Main Characteristics of the Present Co-operative Structure

    ----------------------------------------------------------
    This document has been made available in electronic format
         by the International Co-operative Alliance ICA 
    ----------------------------------------------------------
                         August 1992


             ***************************************   
               Main Characteristics of the Present
                     Co-operative Structure
             ***************************************


source : Janos Juhasz, Co-operatives in Eastern & Central
Europe, ICA Studies and Reports, Geneva, 1992, 62 pp. price 12
CHF



1.1  Types of co-operatives and their significance in
     quantitative terms
******************************************************

Hungarian co-operatives can be grouped into the following
categories: agricultural, industrial, consumer, savings, and
housing co-operatives. The most important quantitative
information about their structure is given below:

     The Co-operative Movement in Hungary (31.12.1990)
--------------------------------------------------------

Co-op type     Number    Number of  Number of     
Significance
                         members    employees      in economy
----------------------------------------------------------------

Gen.consumer &    273    1,300,000   100,000      33% of
retail
marktng co-ops                                    trade and
(AFESZ)                                           catering

Hangya co-ops     116       20,000       500      HUF* 50 mil.
turnover in 2nd
                                                  half of 1990

Agricultural    1,335      316,900**  153,700     60% of total
co-ops                                            agricultural
                                                  output
(of which:
-Farming co-ops 1,268
-Specialized   
 agrico-ops        67)    

Fishery co-ops     16        1,700         50          -

Agricultural    1,780      200,000          -     HUF 6
billion
associations                                      total sales 

Indusl. co-ops  3,450      180,000    110,000     8% of total
                                                  industrial
                                                  output 

Savings co-ops    260    2,000,000     10,000     17% of total
                                                  deposits

Housing co-ops  1,421      410,000      4,500     provide
housing
                                                  for 1 mil.
                                                  people

Source: Tajekoztato a magyar szovetkezeti mozgalom
helyzeterol, OSZT, Budapest 1991

*  1 US Dollar = 75.5 HUF;
** Members of active age.

Farming Co-operatives:

Farming co-operatives in Hungary belong to the agricultural
workers production category of co-operative. In the 1960s and
70s, members were obliged by law to turn over their land to
the co-operatives for joint cultivation. However, they
retained the ownership of the land, at least in legal terms.
Initially, other means of production were also contributed by
the members against symbolic compensation. Nowadays, farming
co-operatives own and use a high-value stock of assets
accumulated from their production activity over the course of
many years.

Although the original function of the farming co-operatives
was to create a uniform structure of large-scale common
farming, members' individual small-scale activities have
always been present. From the very beginning members were
allowed to keep a small plot of land for family cultivation.
The size of this plot was limited to about half a hectare.
Similarly, the livestock reared by individuals was also
strictly limited in the early years of collectivization.
Together, these constituted the so-called `household plot' of
farming co-operative members. The institution of household
plots was meant to be a temporary gesture to facilitate the
transition to an entirely collective way of farming. However,
the household plots survived, and currently receive political
support as an important form of small-scale farming.

Correspondingly, the ideal type of farming co-operative has
also adopted new features which differ from those of the
original model. Instead of exclusively large-scale farming
they have come to be considered as production organizations
combining both large- and small-scale activities. The model of
farming co-operatives has therefore been composed of two
parts: namely, the joint or common farm and a great number of
household plots or, to use the better term, household farms.

Both are commodity-producing organizations, and it is the duty
of the common farm to "integrate" the activities of the
small-scale family-based household farms. Assistance in terms
of use of machinery (e.g. ploughing, spraying, etc.),
transport, provision of inputs, extension, marketing, etc. has
been provided to small-scale farmers in many farming
co-operatives. Collaboration between the common and household
farms has taken various forms. The general concept prevailed
that a particular type of "symbiosis" should and oould develop
between them. This symbiosis was the basic$characteristic of
what used to be called the "Hungarian model" of agrarian
structure.

The farming co-operatives have grown to become rather large
enterprises in all respects. Today the land area cultivated by
the average farming co-operative amounts to some 4000
hectares. The number of those who have a full time job in the
co-operative is 377, of whom 282 do manual work. Not all of
them are members of the co-operative, however, 263 are
co-operative members and 114 are employees. Clearly, farming
co-operatives utilize a significant amount of hired labour. On
the other hand, they have a considerable number of retired
members who retain their full membership but no longer
participate in the joint work. Their relationship to the
co-operative in the field of farming is limited to the
household farm, which remains theirs after retirement. This
link, however, may be quite important from the points of view
of both the co-operative and its member. The average farming
co-operative has a total membership of 551 people, of whom as
many as 288 are pensioners and annuitants, and put in 78
thousand ten-hour working days in 1989, i.e. 227 working days
per capita.

