Values and Principles (Part 1) (1992)

----------------------------------------------------------------------
This document has been made available in electronic format
by the International Co-operative Alliance (ICA)
----------------------------------------------------------------------
October, 1992
(Source: Co-operative Values in a Changing World (1992) 




                       VIII.   VALUES AND PRINCIPLES
                       ******************************  
 (PART 1)
 
Recommendations for the revision of the ICA 
Co-operative Principles
------------------------------------------------------  
  
("The settlement of the Principles as co-operative 
characteristics or as imperatives for co-operative 
action has, after all, no other signification than to 
protect and to maintain the values, which are 
embedded in the idea of Co-operation, and the 
realization of which is the task of the Co-operative
Movement."
  
-Hasselmann, 1968)
  
The co-operative prospects must be carried out by
organizations which are co-operative in their basic
character. This requires a current rededication to
co-operative commitment and understanding among 
members, employees and leaders, especially among 
managers and administrators in the established 
co-operative organizations. This also requires 
encouragement of the search for good co-operative 
applications. These are the crucial preconditions for 
a viable co-operative way.  
  
Basic assistance might be given by good co-operative
principles, which turns our attention to the ICA
Co-operative Principles. These are intended to be the
universal guidelines for viable co-operative organizations 
and for transforming the co-operative essence into practice. 
These might be looked upon as the bridge between 
co-operative ideals and co-operative reality. As said, 
however, these are only a means of assistance. The 
formulation of Principles can never become a substitute 
for the commitment to, and the understanding of, the 
essence of the co-operative way. 
  
1. The ICA Co-operative Principles
------------------------------------------  
The ICA`s ambition to establish some Co-operative
Principles for the world co-operative movement took 
the rules of the Rochdale society as its point of departure.
Work started in 1919, and the issue was discussed at the
Congresses of the 1920s. In Vienna, 1931, a special
committee was appointed and its recommendations were
finally accepted as Principles in 1937. 
  
One might say that this was a significant step in unifying 
the values of the Co-operative Movement. Many co-operative 
organizations had long used similar principles, but as late as 
the beginning of the 1920's there still seemed to be obvious 
differences in the way of approaching the values. The decision 
of 1937 gave the members of the ICA a common platform to 
examine their values and a channel to implement them in practice. 
The Principles can be looked upon as catalysts to harmonise
values within the world co-operative movement and to give
them a universal character. 
  
The Congress in Bournemouth, 1963, appointed a Commission
to revise the Principles. Its proposal to the Congress in
Vienna suggested some reformulation of the Principles,
but left their basic structure and substance intact. Some
Principles were abolished (political neutrality and cash
trade), and a new one was added concerning collaboration
between co-operatives. Smaller revisions were made in
1969, otherwise the existing Principles are still the same 
as those accepted in 1966. (See Appendix A to this chapter).
  
1.1.    Several applications
--------------------------------  
The general and usual aim of the Principles is to be
basic recommendations to member organizations and to
potential co-operative organizations about how to develop
viable co-operative practices. Member organizations have
also used the Principles as a base for their statutes and
programmes of action, although sometimes with small
revisions according to local conditions. In addition, the
Principles have been used for other aims, and considered
useful in other contexts:
  
-  As criteria for the identification of true co-operative 
   organizations and applications, for instance by the ICA 
   when deciding which organizations are eligible for 
   membership of the ICA
  
-  As authoritative information to governments, state
   bodies and national and international organizations
   about the basics of co-operative organizing
  
-  As a base for legislation, statutes and by-laws in
    many countries
  
-  As symbols of Co-operation, both in the minds of
   co-operators and in the promotion of Co-operation in
   the community at large.
  
These are all important applications of the Principles,
especially for the ICA in its crucial task of promoting
and defending the co-operative way. Indeed, the ICA needs
an up-to-date concept of Principles as reflecting its
essence, and a full review of the Principles should pay
attention to these applications. In this context, however, 
I keep to the main aim of the Principles - to serve as basic 
guidelines for co-operative practice - because this might be 
seen as superior to other aims. 
  
1.2.    Critical perspectives
---------------------------------  
We are faced with the issue, are the Principles efficient
as guidelines for future co-operative practice?  It has
been about 25 years since the Principles were revised; 
25 years of radical changes in both the co-operative
structure and the environment in which they operate. We
have discussed different aspects of such changes in the
previous chapters and are ready for some conclusions and
general recommendations before the final revision of the
Principles after the Tokyo Congress.
  
