This document has been made available in electronic format by the International Co-operative Alliance (ICA) 
ESTONIA (1993)
 

August 1993

Source : Co-operatives in Eastern and Central Europe - Estonia, Latvia & Lithuania by Mats Ahnlund, Studies and Reports 22nd in the serie, 77pp, ICA, Geneva, 1993

2.1  Main characteristics of the present co-operative Structure

2.1.1 Models of co-operatives, their significance in quantitative terms and characteristics of the typical co-operative:

Recent Estonian co-operative history is mainly the story of consumer co-operatives.  These were allowed to exist under the Soviet rule, while all other forms disappeared in the late 1940s and early 50s.

The organization of consumer co-operatives (as at January 1st 1993) is as follows:

-    225,000 individual members,

-    30 local consumer co-operatives in one Co-operative Union (ETK),

-    1410 shops and 402 restaurants/cafeterias,

-    23,000 employees, including industries,

-    Turnover of 1811 million Estonian crowns (around 81 million US$).

The only other co-operative form that was allowed to exist was the local housing co-operatives, which owned 40,000 flats in 1992.  The majority of these are smaller co-ops, with only a few hundred members each.

A recent development has been so-called 'new co-operatives', the result of the Soviet Co-operative Law of 1988 (see below). There are a little over 3,500 of these, mainly in the form of small worker-owned co-operatives in the service sector.

There have also been changes within the agricultural sector. The dominant form of agricultural production used to be the collectively-owned farms (kolchoses) and State farms (sovchoses). These are now privatized, forming family-owned farms.

At the end of 1991,  6,200 private farms had already been re-established in Estonia, and development has progressed rapidly since then.  Many of the new farmers are forming what we in the West would recognize as agricultural co-operatives for both purchasing inputs and selling their produce. However, the name `co-operative' is very rarely used, as the farmers associate co-operatives with the Communist regime. For this reason, the statistics regarding agricultural co-operatives are currently unreliable.

2.1.2 Brief historical background:

The idea of co-operation is as long-standing in Estonia as in most other European countries, having spread to Estonia in various ways.  German craftsmen, who tried to set up a consumers' co-operative in Tallinn and Tartu in 1865 and 1866, brought the idea from Germany.  At the end of the century, when co-operative trade became well-established in Russia, its influences also spread from there to Estonia.

Before 1917 the Tsarist Governments were afraid of any organized activities by Estonians, but farmers' co-operative societies were allowed.  The farmers' societies, already established in the 1870s, began the bulk purchasing of farming inputs and they also tried to organize the joint marketing of their produce.

The first co-operative shop run according to Rochdale principles began operation in summer 1902 in Antsla.  Over the following years numerous new consumers' co-operatives were formed and grew rapidly but, because of inadequate financial resources, lack ofadvice, competition from private trade and difficulties in acquiring goods, more than half of the co-operatives disappeared fairly quickly.

The February Revolution of 1917 overthrew the Tsarist power in Russia, and the Provisional Government passed the Co-operation Act on March 20.  By April 4th, the statutes of the central co-operative, ETK, had already been ratified and on May 7, 1917 the Estonian Consumers' Co-operative Association was founded.

There were 17 local co-ops as founders of the new association, and the numbers quickly multiplied.  World War I was being fought, in November the Bolsheviks seized power in Petrograd, the Revolutionary Military Committee did the same in Tallinn, and German forces threatened to occupy the whole of Estonia. These were the conditions in which ETK had to start working.

Estonian political forces decided to proclaim Estonia as an independent state in February 1918.  But the next day the German army arrived in Tallinn and the Estonian Provisional Government went underground.

A special law passed in 1925 made external auditing compulsory for co-operative societies, as was membership of an auditing legal society or union.  In 1926 agricultural co-operatives established their own auditing union (the Auditing Union of Agricultural Co-operatives).

The development of Estonian Co-operation so far had proceeded along two separate paths, for producers and consumers respectively.  Although they had much in common, producers' and consumers' co-operatives took widely differing stands on many important questions.

