The Co-operative Reform Process (1993)

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

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               The Co-operative Reform Process
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2.1  The need for, and the main fields of, co-operative reform
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The socialist co-operative system was neither acceptable to
the new political forces which took over responsibility for
the future of the country, nor to co-operative members who,
having been deprived of any meaningful influence on
co-operative activities, considered them as alien economic
structures exploiting, rather than helping, them.  In order to
reshape them into genuine co-operatives able to act in the
conditions of a free market economy they had to become
independent organizations, with equal rights to all other
forms of enterprise, promoting their members' interests, and
owned and controlled by them; they should become decentralized
units, linked with their direct local economic and social
environments.  The questions of independence from external
organizations, of democratic management and of ownership, had
to be given the first priority.

The legal and economic reforms already accomplished made a
significant contribution to enabling the changes in
co-operative structures aiming to realize the above-mentioned
goals.  At the same time, many serious mistakes were made with
detrimental consequencew to the whole of the co-operative
movement.  Whether these can be rectified depends to an
important degree on co-operators themselves.  The decisive
factor, however, is new legal regulations, the target of which
should be the introduction of a feeling of legal stability,
and the de-centralization of power by leaving as many
decisions as possible to be taken at the level of the primary
co-operatives.


2.2  Government co-operative policies
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From the very moment of the take-over by the anti-communist
political forces in August 1989, the attitude of the
Government toward the existing co-operative movement was
rather negative.  Co-operatives were considered as an economic
organization of socialist character, being under full control
of the nomenclature: in other words, being ruled by the
nominees of the Communist Party and serving the interests of
the old political regime.

The new Government seemed to believe that the solution to the
difficult economic problems Poland was confronted with could
be achieved by the mere introduction of a free market economy.

Thus, the rules giving equal rights to all enterprises,
independently of their legal form and kind of ownership;
allowing liberty in the execution of their economic
activities; privatizing socialist sectors of the economy;
limiting the role of the State to the creation of a legal
framework which would be adequate for the needs of the new
economic system; and establishing free competition were
thought to be sufficient to master the situation. 

The Government did not show much interest in what would happen
to co-operatives and to their movement in the future. It was
said that the free market rules would decide whether the
co-operative form were economically efficient. This efficiency
would determine its future existence.

During the period between August 1989 and June 1992 no
Governmental document concerning its policy toward
co-operatives was published or elaborated. The abolition of
all co-operative unions (see 2.3.2 below), initiated by the
Government, was formally passed as an Act of Parliament. The
creation of the post of Plenipotentiary of the Minister of
Labour and Social Policy for Co-operatives of Disabled Persons
in February 1990 was incidental, and was intended to avoid the
imminent bankruptcy of this branch of the co-operative
movement, which would have meant redundancy for about 200,000
disabled persons employed in these co-operatives.  This would
not only have been unacceptable from the humanitarian point of
view, but it could also have damaged the image of the
Government.  The nomination of another Plenipotentiary of the
Minister of Agriculture for Dairy Co-operatives was a product
of the Government's fear that the farmers' demonstrations and
strikes which took place at the beginning of 1991 would get
out of control.  In both cases there was no question of
protecting or saving co-operatives.  The form of enterprises
involved made no difference so long as they could resolve the
situation.

As a reaction to protests from co-operators, public opinion
and some parliamentary groups concerned about the detrimental
consequences of the way in which the liquidation of
co-operative unions was realized, the Government resolved, in
October 1990, to create the Office of the Government's
Plenipotentiary for Co-operative Matters.  Its aim was to
facilitate the liquidation of the co-operative unions and to
elaborate the Government's drafting of a new Co-operative Law.

The Plenipotentiary for Co-operatives was nominated in March
1991.  His office now employs four persons. 

The liquidation of co-operative unions is intended to be
accomplished by the end of 1992.  As there are currently three
sections of the new Law on Co-operatives being discussed by a
special Parliamentary Commission, the Office of the
Plenipotentiary does not work on a Governmental outline of
such a Law, but attends the sessions of that Commission. Some
parties have expected the Plenipotentiary to elaborate an
outline of the Government's co-operative policy, but this is
not the case.  First, it does not lie within his competence,
second, the very unstable political situation makes the
elaboration of such a document impossible.

