This document has been made available in electronic format by the International Co-operative Alliance (ICA)
Consumer Co-ops in Russia During a Period of Radical Social & Economic Reforms (1997)

June, 1997
(Source: ICA Review, Vol. 90 No. 3, 1997, pp. 75-85)

Consumer Co-ops in Russia During a Period of Radical Social & Economic Reforms
by Valentine F. Ermakov*

In 1996 the consumer co-operatives of Russia celebrated its 165 jubilee year.  According to the official archives, the first consumer society in the country was organised by the exiled Decembrists in Siberia in 1831.  The society had its own written rules, electoral governing and control bodies. It conducted diverse economic activities to satisfy the needs of the members.  The co-operative’s rules are now kept in the Moscow Museum of History.

Just as the first co-operative in the United Kingdom, founded by the Rochdale weavers as a local initiative, but which spread to a national level and then to the international level, the Decembrists’ co-operative became such a pioneer of the co-operative movement in Russia.

For more than one hundred years, the consumer co-operative movement in Russia has traversed a complicated path, surviving numerous social upheavals and revolutionary storms. In the Soviet period the basic co-operative principles were often ignored, and the movement was turned into a state structure, deprived of independence and acting on decisions of Party and State bodies. There were attempts to take away co-operative property, the co-operatives were compelled to fulfill uncharacteristic functions, and the sphere of their activities was limited and under control at all levels.  In a nutshell, the co-operative movement was constantly under “Damocles sword”. Several times proposals were made to liquidate the movement.

However, despite the difficulties that the consumer co-operatives faced, the movement strengthened its material and technical bases and attracted qualified employees. This was achieved mainly through co-operative principles and values, which are easily understandable and attractive to many generations.  Since 1935 consumer co-operatives have been operating primarily in rural areas in accordance with the decision of the directive bodies.  On the eve of radical social and economic changes in Russia consumer co-operatives had a powerful  industrial and cadre potential and played an important role in the economy of the country. It united 25.5 million members and provided services to 55 million people, or 37 per cent of the population of Russia, including all of the people living in rural areas. The co-operatives owned over 180 thousand shops and restaurants, 28 thousand warehouses and storage facilities for potatoes, vegetables and fruit, over nine thousand industrial enterprises, and almost 18 thousand centres for purchasing produce and raw materials.

During the Soviet era, consumer co-operatives provided about 25 per cent of the whole retail turnover of the country. It bought 55 per cent of the whole purchase of potatoes, over 40 per cent of fruit, and 24 per cent of vegetables. Co-operative industrial enterprises produced 35 per cent of the country’s bread, and a considerable amount of sausage, pastries and soft drinks.  Products bought and produced by co-operative enterprises and made available through consumer co-operatives accounted for 60 per cent of all foodstuffs sold to the population.  Co-operatives satisfied 100 per cent of the peoples’ needs in bread and sausage, 60 per cent in soft drinks, and about 30 per cent in pastries and canned food.

At present radical social, economic and political reforms are taking place in Russia, accompanied by the break up of most of the established structures. The planned economy which had been in effect for decades has been liquidated, and the process of introducing a market economy is almost complete.

The reforms are rife with difficulties, complications and high costs. The volume of domestic gross product and of industrial and agricultural produce has dropped drastically and the standard of living has declined.  Over 20 per cent of the Russian people now earn less than the minimum wage and are living below the poverty level.

The Russian consumer co-operative movement is not an isolated system.  It is integrated into many aspects of life in the country and therefore is affected by the difficulties inherent in the transformation to a free market economy.  As with other branches of the economy, the co-operative sector is facing a highly complicated financial situation, and many co-operative  organisations and enterprises operate with a deficit.  It has not been possible to stop the volume of turnover from declining, which in turn has affected the purchasing of agricultural products and raw materials, and the production of consumer goods.

The main reason for this situation is the low solvency of the rural population, which is served by consumer co-operatives.  The wages of agricultural workers are two to three times lower than those of workers in the construction and industrial sectors.  Wages, pensions and compensations are paid three to four months late;  therefore, people cannot buy even the basic products necessary for survival, such as bread, salt, sugar, vegetables, oil, soap etc.

The majority of the rural population are members of consumer societies and co-operatives must help them to the best of their ability.  Co-operatives provide products on credit to be paid for by future wages, as well as pensions at no additional cost. This kind of “charity” has become wide-spread and results in great financial losses to the co-operative organisations.