Finally the tension became too great, and agricultural co-operators accused the Estonian Co-operative Association of promoting consumer co-operation ideology according to Rochdale principles to the exclusion of all else, whilst refusing to acknowledge that Estonian co-operation is supported by farmers co-operatives based on the co-operative ideas of Schulze-Delitzche and Raiffeisen.

And so the co-operatives were divided into two camps.  They could not resolve their differences and both parts of the association wanted to walk their own path.

On the initiative of the Estonian Co-operative Association, and with the support of the Estonian Government, a Co-operative Chamber was started in 1936.

This was an apex organization for all types of co-operative, probably unique in Europe at that time.  Its operation was organized in five sections:

a)   banking
b)   insurance
c)   retail and wholesale
d)   industry
e)   resources.

Prior to the beginning of World War II the Estonian co-operative movement had become so successful that its achievements surpassed those of most other European countries of that time. Co-operation between co-operatives including business, training, auditing was well developed.

A short description of the different sectors inside the Co-operative Chamber is as follows:

Co-operative banking:

The first co-operative banking society in Estonian territory was a knights' co-operative mortgage society established in 1802. The first co-operative bank, the Tartu Loan and Savings Alliance, was founded by Estonians a hundred years later, in 1902, at the same time as the foundation of the first consumers' co-operatives.  The development of co-operative banking was very much the result of the development of the consumer co-operatives, and the number of co-operative banks and loan and savings banks amounted to 215 in the final year of Estonian independence, with membership in excess of 77,000.

In 1939 co-operative banking controlled 52 percent of all deposits and 51 percent of loans.  In 1940 co-operative banking was taken over by the occupying power, becoming part of the State-owned 'Estonian People's Bank'.

Co-operative insurance:

The first insurance co-operatives were founded by Baltic-Germans in the middle of the 19th century.  These were set up to insure against fire and money losses, later covering life assurance and property insurance.

At the end of independence there were 385 different insurance co-operatives with 68,450 members.  The central co-operatives were the Co-operative Insurance Central Society and the Central Alliance of Forward Insurance.  The insurance co-operatives controlled 49 percent of the property insurance and 32 percent of life assurance markets.  They were also disbanded by the Soviet system.

Agricultural co-operatives:

That was the most important field of co-operation, comprising nearly all the agricultural producers' and distribution co-operatives.  Dairy co-operatives formed the most important part of that group, because cattle gave Estonian farms the biggest income.  The first Scandinavian-type dairy co-operative was set up in 1908.  By 1939 there were 314 with 32,000 members, producing 98 percent of the country's butter and 17 percent of its cheese.

1921 can be considered as the beginning of co-operative meat marketing, when ACC 'Estonia' was granted permission to process meat.  According to a special law of 1937 the slaughter house co-operatives were broken up, being replaced by the 'Estonian Meat  Export'.  This met all the needs of the home market, it owned canning and sausage industries and 60 meat centres throughout Estonia.  In 1939 it had 2,100 individual members.

Other types of co-operatives with a virtual monopoly within the Estonian market before 1939 were the Egg, Potato, and Peat co-operatives and the 600 machinery-sharing co-operatives.

In 1938 there were 49 construction co-operatives with 1,000 members, which formed the Construction Co-operative Alliance.

Up to the end of independence there were only 15 electricity co-operatives, with a membership of 400.  This was the time during which electricity was just beginning to be taken to rural districts.

The  occupation of Estonia by the Germans & Soviets:

On June 17, 1940, the Soviet Union occupied Estonia.  One of new power's first steps was to do away with the co-operative press and most of the Estonian co-operative organizations. Only co-operative retail and wholesale trade was left. Banking, insurance and other types of co-operatives were nationalized.  The standard Soviet co-operative law and rules were imposed on the co-operatives, meaning that lower level organizations were answerable to higher ones.

At its first Congress on April 3, 1941, the new statutes of ETKVL (previously ETK) were adopted and a new board of directors and auditing committee, including Russians sent from Centrosoyuz in Moscow, were elected.