It does not seem that the Government has any intention to
establish a special role for co-operatives in the future
socio-economic system of the country.  Even the interest of
the Ministry of Agriculture in rural co-operatives seems to
have a transitory character.  An indifferent attitude to
co-operatives is preponderant.  Their potential to play a
positive role in helpin to solve such acute problems as
unemployment, housing, privatization of state enterprises, or
rehabilitation of the disabled does not seem to be
appreciated.  Governmental policy toward co-operatives may
still be defined as "laisser faire". 

2.3  Co-operative legislation
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2.3.1     The co-operative law of 1982
 Unlike some other countries in the region, Poland has no
complex new co-operative law.  The Act of Parliament -
Co-operative Law of 1982 is still formally in force.  It
includes several regulations which no longer have any meaning,
as conditions have changed dramatically since 1982.  In common
with the former Co-operative Law of 1963, its regulations are
formally in accordance with the ICA co-operative principles. 
Important amendments to the Co-operative Law of 1982, which
were passed by Parliament following political changes of 1989,
will be discussed below. 

2.3.2     The law governing changes in the organization and
          operation of the co-operative movement (20.01.90)

There are four main problems approached by the above Law. 
First, it dissolved all co-operative unions: regional, branch
and central alike.  Liquidators nominated and supervised by
the Ministry of Finance had to dispose of co-operative unions'
assets.  Enterprises owned by co-operatives had to be
transformed either into workers' co-operatives organized by
their employees, or into stock companies or co-operatives of
corporate bodies.  Enterprises, facilities and other parts of
the co-operative unions' assets which were not thus
transformed had to be sold.  The liquidation process
accomplished, any financial means left were to be assigned to
the primary co-operatives which were members of the union
being liquidated.  The Act allowed the establishment of new
co-operative unions on the basis of a new Co-operative Law
(not yet in existence), or after 31st July 1991.

Secondly, the law ordered new elections in all primary
co-operatives.  These were to be held within a period of less
than two months, with the threat of going into liquidation if
this were not done.

Third, it made it possible to divide existing co-operatives
into two or more new co-operatives.  This may be done by the
decision of general assemblies, at the request of interested
groups of members, whose rights and obligations are connected
with a separate part of the co-operative.

Fourth, it changed the legal nature and competencies of the
Supreme Co-operative Council (SCC).  The SCC became a
voluntary association of primary co-operatives with the
purpose of promoting collaboration and mutual aid among
co-operative organizations at home and abroad, and of
initiating and organizing co-operative research and
publishing.  The SCC retained its right of legislative
initiative and of expressing its opinion about legislative
acts concerning co-operatives.  One month after the elections
in primary co-operatives, new elections to the SCC had to take
place.  They were to change the composition of the SCC. 
Instead of nominees from the central co-operative unions it
would consist of members elected by representatives of primary
co-operatives, two members for each of the 49 voivodships.

The Act aimed to attain political, structural and economic
goals simultaneously.  Politically it eliminated, and thus
deprived of power over primary co-operatives, the leaders of
the co-operative unions, as these were considered to be
followers of the Communist regime.  The elections at primary
level were intended to eliminate those members of co-operative
bodies, especially of the boards of directors who, as nominees
of the Party, formerly acted more according to orders from
above rather than fulfilling co-operative members' needs. 
This  aim was not achieved.  About 85% of the members of
existing co-operative bodies were reelected. As far as the
structural goal is concerned, the Act cancelled all secondary
and tertiary organizations, thus liberating primary
co-operatives of all interference from higher levels. Full
independence of action was a total surprise.  Practically,
noprimary co-operative's managing body was prepared to face
the new conditions of economic activity.  The co-operative
unions, which could have become the source of advice,
instruction and of eventual financial help, and which were
formerly the only way of providing goods or raw materials to
co-operative shops, the only channel to market goods whether
purchased or produced, were liquidated.  The Law did not
provide any institution which would substitute for the
liquidated unions in activities such as advisory, auditing and
training services.  This resulted in a chaotic situation which
led to a deterioration in the economic situation of the
majority of primary co-operatives.

2.3.3     The revalorisation act of 30th August 1991

The worsening situation of co-operatives had a negative impact
on the situation of the whole national economy, which,
independently, found itself in serious difficulties.  It
resulted in several legislative initiatives aiming either to
amend the Co-operative Law currently in force, or to elaborate
a new Co-operative Law.  The subject proved to be
controversial.  As time passed the decision was made to
regulate first the most important co-operative problems and,
for the time being, to postpone the question of a new
Co-operative Law.  The question of co-operative ownership or,
as desired by some parties, of the privatisation of
co-operatives was given priority.

