The Czech Co-op Movement after its Political and Economic Transformation

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    This document has been made available in electronic format
         by the International Co-operative Alliance ICA 
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                         June 1994

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                    The Czech Co-op Movement
        after its Political and Economic Transformation
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                         by Ota Karen*  



As early as in 1845, shortly after the establishment of the
first European co-operative society at Rochdale, the
initiative of a Catholic priest, by name of Jurkovic, gave
rise to "Gazdovsky spolok" (meaning "Farmers' Association") as
the first association of a co-operative type to come into
being on the territory of former Czechoslovakia and, indeed,
in all Central Europe. Its members, small farmers and
craftsmen, occasionally brought their petty savings to the
Association's cashier as deposits, while at other times they
would come to his counter in order to borrow some money
according to their needs. Two years later, the "Prager
Viktualien und Spaarverein" (meaning Prague Food and Thrift
Society) was established in the city mentioned in its name,
marking the beginning of the co-operative movement's history
on the territory of the present-day Czech Republic. In another
field, the Czech co-operative movement's highly successful
development was associated with the name of Dr. Cyril
Kampelik, its propagator (after whom a wide network of Czech
co-operative thrift and credit societies became known as
"Kampelickas").

In Czechoslovakia as a whole, the co-operative movement
developed very successfully during the two decades preceding
World War II. In 1938, there were tens of thousands of
co-operative societies of all sizes in existence - consumer,
industrial, artisanal, housing, agricultural, farm-supply,
processing, credit and other co-operatives, affiliated to 83
co-operative unions set up by the Czech, Slovak or
German-speaking citizens. During the wartime years, this
co-operative network suffered considerable damage as a result
of the forcibly imposed administration by the Nazi
authorities, but soon after the end of the War the
co-operative movement braced itself for new successful
achievements. Towards the end of 1947, the existing 12,720
Czech co-operative societies had a total membership of nearly
three and a half million.



Socialist Co-operation
**********************

Then came the period of "socialist" co-operation. On the basis
of a special law, it became obligatory for the Czech
co-operatives to be organized under the auspices of the
Central Co-operative Council, besides which they were
subordinated to the hierarchic system of what was known as
plan-based management of the country's economy. In the course
of the nineteen-fifties, the co-operative movement was misused
by the totalitarian Bolshevistic authorities for what they
termed "socialisation" (i.e. collectivisation) of farming and
of village life. 
The internationally recognized co-operative principles and
values - particularly those of voluntary membership and of the
members' participation in the co-operative property - were
grossly misused, and in the agricultural sector completely
abandoned, as was the principle of co-operative independence,
for the co-operative societies and their unions were made
fully dependent on the State and on the Communist Party and
co-operative democracy became purely nominal. Co-operatives
ceased to have, as their main task, to serve and benefit their
own members; instead, it became their foremost duty to
implement the tasks and targets of the overall State plan and
to put into effect the intentions of the Communist Party.

Although the co-operatives of this country continued to
develop - albeit in the formal respect - and to achieve a
certain measure of successful economic results during the four
decades under review, the fact remains that this period
belongs to the dark pages in the  history-book of the Czech
co-operative movement. Co-operative ownership was branded as a
"lower", inferior form of what was regarded as socialist
ownership. The "socialist" co-operatives were made into
transmission levers for putting into effect the political aims
and the economic policy of the Communist Party, and it only
gradually became possible - against the will of the Party and
of the Government and almost literally "behind their backs" -
little by little, at least within some of the Czech
co-operative movement's sectors, to achieve a certain shift of
emphasis towards paying greater attention to the members' own
interests, as well as to genuine co-operative principles and
values. 

The strength of the co-operative movement and of its ideas
became evident in the fact that, in spite of the disfavour on
the part of the government authorities, quite a number of
co-operative societies became successful and prosperous
businesses, serving their own members as well as the general
public; in fact, they managed to hold their positions in
competition with the preferentially-treated "Molochs" or
state-owned enterprises, and in numerous instances they proved
so efficient that their products and services ranked among the
best available in this country in those years. A number of
co-operatives also provided refuge for many excellent
economists, lawyers, organizers, professional specialists and
technicians who were persecuted by the all-powerful Communist
authorities and therefore in most instances had no chance of
being employed in enterprises and institutions belonging to
the State or government.