The financial situation of consumer co-operative organisations has worsened because of high taxes, high bank interests for loans, irregular repayment of wages, and other unpredictable  factors.  Some consumer societies and unions, seeing no way out of this situation, are compelled to sell property such as shops, warehouses, storage facilities, and other enterprises to cover their debts.

However, in spite of the difficulties of this period, the consumer co-operatives of Russia continue to work, and provide their members and the general population with products and services. This is the only organisation in Russia which has managed to survive the dismantling of the former Soviet state.  There were proposals to dissolve the consumer societies’ unions and to nationalise their property. This policy would have isolated co-operatives, resulting in their demise in a free market system.

However, Centrosoyus of the Russian Federation, with the active support of the co-operative public and shareholders, struggled determinedly against the above-mentioned attempts to dissolve the co-operative unions. Centrosoyus was instrumental in the approval of a law in 1992 on consumer co-operatives, which, in fact, saved the movement from liquidation.  The law defined juridical, economic and social bases for consumer co-operative activities, established a framework for relations with the state, defended shareholders’ interests and promoted co-operative democratic principles.  In accordance with the law, the state and government bodies have no right to interfere in the economic and financial matters and other activities of consumer societies.

Co-operatives’ property is now protected by the state and can only be sold by the shareholders and taken away only in cases established by the law.  The enactment of this law was a great victory.  The law defined the juridical status of consumer co-operatives.
 At the same time, Centrosoyus of Russia managed to prove to the Government the necessity of the consumer co-operative movement and to get economic support from the state.  In January 1994 the Government adopted a special decree on consumer co-operatives which gave co-operative  organisations the right to receive credits from the people they serve on the condition that the interest would be attributed to the cost of production and turnover, to use favorable credits and state financial resources for the development of material and technical bases in the regions of the Far North, etc.

The special importance of this decree is that the Russian Government acknowledged the  necessity to form relations with consumer co-operatives on the basis of yearly signed  agreements.  Starting in 1994, relations between the Government and co-operatives have been based on such agreements.  Agreements include the obligation of co-operative organisations  to serve the rural population and of state bodies to assist them in reaching this goal.

It should be noted that in many regions, in accordance with the agreements, consumer co-operative organisations receive preferential tax rates, as well as reduced prices for heating and electricity. Expenses for the transportation of goods to far away areas are compensated, and other kinds of assistance are also provided.

Another law, adopted in April of 1995, also works to support the consumer co-operative movement.  The law allows co-operatives to attribute to the national debt the credits received by the co-operative organisations between 1992 and 1994 in addition to interests on these credits, on the condition that these debts are paid off in 10 years.  Altogether over 30 governmental decisions concerning consumer co-operatives were adopted during the last few years, which helped the co-operative movement survive.  The most important outcome is that the President and the Government understand the value of consumer co-operatives in the stabilisation of the situation in rural areas and that they support the movement.  Moreover, the President and Government consider assistance to co-operatives a key factor of state policy that will equalise the standards of living between urban and rural areas.

This goal can be seen in the President’s decree of May 31, 1996, which promises measures to stabilise the provision of goods and services to the rural population and can also be noted in the Government’s corresponding decision.  In these documents a concern is expressed for co-operatives and their members, and the President and Government recommend the restoration of shareholders’ rights.

It should be noted that this concern is well-founded.  In many consumer co-operative societies there have been attempts under different pretexts to make members leave co-operatives.  The co-operative’s property is then redistributed in accordance with the law on consumer co-operatives.  As a result of these actions, membership has been reduced by 50 per cent.

The measures, undertaken in accordance with the President’s decree, allowed the reinstatement of membership to many shareholders and helped to attract new members.  In June 1996, on the 165th anniversary of the co-operative movement in Russia, President Boris Yeltsin sent a message to members and employees of Russian co-operatives.  He emphasized that consumer co-operatives are essential in solving problems of state importance, for example, the steady provision of goods and services to the rural population.  He stressed that the co-operative movement promotes better living conditions and a stable social situation in the Russian Federation.

It is clear that state support is very important to the consumer co-operative movement.  But state support alone cannot solve all the problems connected with overcoming the crisis  situation.  That is why Centrosoyus of Russia calls on co-operative organisations to use their own reserves for the effective implementation of economic and industrial reforms.

The co-operative system is essential in realising these reforms.  The law on consumer co-operatives transformed the system:  dictatorship of state authorities was abolished, democracy and independence in co-operative activities were restored, and relations between consumer  societies and their unions changed and are now built on the basis of agreements.

