Their Present Application (1937)

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    This document has been made available in electronic format
         by the International Co-operative Alliance ICA 
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                    November 1996

Source : The present Applications of the Rochdale Principles
of Co-operation, Studies and Reports, ICA, London, 1964, 6-18. 


               2.   Their Present Application
               *******************************

In order to obtain a clear idea of the situation revealed by
the enquiry, it would seem desirable to present a brief resume
on each of the `Principles'

i.   Open membership
*********************

Consumers' of Retail Distributive Societies - The whole spirit
and intention of the legislation to which we have already
referred is that the membership rolls of the Societies should
be wide open to admit all people of good character into their
ranks and to the enjoyment of the benefits of Co-operation.
Where, in later years, certain laws give liberty to a Society
to limit the number of its members, it is clearly shown to be
an exceptional feature, in some cases involving penalties.

The Rochdale Pioneers framed their rules to secure an open
door to the admission of every fit and proper person who
applied and, according to their standard, a Consumers' or
Retail Distributive Society which refused membership to any
proper applicant would be an anomaly.

The attention of the Committee was drawn to instances in which
societies, by their rules or periodical resolutions of the
members, limit the number of the members of the society. There
are also those which fix a high entrance fee or a preliminary
period of membership, any of which conditions detracts from
the Principle of `Open Membership.'

In the case of Wholesale Societies of Consumers, which is a
simple continuation or sequence to the activities of the
primary societies, the membership is limited to societies of
the same character and constitution, and the Principle of
`Open Membership' is observed in the admission of all
Societies that conform to the constitution laid down in the
Rules of the Federation. The enquiry shows that this Principle
is generally observed by the twenty-three wholesale societies
which have replied to our enquiry.

Federations of Producers, only four of which out of sixteen
have replied, show no essential deviation from this Principle.
The case is different, however, with the primary societies of
producers which constitute the Federations. In these, the
membership is necessarily restricted by the extent of the
market the society can command for its production and also by
the special training and skill required for the technical
efficiency of the society's operations.

Agricultural Producers' Societies, reply in the affirmative as
to the observance of the Principle, and have no restrictions
upon the admission of members, either by law or in their
statutes.

Of the twenty-four Credit Societies addressed, only eight have
replied, four of them with a clear affirmative, while the
remainder reveal slight modifications. One is a state
institution and membership is limited to regional credit
societies. The remaining three exclude foreigners and/or limit
the membership to a given area. This latter condition is
imposed by the character of the operations, and is not a
derogation of the Principle of `Open Membership,' which is
safeguarded by the freedom to establish other societies in
adjoining areas.

The Co-operative Banks reply that the membership consists of
individuals and corporate bodies, but the Czech and Hungarian
Banks state that they are also Joint Stock Companies. The
Joint Stock Principle and Voluntary Co-operation are not
necessarily irreconcilable, but the fact that shares of Joint
Stock Companies may be transferred or sold on the open market
involves the risk of changing the co-operative character of
the institution. In fact, however, 92 per cent of the shares
in the Czech Bank and the majority in Hungarian Bank are in
the hands of co-operative societies.
*             *           *             * 

In the aggregate and in relation to the Movement as a whole,
the cases in which the Principle and practice of `Open
Membership' are not fully applied may be regarded as
exceptional. It is, nevertheless, necessary that they should
be noticed here and an endeavour made to secure their
conformity with the Rochdale basis.

ii.  Democratic Control
***********************

It is clear from the replies received that, so far as Primary
Societies of Consumers or Retail Distributive Societies are
concerned, there is little appreciable deviation in practice
from the Principle of `One Man, One Vote,' without any respect
to the amount of shares or other capital interest that any
respect to the amount of shares or other capital interest that
he may have in the society, and that is the essence of the
democratic basis of the movement.