Co-ops in the Market Economy
****************************

During the present period, following the "velvet revolution"
of 1989, the Czech co-operative movement has to cope with a
number of new problems, including those which do not arise
only from the transition from a "planned" to a market economy,
but which also have a distinct ideological character. As a
result, a paradoxical situation has arisen: while for the
bolsheviks, under the totalitarian pre-November regime, the
co-operative movement seemed to be excessively
"private-business-oriented" and its ownership was regarded as
"inferior" and hence less protected than State ownership, for
a number of the post-November politicians the co-operative
movement became virtually "the last remnant of the socialist
economy". It was not even exceptional that a number of people,
including politicians, regarded co-operatives as a "Communist
invention" and refused to be convinced by facts and figures
about the Czech co-operative movement's illustrious traditions
reaching back nearly one hundred and fifty years, or about its
appreciable achievements recorded in the period preceding
World War II.


>From the very outset, accordingly, it became evident that the
post-socialist co-operative movement must be transformed,
which meant, in particular, that it must get rid of the
deformations and adulteration implanted into it during the
years of Communist rule. First and foremost, it was necessary
to enable the co-operative members themselves to decide, in
free and democratic elections about the new character of their
co-operatives and about the people who should become their
leaders. It was likewise necessary to ensure the Czech
co-operative movement's return to the internationally
recognized co-operative standards and, in particular, to a
full and unexceptional application of the genuine co-operative
principles, to policies and practices respecting the
co-operative values. But even all this was not sufficient. In
those instances where the co-operatives had received from the
State, within the framework of the "socialisation" process,
any property expropriated from shopkeepers, tradesmen,
craftsmen and owners of other small businesses, it was
necessary to return such property to the original owners or to
their heirs. Such a concept of the transformation, ensuring a
consistent severing of ties with the past, was supported by
the entire new leadership of the Czech co-operative movement
and - as far as I am informed - in essence also by the
leadership newly elected in a vast majority of co-operative
societies.

However, there were people and even, unfortunately, certain
politicians, who pursued different aims: instead of
transforming the co-operative movement, they wanted to break
it up, to "privatize" it and, in actual fact, to liquidate it
in accordance with the vested interests of a number of people
who coveted specific parts of the co-operative property,
hoping to obtain them through such "privatization".


It is obvious that the people who pursued such aims succeeded
in bamboozling a number of others with their "ideology", thus
gaining the support of a number of citizens who had suffered
injustice in the past (without differentiating whether a
particular person had been wronged by the Communist-ruled
State, or by a co-operative society, or by a specific
bolshevist representative of the authorities); moreover, even
the support of several politicians was recruited for such an
anti- co-operative campaign. All this was possible as a result
of a phenomenon (occurring not only in the past, but
occasionally even at present) which can be termed
"anti-co-operative fundamentalism", whose stalwarts apparently
did not seem to mind that, in their "holy enthusiasm in favour
of the privatization of co-operative property" they were
using, in essence, the same methods as those resorted to
earlier by the bolsheviks.


Therefore, the transformation of the co-operative movement was

accompanied by a bitter political struggle. In the course of
this process, particularly in the field of disseminating
information about the role and function of co-operatives under
standard market-economy conditions and in explaining
co-operative principles and values, an important part was
played by the International Co-operative Alliance,
specifically by its President, Mr. Lars Marcus, as well as by
the support given us by several West-European members of ICA
and by co-operative members of the European Parliament. 