On June 22, 1941, the war began and a lot of goods from ETK warehouses were carried to Russia.  On August 28, 1941, Tallinn was occupied by German troops.

Under the German occupation the former statutes and board of directors were reestablished.  Other kinds of co-operation were allowed too, with the exception  of co-operative insurance.  The only co-operative central organization which obtained permission to re-establishment itself was the Central Union of Agricultural Co-operatives.

The Tallinn terror attack of the Soviet air force during the night of March 9-10, 1944, caused great losses to ETK. Its headquarters, many warehouses, a large amount of stock and also industrial enterprises were destroyed. 15 percent of ETK personnel lost their homes and property.

The Soviet system didn't like private agriculture, but Estonian farmer didn't want to join the collective farms, so there was a conflict.  The private farmers, however hard-working, and other property owners were called 'kulaks' and became the subject of extremely high taxation.  This having failed to force everyone into collective farms, 20,500 people were deported from Estonia in 1949.  Following this, the people frantically started to join collective farms and by May 1st about 89,000 farms had joined the collective farms, i.e. the majority of farms.

On November 1, 1950, Estonia became part of the totalitarian administrative-territorial system of the Soviet Union.

The depression of the economy started during the 60s, when management passed entirely into the hands of the State and the Party.

Consumers' co-operation had grown substantially by this stage, with a lot of new shops, cafes, restaurants, warehouses and housing being built, and industrial enterprises enlarged. Between then and the mid 80s the development of retail turnover was stable, financial difficulties were not felt and loans were not used.

At the beginning of 1985, M. Gorbachev became the Secretary General of the Party, and implemented his programmes of Perestroika and Glasnost.

Following a period of stagnation, Perestroika started a rapid decline within the economy.  Production decreased and inflation developed, the prices of goods increased.  The shelves of stores were emptied and it was soon necessary to introduce rationing in order to supply the population with urgently-needed foods and consumer goods.

Another interpretation is, of course, that Perestroika and Glasnost just revealed trends which already existed within the economy.

Estonia declared its independence in 1991 and ETKVL became independent from Centrosoyuz, readopting its old name of ETK later that year.

2.1.3 Membership relations in the existing co-operatives:

In today's consumer co-operatives all the co-operative principles are acknowledged.

In theory, democracy is working but the present leadership sees the lack of  member participation as a problem.  The long period when consumer co-operatives were really a part of the State and Party system is still influencing consumer co-operative legitimacy with regard to public opinion.

Very few members seem prepared to participate in the democratic activities, i.e. annual meetings,  etc.  Even though the law demands that at least half the membership participates at annual meetings in order to be able to elect the new board etc, this level of attendance is never reached.

Furthermore, as consumer co-operatives have a monopoly of rural retailing, it is difficult to judge whether the members' economic activity (the fact that they shop in the co-op) is a voluntary decision, or just because they have no alternative.

Members' economic relations to their local co-operative boils down to the fact that they will keep their village shop if enough of them use it.  There is no other benefit for the individual who is faithful to his co-op shop.  No incentives such as members' special offers, dividend on purchases or other kinds of bonus are available.

The Estonian consumer co-operative movement is the first to begin the division of power between elected and employed leadership.  Within the Communist model the elected chairman of the board, the President, is also the highest manager in the local society and on other levels.  That has, of course, given him immense power, often enabling him to choose not only the other staff, but also the rest of the elected board.

In Estonia the national union, ETK, has returned to a more 'Western' style of sharing power between employed management and elected leaders.  Since 1992 there has been an elected chairman of the board, and a CEO appointed to be in charge of the business operation.  The same model is to be introduced in the local societies.

In the existing housing co-operatives the membership relation seems to be problematic at the moment.  As they have not acted like independent co-ops, but rather as another form of public housing, ruled and maintained by the State or local authorities, tenants have no feeling of ownership or participation.  The Estonian Government intends to change this situation, and has already asked for help to develop the local housing co-operatives, which own more than 40,000 flats, into truly democratic housing co-operatives.