In the same year, an average farming co-operative reared the
following livestock: 794 cattle (298 cows), 1,936 pigs (147
sows), 934 sheep and 5,055 poultry. Its machinery included 32
tractors, 19 lorries and 7 combine harvesters with a total
hauling power of 5,301 kW. The total gross value of its fixed
assets amounted to HUF 230 million, and it had a gross
production value of HUF 239 million. In this sector, losses
have been more frequent than profits in recent years. In 1989,
the per-co-operative profit came to HUF 17 million, while the
respective figure for losses reached HUF 22 million.
Specialized Agricultural Co-operatives:

Specialized agricultural co-operatives are different from both
the promotion and the production co-operatives, representing a
kind of intermediate type between these. They are considered
specialized for two reasons. On the one hand, they focus on
some special crop, most often grapes. On the other hand, their
membership relations are also special. These co-operatives
have maintained not only private ownership but also the family
cultivation of the land. Only a small part of the members'
land is pooled to create large-scale joint plantations.
Primary production is carried out individually by the members
and the main function of the co-operative is  joint processing
and marketing of its members' produce. Accordingly, members
are not obliged to participate in the cultivation of the
common plots, though specialized agricultural co-operatives
were also intended to create a gradually-increasing joint
farm. Indeed, the long-term economic political objective
concerning specialized agricultural co-operatives was to
transform them into farming co-operatives.

However, the model of specialized agricultural co-operatives
has survived and at present it has the following main
quantitative characteristics: the specialized agricultural
co-operatives are much smaller enterprises than the farming
co-operatives. The average co-operative has about 1,100
hectares, and 582 members. It has 207 full time employees,
some of whom are also members. The number of manual workers is
167, and the total man-hours performed in 1989 amounted to
460,000, i.e. 221 working days per capita. Since specialized
agricultural co-operatives are mainly involved in crop
production their animal husbandry is of less significance. In
1988, the average was 129 cattle (44 cows), 99 pigs (7 sows),
1,566 sheep and 1,810 poultry. As to their machinery, the
average was 13 tractors, 12 lorries and 3 combine harvesters
in 1989. Together these represented 2,196 kW hauling power.
All these figures refer, of course, to the common farm of the
specialized agricultural co-operatives.


Agricultural Associations:

The third important co-operative model existing in Hungarian
agriculture is that of the agricultural associations. Although
they are not independent legal entities, these represent an
autonomous model of agricultural co-operatives. Agricultural
associations came into being as a special activity of consumer
co-operatives aiming to promote the agricultural production of
part-time producers. They have been organized mainly according
to the commodities with which they deal. Most of them deal
with a specialized area of animal husbandry. Many are involved
in pig breeding, but there are a lot of poultry breeding and
crop producing associations, too. Among the latter, the fruit
and vegetable producing ones are of significance on the
national level. It is a very specific feature of the
agricultural associations that the production of small animals
such as pigeons or rabbits, of which remarkable quantities go
to export markets, is done almost exclusively in their
framework. The basic data for the agricultural associations is
given in the table below: 


          Agricultural associations operating in the
          framework of consumer co-operatives (1987)
          -------------------------------------------

                    Number of      Number of Value of joint 
                    associations   members   sales, mi.HUF
                                             Animal husbandry

Pig breeding             234       45,274       2,381

Rabbit farming           722       29,784         613 

Poultry and
egg production            65        2,129         634 

Goose fattening           28        2,446         630

Pigeon breeding           52        1,469          11

Rearing of other
small animals             64        3,847         187 

Bee keeping              438       17,750         610
                    -----------------------------------
Sub-total              1,603      102,699       5,066

Horticulture 
Wine, fruit and          180       22,340         263

vegetable production     
Other                    472       47,583       1,131  
                    -----------------------------------
Sub-total                652       69,923       1,394
                    -----------------------------------

TOTAL                  2,255      172,622       6,460
                    ===================================


The agricultural associations aim to assist the production of
their members. In addition to purchasing members' products
they provide production materials, seeds, pesticides,
fertilizers, etc. They have no common land area, but do have
joint property in the form of machinery, equipment and
buildings. Various services, mainly the use of machinery, are
provided to the members at favourable rates. 

It is very important to note that the agricultural
associations have extended their activities. Associations
belonging to consumer cooperatives no longer limit their
membership to those who are full-time farmers. Members may,
and do, join them in the capacity of household farmers, i.e.
with part-time farms. Agricultural associations have been
established by farming co-operatives, specialized agricultural
cooperatives and, indeed, by state farms, too. The membership
of the associations is not restricted to the members or
employees of the mother organizations. As a result,
agricultural associations nowadays operate within the
framework of all large-scale farms and consumer co-operatives
and have mixed membership. It is also worth mentioning that a
large part of the agricultural associations' production would
appear in official statistics as large-scale operations. The
reason, beyond the technical difficulties of keeping accurate
records, is the fact that large-scale enterprises look upon
agricultural associations as special forms of work
organization.


Industrial Co-operatives:

Industrial co-operatives are workers' co-operatives and, as
such, their characteristics are similar to those of the
agricultural production co-operatives. They carry out joint
production in common workshops, are involved in all types of
industry and work in a wide range of activities. However, they
are predominant in light industry, in the various fields of
the engineering industry and in industrial services. An
important and rapid transformation process has been going on
in the industrial co-operative sector. In the course of the
1980s more and more "traditional" industrial co-operatives
have converted themselves into so-called "small
co-operatives". While output and the numbers employed in the
sector have not changed significantly, the number of small
co-operatives grew from nil to over 3000*. More detailed data
are given in the table below:

     (*   Due to the change in the system of statistical
observation, no precise data are available after 1988.)