The Wholesale Societies of Consumers present a considerable
variety of practice. So long as the variation is in relation
to the number of members and consists in the delegation of
authority to vote to selected representative, in their turn
freely elected, the democratic principle is maintained. Of the
wholesale societies supplying data no fewer than thirteen have
modified the voting qualification of the membership, either in
relation to share capital or purchases, while only five relate
the voting power solely to membership.

All the wholesale societies provide opportunities to their
membership to exercise their power of voting by the holding of
General Meetings of the members, though in the great majority
of countries general meetings of the members of the C.W.S. are
only held annually; in Norway, biennially, in Great Britain,
quarterly.

The election of Committees of Management and other
administrative officers is secured generally by the members'
meetings, either directly or through the Supervisory Councils.

The Federations of Workers' Productive Societies follow the
practice generally of `One Man, One Vote'. The information
given is very meagre.

Agricultural Societies-The replies on this question show that
the Principle of `Democratic Control's is carried out in all
respects.

Credit Societies - Four out of eight state that the basis of
their voting is democratic - one on shares, and three on a
mixed basis; the general meetings of the members follow the
practice of Annual meetings.

Co-operative Banks - With the exception of Romania, where the
State always holds a number equal to half the vote present at
the general meetings, the distribution of the voting tends to
limit the concentration of power in the hands of individual
shareholders. It is not possible, however, to find the
orthodox application of the Principle, `One Man, One Vote' in
any of the banks, though in practically all instances an
attempt is made either to limit the number of shares held by
any shareholder or to limit the voting power (Czechoslovakia,
Denmark, Hungary).

iii. Dividend on Purchase
*************************
Consumers' or Retail Distributive Societies- Forty
organisations reply that the net surpluses of their societies
are distributed in cash according to purchases of their
members; two say that their distribution is made partly in
goods; `Centrosoyus,' that dividend has been abolished on the
demand of the members. In Yugoslavia, the movement is in the
position of being exempt from taxation only if the annual
surplus is not distributed.

The amount or rate of the dividend appears generally to be
governed by local practice and not to conform to any fixed
standard. In certain cases, restrictions are imposed by the
law, usually with reference to exemption from taxation. The
highest rate quoted is 15 per cent, but 3 per cent is nearer
the average.

Dividend to members only is the practice in the large majority
of cases, twenty-eight organisations replying in that sense;
six others declare that non-members' purchases are recognised
and half-dividend is paid to them.

Note:     In the Questionnaires on the following five types of
----      Societies, the question relating to `Dividend on
          Purchase' was stated in a more general form as
          corresponding more accurately to their constitution
          and operations. The actual text was : "Does your
          organisation adhere to the practice of distributing
          the net surplus of its trading operations to the
          members as a cash dividend in proportion to their
          transactions with the organisation?"

Co-operative Wholesale Societies - Eighteen national
wholesales declare their adherence to `Dividend on Purchase,'
but one of them, Yugoslavia, only on its own productions. Four
societies carry their surpluses to Reserve Funds, Special
Depreciations, and/or Social Welfare purposes. The rates of
dividend on purchase paid by these societies vary from half
percent to 7 percent, which are usually fixed by the general
meetings after consideration of the results.

Workers' Productive Societies in France are the only societies
which apply this principle solely to the workers, and thus in
accord with the declared objects of these societies. In Great
Britain, the net surplus available for this purpose is usually
divided between the workers, the purchasers, and the
shareholders, who may or may not be workers in the society.
From the reply given by the Chamber Consultative, Paris, it
appears that 25 per cent to 30 per cent of the net surplus is
allocated to the workers. In Austria and Czechoslovakia, the
surplus is usually placed to reserves.

Agricultural Societies - The replies are in the affirmative.
The Swiss Union, V.O.L.G., states that the dividend in almost
all the agricultural societies of Switzerland is stabilised.
This has been forced upon them by the Rebate Association of
the Private Traders. V.O.L.G. adds that, in this way, the
dividend has, to a large extent, lost its true character and
the practice no longer agrees with the theory.