As mentioned in chapter II, the existing Principles
reflect most of the essential aspects of the basic
values. There are some weaknesses, but that depends 
to quite an extent on what we really mean by Principles. 
The existing Principles have been particularly criticized
from three perspectives.
  
1) The Principles are not up to date as guidelines for
contemporary society because they have been
overtaken by changes in the environment and in
co-operative practices. Practice has already more or
less created "new principles", and perhaps the
Principles might even be seen as obstacles to
economic efficiency and effectiveness. 
  
2) The Principles are too much oriented towards
co-operative rules for practice and too little
oriented towards co-operative essential values. 
The Principles tend to encourage an attitude, 
which Laidlaw expressed in his report, to "raise 
current practice to the level of principle instead 
of identifying the principle itself" (1980, p33).
  
3) The Principles are not universal enough. They 
are too marked by the consumer co-operative and the
European contexts and origins, and are not fully
applicable to other types of co-operative and to
co-operative development in other cultures.
  
These are critical assessments, and reflect various
expectations and claims on the Principles. The first type
of critic, perhaps most usual in the highly industrialized
countries, expects Principles that can be good guidelines 
for the practice within contemporary societies. The second 
looks for more general and eternal Principles, which might 
serve as guidelines about the basic essence of the co-operative 
way. And the third is quite close to both the first and the 
second, but asks for a universal character in all contexts 
of application. 
 
 
Are these demands and expectations possible to combine in
one set of Principles?
  
I will discuss these criticisms at some length in order
to reach some preliminary recommendations. As I see it,
these imply two degrees of ambitions, when revising the
Principles: One calls for some revisions and additions,
but not necessarily for more radical changes to the
traditional character and structure of the existing Principles. 
Another calls for total changes of the traditional character 
and structure.
  
2. Experiences from recent decades
-------------------------------------------  
Let me discuss the first type of criticism a little more
by referring to the experiences of recent decades. We can
then notice that there are some problematic tendencies
and critical experiences from co-operative practice in
relation to the existing Principles. I have discussed
most of those in the previous chapters; here I will just
recapitulate on the most important.
  
2.1.    Membership and association
------------------------------------------  
-  The special form of co-operative organizing, the
    member society form, has been increasingly
    substituted by the joint-stock company form,
    especially at secondary and tertiary levels of
    co-operative organization. The basic characteristics
    and values of "association of persons" have tended
    to become mixed with the co-operatively alien values
    and characteristics of "association of capital" (see
    the discussions in chapters IV, V and VI). 
  
-   Co-operative practice now involves more transactions
     with non-members, most obvious in consumer
     co-operatives. Perhaps it has even become difficult
     in some consumer co-operatives to distinguish
     between members and customers. The application of
     the `unity' and `identity' principle seems to have
     become weaker and so, also, has the character of the
     member service oriented organization (see chapters
     IV and VI).
  
-   Open membership is, as usual, difficult to apply in
    types of co-operative other than consumer co-operatives. 
    This opens up the risk of giving undue preference to  group 
     interests to the detriment of the community as a whole. 
  
2.2.    Democratic management
--------------------------------------  
-  The participatory aspects of democracy have weakened
    in many co-operative organizations, and the democratic 
    applications have become more formalistic. The basic 
    values of equality and democracy have declined (chapter IV).
  
-  The federative model for relations between member
    organizations has increasingly been abandoned and/or
    partly substituted by nationally integrated models. The 
    local influences on the co-operative as a whole may 
    have diminished (see chapter VI section 3.4). 

-  In some parts of the co-operative world co-operative
   organizations have obvious difficulties in achieving
   a proper degree of independence in their relations
   to governments, political parties and state authorities. 
   The principle of autonomy is threatened, as is the 
   viability of co-operatives as economically efficient 
   and democratically mutual self-help organizations 
   (chapter III section 3).
  
-  Women seldom participate at higher levels of the
   co-operative democratic management and are often
   ignored if the membership is household-based. The
   same is also true of younger people. The participation 
   of employees is not covered at all by the ICA 
   Principle of democratic management. The quality 
   and the coverage of the co-operative concept of 
   democracy is challenged by practice (especially
   chapter IV).
  
2.3.    The role of capital and the rate of interest
---------------------------------------------------------  
-  New methods for raising capital have been
   introduced, which tend to substitute member share
   capital by outside share capital, especially at the
   secondary levels. There are trends towards 
   weakening applications of the `unity' and `equity' 
   principle, the member control principle and the 
   basic values oriented interest (chapters IV, V 
   and VI). 
  