               Industrial co-operatives (1988)
             -----------------------------------  

                         Traditional         Small     Total
No.of Co-operatives      co-ops              co-ops

Industrial                    258            1,224     1,482
of which:
Mining                         -                 1         1
Metallurgy                      2                5         7   
      
Engineering                    66              655       714
Chemical industry               9               93       102
Light industry                161              362       523
Food production                -                11        11

Construction industry          45              989     1,034
of which:
Architectural design           -                85        85 
Transport                       2               64        66
Trade                           8               98       106
Water management               -                 1         1 
Services                       30              427       457   
                
-------------------------------------------------------------
TOTAL                         343            2,888     3,146
-------------------------------------------------------------

Active members and            124.2            158.6     282.9 
employees (thousands)

Total output                   55.9             95.9     151.8 
(HUF billion)  

(Source: Az ipari szovetkezetek gazdasagi fejlodese nek fobb
adatai, OKISZ,Budapest, 1988)


The traditional industrial co-operatives tend to be
large-scale operations, although they were intended to be
small- and medium-scale enterprises within the
centrally-planned economy. The typical traditional industrial
co-operative employs some 350 people, which includes both the
active members and the employees of the co-operative. Of them,
300 are blue-collar and 50 white-collar workers. Its annual
production comes to HUF163 million. The typical small
industrial co-operative has 60 active members and employees,
of whom 50 are blue-collar and 10 white-collar workers. Its
total output is some HUF 34 million. 

Consumer and Marketing Co-operatives:

The general consumer and marketing co-operatives (AFESZ) aim
to provide retail and catering services to their members. In
addition, they purchase agricultural produce from small-scale,
mainly part-time, producers and organize and promote
agricultural associations. Most of the general consumer and
marketing co-operatives run various production and service
plants and workshops involved in industrial, food processing
and repair activities.


     General consumer and marketing co-operatives (1989)
     ---------------------------------------------------


Number of co-operatives                           273.0 
Number of members (thousands)                   1,546.0 
Number of full-time employees (thousands)         100.6 
Share capital (HUF million)                       921.0  
Number of retail shops                         14,781.0  
Number of catering units                        6,655.0  

Sales  (HUF billion)          
Retail trade                                      192.7
of which: Catering                                 21.6
Wholesale trade                                    14.7
Purchase of agricultural produce                    9.3
Industrial production and construction              9.6
Other activities                                    2.9
                                             -----------
TOTAL                                             229.2 
                                             ===========

A typical general consumer and marketing co-operative covers a
geographical area of 10 villages and has 78 outlets, of which
54 are shops and 24 are catering units. In addition, it has 2
or 3 department stores, which generally operate in the same
locality as the co-operative's head office. In the field of
non-commercial activities, a typical consumer co-operative
runs a fruit or vegetable processing plant (e.g. a canning
plant producing traditional, local products with low-tech
methods) and a small industrial or repair workshop. 

In international terms the typical Hungarian consumer
co-operative may be considered to be medium sized. It has
about 6 thousand members and employs some 360 people. These
figures are much greater than those for similar co-operatives
in Denmark or Finland, but are far below those in Switzerland
or Great Britain. As to its business activity, the "average"
consumer co-operative has an annual total turnover of HUF 800
million, of which its surplus comes to HUF 17 million. It has
assets of some HUF 127 million, including HUF 3 million share
capital. The co-operative purchases 1200 tons of various
agricultural produce, mainly potatoes, fruit and vegetables,
and the value of its industrial products is about HUF 25
million. 


Savings Co-operatives:

The savings co-operatives are financial institutions that aim
to provide the widest possible variety of financial services
to their members. They operate mostly in villages and country
towns, but there are savings co-operatives in urban areas as
well. Since 1991, the minimum capital requirement for the
establishment of a savings co-operative has been HUF 50
million. This may be reduced to HUF 25 million if the
co-operatives join a mutual insurance fund. 

                    Savings co-operatives
                    *********************

Co-operatives                                     260.0  
Members (thousands)                             2,000.0 
Employees (thousands)                              10.0  
Share capital (million HUF)                     1,456.0  
Deposits (million HUF)                         53,226.0 
Loans (million HUF)                            34,225.0  
Share (in total resources)of banking sector,%       5.0  
Market share (in terms of total deposits of 
the population),%                                  17.4
Number of branch offices                        1,800.0
of which: in rural settlements                  1,500.0 
     in urban settlements                         300.0 


In Hungarian savings co-operatives, open and voluntary
membership prevails. No common bond is observed: any Hungarian 
citizen may join any savings co-operative. Full membership is
gained by the purchase of one co-operative share of HUF 500.
In the co-operative, the one member - one vote principle
prevails and all forms of democratic self-government may be
seen. As a special provision of the savings co-operativu
legislation two thirds of the board of directors should be
elected from co-operative members not employed by the
co-operative. The operation of the savings co-operatives
includes active and passive banking transactions,
non-financial services and other activities made on
commission. As of 1990, savings co-operatives are entitled to
do business not only with individuals but also with legal
entities. This is quite in line with the objective of savings
co-operatives to become the predominant banking structure in
rural areas. Some of their main activities are listed below:

-    collection of deposits (it should be noted at this point
that savings deposited with savings co-operatives are
protected by state guarantee).

