Role of Co-operatives in a Renewing Society (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.61-65)


Role of Co-operatives in a Renewing Society
by Jaan Leetsar and Ille Kerner*
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Co-operation in Eastern European Countries
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The reformation of the Soviet Union and market economic reforms brought
about radical changes in the development of co-operation. Until that time the
so-called Soviet type of co-operation based on common property was
prevalent in Eastern European countries. After the regeneration of private
owners, a form of co-operation characteristic to the market economic system
began to develop. The exceptionality of the re-establishment of co-operation
is caused by a broad regeneration of private owners. With that, severe
competition between private owners (capital) and high-principled co
operation (principle of equality) can be followed. The difference at the
present time is that private owners dispose of much more capital in the
world than 150 years ago. 

Regenerated private property is relatively weak in Eastern European
countries and is not able to compete with powerful Western capital
concentrated enterprises. During recent years an interest on the part of
financial and rich economic circles to subject the rural economy to the power
of money has grown up. The risk of not having the necessary economic
protection is especially serious for agricultural primary production units. In
turn, it may cause primary production to perish gradually. This will benefit
those Western countries having problems with overproduction, but lead
to the decay of rural life in Eastern bloc countries.

The following are considered to be the principal ways of supporting
agriculture in Eastern European countries:

1.	Fast development of co-operation, which would help agricultural
producers to protect themselves economically against different business and
mediation organizations;

2.	Governmental measures to create the preconditions for increasing
profitability (different capital and interest subsidies, protection against unfair
competition).

It seems necessary to motivate the development of rural production and the
progress of rural life.

How Many Farmers and Private Owners?
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Such a question is especially important from the point of view of social
stability in society. Farms play the leading role in agricultural co-operation
in all European countries. Farmers as the owners and members of co
operatives are practically the leaders of rural life through co-operation.
Landowners play an important role in local governments. A relatively large
number of owners in comparison with wage labour makes rural life
exclusive, differentiates it from urban life and expropriates the natural way
of living. A certain correlation of social character between the relative
number of farmers and the development stage of co-operation can be
followed. The opinion of several sociologists that there is better social
stability in rural life (and in a country as a whole) when the number of
farmer-owners is relatively large seems well-grounded. In this case co
operatives are also economically stronger, better organized and have the
leading role in rural life.

Difficulties of the Reformation
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In transition to the market economic system, several problems arose during
the large-scale economic reforms. They hindered a regeneration of owners
and re-establishment of co-operatives. Five groups of difficulties can be
mentioned:

1. Ideological problems: During a short time about thirty different political
parties and interest groups came into being in Estonia. Their vision about
the further development of the country and also about co-operation was
different. Several parties considered co-operation to be an economic
regulation characteristic of the totalitarian regime, which does not accord
with a market economic society. The different opinions of the political
parties hindered the passing of the necessary bills and because of that the
development of co-operation. Increased private interest was the dominating
factor.

2. Psychological problems: These came mainly from the natural
conservatism of people, which hindered the carrying out of fast economic
reforms. The creation of alternative private enterprises and the organization
and coordination of their activities through co-operation after the liquidation
of kolkhozes and sovkhozes was not rapid enough. In some less developed
rural areas, groups of apathetic people appeared who resigned themselves to
not being able to react in the necessary way to rapid changes. The so-called
syndrome of "white mice" consists of giving up the fight for life and being
capitulated into a situation of ideological deadlock. In an experiment, white
mice were put into a labyrinth with a lot of barriers they had to pass to get
out. At the beginning the mice tried very well, but after some time they got
tired and gave up trying. Psychological problems are not something
secondary and professional help is necessary to overcome them.

3. Nostalgic problems:  Two different views on the regeneration of private
ownership in the countryside were characteristic in Estonia. Many people
thought and talked about a restoration of the republic like 50 years ago with
ownership, land and economic relations such as existed then. They tried to
create small farms with one or two cows and small village co-operatives,
which are not competitive today. Others thought that only large-scale
production like in the kolkhoz system would be competitive in a market\
economic situation. Neither of these directions seems optimal or suitable for
today's conditions.

4. Legal-juridicial problems:  Different interest groups were behind the
political groupings formed after the re-establishment of independence in
Estonia. Taking this  into account, several legislative acts, which ignored
the co-operative interests of private persons were passed by Parliament. For
example, the property of co-operatives nationalized 40 years ago was not
given back to these organizations, but privatized by auction. After lengthy
discussions, a new paragraph in the Privatization Law was added to provide
better possibilities for co-operatives and some enterprises were privatized to
co-operatives.

5. Economic and technical problems:  The lack of material and technical
resources hindered the re-establishment of farms and for that reason the 
development of co-operation was also relatively slow. Raising credit for co-
operatives was more difficult than for private enterprises and public limited
companies. Co-operatives had a label of "rose" communism and banks
simply did not trust them. This situation is now changing.