All except housing co-operatives have been authorised by the
above Law to revalue members' shares through transferring not
more than half of their reserve funds to the share fund.  The
decision regarding revaluing had to be made by co-operative
general assemblies by the end of 1991.  Revaluing was to be
calculated using the relationship between the nominal average
public-sector salary of 1990 and that of 1950, according to
indices published by the President of the Central Statistical
Office for use in the calculation of pensions.

There are two other points included in the Law in question
which seem to be important.  The first allows the
restructuring of the enterprises of the former Central Union
of Horticultural and Apicultural Co-operatives into limited
companies owned by primary horticultural co-operatives -
members of the above Union, by employees of these enterprises
and by farmers having had delivery contracts with them for at
least two years.  This regulation ended long controvevsies
between primary co-operatives and their members, and employees
of the above enterprises, who insisted on transformation of
these enterprises into workers' co-operatives.  The
realization of their demands would have meant denying the
justified property claims of primary horticultural
co-operatives which, in the past, indirectly financed several
important investments in these enterprises. 

The Law in question also contains a regulation giving all
co-operatives, from 31st July 1991 onwards, the right to
associate themselves in auditing co-operative unions which
perform no economic activities other than training and
consulting activities.  This regulation permitted the
reestablishment of upper-level co-operative structures, as
reported above (see 1.4).

2.3.4     The new co-operative law 

As already mentioned, work on the new Co-operative Law started
relatively early.  The draft was ready at the end of 1990 and
the Lower Chamber of Parliament, after long discussions,
passed it on the 19th September 1991.  However, the Senate
(the Higher Chamber) subsequently made amendments to this Law,
and these were neither accepted, nor passed by the Lower
Chamber. 

The dissolution of Parliament at the end of 1991 and the new
Parliamentary elections have meant that the stalemate has
continued.  At the time of writing (the end of June 1992) the
new Co-operative law has still not been passed, and a special
Parliamentary Commission is about to deliberate on three
separate projects. The debate on the new Co-operative Law is
not expected to take place before autumn 1992.

Summing up the changes in co-operative legislation, it can be
stated that:

-    the question of independence of primary co-operatives
     from external bodies was legally solved by the Acts of 
     Parliament introducing (from 1st January 1990) economic
     reform, followed by the Act of 20th January 1990 (see
     2.3.2 above); 

-    as far as the problem of introducing an authentic,
     democratic control within co-operatives is concerned,
     this is formally ensured by the Co-operative Law
     currently in force.  The above-mentioned Law of 20th
     January 1990 created the possibility to change the
     composition of elected co-operative bodies;

-    ownership questions have been partially settled by the
     Act of 30th August 1991 (see 2.3.3 above).However,
     several questions still remain, e.g. transforming
     co-operatives into other forms of enterprise, the
     division of net co-operative assets after liquidation, or 
     members' and non-members' capital investments;

-    the necessary process of decentralization within the
     co-operative movement was imposed by the provisions of
     the Act of 20th January 1990.  

This not only abolished the existing co-operative unions which
organized the centralization of co-operatives and their
structures, but also promoted the division of big
co-operatives into two or more smaller ones.

There are, however, several important problems, some of which
are listed above, which should be solved by the new
Co-operative Law currently under discussion.

2.4  Changes in the co-operative movement
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The political changes of August and September 1989 had no
special impact on the behaviour of primary co-operatives.

Important changes have resulted from several Acts of
Parliament passed in early 1990 to introduce economic reforms,
and from the Law of 20th January 1990 (see 2.3.2).  The Laws
on economic reform introduced free competition of all existing
enterprises, opened the broad possibility of establishing new
enterprises and granted tax exemptions to all new private
enterprises. Thus, primary co-operatives started to face
competition from enterprises which were granted privileges to
which they, as established businesses, were not entitled.

The Law of 20th January was an inspiration to many to divide
their co-operatives. This creation of new co-operatives, which
had already begun in 1982, was the result of acute social
needs, e.g. for housing; of the spontaneous division of big
co-operatives into smaller ones, especially among housing and
workers' co-operatives; and, from 1990 onwards, of the
above-mentioned transformations of enterprises previously
owned by the co-operative unions into workers' co-operatives.