-    provision of credit and loans to individuals (this also
includes small-businesses).

-    provision of credit to legal entities

-    issue of, and trade in, securities (the first needs
special authorization on a case-by-case basis and the latter
includes the handling, deposit and negotiation of securities,
e.g. bonds etc.)

-    investment activities

-    issue of cheques and credit cards (this is, as yet, a
theoretical possibility rather than reality)

-    various financial services provided on commission (e.g.
purchase and sale of foreign currencies; marketing of
insurance products; sale of lottery and soccer pools coupons,
etc.). 

The typical savings co-operative has 7700 members, and 5 or 6
branch offices. Its total assets amount to HUF 260 million and
its capital is some HUF 16 million including share capital and
accumulated capital. The average savings co-operative collects
HUF 210 million deposits from individuals and has some HUF 30
million additional resources such as deposits from legal
entities, surplus, etc. Fixed assets, including real estate,
come to about HUF 8-9 million. A typical savings co-operative
provides HUF 95 million in loans to its members and another
HUF 15 million to legal entities. 


School Co-operatives:

There are some 900 school co-operatives in the country. These
are not independent legal entities but function within the
organizational framework of either the general consumer and
marketing co-operatives or the savings co-operatives, which
also provide professional assistance and guidance for their
operation. School co-operatives are involved in retail trade,
the provision of textbooks and other training aids,
agricultural production (mainly small animal husbandry and
flower growing) and the service industry. 


Housing Co-operatives:

The housing co-operative sector comprises several co-operative
models, the most significant of which is the "home maintenance
co-operative" that takes care of the privately-owned homes of
its members. The minimum number of apartments is 12 in a home
maintenance co-operative. Mention should be made of the car
garage co-operatives (their number is 211), recreation
co-operatives (23) and "workshop co-operatives" (11), which
all belong to the housing co-operative sector. Their operating
principles are similar to those of the home maintenance
co-operatives.

Production, Consumer and Marketing Co-operatives:

Finally, the Hangya (Ant) production, consumer and marketing
co-operatives aim to assist small farmers and the owners of
small businesses by supplying inputs and consumer goods. The
Hangya co-operatives run retail outlets, primarily in
villages. Since it is a movement in the process of
re-establishment, its market share is not very large. However,
the number of newly established or re-established Hangya
co-operatives is increasing rapidly. 


1.2  Brief historical background
******************************** 

The co-operative movement has a long and rich history in
Hungary. The first co-operative initiatives were made as early
as the first half of the nineteenth century and the original
co-operatives were formally established in the 1850s, i.e. at
the same time as in other European countries. The very first
co-operatives provided either financial services (credit
co-operatives) or consumer goods (consumer co-operatives) to
their members. The first co-operative legislation was passed
in 1875, as part of the Commercial Law. By the turn of the
century, a significant co-operative development occurred in
terms of both numbers and membership. The trend continued
throughout the first years of the 20th century: by 1915 there
were more than 6000 co-operatives in the country. Of them,
1800 were consumer co-operatives and 1853 credit
co-operatives. The entire co-operative structure continued to
expand, whilst retaining its basic character, until World War
II.


1.2.1  Co-operatives in the central planning system:

Throughout the period of "socialist central planning",
co-operative development was determined, as was the entire
economic and social life of the country, by a totalitarian
policy based on communist ideology. In spite of this,
co-operatives did not remain unchanged over the period.
Indeed, even co-operative concepts }nd policies have gone
through various stages of development. On the one hand, the
changes have always reflected the state of affairs in the
political hierarchy. On the other, they have acted as a
"catalyst", influencing the overall economic and social policy
of the country. In a way, the Hungarian co-operative movement
has been in a continuous reform process.

In the early 1950s, alongside increasing economic problems,
the organization of co-operatives faced serious difficulties.
By the middle of 1953 the prevailing approach to economic
development became impossible and a political decision on a
new approach was made. However, it could not be implemented:
primarily because the old power group succeeded in regaining
strength. Finally, this situation led to a popular revolt,
culminating in the revolution of 1956.  Most of the farming
co- operatives closed down, but some of them survived. It is
an important feature of the period between 1957 and 1959 that
a large variety of promotion-type agricultural co-operatives
began to mushroom to assist individual farming. 

As part of the reform process, the farmers' co-operatives
changed their names to general marketing and consumer co
operatives (AFESZ). This more accurately reflected the
activities in which they had long been involved. From 1968 on,
consumer co-operatives have been permitted in urban areas as
well. During these years a new type of consumer, or rather
promotional, co-operative appeared: the housing co-operative.
Two subtypes were introduced: the house-building
co-operatives, and the "home maintenance co-operatives". The
latter were more significant and larger in number since, in
the early stages, they were organized mainly for the use of
large urban apartment blocks constructed and allocated by the
state administration, the first of which were in the capital
city.