2.1.4 Secondary co-operatives:

ETK, the national union, is the secondary organization of the Estonian consumer co-operative movement.  It fulfils all the traditional functions that can be seen in most Western co-operatives, organizing wholesaling, warehouses and production.  The union is also involved in political lobbying and has several times managed to influence the Government and Parliament in favour of co-operatives during critical periods.

Today, the industry sector owned by ETK is the biggest in the country.  In 1992 its turnover was 180 million crowns (15 million US$).  It also has the only operational infrastructure for wholesaling and warehousing.

While all other retail business buy in small quantities directly from the producer, very often with some kind of spin-off rewarding the individuals involved on both sides, ETK still tries to buy in bulk for delivery to the local societies.  This is becoming increasingly difficult as most of the producers, including the State factories, prefer to make many small deals (with many small private spin-offs) and refuse to give discounts on larger quantities.

Sometimes ETK is not permitted to buy anything other than small amounts of goods.  This has a negative effect on the co-op warehouses which, naturally, are geared up for joint purchasing.  When the local societies notice that the only difference between buying from the co-operative warehouses and purchasing their goods elsewhere is that the former is more expensive, they naturally make their purchases directly from the factories.

In this way, the system of joint buying is slowly breaking down and the consumer co-operative secondary organizations in Estonia, as well as in many other East and Central European countries, are weakening rapidly.

As mentioned above, the housing co-operatives have no secondary organization as yet.  All maintenance, accounting, staffing etc. were handled by the State, as a part of the planned economy and the situation is changing only gradually.

The other types of new co-operative, i.e. the 3,500 small worker-owned co-operatives established since 1988, have no secondary organization.

2.1.5 Evaluation of the existing co-operative system:

In addition to the economic difficulties outlined above, there are several problems of democracy.  The Estonian consumer co-operative movement is now in a severe and critical stage of its development.  A summary of the problems and opportunities will be rather similar in each of the three Baltic countries. An evaluation of the Estonian consumer co-operative system might be as follows:

a)   Membership participation is generally very low.  As mentioned above, the local co-operatives don't manage to fulfil the legal requirement that at least half of their members should be present at the annual meetings.

Another negative effect of this is that there is little support for the co-operatives when they come under attack from the authorities.  Members don't, for example, write letters to the editors of newspapers or politicians, and they don't protest outside Parliament when laws or regulations which are not favourable to co-operatives are being discussed.

On the other hand, there are a few examples of local consumer co-operatives with an active membership.  In some cases support for the co-op seems to be very strong. This is probably the result of good management which, in individual cases, managed to keep the co-op rather independent of State even during the Communist years. I have even seen examples of co-operative leaders who refused to follow the party dictate and that were under continuous attack from the local Party Secretary for years, but survived thanks to active and caring members who refused to remove them to satisfy the local Communist Party Secretary.

In those cases, as will be the case in the future, the consumer co-operatives had the advantage of remaining Estonian.  The Russians who immigrated to Estonia were not active within the co-operatives, so they were always controlled by Estonians.  This is something for which the ETK and its co-operative societies are now given credit (by the Estonian part of the population).

On the other hand, the downside of this is that there are hardly any members and no consumer co-operative activity in the Russian parts of Estonia.  In the region of Narva, one of the biggest cities, with a population more than 75% of which is Russian-speaking, there are no co-operative shops. And the present management of ETK doesn't intend to expand in such areas within the immediate future.  So that market is obviously destined for someone else.

b)   There is an urgent need for know-how.  Within the existing management and boards of directors there is a general lack of knowledge regarding how to run a co-operative business operation within a market economy.

There seems to be rapid progress in solving this problem.

More than half of the 28 societies have elected new, usually young, presidents.  Many of them seem to have a more Western approach to their jobs, understanding the market economy and what that will imply for future co-operative operations.

c)   The lack of a democratic tradition is, of course, evident in all Eastern and Central European countries.  But in Estonia things are beginning to change - even if some local presidents are still elected as both chairman of the board of directors, and the pattern now seems to be changing to become more like that in the Western world, with a division of power between elected officials and hired management.