However, many problems still remain and the new free market economy has brought a lull in the speed of reforms in the co-operative sector.  These following suggestions have been proposed to complete the transformation of the co-operative movement in Russia:

Improving Management & Control
Simplification of the co-operative structure is necessary, as well as the liquidation of superfluous self-supporting units with independent balances and governing staffs.  At the same time the Russian apex organisation needs to have new governing and managing responsibilities, including a co-ordinating role between the consumer societies and their unions.  Governing bodies must be elected democratically and they in turn must appoint the managing bodies.

Expanding Responsibilities
The role of members of co-operative societies in governing, in making important decisions on basic economic and financial problems, and in ensuring an active participation of shareholders in the control of governing bodies should be increased. In order to reach this goal it is necessary to change the role of the so-called territorial meetings in which, as a rule, the majority of shareholders take part.  Territorial meetings are organised when the number of members of a co-operative equals several thousand people and it becomes impossible for them all to participate in a general meeting.  The basic decisions on co-operative activities should be adopted at these territorial meetings.  At the meeting of representatives elected from the territories, decisions based on the results of territorial meetings should be made.

Promoting Shareholders' Interests
Measures should be implemented to promote the interests of shareholders.  Each member should have the opportunity to buy goods in their own co-operative shop, with reduced prices for members, dividends etc.

Co-operative Democracy
The principles of co-operative democracy, including the members’ rights to information on the activities of consumer society and its governing bodies, must be strictly observed.

More Qualified Management
It is necessary to strengthen the cadres of consumer societies with responsible and qualified people who can effectively promote the potential of the consumer co-operative movement in the market economy, and who will conduct the co-operative organisations without a financial loss.  The economic and financial results should be the basis for evaluating the leaders’ work.  Those who show irresponsibility or indifference and who are not generating profits should be replaced.  There are many highly qualified specialists in the consumer co-operative movement, but it is necessary to acknowledge them.

At the same time, a reserve of specialists who have proven their capabilities should be created.  It also necessary to undertake measures to retrain employees of consumer co-operatives in order to teach them the new methods of work inherent in a market economy.  The consumer co-operative movement in Russia has the potential to reach this goal.  There is a network of universities and special schools with educational establishments in practically every region.

Involvement of Experts
The active participation of experts already working for co-operatives, including over one thousand professors, doctors and bachelors of science, is to be encouraged in order to make maximum use of the human resources available.

Changes to Co-operative Regulations
The rules of consumer societies and their unions need to be amended to facilitate their adaptation to the changed conditions under which they now function.  These rules must not only regulate the activities of the democratic principles but also define the level of responsibility of governing bodies in order to increase the efficiency of co-operative organisations.  In general, the rules should become a standard for co-operative activities. The final goal of reforming consumers’ co-operatives in Russia should be to overcome the present crisis situation and ensure profitable work by all co-operative organisations and enterprises.  This will make it possible to better satisfy the interests of shareholders and of the rural population served by consumer co-operatives.  Centrosoyus of Russia is now actively working on these problems and intends to introduce radical changes into the system.  In 1995 a new civil code was enacted in Russia which has a number of important articles regulating the activities of consumer societies and their unions.  Important work is being done in the consumer co-operative sector to adjust the laws regarding co-operatives and the rules for co-operative organisations in the new civil code.  A federal law dealing with the introduction of amendments, as well as additions to Russian laws regarding consumer co-operatives, is in the process of being enacted.

The introduction of this law will further strengthen the legal position of Russian consumer co-operatives and open new doors in the future.  Centrosoyus of Russia, as a member of the International Co-operative Alliance, actively supports the development and strengthening of the international co-operative movement, and seeks to use the experiences of co-operatives in other countries as an example.  The Board of Centrosoyus has approved the Declaration of the ICA Regional Assembly for Europe, adopted in October 1996 in Budapest, concerning corporate governance and management control in co-operative organisations of European countries, and intends to follow its recommendations while reforming Russian consumer co-operatives.  Russian co-operators supported in the past, and continue to support, the unity and solidarity of the international co-operative movement, and pledge strict observance of co-operative principles and values. The co-operators of Russia remain loyal to these principles, even during this difficult period of transition.

* Mr. Ermakov has been Chairman of the Board of the Consumer Union of Russia (renamed  the  Centrosoyus of the Russian Federation) since 1982 and Member of the European Council of the ICA since 1995.