1979 marked the beginning of a new phase in the development of
economic policy. From a co-operative point of view the  most
significant event was the amendment of the co-operative
legislation which allowed for the organization of so-called
"small co-operatives". According to this modification, a small
co-operative was one in which the number of members did not
exceed 100 people. Compared to thm traditional "large"
co-operatives, the small ones enjoyed a number of advantages.
In fact, the purpose of their introduction was to facilitate
the transformation of the old co-operatives into genuine ones.
In order to pursue that aim the law allowed groups of 15 to
100 members to separate from their existing co-operative to
establish a new "small" co-operative. Small co-operatives
became most widespread in the industrial co-operative sector.


1.3  Membership relations in the existing Co-operatives
********************************************************

The principle of open and voluntary membership is observed by
all types of co-operatives. There now exists no discrimination
of any form and no one is forced to join a co-operative.
Voluntary membership now has significance in the opposite
sense, in that the question arises as to whether members are
free to leave their co-operative. The theoretical answer is
affirmative. Any co-operative member has the right to resign
his or her membership. In practice, however, the problem is
not that simple, as we shall see later. 

All instruments of democratic control now exist in the
co-operatives. The principle of one member, one vote prevails
and co-operative statutes provide for the functioning of
co-operative democracy. However, members' democratic control
is far from perfect, which is the result of  more than one
factor. One of them is the status of the co-operative
chairman. Chairmen have a dual position in most of the
Hungarian co-operatives. They are elected leaders, but they
are also full-time professional managers employed by the
co-operatives. Furthermore, in practice, other professionals
also tend to be on the elected boards. But apart from such
overlapping, professional management dominates the
co-operatives' elected leadership. This results in a
technocratic type of management. 

Some additional factors contribute to weakening members'
democratic control in the co-operatives. First of all, the
magnitude of the operation should be mentioned in the context
of agricultural and consumer co-operatives in particular.
These are not only large-scale enterprises, but carry on
many-sided and, in terms of technology, highly complicated
activities, as well. This makes members' access to the
necessary information difficult, thus the whole business is
impossible for the ordinary member to survey. The typical
Hungarian co-operative also has many members, thus the general
assembly of all members cannot be convened and the system of
representative democracy does not function properly. 
The existing system of incentives is also responsible for the
shortcomings of members' democratic control in the production
(workers') co-operatives, such as industrial and the farming
co-operatives. The basis of membership relations is work in
the production co-operatives. Members are obliged to
participate in the joint work, and the co-operative is obliged
to provide employment for its members. In accordance with
this, the income of the co-operative is distributed among the
members according to the work performed. In practical terms,
remuneration takes the form of monthly wages complemented by
year-end bonuses. Income used for joint developmental
(investment) purposes augments co-operative assets.
Co-operative property was almost entirely indivisible in the
production co-operative model. Therefore no direct
property-motivated incentive existed between the co-operative
and its members. 

In the context of self-management, the problem of autonom} is
worth mentioning once more. Co-operatives have been fighting
for their autonomy for the last 30 years. They have now become
autonomous organizations. Due to the problems of members'
democratic control however, the autonomy is that of the
co-operative managers. Furthermore, the joint farm and
industrial co-operatives are hierarchically organized. Over
the past decades a highly professional management has evolved
to dominate decision-making processes at all levels.


1.4  National co-operative organizations, associations,
federations 
********************************************************

In the course of the whole post-war period a strong central
influence was characteristic in the Hungarian co-operative
movement. This holds true in spite of the fact that secondary
and tertiary co-operative organizations were established at an
early stage. In 1948 the National Federation of Industrial
Co-operatives (OKISZ), and in 1949 the National Federation of
Co-operatives (SZOVOSZ), came into being. Both functioned as
substitutes for government authority. Their main function was
to act as intermediary between the state and the
co-operatives. In other words, they passed on state commands
regarding almost every detail of their activities. The
practice of compulsory association prevailed: hence all
industrial and farming co-operatives were, by definition,
members of their respective federations.

In the sector of agricultural production co-operatives, the
system of direct command by the Ministry of Agriculture
prevqiled until 1967. In that year, the first supporting
system of the agricultural production co-operatives was
established. This was composed of National Council of
Agricultural Production Co-operatives and 51 regional,
"territorial", federations. The whole system represented a
completely new approach to co-operative interest
organizations. 
The structure was set up by the First Congress of Agricultural
Co-operatives, held in 1967. The Congress created the National
Council of Agricultural Co-operatives (TOT) and expressed its
support for the establishment of territorial federations by
the awricultural co-operatives. The most important new feature
of both the TOT and the territorial federations was that they
had no authority of any kind over the co-operatives.
Membership was voluntary and the main emphasis was on services
provided for member co-operatives.

The National Council of Agricultural Co-operatives played a
kind of "avant-garde" role. Existing co-operativ} federations
were still deeply involved in "directing" co-operatives as
substitutes for ministries. In the course of the economic
reform, TOT served as a model for their reorganization. The
process progressed significantly: both the National Federation
of Farmers' Co-operatives and the National Federation of
Industrial Co-operatives re-structured their activities and
started to operate according to the new concept. They changed
their names as well. While maintaining acronyms, SZOVOSZ
became the National Council of Consumer Co-operatives and
OKISZ took up the name of National Council of Industrial
Co-operatives. At the same time, a new nation-wide umbrella
organization was established: the National Co-operative
Council. The latter was meant to operate as the consultative
body for the entire co-operative movement in Hungary. 