This has already taken place at the national level, which has both an elected chairman on the board of ETK and a newly-appointed CEO in charge of the daily business operation.

d)   There is also a lack of modern infrastructure. Investment is needed in almost every area: transport, storage, shops, heating and refrigeration etc.  Many of the shops are extremely small, with areas of between 50 and 100 square metres.

The housing co-ops have a history of total dependence on the State.  Now, however, the Estonian Government is showing a great deal of interest in changing State housing into housing co-operatives.  And the State is demonstrating strong moral support for the 40,000 members of local housing co-ops, even though it cannot provide any money for investment.

The problem will, of course, be to make members aware that they are the owners, rather than the tenants of their homes. This should be easier in Estonia than in many other ex-Communist countries, because the co-ops are generally much smaller and it naturally follows that the influence of individual members is greater.

The newer co-operatives may be divided into two kinds:

The first one consists of the new co-operatives that were established following the introduction of the 1988 co-operative law, which was part of the Soviet Perestroika. Many such organizations sprung up immediately, as these co-operatives were the only kind of private ownership that was permitted, obviously meeting a long-standing need within the Soviet Union.

Entrepreneurs that in other countries would have started some kind of joint-stock or limited liability company or other kind of capital association were forced to use the co-operative form.  But the co-operative law of 1988, intended for smaller business, normally in the service sector e.g. restaurants, shops etc, was used for all types of business.  It was not unusual for a 'co-operative' with 5 'members' to have 50 employees.  In some cases, the owners could stop working in their own co-operative and live on the dividend of their capital.  In Estonia, that sector consisted of more than 3,500 co-operatives at the end of 1991.

The reaction among the Estonian population was very negative. As many of these new 'co-operators' earned a lot of money, and some of them didn't mind showing it by spending a lot on cars, restaurants etc, they soon got a bad reputation.

Many of the new co-operatives, especially high profile ones like restaurants, increased their prices several times, resulting in the situation that people earning an ordinary Soviet salary could not afford to use them.  Furthermore, several of them decided to accept only hard currency, which led to resentment among those who only had access to roubles. This has led to an even greater dislike of the word `co-operative' in ex-Soviet countries.

The second type consists of the more traditional co-operatives.  Among the existing consumer co-operatives there are small attempts to recommence co-operative insurance, banking and credit union activities.  There have also been concrete discussions about a co-operative bank or a credit union system emerging from ETK.  Nothing has been settled as yet, due, among other things, to the lack of legislation in this field.

The potential of successful co-operative development in these sectors is, of course, enormous, as can be seen from co-operative banking in Poland, the Czech Republic and Slovakia, and from housing co-operatives in Poland.

Agricultural co-operatives already seem to have a prosperous future in Estonia.  New co-operatives, for example dairies, are springing up all over the country.  Now that the kolchoses have been dismantled, the farmers are setting up new companies, often with the help of agricultural co-operatives from the neighbouring Nordic countries.  The Finns especially are very active in Estonia.  Finns and Estonians can even speak to one another if they talk slowly.  Even if, in many cases, they don't yet want to call their new companies co-operative, most of them are.  So the agricultural co-operative sector will probably go on growing quickly.
 

2.2  The co-operative reform process

2.2.1 General:

On August 20, 1991, the Supreme Council of the Estonian Republic proclaimed an independent Estonian Republic.  On October 16 of the same year, ETC (ETKVL)'s membership within the International Co-operative Alliance (ICA) was reestablished and ETK renounced its membership of Centrosoyuz.

On December 19, 1991 an emergency Congress (XIII) was held. It decided to re-establish the central co-operative statutes from the time of the Estonian Republic, to stop holding Congresses henceforth and to call together a general meeting of co-operative representatives on April 23, 1992.  The 75 member council and presidium of ETKVL were dismissed, and a provisional 29 member council of co-operative representatives with equal powers was confirmed.