The above-mentioned political struggle resulted in the
adoption of Law No.42/1991 of the Law Gazette, which became
known as the Co-operative Transformation Act. The contents of
this law reflected the political compromise achieved - a
solution which has to be regarded as rather rigorous,
particularly for agricultural co-operatives, and indeed,
problematic from our point of view. Nevertheless, this
compromise has recognized the identity of co-operatives as
integral parts of the newly established market economy, thus
enabling the co-operatives to revert to the traditional
co-operative principles and values to the full extent, while
simultaneously liberating the co-operatives from the
after-effects of the property injustices for which they had
been misused. Naturally, this law was unable, by itself, to
prevent or thwart new and repeated attempts made by the
anti-co-operative fundamentalists to achieve a concealed
liquidation of the co-operatives and a "privatization" of
their property. Such attempts were most clearly reflected in
the subsequently adopted legislation, such as amendments to
the Land Property Act, several special restitution laws and
the Housing Property Act.

However, the transformed co-operative movement's right to
exist and operated as a form of private business undertaking
under the country's market-economy conditions is no longer
denied or doubted by anybody- by important right-wing
political parties, by the political representation of the
State, by the legislature or by the executive (government)
authorities.

At present, the Czech co-operative movement's representatives
are partners enjoying full rights within what is known as the
tripartite body, i.e. a political consultative and advisory
committee consisting of seven members of the Government, seven
representatives of the entrepreneurial and employers' sphere
(among whom the co-operative movement regularly has two
nominees of its own), and seven members representing the trade
unions. At the present stage of the Czech Republic's
transition to a standard-type market economy, this tripartite
committee has a role of paramount importance - to ensure not
only the maintenance of social conciliation and peace, as well
as dialogue with the executive powers, but also the
preparation of new legislation in consultation with the
entrepreneurial and trade union (employees') spheres. In the
opinion of numerous politicians and economists, the existence
of the tripartite body and its good work rank among the main
reasons for the successfully continuing transformation of the
Czech Republic's economy, for the relatively low rate of
inflation (which is not expected to exceed the single-digit
dimension in the course of 1994), as well as for the progress
that has been made in the privatization of the State-owned
economic sector.

The Czech Co-op Movement after the Transformation
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Obviously, the inevitable question is bound to arise: how has
the co-operative transformation been quantitatively reflected
in the Czech co-operative societies and  their members, in the
movement's actual performance?


Let some of the answers be found in the following figures.

Number of co-operative societies affiliated to co-operative
unions, and number of co-operative members
-------------------------------------------------------------

Co-operatives   Number of co-op societies     Number of
members
               -----------------------------------------------
                 before              after    before     
after 
                                  transformation           
--------------------------------------------------------------
Producer        397                461        88,000    62,000
(industrial)
Consumer         73                 73     1,039,496   838,655

Housing         420                420       850,000   850,000
Agricultural  1,202              1,658       350,000   380,000
--------------------------------------------------------------
Total         2,092              2,612     2,327,496 2,130,655
--------------------------------------------------------------

The transformation process brought to light a most interesting
circumstance. The "socialist past" had left its most distinct
traces on the agricultural co-operatives. The methods used for
the "recruitment" of members into these co-operatives in the
course of the nineteen-fifties had grossly violated the
principles of voluntary membership and of non-interference by
the Party or Government. It was by no means an exception that
certain people, stigmatized as "kulaks", i.e. village
plutocrats and exploiters (often the best and most successful
local farmers), were not allowed to become members of an
agricultural co-operative society, while for other villagers,
a refusal to join resulted in their persecution, eviction or
even imprisonment. However, in the course of the two decades
of existence of agricultural co-operatives, although the
difficult conditions prevented co-operative democracy from
being fully developed, everyday practice gradually proved the
advantages of large-scale collective farming organized on a
co-operative basis and the favourable effects of the
decreasing "care" being given to the co-operative movement by
the Communist Party and by government authorities; these
factors, in turn, led to the development of entrepreneurial
initiatives and successful economic ventures in fairly
frequent instances, even before the downfall of the Communist
rule.