The above federative system prevailed until very recently. TOT
was first to try to adapt to changing requirements. In
December 1989, an extraordinary congress of agricultural
co-operatives was convened, with the main objective of
renewing the entire federative structure of agricultural
co-operatives. As an example, the congress created a new
national organization called the National Federation of
Agricultural Co-operatives and Producers. (The Hungarian
acronym is MOSZ.) In the name of the federation, "producers"
indicates the intention to include private farmers. Although
their number is rather low for the time being, it is expected
that this will increase considerably as a consequence of the
change in the political system and of the new co-operative
legislation. 

According to its statutes, MOSZ operates as the "federation of
federations". Its members are the regional or professional
federations of all types of agricultural co-operatives, and
other associatmons and organizations of small-scale farmers.
Its actual membership, however, is composed of the territorial
federations of agricultural co-operatives and of the National
Federation of Fishery Co-operatives.

The main objectives of the Federation are the following:

i)   to assist the co-operatives and other agricultural
producers belonging to its member organizations in:

     -    carrying out profitable farming that provides
satisfactory income;

     -    safe marketing of their produce;   

     -    obtaining high quality production methods and inputs
for their farming;

     -    getting government recognition and subsidies for
farming;

     -    developing their social security rights, status,
living and working conditions; 

ii)  to promote and disseminate the co-operative idea, to make
the best use of co-operative property and to support
co-operation which serves its members' interests;

iii) to promote the association of agricultural producers; 

iv)  to assist and coordinate its members' activities in
representing and safeguarding their interests.

The Federation may also carry on economic activities. It may,
on its own or in association with its member organizations, 
establish business and service companies. Finally, the
Federation participates as a member in the activities of
appropriate international organizations. 

The National Council of MOSZ has 138 members at present. The
overwhelming majority (87.7%) are chairmen of agricultural
production co-operatives. Among the rest are several
co-operative chief executives (comptrollers, engineers,
agronomists) and directors of co-operative joint ventures.

Until 1990 the National Council of Consumer Co-operatives
(SZOVOSZ) functioned as the highest organization representing
three types of co-operatives: the general consumer and
marketing co-operatives, the savings co-operatives and the
housing co-operativ es. In the spring of 1990 all these
co-operative branches convened congresses of their own
co-operatives and established independent national
federations. Thus, the National Council of Consumer
Co-operatives (SZOVOSZ) ceased to exist. The three new
national organizations are the following:

-    National Federation of General Consumer Co-operatives
(AFEOSZ)

-    National Federation of Savings Co-operatives (OTSZ)

-    National Federation of Housing Co-operatives (LOSZ) 

The National Federation of General Consumer Co-operatives
(AFEOSZ), according to its statutes, is the national interest
organization of the general consumer, marketing, supply and
other consumer-type co-operatives. Membership of the
Federation is voluntary and its members are primary
co-operatives. The main objectives of the Federation are to
safeguard and represent the interests of its member
co-operatives. In pursuing those objectives, the Federation
considers its particular duties are:

-    to promote the competitive operation of the general
consumer and marketing co-operatives in the fields of
commerce, services and other economic activities;

-    to help member co-operatives meet their members' needs in
accordance with the social and economic objectives of
co-operation;

-    to promote the development of a favourable economic
environment and equal opportunities for its member
co-operatives;

-    to participate in the dissemination and popularization of
     the idea and practical achievements of co-operation;

-    to provide efficient services to its member
organizations. 

Each member co-operative sends a delegate to the National
Council of the Federation. In practical terms it is the
chairmen who represent their co-operatives in the National
Council. 

The National Federation of Savings Co-operatives (OTSZ) is the
national organization for all those saving co-operatives and
other financial co-operatives which voluntarily enter the
federation and are willing to make the financial contribution
determined by the Statutes. Here, too, the primary
co-operatives are the members of the Federation. The
Federation aims to protect and represent its member
co-operatives and, through them, their individual members. As
its main tasks, the Federation:

-    takes a stand on all issues affecting the economic and
financial conditions of its member co-operatives;

-    represents its members in relation to government,
community organizations, financial institutions and other
economic organizations;

-    safeguards the interests of its member co-operatives and
their individual members;

-    promotes the democratic operation and the autonomy of its
member co-operatives and mobilizes public opinion in support
of co-operation;

-    keeps in contact with the regional and professional
associations of its members and with international
co-operative and financial organizations;
-    provides services to its member organizgtions in the
fields of education and training of officers, flow of
information, organization of natmonal meetings and
publications. 

The National Council of OTSZ is composed of a president and 69
members, delegated by the regional groups of the National
Congress of Savings Co-operatives. The overwhelmmng majority
of the Council members are savings co-operative chairmen. 

The National Federation of Housing Co-operatives (LOSZ) is
defined by its Statutes as the national organization of home,
garage, holiday home, and commercial premises building and
maintenance co-operatives and their associations. Its main
objectives include the promotion of its members' interests,
provision of services and organization of social activities.
Its duties include the following:

-    representation of the interests of member co-operatives 
to government, state administration and other organizations in
the fields of economic, planning, financial and housing
policies;

-    initiation of, and participation in the preparation of,
legislation affecting housing co-operatives;

-    organization and running of a system of information for
housing co-operatives, with particular reference to the flow
of information between the housing co-operatives and their
federations;

-    contribution to the establishment and running of a
network of services covering business, technological, legal,
organizational and educational activities;

-    promotion of collaboration between co-operatives,
including the establishment of economic associations;

-    management of the Security Fund of Housing and Recreation
Co-operatives;

-    co-operation with other interest organizations;

-    maintenance of international relations;

-    fostering the idea of co-operation; promotion of
democratic operation and the development of co-operative
autonomy. 