On the other hand, several co-operatives went into liquidation
because their economic weakness and lack of flexibility meant
they could not withstand the competition from private
enterprise and black marketing. A considerable increase in the
number of co-operatives started, as mentioned, in 1982 and was
characteristic of all co-operative branches except savings and
credit co-operatives. The number of co-operatives increased
between the end of 1981 and the end of 1989 by 3,027 to a
total of 15,236. 

During the following two years a further 4,010 co-operatives
were formed, making a total increase of 55% over the two-year
period.

It seems that the above trend came to an end in the second
half of 1991. The total number of co-operatives dropped by 6
units by the end of the year, and by another 70 units by the
end of March 1992. This decrease relates to all co-operatives
except savings and credit co-operatives. There are indications
from the Supremm Co-operative Council that about 1,400
co-operatives went into liquidation during 1991.  In the first
quarter of 1992 a further 400 co-operatives decided to do the
same.

The important increase in the number of co-operatives between
1982 and 1992 does not mean that the position of the
co-operative movement in the national economy grew as well. 
Data quoted below originate from information supplied by the
Central Statistical Office and relate to the situation on 30th
September, 1991. The above-mentioned Office does not possess
figures concerning particular branches of the co-operative
movement. The figures refer to branches of the national
economy. It means, for instance, that data concerning the
number of retail shops include consumer, rural supply and
marketing, workers', horticultural, and dairy co-operatives,
as all of these have retail outlets.

Measured in terms of share in Gross National Product (GNP) the
role of co-operatives diminished considerably from a high of
about 11.6% in 1982 to 9.1% in 1989 and 7.8% in 1990. The
number of persons employed in co-operative organizations
decreased from 2,001,592 in 1982 to 1,996,310 in 1988 and
1,519,300 in 1990, i.e. by 24.1%. This decrease was relatively
much more important than in the whole of the so-called
"public" sector of the national economy, where it amounted
only to 2.2%. In 1990, average employment in co-operative
production decreased from 505,500 to 437,400, in the retail
trade from 821,600 to 661,600, in transportation from 74,700
to 64,800, and in agricultural production from 150,300 to
134,300. This trend continued in 1991 and seems to
be continuing, if a little more slowly, in 1992.

The co-operative share of the industrial production of private
and co-operative enterprises taken together amounted to 47.8%
in 1989 and decreased to 27.8% in the first half of 1991. 
This resulted from an abrupt increase in the number and
activity of small-scale privately-owned industrial
enterprises, which took many qualified personnel from workers'
and other co-operatives, and proved to be more flexible in
their response to market conditions.

The most critical situation emerged in the retail trade.  As
mentioned above, rural supply and marketing co-operatives were
responsible for about 98% of retail turnover in the
countryside, and consumer co-operatives controlled about 75%
of that in the towns. In 1988, co-operatives dealing with the
retail trade owned 64.8% of existing shops. This share
decreased to 21.7% in 1990, although the total number of shops
in the country increased by 58% in the same period. In the
period under discussion, turnover decreased by 33%, whilst the
share of sole traders and retail companies increased from 2.9%
to 31.2% of retail turnover and from 19.4% to 74% of the total
number of shops. The number of privately-owned restaurants,
pubs and bars increased from 16% of the total in 1988 to 67%
in 1990. The co-operative share of these units decreased by
40% in 1990.

Changes in the number of co-operative members have already
been discussed (see 1.3).

Unlike Hungary, the transformation of co-operatives into
limited or joint-stock companies is not allowed by law. Some
draft laws were presented to Parliament with a view to
permitting this. They were not passed, and the problem awaits
its solution in the new Co-operative Law, now under
discussion. Despite this, some transformations have taken
place. The managerial staff of some co-operatives succeeded in
reducing the number of co-operative members, established new
enterprises in the form of limited companies and lent these
companies the co-operatives' facilities and part of their
assets. Thus, the co-operatives were still formally in
existence, but their economic functions and profits were taken
over by new private enterprises staffed and controlled by the
co-operatives' managers.

Under the pressure of difficult economic conditions created by
the introduction of the economic reform, co-operatives ceased
to provide their members with the great majority of social
services such as organizing training, health care, sport,
tourism and entertainment. This was done in order to reduce
operating costs and had a detrimental effect on their
localities and members. Co-operative clubs, libraries and
kindergartens were closed. Many of the dance and singing
groups, choirs and orchestras were also wound up. Thus, the
social role of co-operatives in their neighbourhoods has been
reduced to a minimum.