Risks of Capital Concentration
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Recently, the desire of financial and economic circles to subject society to
the power of money has intensified. It is especially obvious in Estonia and
other former communist countries. That, in turn, may cause serious social
problems. Concentrating private capital under the control of industrial giants
almost creates a monopoly against the rural producer, unilaterally dictating
the prices of raw materials, quality conditions, buying up rules, etc. As a
result, producers do not survive very well but neither are they quite killed
off. In such a situation rural producers cannot form competitive co-
operatives which would be able to compete with these monopolies. In turn,
several social problems may arise. Increasing unemployment of rural
people, especially in some parts of Estonia, is one of them.

The EU Mansholt Plan and the Industrialization of Agriculture 
The Mansholt Plan of the European Union at the end of 1960s provided for
the formation of "efficient" farms with 80-120 hectares of land and 40-60
cows on average. As a consequence of more effective organization and the
restriction of production, about five million people were expected to be
made redundant in Western European agriculture. It was planned to
decrease the area of agricultural land by five million hectares and the number
of cattle by three million cows. Due to violent opposition, this plan failed to
be realized.

In reality, the Mansholt Plan was realized in the Soviet Union through the
so-called industrialization of agriculture. Agricultural production units of a
size of 3000-10000 hectares (kolkhozes and sovkhozes) were also formed
in Estonia. The problem at these large-scale farms was the considerable
proportion of workers and small number of owners, causing negligent
attitudes to the work and tangible assets, excessive wastage and collective
irresponsibility.

Co-operation as a Buffer 
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Co-operation could be seen as a buffer between large industrial capital and
farmer-owners. Co-operation gives farmers an economic opportunity to
compete with a nascent estate system and oppressing intermediation. The
optimal proportion of owners to employees in a rural society will be a
question under issue. The average size of a farm in Western European
countries is 16.5 hectares, and in Estonia 25 hectares. In Estonia, the
principle of a family-managed farm as an optimal has existed for a long
time. This principle is in opposition with technocratic calculations, which
consider a bigger farm to be more effective. However, a social aspect is also
important. Ignoring that was one of the main reasons for the failure of
Mansholt's Plan. The greater the number of farmer-owners, the bigger the
possibility to establish co-operatives to protect themselves economically
against private large enterprises and monopolies. A prevalence of owners
and a relatively small proportion of hired labour is better for the
development of rural areas. In the future we expect the sufficient number of
farms in Estonia to be about 35000, three times more than today.

Co-operation Image
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Insufficient knowledge about co-operation in the former post-communist
countries does not allow rural people to protect themselves against economic
monopolies. The one-sided creation of limited companies left rural
producers without an essential part of their income from the processing of
raw materials into goods. It resulted in the rural producers having an
unreasonable dependence on the monopolies in relation to the processing
industry and intermediation, and that, in turn, was led to the decline of rural
life. Knowledge of the necessity and content of co-operation plays an
important role.

The experience of so-called Soviet co-operation, where all assets and
financial resources were collectivized, increased the expropriation of people
from property and also real co-operation. The regeneration of co-operation
in Estonia is different from the traditions of Western European countries,
but it is lacking in theoretical reasoning and economic considerations. That
is why the research of its theoretical background is so actual. The process of
re-establishing co-operation is a completely new phenomenon for the whole
world. The conscious development of co-operation and its govern-mental
support would help to prevent mitigate potential social crises in society.

Conclusion
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The reason for the Great French Revolution at the end of the 18th century
was the domination of landlords-feudals and family financial and economic
circles (imperia of families) over the urban and rural population. It was
common people who suffered during the wars between the families and,
after exceeding a critical point, poverty brought about the revolution. After
that, the small number of superiors could not rule as before. Between the
Great French Revolution  and World War I, major changes took place in
European social life. The result was the liquidation of the economic
hegemony of families and the beginning of the development of co-operation
on the initiative of small owners. 

Millions of farmers and private entrepreneurs are incorporated by co
operation because of common interests. Everyone involved in co-operation
has been protected against the economic arbitrariness of the large
monopolies and high finance. This is an important benefit of co-operation.
The processes of transition to a market economy in Estonia and other
Eastern European countries shows the difficulty of protecting such benefits.
Processes such as those 200 years ago can be mentioned. Only well
organized co-operation has any real power against the monopolizing
financial and economic circles and can guarantee protection of the interests
of farmers and small entrepreneurs. Therefore co-operators have to follow
the processes going on in the re-establishment of co-operation in Eastern
Europe and make the necessary conclusions for themselves.

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* 	Mr. Leetsar is a Professor and Ms. Kerner Senior Researcher at the
Estonian Agricultural University.