The National Council of LOSZ has 66 members, who represent the
regional housing co-operatives. 

In 1989 the traditional co-operative movement - the Hangya
(Ant) co-operatives - were re-established, after some 40 years
of inactivity, by 29 smallholders and private entrepreneurs.
In October of that year, the Hangya Co-operative Centre Co.
was established, and in October 1990 this became the Hangya 
Federation of Co-operatives and Entrepreneurs. The movement
aims to continue the traditional Hangya activities based on
the following principles:

-    to revive the values of the old Hangya movement, which
vanished during the period 1947-49;

-    to restore genuine co-operation in Hungary;

-    to promote the organization of co-operatives based on
private property and to assist the co-operative
transformation;

-    to help develop a fair business approach, serving the
interests of producers and consumers alike;

-    to create the internal marketing system of Hangya;

-    to represent its members' interests;

-    to develop production and consumer cultures through press
and publishing activities;

-    to promote up-to-date vocational training;

-    to maintain international relations.


In the course of the past three years a significant number of
local Hangya production, consumer and marketing co-operatives
have been organized. In 1991 the Hangya Federation became the
sixth Hungarian member of the ICA. 


1.5  Strengths and weaknesses of the existing co-operative
system
*****************************************************************

The co-operative sector has made undeniable achievements and
has shown remarkable strength, particularly in certain periods
of postwar development. On the other hand, the various
co-operative branches and models have experienced significant
shortcomings and have shown considerable weaknesses as well.
Among the consumer co-operatives' main achievements the
following can be mentioned:

-    Consumer co-operatives succeeded in building up a wide
network of retail trade in rural Hungary. In many villages
consumer co-operatives are the only institutions providing
commercial services. They maintain their shops in very small
settlements where retail trade is not profitable, and
therefore unattractive to profit-oriented businesses.

-    Similarly, an extended network of catering services has
been organized by the consumer co-operatives. Most of the
rural catering trade (restaurants, cafes, snack bars etc.) is
in the hands of the consumer co-operative sector.

-    Purchase of the produce of small-scale, mainly part-time,
agricultural producers has traditionally been done by the
consumer co-operatives. At the same time, supply of inputs to
small producers has also been a successful }ctivity of
consumer co-operatives. By providing these services, the
consumer co-operatives helped small-scale farming to survive
in the country, particularly in periods of large-scale
reorganization drives.

-    Some important services (repair activities) have been
organized by consumer co-operatives. Similarly, their
industrial and food processing plants have provided both
employment and indispensable services to the rural population.

-    The consumer co-operatives promoted the idea of
co-operation more than the agricultural and industrial
co-operatives because less political pressure was involved in
their creation. 

     However, the Hungarian consumer co-operatives have also
had to face all the negative developments experienced by many
movements. As they have become larger, relationships with
their members have become less close. This has resulted in
both poor service to members and low member participation.
Particular weaknesses are:

-    The capital accumulated from rural operations has, to a
great extent, been "creamed off" and invested in urban areas.

-    Generally speaking, the technological level of
co-operative trade has remained very low.

-    The consumer co-operative sector has not been able to
establish its own wholesale network. As a matter of fact,
consumer co-operatives were not allowed to become involved
with wholesale trade in the past. 

The industrial co-operatives' greatest strength is that they
have remained small- and medium-scale enterprises and, as
such, they have been able to adapt flexibly to the changing
environment. They have always been more market-oriented than
the large centrally-managed state-owned factories. As a
result, industrial co-operatives have always belonged to the
vanguard of technological development in Hungary. In certain
periods, the most significant technological innovations were
made in the industrial co-operative sector. However, the
co-operative character of their operation has always been
rather weak. As in the agricultural production co-operatives,
waged workers' attitudes dominated membership relations in the
industrial co-operatives, mainly because members did not feel
they had a stake in their co-operatives. 

For many years, savings co-operatives were the only financial
institutions that operated in villages. As real rural
organizations they were particularly successful in:

-    Building up a broad network of financial services and
branch offices covering the entire country. (The only
financial network larger than this belongs to the Post Bank,
which began operation a couple of years ago and is based in
post offices all over the country.)

-    Gaining a considerable amount of expertise and acquiring
a professional staff in the field of consumer lending and
services to members.

-    Achieving gradual and steady growth with no state
subsidy. 

However, the saving co-operative movement proves weak in some
fields:

-    Savings co-operatives have had no experience in
small-business lending. Generally, this is becoming more and
more important, and in agriculture it is particularly vital.

-    The technological level of clients' services is very low
in most of the savings co-operatives. In fact, no electronic
information and data processing system exist, and teller
services are performed manually.

-    The savings co-operative sector has not succeeded in
creating an efficient central finance facility serving the
primary co-operatives' interests. 

