 
co-operatives for common economic activity. These organizational 
attempts were the reaction for increasing menaces of their existence in
 the market rivalry. Co-operatives, in the new situation, looked for 
help-advisory, training and instructions, economical, tax and legal 
assistance. 
	
The "new" co-operative unions were founded as full democratic 
organizations, open for all co-operatives, regardless of their branch 
and the type of their previous association. Many "new" co-operative 
unions inherited assets (buildings, training centers) of the "old" ones. 
Sometimes liquidators of "old" co-operative unions transferred their
 assets to the "new" ones. Having their owns buildings and training 
centers, the unions were able to develop larger and richer activities, 
which had an impact on the scope of co-operatives' integration. The 
direction bodies in "new" co-operative unions were often composed 
of new people, usually experienced co-operators who had not held 
any functions in "old" co-operative unions. They were chosen for
these posts by democratic elections during branch meetings.

During three and a half years (autumn 1991 - spring 1995), "new" co-
operative unions were established in all co-operative branches. In 1995,
ten nation-wide unions were active, but they associated merely 12-15% co
operatives. There were still strong fears of regenerating their "old" decisive
authorizations over single societies.	

The rebuilding of co-operative organizations, mainly auditing unions, made
skilled preparations for the elections of  delegates for the Co-operative
Congress which was to be held on May 30 - 31, 1995. Regional elections
during meetings of all co-operative branches were fully democratic. The
National Co-operative Council was also chosen at the Congress from
among these delegates by democratic election. NCC's members are regional
co-operative representatives towards local authorities. The Council has
similar duties on nationwide and international levels.

Social-economical Aspect
------------------------------
The price of deep reforms and reorganization of co-operatives was very
high. Strong, external interference of the State caused co-operatives to be
deeply disorganized, breaking economic links, eliminating their social
function, and losing a large part of co-operative property in towns and in the
countryside.
	
Paradoxically, the number of co-operatives in all branches grew between
1988 and1994 from 15,024 to 19,186, but this was not evidence of the
movement's development - it was rather the result of administrative
divisions of many societies into smaller units. At the same time, almost
4,000 co-operatives crashed or were put into liquidation. This process has
not yet  stopped. Although some societies were able to adapt themselves
well to the free market requirements in towns and in the countryside, others
fell into great economical troubles and finally crashed. Some new co-
operative forms have also appeared (peasants' marketing groups, telephone
companies, housing co-operatives and new credit unions). There are
approximately 400 new credit unions established by workers and employees
working in big factories and companies. This new movement has been
supported by the World Council of Credit Unions and the former
"Solidarity" Trade Union. Other new co-operative forms are estimated at
about 100 units and not all of them are registered as co-operative
associations.
	
During the long process of liquidation of the old co-operative structure, the
movement lost a large percentage of its property (buildings, land, human
resources), estimated at about 30 - 50% of the 1989 base. "Peasant's Self
Help" co-operatives (total number 2,402) suffered large asset losses. When
crashing, co-operatives sold or rented their land, buildings, shops,
restaurants, slaughters, bakeries or other food processing plants, stores and
machinery. Sometimes a bigger co-operative was divided into smaller units
which were then privatized by some former co-operators (or people
associated with them) who came very often from the old or new
"nomenclatura". 

There are districts in the country where that branch of the movement totally
disappeared. With the collapse of the co-operative agricultural products
marketing, societies lost their attractiveness for peasants. Private enterprises
in trade, purchase, wholesale and food processing became an important
market competitor in many areas and eliminated co-operative activity. We
observe a very similar situation in "Peasant's Circles'" co-operatives (total
number 1,889) whose agricultural services became too expensive. Many of
them also crashed. The horticultural co-operatives (285) lost their
processing plants, stores and cold storage plants. The loss of East (of
former Soviet Union) markets and the invasion of cheap foreign products
also resulted in economic difficulties in that branch.

Dairy co-operatives (469) proved to be better adapted to the market
requirements. They quickly took up the market challenges, introduced new
technologies and entered the market with modern products. However, a big
problem of this branch is competition with foreign companies entering the
Polish market. Also farming co-operatives (2,218) have been well adapted
to new conditions; they have become rather like farmers' associations
working together as in high developed countries.

The rural co-operative banks, associated in the "Bank of Food Economics"
(with mixed co-operative and state capital) has experienced structural
reforms during recent years. They were borne by the state's agricultural
policy in the past and the need to give inconclusive credits at that time. The
recent reforms aimed at the transformation of this mixed structure into a
fully co-operative one. The banks have also the possibility of associating
themselves with other banks' unions.

Housing co-ops are the biggest group of societies in towns (total number
5303), but because of the very high price of credits, they have no possibility
to develop and renovate their property. Consumers' co-ops (511) also lost a
big part of their property - shops, restaurants, wholesale and stores,
privatized by former co-operators or other persons who had nothing to do
with the movement. The main problem of this branch is market rivalry with
big foreign companies entering Polish market. Workers' (3,054),
craftsmen's (127), blind (40) and disabled persons' co-operatives (474) are
also fighting for their place in the market - sometimes with success,
sometimes crashing. These co-operative branches also sustained big losses
as a result of privatization and bankruptcies.

As a consequence of the trends mentioned above, the number of co
operative members has been reduced from 15,2 million (1988) to 6,092
million in 1994. The level of employment in co-operatives also fell by 3
times - from  2.29 million (1989) to 714.7 thousand.
	
The role of co-operatives in the national economy has seriously decreased in
recent years. The movement's share of GNP fell from 7% to 4,5% in the
period 1991-1994. This regression would be much bigger if we compared it
with the epoch before 1990. In the structure of GNP brought by the co
operatives, the biggest share belongs to the trade (40%) and industry
(30%), the smaller one to the services (15%).
	
Co-operatives have lost the possibility to solve big social problems in the
country, such as social-professional stimulation of underdeveloped regions,
overcoming the calamity of unemployment, developing native production.
The cultural co-operatives' activities were also eliminated. Co-operatives
lost their network of secondary schools, were not able to support many
different centers and clubs in towns and in the countryside (for young
peasants, housewives, disabled persons, as well as sport and folklore
ensembles).
	
The Co-operative Congress in May 1995 worked up a large programme to
rebuild the movement's position in the future. Now, with the perspective of
the integration within the European Community, the most urgent problems
are connected with the strengthening of the  co-operatives' role in the market
and their successful rivalry.

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*	Dr. Chyra-Rolicz is Assistant Professor at  the  Co-operative
 Research Institute in Warsaw, Poland.