-  The restricted or previously fixed rate of interest
    on share capital has generally been abandoned. This
    has been considered necessary, because the rate of
    inflation and the discount rates have moved to
    higher levels, in order to maintain the value of the
    share capital and to attract new share capital from
    members and from external sources. Although the rate
    of interest has been limited, higher levels have
    been accepted in more recent years. The traditional
    `equity' value has been questioned by practice, as
    has "capital as the servant" (chapter V).
  
-  To some extent co-operative organizations have
    introduced models to let share capital reflect the
    increased value of the co-operative society. In some
    cases, co-operative societies have even been
    transformed into joint-stock companies and the
    shares (stocks) have been introduced on the stock
    exchange markets. To some extent these models have
    challenged the traditional view on the place of
    capital in co-operative organizations, and
    consequently the traditional values of equity and
    equality (chapters V and VI).
  
2.4.    Distribution of surplus
-----------------------------------  
-  Many consumer co-operatives have not been able 
   to distribute any patronage funds since the 70s.
   Instead, the use of various kinds of rebates,
   marketing methods and special member offers have
   become more usual. Member control of the surplus has
   become less important.
  
-  To some extent co-operative organizations have
    started to distribute some of the surplus in
    relation to share capital, see above. This is a new,
    and probably increasing, trend.
  
2.5.    Education
--------------------  
-   I have no overall data on the application of this
    principle. To some extent, however, it seems as if
    the resources for ideological education of members,
    the general public and potential members have
    diminished or stagnated in many organizations. A
    sign of this is the fact that some parts of the
    established organizations dealing with education and
    information have been subject to cutbacks. There are
    fewer research-oriented departments, and there are
    fewer books and magazines about co-operative issues.
    These tendencies threaten the basis for co-operative
    commitment and for the promotion of the co-operative
    message in the community at large (see the discussion 
    in chapter VI section 3.1).
  
2.6.    Co-operation between co-operatives
---------------------------------------------------  
-  International economic collaboration seems to have
   begun to lag behind the collaboration between
   private organizations. Co-operation between various
   types of co-operative is still underdeveloped. The
   federative model is changing in character (see
   above). These tendencies reflect difficulties in
   applying the principle of mutual assistance between
   co-operatives.
  
3. Implications for the Principles
---------------------------------------  
The above tendencies are well documented from recent
decades, with some exceptions; but of course I cannot
estimate how widely these are spread out. There are no
such evaluations from overall perspectives. Probably,
these tendencies overestimate the problematic aspects
when the world co-operative sector is considered in its
entirety. The normal situation is probably that the
practice of primary co-operative organizations is quite
close to the Principles. On the other hand, the problems
seem to be more obvious at secondary levels, and some of
the tendencies have been indisputably common: decreasing
or weakening member participation, the changed view on
interest on capital and the problematic autonomy in
relation to governments. 
  
These tendencies raise lots of questions for the revision
of the Principles. Are these reflecting some permanent
and increasing trends of deviation from the Principles in
co-operative applications? Or are these, rather, reflecting 
more temporary adaptations to special problematic 
changes in the environment during recent decades, perhaps 
wider interpretations of the essence behind the Principles? 
Do these tendencies reflect weaknesses of the Principles, 
for instance that the Principles are not giving guidance, or 
are giving bad guidance, in relevant aspects of co-operative
development, especially in the modern societies? Or finally, 
do these tendencies reflect a weakening understanding of the
essence of the Principles and/or a weakening will to actively 
search for the proper applications?
  
In other words, do these tendencies reflect:
  
-  Inadequate Principles in relation to the demands of
   the changing environment? 
  
-  New and wider interpretations of the Principles?
  
-  Unusual difficulties in applying the Principles,
   which call for compromises?
  
-  A weakened status of the Principles and a weakening
   understanding of the essence behind them?
  
I have heard and seen all these kinds of explanations
during my preparatory work, and I leave the readers to
consider them in their own context. I do think, as
discussed earlier in the report, that the extreme
economic difficulties of recent decades have made it
necessary to use more far-reaching pragmatic views on the
co-operative applications, and that many of these
consequences are temporary reflections of such pragmatic
applications. However, I hand over the issues for closer
examination in connection with the final review of the
Principles. 
  