The housing co-operative sector's most important strength is
that it includes a large variety of co-operative models. In
addition to house building and home maintenance, the sector is
becoming more and more involved with garage construction, the
building and running of recreational facilities, and the
construction and maintenance of workshops. Membership
relations are perhaps the closest and most satisfactory in the
housing co-operatives. They have also succeeded in achieving
certain tax benefits, and in establishing a gradually
increasing Joint Security Fund. However, the scope of members'
services is not yet broad enough in the housing co-operatives.

The fact that Hungary became not only self-sufficient but also
a net exporter of food is, to a great extent, the result of
the farming co-operatives' operation. They proved an
appropriate means for a rapid quantitative development
extensively carried out between the mid-sixties and
mid-seventies. Further strengths of the farming co-operative
system include the following:
-    The large-scale operation of the farming co-operatives
made it possible to benefit from economies of scale. Several
branches of agriculture have become highly cost effective and
competitive on the world market. A good example is the
production of cereals, particularly wheat;

-    The structure of farming co-operatives has facilitated
relatively rapid technological development in agriculture;

-    As a response to the demand for professional management
in the large-scale co-operative farms a new, highly-trained
group of agrarian intelligentsia has developed;

-    Throughout the centrally-planned economy the co-operative
system has succeeded in gaining and maintaining increasing
autonomy concerning the pattern of activities, income
distribution and investment. In doing so it also maintained
the highest tossible level of economic democracy under the
conditions of a non-market oriented system;

-    Unlike most other centrally-planned countries, the
individual members of farming co-operatives were able to
retain the legal ownership of their land. This contributed to
the co-operatives' autonomy and to a more flexible
co-operative-member relationship;

-    Co-operative farming allowed for a rapid rate of increase
in farmers' incomes. As a result, peasants' incomes have
reached the national average in Hungary. It should be noted,
however, that this is primarily due to the considerable amount
of extra hours worked, mainly on the household farm;

-    Farming co-operatives have played a very important role
in creating employment possibilities in rural Hungary. In
addition to their primarily agricultural production, they have
always been autonomous enough to diversify their activities.
Food processing has formed a natural part of their activities
but, beyond that, a wide variety of non-agricultural
activities have been embarked upon. These include commercial,
service and industrial production activities;

-    In the field of social security the farming co-operative
has played a significant role. Based on self-help principles,
farming co-operatives have provided various social services
(e.g. kindergartens) and financial aid to their members.
Old-age annuities had been given from their own resources
before the state pension scheme wos extended to peasants. It
is also the result of the farming co-operatives' contribution
that a uniform retirement age has been applied in agriculture
and other sectors alike.

In spite of all the achievements and strengths of the
co-operative farming system it has become obvious by now that
the large-scale collective farms have exhausted their
development reserves and, in their present form, are not
suitable for the  requirements of a market economy:

-    The farming co-operatives were not designed to be profit
oriented. Their chie~ economic role was to meet the
requirements of central planning and act as local units of a
nation-wide mechanism;

-    Property rights are not clear in the farming
co-operatives. The assets are controlled by professional
managers rather than the ordinary co-operative members. Since
there is no return on capital, members are more interested in
their immediate personal incomes than in making investments.
Furthermore, personal incomes are not always closely linked to
performance, and this has a negative impact on ingentives and,
in the final analysis, on efficiency;

-    Farming co-operatives have become too large. Their
development has not been a natural one. It was determined by
political objectives favouring organizational concentration.
The centrally-initiated concentration process created a whole
structure of oversized co-operative farms. As a consequence,
farming co-operatives are slow-moving and rigid and cannot
respond quickly to the challenges of the market;

-    In addition to being too big, the farming co-operatives
constitute a uniform system in the agriculture of Hungary. The
system is composed almost exclusively of large-scale
enterprises of more-or-less the same size. Medium and
independent small-scale farms are missing from the structure.
This is because, for quite a long time, only the farming
co-operative model was considered viable;

-    The development of professional management not only
facilitated technological development, but also contributed to
the spread of a technocratic approach;

-    In some branches of production farming co-operatives have
not proved able to match the expected level of efficiency.
Generally speaking, most livestock breeding is not
sufficiently cost-effective and therefore is not competitive
on the export market;

-    Because of a combination of circumstances, such as
over-extended size, dominance of professional management,
members' lack of control over capital, lack of incentives,
lack of genuine co-operative functioning, etc. farming
co-operative members have developed a waged-worker's attitude
towards their co-operative instead of an owner's attitude;

-    Parallel with performing their socio-political and social
security functions, farming co-operatives created a hidden
unemployment as well. 

The model of specialized agricultural co-operatives is closer
to a genuine co-operative than to that of a farming
co-operative. This is one of its greatest strengths. The other
one is its economic performance. Specialized agricultural
co-operatives have always been more profit-oriented. That is
why they did not really fit in with the system of socialist
redistribution. Membership relations are clear in the
specialized co-operatives, at least of those members who do
not participate in the joint work. However, these
co-operatives also have some weaknesses. Their joint farms
have become very similar to the joint farms of the farming
co-operatives. Therefore their problems are similar, too.
Property rights, hierarchic work organization, technocratic
management, the system of interests and incentives all need
fundamental transformation.