Credit Societies - Six credit societies reply that they do not
practise `Dividend on Purchase,' and one society uses the
surplus to reduce the rate of interest to borrowers and to
increase the rate to depositors.

Co-operative Banks - The dividends of co-operative banks
generally correspond to those of private capitalist
enterprise, that is to say, they are distributed in the form
of interest on shares. The Rochdale system does not appear to
be applicable.

There appears to be no serious difference of opinion as to
this practice and the necessity of maintaining `dividend on
Purchase' as the basic Principle of our Co-operative Economic
System, and the pivot on which the non-profit making
organisation of commerce and industry revolves. The committee,
however, desire to draw attention to the widely varying rates
of Dividend on Purchase, which obtain in different countries
and often between different societies of one country, and also
to the fact that in certain societies, both wholesale and
retail, no dividend is paid, the whole of the surplus being
carried to Reserve Funds.

It is suggested that the practice of paying too high a
dividend should be avoided. One of the principal aims of co-
operative trading is to increase the value of real wages by
supplying the wage earner with the necessaries of life at the
cheapest possible rates consistent with the maintenance of the
business on a sound financial basis and compliance with the
general Principles of the Movement. In the practical pursuit
of these aims, the making of some surplus is inevitable, and
it is only such surplus that should be available for Dividend
on Purchases. One of the greatest services which Co-operation
can render to the community is that of a price fixing standard
for the production and distribution of commodities. That
valuable purpose is modified to the point of non-existence in
the degree in which the practice of high dividends is adopted
-
 rather than conformity to prices based upon a reasonable
margin above the cost price for expenses, and taking into
account the necessities of competition. In this respect, there
is a great advantage in uniform methods, at least in each
country.

It does, however, seem necessary in view of the varied
development of co-operative enterprise at the present time, no
less than with regard to the actual membership of the ICA,
that a more general interpretation of this Principle should be
stated in this report and inserted in the rules of the
Alliance. The necessary generalisation of the Principle would
seem to be contained in a statement that:

     "The Principle of the distribution of the surplus amongst
     the members in proportion to their contribution to the
     operations of the society - whether by purchases,
     deliveries of produce, or labour."

iv.  Limited Interest on Capital
********************************
Consumers's or Retail Distributive Societies - All
organisations that pay interest on shares - of which the
returns show thirty -adhere to the practice of paying interest
only at a limited rate. Six organisations state that they pay
no interest on shares. The rate most generally adopted is 5
per cent, but a few societies go to 7 or 8 per cent. In recent
years, a number of large societies have reduced their interest
on shares from 5 to 4 1/2 per cent.

Co-operative Wholesale Societies - All organisations, in so
far as a share capital exists upon which an interest is paid,
adhere to the practice of strictly limiting the rate paid.
That rate is usually in the neighbourhood of 5 per cent.
Austria is a notable exception in the payment of 10 per cent.
In a number of cases, notably in Great Britain, the rate has
been lowered during the post-war period and is now about 4 per
cent, though the rules of the Scottish C.W.S. provide for a
maximum of 6 per cent. Several national wholesales state that
they are guided by the current bank rate.

Workers' Productive Societies - All the replies received
declare adherence to the Principle of `Limited Interest on
Capital,' and that they follow the practice of the Co-
operative Movement of their respective countries.

Agricultural Societies - The payment of a Limited Interest on
Capital is practised by the Czech Societies: the Swiss
Societies have no capital. The information furnished is too
meagre to make it possible for form any clear conclusion.