In the course of the transformation process, consequently, the
members of agricultural co-operatives did not succumb to the
enticements of the anti-co-operative fundamentalist "Sirens".
They had come to understand that small farms with 5 hectares
(i.e. 12.5 acres) of land lack the necessary prerequisites for
efficient farming within the systems of modern agriculture and
that they would have no chance of survival or prosperity under
the conditions of a market economy. Therefore, they decided to
stand by their co-operatives. They refused to allow their
co-operative societies to be transformed into any other forms
of business, because in such an event they would virtually
renounce the distinctive features of genuine co-operation -
the principles of democratic decision-making, equality, the
right to participate personally in the management of the
enterprise in which they are working. Thus, indeed, something
has happened which the anti-co-operative fundamentalists find
very difficult to understand: these co-operatives, including
those most unfavourably affected by "socialism", have managed
to survive - by their own members' free will.

Now, for a change, let us see how the transformation affected
the Czech co-operative movement's other (non-agricultural)
traditional sectors.

Under the planned economy conditions, consumer co-operatives
had been assigned the position of a virtual monopoly in
supplying the rural population with goods, but in the
implementation of this task they were not allowed to give
their own members any kind of preferential treatment. Under
the subsequently introduced market economy conditions, in
competition with the increasing numbers of newly-established
private commercial enterprises and shops, however, the
proportion of the total retail turnover accounted for by
consumer co-operatives has decreased from the original 23-24%
to the present level of roughly 12-13%. Today, however, the
retail trade operated by consumer co-operatives represents the
only comprehensive system of retail outlets organized on a
nationwide level. The co-operatives are gradually building up
their own system of wholesale trade, while simultaneously
continuing to diversify their retailing activities. Although
it will probably be necessary to expect a further decrease in
the proportion of the total retail turnover accounted for by
the consumer co-operatives, there can be no doubt about the
fact that this sector of the co-operative movement has proved
its viability and competitiveness.

A successful development is also taking place within the
sector of the transformed producer (industrial and artisanal)
co-operatives. Within the framework of the transformation
process, approximately 92% of these producer co-operative
societies refused to be divided up (although, before the
transformation began, such a division or break-up used to be a
fairly frequent - albeit hardly rational or economically
justifiable - requirement of some members of the older
generation who had fond memories of the earlier small,
unintegrated co-operatives), and they likewise refused to
agree to a change of the business form into a non-co-operative
commercial company (which was expected and would have been
preferred by the anti-co-operative fundamentalists). One of
the successful results of the transformation process and
simultaneously a proof of the viability of this co-operative
sector's entrepreneurial activities can be seen, in my
opinion, particularly in the fact that -in spite of all
difficulties caused by fairly tough competition - the producer
co-operatives that have remained in existence include 39
industrial and artisanal societies associating approximately
12,000 members, mostly people with impairment of health
(disabled and physically or mentally handicapped workers), for
whom it would be by no means easy to find suitable job
opportunities if they were to lose their co-operatives.
Furthermore, numerous producer co-operative societies, such as
"Destila" in Brno, "Drupol" in Prague, or the
furniture-makers' society called "Ledenicky nabytek" - to
mention only three, because of lack of space, out of the many
whose names I could add - continue to prove their
competitiveness by means of the successful and economically
most effective exports of their products to the challenging
markets of West-European countries.

The transformation process has not yet been brought to an end
within the sector of housing co-operatives. In accordance with
the new Housing Property Act, a fairly large number of homes
(mostly apartments), hitherto owned by the co-operative
housing societies, are going to be transferred to the
ownership of the members themselves. As a result, the
present-day housing societies will be transformed into
home-owners' co-operatives, whose main task will be to ensure
for their members (i.e. the individual owners of the
apartments) the operation and administration of the
residential blocks or houses, including regular maintenance,
repairs etc. In those instances where the members occupying
the apartments in the individual co-operatively-owned
residential blocks so desire, and express their will
democratically before the end of the year 1996, the ownership
of individual residential buildings (apartment blocks)  will
be separated from the property of the present-day very large
co-operatives (whose management is rather remote from the
members in some instances) and entrusted to small co-operative
societies, each of which will comprise only one residential
block or a small group of such co-operatively-owned buildings
adjoining one another. At the same time, the property of the
hitherto-existing co-operative society will be divided up,
between this society and the newly-established small societies
which will have arisen by separation from it, in accordance
with the law and with the members' will expressed in the
appropriate manner.