During the period leading up to the general meeting, consumers' co-operatives held meetings of their members, and statutes similar to those of statehood times were accepted. Managerial and control organs were introduced, the representatives of general meetings were elected (three per organization, and one additional representative for every 3,000 members in excess of 5,000).

On April 23, 1992, a general meeting of the 126 representatives of consumers' co-operatives confirmed the new statutes, proposals of which had previously been circulated to the co-operatives.  According to those statutes, the highest managerial organ of ETK is the annual general meeting (AGM) of the representatives of member co-operatives.  A board, consisting of 11 members, replaces the council, and directs ETK's action during the period between AGMs.  The managing director, appointed by a new board, acts as an executive organ in place of the old board.

On May 7, 1992, ETK celebrated its 75th anniversary.

The reform process is now going on internally as old leaders are replaced by new inside the local consumer co-operatives.

2.2.2 Government co-operative policies:

Estonia has introduced a privatization process similar to that of the former GDR.  Contacts have been established with Treunandanstalt in Germany and help given to create similar authorities in Estonia.  With the aid of foreign expertise nationalized companies in Estonia will be restructured so as to make them suitable for privatization.  Both domestic and foreign companies will be able to make bids for the nationalized companies.  Estonia chooses to sell to anyone who wishes to buy, since Estonians themselves have only 10% of the capital required for privatization.

Since September 1992,  approximately 2,000 companies have been sold off.  These companies are small and medium-sized, with turnovers not exceeding 600,000 Estonian Crowns.  The State will retain control of about 300 companies in Estonia's important energy sector.  Nor is it willing to sell off monopoly enterprises.  There were also moves within the Government and Parliament to sell off co-operatively-owned production units, but thanks to active intervention from ETK with the help of the ICA, the Swedish Co-operative Union (KF) and the Finnish co-operatives, this was prevented.

Land and other property have been handed back to their original owners or to their heirs.  This process is known as reprivatization or restitution.  A final date was set for the previous owners to make claim to their property.

Some problems can be foreseen, primarily for agricultural co-operation.  The whole of the old structure is now being broken up and new owners are taking over the land.  In many cases, these people have never had anything to do with farming.  So, besides the co-operative concerns, there could also be a problem with efficiency.  This type of privatization also has consequences for consumer co-operatives.

Even if there are a few advantages, reprivatization has one very unjust consequence for co-operatives.  In no case has a co-operative been given the right to take back the city shops confiscated by the State during the 40s and 50s.  These are often large properties in central locations.  The properties, which co-operative pioneers worked hard to acquire and to develop, now seem to be lost forever: which is bound to be serious in the long term.

Government policy in force at the rime of writing (Spring 93) seems to be more understanding of the co-operatives' needs. The new law gives them a framework similar to that in Western countries.

But, as in most of the countries of Eastern and Central Europe, the property taken away from the co-operatives between 1944 and 1950 has not been given back to them although property that was given to the co-operatives but previously belonged to individuals has been reprivatized.

2.2.3 Co-operative legislation:

A new co-operative law was adopted by the Estonian Parliament.

This law gives the co-operatives full independence and replaces the law of 1988, which had been approved by the Supreme Soviet of the USSR and came into force on July 1st of that year, taking international examples of formal democratic structure as its model.  During the same year, new statutes were accepted by Estonian consumers' co-operatives to conform with the law.  In ETKVL this happened at the 12th Congress in January 1989.  The central co-operative once again became an organization directed by consumers' co-operatives and lost its position as an organization of higher standing.

In  1992 the Government proposed a co-operative law that would have turned co-operative assets, especially factories, into State property and auctioned off.  As previously stated, that proposal was rejected with a small majority, and since December 1992 there has been a co-operative law similar to those of many Western countries.

2.2.4 Changes in the co-operative movement and their impact on its structure:

Before 1988 all co-operatives in the Soviet Union were a part of the planned system.  They had to abide by the decisions made by the State, and also approve the leaders proposed by the Communist party.  Allegiance of the co-operatives to the Communist party was even written into the standard rules of Centrosoyus.