Co-operative Banks - In so far as a share capital exists in
the co-operative banks, they adhere to the practice of paying
only a limited rate of interest. The limits are usually laid
down in the rules, but the actual rate is decided by the
general meetings.
*        *            *               *
Taking a broad view of the field of operations of our
Movement, it must be admitted that the practice of the
Pioneers in this respect is being followed with fidelity to
the Principle that capital should only receive a strictly
limited rate of interest.

v.   Political and Religious Neutrality
***************************************
Consumers' or Retail Distributive Societies - The strict
observance of this Principle is claimed by forty-one
organisations, `Centroyus,' Moscow and one of the Unions of
Denmark, Det Kooperative Fallesforbund, state that they are
not neutral in policies; and `Konkordia,' Switzerland,
indicates that it is not neutral in religion. Thirty-nine
organisations declare that they have no organic relation with
any political party. Of the remaining five, Belgium, Det
Kooperative, Denmark, acknowledge close relations with the
Socialist or Labour parties, while the British Union has
organised a political party of its own. `Centrosoyus' answers
the question in the negative and explains that the Communist
Party only accepts individuals.

Co-operative Wholesale Societies - Twenty-one out of the
twenty-four societies state that they are neutral in politics
and religion; one society is neutral in politics but not in
religion; three are neutral in religion but not in politics.
These latter act in collaboration with political parties in
their respective countries.

The Workers' Productive Societies, Agricultural Productive
Societies, Credit Societies and Co-operative Banks all declare
the observance of the Principle of Neutrality in Politics.

*    *        *      *

It is worthy of note that none of the subjects included in our
Questionnaires has received greater attention than this
Principle of Neutrality in Politics and Religion. Few, if any,
have been replied to with such definiteness and precision.
With the extension of the enquiry to other types than
Consumers Retail Societies, the number of national
organisations replying has increased from forty-five to
ninety. Of this total, no less than eighty-four have declared
their adherence in principle and in practice to Neutrality in
Politics.

In view of the recent developments in the forms of National
Government and the interpretation which in some countries is
given to the status of nationality, it seems to the Committee
that it is necessary to give a wider interpretation to the
Principle of Neutrality as applied to the Co-operative
Movement, National and International. They, therefore, suggest
that in rules and documents setting forth this Principle, it
should be clearly stated that Neutrality applies equally to
Politics, Religion, Race and Nationality.

The Committee desire to emphasize the fact that the Political
Neutrality of Co-operation is not a renunciation of the
responsibility of Co-operators to defend the legitimate
interests of their economic system before the legislature, but
rather a strengthening of their defence by reason of its
freedom from identification with any particular political
group or party, thus enabling the Movement to give the most
catholic and representative character to its claims, whether
for equitable and just treatment under the law; the reform of
the law; or even new legislation.

Neutrality further implies the full recognition of the
universal appeal of Co-operation to the community on the
grounds of economic and social betterment, free from any
implication of a political label attaching to the membership
of a Co-operative Society.

vi.  Cash Trading
*****************
Consumers' or Retail Distributive Societies - The replies
given by forty-five organisations to the questions posed under
the heading of `Cash Trading' are far from satisfactory and,
in many instances, are vague and even irrelevant. In some
cases, the organisations do not appear to have clearly seized
the import of the supplementary questions. We, therefore, only
give the replies to three out of eight sub-headings of the
Questionnaire on this subject, viz:

Sales to Members - Twenty-one organisations declare that the
Principle of `Cash Trading' is laid down in their rules, while
an equal number state that their rules impose no obligation in
this matter.

Societies' Purchases: Nine organisations say that the
purchases of their societies are made for cash.

Proportion of Credit Trade: A return of the proportion of the
credit trade of these organisations seems very difficult to
obtain. About twenty of them give figures or estimates of the
position which it is difficult to summarise. They show
variations between 5 and 90 per cent of credit trading. Of the
twenty organisations replying to the question as to the amount
or percentage of credit trading in their present operations,
eleven admit more than 10 per cent.

Co-operative Wholesale Societies - The purchases and sales of
the Wholesale societies are effected mainly on the basis of 30
days' credit. Only in exceptional cases is the interval of
payment extended to 90 days from the delivery of the goods,
and then usually in the case of textiles. As a rule, the time
allowed to member societies to make payments follows the
general practice of the wholesale trade. Financial credits to
members by wholesale societies, as for instance the English
C.W.S. Bank, or through the affiliated banks like that of the
V.S.K., Switzerland, are secured by mortgages, bills of
exchange, or other securities, and in such cases the wholesale
societies act as bankers - not as suppliers of goods.
Provision of short and long-term credit is, however, an
exception and not the rule.