During the process of transformation of the co-operative
movement, the foundations were laid for the emergence and
development of a specific form of consumer-type co-operatives
- co-operative pharmacies, or co-operatives of dispensing
chemists. This event took place in co-operation with a Belgian
co-operative association of social pharmacies, with which we
established a joint-venture enterprise bearing the name of
"Euromedica Prague.

In the course of the past two or three years, the national
co-operative unions have established - in collaboration with
the Co-operative Association of the Czech Republic -
co-operative insurance societies and a co-operative bank. With
regard to the legislation requirements,  these institutions
have been constituted in the form of join-stock companies, but
co-operative capital predominates in them and hence also
controls them. The co-operative insurance societies as well as
the "COOP-Bank" are developing very successfully. Within the
Czech insurance business market, the co-operative insurance
societies, bearing the name "KOOPERATIVA", occupy the second
and third places (among the 17 existing Czech and foreign
insurance companies) at present, and it is envisaged that, by
the end of 1994, the total of the insurance premiums received
by them will exceed 2,000 million Kc (i.e. Czech crowns). The
"COOP-Bank" has become a prestigious small banking institution
in whose business activities main emphasis is placed on small
and middle-scale enterprises, with preferential treatment
being given to ventures and transactions involving
co-operatives. The activities of the Bank help to enhance the
economic effectiveness of the projects for which the
co-operatives need to obtain credit, and thus contribute
towards their greater competitiveness under the challenging
conditions of the Czech market and of export opportunities.

One of the most recent appreciable achievements of our
co-operative movement has been the fact that a group of
Members of the Czech Parliament - with our participation - has
come forward with a bill concerning co-operative credit and
thrift societies, submitted to the Parliament for
consideration. This bill has been drafted to a considerable
extent on the basis of the utilization of foreign co-operative
experience, made available thanks to the help given us by
WOCCU (World Council of Credit Unions) and the American CUNA
(Credit Union National Administration) association, as well as
with the use of the valuable information received from the
Canadian Desjardins Movement and from the co-operative
institutions of some other countries. After the preliminary
discussions held with several representatives of the
Government it appears quite realistic to expect that the
envisaged new law will create the basic prerequisites for the
re-introduction of the system of Czech credit and thrift
co-operatives which operated in this country very successfully
before World War II, as has been pointed out
in the introductory part of this article.

The basic legislation for the existence and development of our
co-operatives, as well as for the establishment of new ones,
has been provided by the Czech Commercial Code, which contains
a separate chapter devoted to co-operatives. The institutions
and organizations which participated in the drafting of the
provisions of this Commercial Code included not only the Czech
co-operative movement, but also - by means of expertise,
seminars for Members of parliament, as well as practical
advice - the International Co-operative Alliance and several
important co-operative institutions from some countries of the
European Community (among them I must gratefully single out
the important contribution made and the selfless assistance
provided by the French Credit Mutuel and by other French
co-operative financing institutions).

Czech co-operatives are voluntarily organized within the
specialized national-level co-operative unions set up for each
of the movement's sectors, i.e. of housing, consumer,
productive (industrial and artisanal) and agricultural
co-operatives. These co-operative unions, with the exception
of the agricultural co-operative sector, are affiliated as
direct members to the Co-operative Association of the Czech
Republic (the co-operative movement's umbrella organization),
which represents the Czech co-operative movement (including
the union of agricultural co-operatives, on the basis of a
special contract) in international relations. The Co-operative
Association of the Czech Republic, the co-operative unions
representing the movement's individual sectors, as well as the
co-operative insurance societies and the COOP-Bank pay
considerable attention to contacts with other co-operative
movements on an international level. In particular, they take
part in the activities of the International Co-operative
Alliance and of its specialized committees and organizations;
furthermore, they are active as associate members of the
specialized co-operative institutions of the European
Community countries and they are represented within the
multi-purpose organization for the promotion of
the co-operative movements of Central and East European
countries, known by the name of COOP-Network. 


* Mr Karen is President of the Co-operative Association of the
Czech Republic.