After 1988, when the new Soviet co-operative law gave the co-operatives formal independence from the State and all political parties, things started to change.  The law was primarily intended to promote the establishment of new service sector co-operatives , but it also applied to the existing consumer co-ops.

Following independence in 1991, the 1988 Soviet co-operative law was still valid, in contrast to the situation in Lithuania, where all Soviet laws were declared invalid and the co-operatives had to operate in the absence of legislation.

The consumer co-operatives are undergoing a spontaneous internal transformation.  The main change is to the leadership of many societies and some central positions.  There have also been cuts in staffing levels, especially within the unions' planning departments, which in practice acted like an ministry to interpret and implement the decisions made by the State in its various five-year plans.

Another result of the present 'wild-west' economy is that the consumer co-operatives' secondary structures are now weakening to such an extent that they risk breaking up and disappearing. The fact that there is no advantage in wholesale and joint buying, because a large number of producers prefer to sell small quantities to many people in return for many small backhanders, could deeply influence the co-operative structure.  If this dishonesty is not prevented by the authorities, the co-operative wholesale system could easily disappear.

On the housing co-operative side there is now an increasing interest in working together with other local housing co-operatives in the same area or town.  As the State had not previously permitted any secondary housing co-operative unions, such attempts are small-scale and partly the result of pressure from the present Government, which wishes to rid itself of the heavy burden of housing.

Spontaneous change is probably most evident within the agricultural sector.  The inexperience of the families now taking over farms formerly belonging to kolchoses and sovchoses means that they have to learn quickly about how to sell their products and make cheap joint purchases of what they need.  Starting new agricultural co-operatives with the help of Western agricultural co-operatives, is one of the most frequent solutions.

There is also a development among the 'New co-operatives', which are now transforming themselves into other forms, e.g. joint-stock or limited companies.  And many of them are going bankrupt due to increasing levels of competition.
 

2.3 Future options for Estonian co-operatives

2.3.1 The major trends of change:

There will still be a consumer co-operative sector in the future.  It has a long tradition and is well developed in the countryside.  Of course, several factors could lead to consumer co-operatives' becoming smaller and even disappearing in some cases.  The following are some factors which influence co-operatives today and which will do so increasingly in the future.

a)   The real free market, with its private competition, is still in its infancy in Estonia.  As yet, there have been few attempts to start or take over private shops in the co-operatives' main areas of operation.  Although there is rapid development of private shops and department stores in Tallinn, in rural areas private retail outlets are still kiosk-like with a very limited range of goods.

One reason for the development of private retailing being quicker in Tallinn than in other parts of the Baltic countries is the high levels of tourism.  Tallinn is only a four-hour boat-ride (2 by hydrofoil) from Helsinki, and nine hours from Stockholm.  The main attraction for tourists from Finland and Sweden is the shopping, as they find prices are very cheap.

When the competition grows, especially in a few years' time when the currency is convertible and foreign retail chains will be interested in investing in the country, the co-operatives, with inferior capital and expertise, will find the competition very difficult.

b)   Concentration in rural areas is bound to pose a problem for the consumer co-ops in Estonia.  The fact that the Communists took all the property that consumer co-operatives owned in the bigger villages and towns has created this problem.  If the trend in Estonia follows that of other industrialized countries, it will be in the towns that the big buying power is to grow.  Running thousands of small shops in the countryside is not exactly a prospering business idea for the future.  The big retail development will be elsewhere.

c)   Sheer numbers of shops and staff, with their associated overheads, could quickly sink the co-operatives.  So far, there has been little progress in closing unprofitable shops, because the local opposition is very strong and financial planning measures are still not very developed.

d)   Member relations could be much better.  During Communist rule the advantages of being democratically active in your co-operative were few, and the co-operative movement has yet to overcome the negative attitudes which have resulted from this.

e)   When, after 45 years, the local societies finally got the right to decide for themselves, their first reaction was to stop taking notice of their central union.  So the desire for each society to make all its own decisions (and mistakes) is very strong.  The increasing weakness of ETK is also underlined by the fact that its financial foundation is rapidly disappearing, since there is no advantage in wholesale purchases within the sick economy of Estonia.