Workers' Productive Societies - One organisation replies that
it practices Cash Trading and gives the period of delay
between purchase and payment as 30 days. The others give the
same method of payment, but describe the transaction as credit
trading.

Agricultural Productive and Supply Societies: - It appears
that both the Czech and Swiss Agricultural Producers'
Societies apply the Principle of `Cash trading' so far as it
is possible. As the income of the farmer does not consist of
regular monthly and weekly wages, but depends upon the
disposal of the harvest, the societies are compelled to supply
him with artificial fertilisers, feeding stuff, seeds and
other agricultural implements on a relatively long-term credit
basis, from six to nine months.

Credit Societies and Co-operative Banks - The principle of
Cash Trading is scarcely applicable to these societies, and
the form of the Questionnaire was varied in this respect to
comply more nearly with their operations. The following notes
summarise the replies to our enquiry on The Scope and Methods
of Financial Operations...

Credit Societies - The scope and method of financial
operations reveal that the credit societies are engaged in a
large variety of financial transactions. The Austrian
societies grant financial accommodation in the form of
personal credits secured either by wages or by mortgages. The
Czechoslovakian societies grant all forms of credits,
including bills, endorsed by two persons. The Korean, Latvian,
Palestinian, American and Yugoslavian societies are engaged in
financing producers, farmers, artisans and grant personal
credits. Only the French and Hungarian societies limit their
activities to farmers and artisans. The securities offered
include practically all financial instruments, including bills
of exchange, overdrafts, financial bills. The rates charged
vary considerably, being determined to a large extent by the
financial conditions prevailing in the respective countries,
and, since the data supplied comes mainly from countries with
relatively high costs of capital, it is no wonder that rates
are rarely below 5 1/2 to 6 percent, in some countries rising
to 8 1/2  to 9 per cent. It is worth noting that the rates
charged to clients are in practically all instances or by
government authorities. Only in Yugoslavia and to a certain
extent in Latvia are the rates of interest fixed by the board
or supervisory council. This undoubtedly shows that the
membership has a considerable influence upon the financial
policy of the societies.

Co-operative Banks - In the case of the co-operative banks,
the analysis of the Rochdale Principles is closely connected
with the enquiry into the Scope and Methods of their financial
operations and the structure of their liabilities and assets.

The Czechoslovakian bank has a relatively large percentage of
its capital invested in financing private persons and private
firms, Kc.25 million, in comparison with a total of Kc.144.4
million. The English C.W.S. Bank has 2.2 million Pound
Sterling of credit granted to private persons of a total of 86
million pounds, but this figure does not include the
investments in Government Funds and other gilt-edged
securities which indirectly constitute the financing of
private business. The Swiss Bank shows that mortgages to
private persons and private firms amount to Fr.,18.8 million
out of a total of Fr.46.3 million, while the Hungarian Bank
shows advances to non-members of Pengo 4.5 million, out of a
total of Pengo 8.6 million. It is obvious that the percentage
of capital invested in financing private enterprise largely
determines the co-operative character of the financial
institution.

Not less important is the composition of the liabilities. Of
the total liabilities of the Czechoslovakian Bank, amounting
to Kc.162.9 million, the deposits of private persons and
private firms amount to Kc.44.3 million, or about 27 per cent
of the total. In Great Britain, the deposits of the C.W.S.
Bank are composed, as to 70 per cent of the total of
investments of Co-operative organisations and individual co-
operators, but the amount shown for `other depositors'-
probably consisting of private persons and firms, though there
may be also municipalities and public bodies amongst them -
amounts to 8.1 million pound sterling, which is, however,
considerably less than the amount invested by the Bank itself,
directly or indirectly, in private enterprises and government
securities. Other banks do not give the amount of private
deposits, but simply give `other depositors,' which is a too
general term and not helpful to our enquiry. The
Czechoslovakian Bank gives a complete and clear classification
of the composition of its liabilities.