The tendencies experienced also make crucial the whole
issue about the character of the ICA Principles, as
reflected by the second type of criticism, and partly
also the third, which I referred to above: to what extent
should the Principles concentrate on identifying the
Principles in themselves and to what extent should they
concentrate on identifying the more basic operative rules
for practice? In the latter case it might be an idea to
"raise some long-term trends in practice to the level of
Principles" (see Laidlaw). I return to that issue below.
In my opinion, however, it is quite clear that efficient
Principles which act as a `bridge' between ideals and
reality must have good foundations on both sides.
Otherwise there will be no bridge. 
  
3.1.    Obvious needs for revision
----------------------------------------  
There are some obvious needs for revision of the existing
Principles, which might be carried out without changes to
their existing structure and character.
  
3.1.1.  Interest on investment and the place of capital
----------------------------------------------------------------  
Experience has clearly shown the need for a revision of
the third Principle about limited rate of interest. This
Principle puts forward the advice that "share capital
should only receive a strictly limited rate of interest,
if any". It has become evident during recent decades that
this Principle has put undue restrictions on co-operative
capital formation and economic efficiency in an
environment with higher levels of inflation and discount
rates and with increasing need of investments (see
chapter V). This was anticipated by the ICA Commission 
of 1963. I agree with it, and can observe that these
problems have increased over the past 25 years.
  
("Contemporary conditions in the countries of advanced 
economic development demand some more elastic system 
of interest limitation. If the movement is to be more than 
a mere camp-follower of the more progressive private 
sector and blaze new trails and lead the entire economic 
system, the whole question of capital availability has to 
be studied in a much more dynamic manner than was
possible in earlier days. This does not imply any
departure from principle hitherto accepted, only their 
application in a more flexible manner."
  
-The ICA Commission on Co-operative Principles, 1966.)
  
There is a need for flexibility in considering the level
of interest on share capital, which, in fact, is already
the practice in many co-operative organizations. But
should we abandon the Principle totally? I know, for
instance, that the Banking Committee has taken that
standpoint. I must say that I am not ready to make such
drastic conclusions from the experiences, because the
situation differs between various types of co-operative.
I think that it is wise to keep some limitations on the
interest rate but, as said, applied in more flexible ways. 
It might be limited at some level above the official discount 
rate, or similar, because a totally free rate of interest runs the 
risk of opening the door to very capital-associated solutions 
to capital formation.
  
The essential Principle should instead put its main
emphasis on the role of capital in the co-operative
system, and in this context also state something about a
more flexible rate of interest. My recommendation is that
the third Principle should be substituted by a new one,
saying, in a preliminary formulation:
  
-  Co-operative organizations should carry out methods
   for raising and managing share capital formation
   which, as much as possible, rely on contributions
   from members. Supplementary share capital might be
   raised in forms which are consistent with the
   promotion of member interests, member democracy 
   and a proper degree of independence. The interest on
   share capital should be flexible, but limited to
   some level above the official discount rate. 
  
If we do not put any limits on interest the temptation is
very strong to let the value of the society as a whole be
reflected in rising interest on share capital. And thus
we deviate from essential aspects of the co-operative
way. If we want to distribute the benefits there are
co-operatively-better methods (see chapter V section
2.4). This change of the third Principle implies that the
fourth Principle about the distribution of surplus should
be supplemented with a special addition d) about the
payment to share capital.
  
3.1.2.  The self-reliant character
--------------------------------------  
The difficulties in achieving a proper degree of autonomy
have caused problems for co-operative development during
the recent decades, especially in developing countries.
The self-reliant character has always been considered as
a well-understood background value for democracy, but 
has not been stated explicitly by the ICA Co-operative
Principles. Of course, it can never be a question of a
total autonomy, since that is impossible and not even
wanted. There must be some support from the State, for
instance, especially in the earlier stages of co-operative 
development in developing countries. The question is about 
the degree of autonomy sufficient to develop the inherent 
possibilities of the co-operative way.
  
I do think that a statement about autonomy might help,
especially in contacts with governments and local
authorities. Such a Principle might be expressed as the
following preliminary formulation:
  
-  Co-operative organizations need a proper degree of
   autonomy in their internal affairs in order to
   develop effectively, and should consequently search
   for the appropriate independence in their relations
   to governments, state authorities and political parties. 
  
In this way it should also be possible to pay due attention 
to the old Principle about `political  neutrality'. In my 
preparatory work I have observed that there is a common 
demand for the introduction of that Principle again, but 
formulated as political independence. Perhaps this Principle 
can be combined with the one about capital formation, since 
both stress the essence of independence and autonomy.
  
(Continued in PART 2)