The present leadership of ETK is very well aware of this problem, and also knows that there are a lot of other problems.  But today there are few measures besides information, education and auditing which it can take to maintain the principle of co-operation between co-operatives.

Within the housing co-operatives there are many possible developments.  One is that all the local housing co-ops might decide to act individually.  This would mean that many costs would be multiplied rather than rationalized, e.g. for maintenance, accounting, insurance etc.  The 40,000 co-operative flats in Estonia need some kind of union or federation to fulfil various functions, including guarding their rights with regard to the authorities.  And they will probably not consider themselves to be a part of the co-operative world if they remain just local co-ops.

The 3,500 `new co-operatives' which sprang up as a result of the 1988 Soviet co-operative law are likely to disappear. Even if they do not change into other forms of capital association or go bankrupt, it is highly unlikely that they will become an active part of the co-operative sector.  The founders are entrepreneurs who, in almost all cases, were forced into accepting a 'co-operative' structure because this was the only way in which they could run a private business.

There are difficult times ahead for the agricultural co-operatives.  Not only because of the bad reputation which co-operatives have in the country, but also due to the fact that most farmers are beginners, having become farmers only because they happened to be the heirs of people who owned farms in 1945, and the family farms are generally very small in relation to modern European farms.  This has happened as a consequence of the rules for giving back the land.  So they need a massive amount of support.  A probable development is that many of the smaller farms will disappear or merge within the near future.

2.3.2 The need for international assistance:

The needs are almost impossible to satisfy.  They can be divided into three main areas:

a)   The need for knowledge.  There is an immense need for knowledge in almost every sector: trading in a market economy (starting, in many cases, by answering the question  `what is a market economy?'), marketing, logistics, management, accounting, budgeting, budget analysis, auditing, management training, etc.  The preceding list is by no means exhaustive!

So, despite the ongoing efforts within Estonian consumer co-ops for the transfer of know-how from KF in Sweden, EKA in Finland, FDB in Denmark and others, there is still a lot to be done.

The housing co-operatives share some of these needs. They also lack knowledge regarding modern maintenance, motivation of their members, how to build up savings schemes, environmental measures etc.

The farmers are currently rather well provided for in terms of training programmes, as both the European Community's PHARE programme and the World Bank have put that sector at the top of their lists.  The main problem for agricultural co-operatives seems to be to convince those providing the money that market and supply co-operatives should be supported.

b)   The need for new infrastructure is, of course, a problem that has to be solved inside the country.  The large amount of investment required in transport, warehousing and shops for consumer co-operatives and in energy-saving, heating and sewage systems etc. for co-operative housing, is something that cannot be totally financed through international assistance.

On the other hand, infrastructure investments from international institutions, like the European Bank for Development and Reconstruction of Eastern and Central Europe (EBRD), must be equal for all sectors of the economy.  Today it seems that all such investment is being poured into the public and traditionally private sector.  This could, in some cases, mean that such support gives the co-operatives' competitors an unfair market advantage.

Thus, international co-operative assistance to co-operatives in Estonia and elsewhere in Eastern and Central Europe must help to influence the Governments and international institutions such as EBRD, the World Bank and the European Community to give a fair share of any aid to the co-operative sector.

c)   The third area in which help is needed is that of public relations.  As the consumer and housing co-operatives were included in the State system by the Communists, they frequently have problems in gaining the confidence of their members, who had in some cases been forced to join, and other potential customers.

Here, international assistance could be geared towards showing that there are co-operatives in most free market economies and that such organizations are democratic.  The co-operatives in the West could also help to reestablish democratic activity and membership participation throughout all levels of the co-operative movements.

Management training, the development of internal audit systems, membership information and economic benefits are all areas that need to be, and could be, developed, often with the help of Western co-operatives.

But it should be stressed once again that the main job of winning back lost confidence must be carried out by the Estonian co-operatives themselves.  Only by continuing with the far-reaching changes that have already started can the existing co-operatives survive as member organizations.