The information concerning the scope of financial activities
and the structure of the assets and liabilities is, however,
too meagre to permit any general conclusion.

*            *           *              *            *

In reviewing the question of Credit Trading in the light of
the further enquiries that have been addressed to the other
types of co-operative organisations, no less than of the
discussions which have taken place on the present application
of the Principle, the Committee desire to make some
observations of a more or less general character. They would
remark, in the first place, that it does not seem to be either
a practical or a reasonable proposition to arbitrarily define
Cash Payment as taking the goods with one hand and offering
the cash with the other.

The Committee are agreed that the system of Cash Payment,
uncompromisingly laid down in the First Laws of the Rochdale
Pioneers, was applicable to consumers' or retail distributive
societies. The Pioneers in framing their constitution were
only concerned with consumers' societies. The various types
which have since been developed, having different
constitutions and methods of work, call for special
consideration of their needs. At the same time, the Committee
would emphasize the fact that the consumers' societies remain
the most important and numerous organisations of the Movement
and, indeed, must ever remain so in an Association which
claims to be based upon the consumers' needs, to defend his
interests and, in short, to speak for the community.

Nevertheless, the Committee agree that it is necessary to
examine more closely than has yet been done the needs of all
forms of co-operative enterprise in relation to this
Principle.

In the case of Wholesale Trading, it is revealed in the
answers to our enquiries that the co-operative wholesale
societies conform to the usage of wholesale trade throughout
Europe. In some of the instances the rudiments of knowledge
were taught, it was only to the extent that would render the
students receptive of the more specialised instruction which
the Pioneers sought to impart.

William Robertson makes detailed reference to this phase of
their activities in his chapter on the origin of the News Room
and library in the Rochdale Congress Handbook. He says:

     "One of the objects of the founders of the Store had
     in view when they formed their plans was to raise
     the people to a higher level by educating them, and
     the Committee recognised that the library was the
     first step in that direction."

     Again: "About the year 1853, it became necessary
     that the Rules of the Society should be revised in
     order that they might avail themselves of the
     privileges of the industrial and Provident
     Societies' Act which had just been passed. The
     Committee, feeling that the necessity of appealing
     to quarterly meetings for the usual sums of money
     for the maintenance of the library was an
     objectional feature, determined to make an
     alteration. They asked that 2 1/2 per cent of the
     business profits should be devoted to the
     educational department."

In many cases, the finances of educational work are provided
out of the general funds as current expenses, and treated very
much in the same way, so far as the accounts are concerned, as
publicity and advertising.

This was at first the method of the Rochdale Society, but as
we have shown was superseded by the definite allocation of 2
1/2 per cent, included in the Rules. That percentage is still
maintained in many societies in Great Britain, though some
limit the amount to 1 1/2 or 2 percent. On the other hand, a
new practice is growing up amongst the more progressive
societies of basing the allocation to education on a rate per
member of the society. This plan yields a greater percentage
than 2 1/2 per cent.

The replies received from other countries show that in
fourteen countries the allocations vary from 1 to 5 percent,
while twelve national organisations make no allocation.

*             *                *               *

The conclusion of the Committee is that the Promotion of
Education on the broad lines of citizenship was an essential
Principle of the Rochdale Pioneers, but that as our research
into their records, as well as the present practice of
societies show, the exact method and percentage of allocation
of the necessary funds for this purpose might well vary
according to circumstances. The Committee are of the opinion
that the maintenance of the Principle is essential, and that
regular allocations from the `net surplus' of the societies
should provide the means of promoting education in those
matters which specially interact co-operators as aids to the
realisation of their ideals.