___________________________________________________ This document has been made available in electronic format by the International Co-operative Alliance ICA ----------------------------------------------------- November 1995 ICA Studies and Reports Co-operatives in Eastern & Central Europe Bulgaria by Professor Dinonysos Mavrogiannis 4 Conclusion The long tradition of co-operative action in Bulgaria is part of its economic and social history. It has gone through various periods of successful development, as well as of difficulties and transformations. Although its economic model was brought in from outside Bulgarian society, the co-operative movement soon developed deep roots in the fertile social soil of this Balkan country, which was always keen to be endowed with civilised institutions quickly assimilated by the working population. Various forms of co-operatives managed to overcome cultural and organisational obstacles before the Second World War. They also absorbed the structural, functional and ideological blows since imposed by the totalitarian Socialist regime. Recent steps taken by both Government and co-operative leaders have resolved the crisis of identity and restored co-operative tradition, values and principles. The following highlights could further substantiate evidence of the above conclusion. Brief reference will also be made to the Bulgarian co-operative movement's plans and expectations. 4.1 Main highlights .c.The most important factor which favoured the reconstruction and privatisation of co-operatives was the wide and propitious legal framework instituted in the country by Governmental policy and various legislative texts adopted between 1989 and 1992. The national consensus of all social partners regarding restored economic pluralism, placed co-operative societies and the co-operative sector among private associations, alongside commercial companies. These facts brought about the resurrection of co-operatives in much clearer conditions than in some other countries of Central and Eastern Europe. Table 12 borrowed from the Article of M. Meurs and Ch. Rock: "Recent evolution and issues of Bulgarian co-operatives", published in the Yearbook of Co-operative Enterprise 1993, pp. 39-52, Plunkett Foundation, Oxford, U.K., up-dated and completed in the light of data collected in late 1993, points out the legal and policy changes and improvements already evident. Table 12: Changes in Co-operative Rules and Practices in Bulgaria Issues Pre-1989 Laws Current Laws and and Practices Practices (1993) Autonomy Legal, constitutional uniform-mandatory freedom-within framework for for all co-ops constraints of 1991 individual co-ops: co-op law and constitution Individual co-ops in obligatory voluntary federations (co-op unions): Individual co-ops' rights minimal yes to establish own internal practices within law: Only a single federation yes (1970-88) no, several (co-op union) for co-ops: Co-op federation (union) yes-finance, no-only by right to intervene in products, mutual accord member co-ops' planning decisions Internal governing of practice: democratic by individual co-ops oligarchie elected bodies Property Rights/Privatisation Distribution of the co-op co-op union members property on dissolution to: Dividends paid on share very small(0-2%) no limits capital contributed as (bylaws) proportion of wages paid: Restrictions on non-individual: individualised:to distribution of rights to whole co/op each member to share in co-op's capital or profits Rent paid to members or not in practice yes, required others contributing land Retention of members' no: only as yes: or can property rights to abstract share agree specific land or other until 1959 to share physical property Right of members to with- no yes, share and draw property on ending land membership Share capital permitted not relevant yes for non- workers in worker co-op Co-operative Credit Central co-op bank exists no yes since 1991 Saving credit and no/nationalised yes 1) by deposits consumer societies (Art .38 Law 1991 ) Possibility of no yes individual co-ops borrowing directly from any existing bank: Labour Rights and Trade Unions Income per member-worker relatively equal at least equal compared to hired labour plus dividends for shares Effective restrictions yes(in practice) no, but in wage rates worker' co-ops depends on productivity Trade union representation yes yes, except mandatory for hired labour workers' co-ops Non-member hired workers maximum 10% no legal limits permitted in co-op: Member's right/obligation yes yes to job in production co-op: Obligation of member to yes no, unless work specified number of days stipulated in by-laws and internal regulations Marketing Ad hoc subsidies/siphoning yes no of income by Government to achieve central state goals : Who is involved in federation no restrictions export/import trading ? obligatory but in practice second and third degree organisations plus co-o p industries Decisions on a co-op's some co-op 100% by unions main products, prices, unions, but and co-ops quantitiy produced : mostly by State Plan Laws which apply to co-operatives: See list in Annex 2. The recent years of restructuring, land reform and privatisation, which are still on-going, have resulted in the emergence of a wide co-operative sector in quest of its private identity and seeking to reclaim its part of the market economy, and increasingly beginning to affect the everyday life of consumers, workers and farmers, as they continue to establish themselves. Three main trends are typical in all types of co-operatives. Apex organisations at the top, and primary societies at the bottom, constitute the essence of each sectorial movement. The intermediate organisations, local and regional unions, are insufficient in number, have less activities and are still in the process of reconstruction. In contrast, the apex organisations are not limited to planning, advising and defending their member-societies, but continue to undertake large-scale economic activities. Finally, membership of some apex organisations is mixed in the sense that their members are both primary and secondary co-operatives. Due to the specific conditions prevailing in the country, especially the level of unemployment, and the social benefits which co-operatives provide (sickness schemes, accident cover, pensions, maternity pay) some of the co-operatives are reluctant to reduce their workforce. This slows down the process of restructuring and makes them less competitive. It also risks perpetrating the condemned working and living conditions of the Socialist period. This is particularly true for the new agricultural co-operatives in that they concentrate on joint land cultivation rather than on the provision of services in common to their individual member-farmers. The drawback is that the agricultural co-operatives' members are not only farmers directly and personally involved in agricultural activities but also land owners occupied in other activities, retired land owners, landless workers, administrative staff and technicians. Workers' co-operatives also continue to hang on to their administrative staff, technicians and high staffing levels. Certainly, this decreases the unemployment figures and supports the benefits system. However, the delay in restructuring the organisations concerned, prevents them from being fully prepared for the market economy, in the context of which productivity and competitiveness guarantee survival and successful functioning. The consumer societies, in contrast, reached an advanced stage of maturity, due particularly to three initiatives taken since 1991: firstly, they provided financial and technical support for the creation and functioning of higher educational institutions at the university level. This will improve the qualifications of a new generation of co-operators, managers and technicians. In this field the consumer co-operative system of Bulgaria is ahead of many other countries. Secondly, the rapid and successful development of credit and deposit services created the right conditions for the establishment of the Central Co-operative Bank, the most important working tool of the country's co-operative movement. Thirdly, consumer societies, through their direct involvement in the production, processing and marketing of agricultural products, bring farmers and consumers closer together and achieve larger goals of economic development. With regard to their economic role and volume of activities, the importance of the consumer societies is significant. In the context of the dismantling of the State trade, and in the absence of a developed private and commercial network of retail trade, consumer societies will continue to occupy a key position for the time being and for many years to come. Among the six main co-operative institutions, two, The Central Co-operative Union of Consumer Societies and The Central Union of Workers' Production co-operatives, are already members of the International Co-operative Alliance and its specialised Committees of INTER-COOP (trade) and CICOPA (workers' co-ops) and have many working relationships abroad. Two other organisations, the newly-constituted Central Co-operative Bank and the National Union of Agricultural Co-operatives, are in the process of establishing such links with international organisations and seeking membership of the ICA and other European institutions. Within the remaining two institutions, the Department of Co-operative Management and Business and the Central Union of Workers' Co-operatives of Handicapped Persons: one old and one new, working relationships are focused on questions of expertise, assistance and collaboration. 4.2 Expectations In the transition to the market economy, the major problem seems to be the delay in completing the restructuring and privatisation process in all its forms and dimensions. Furthermore, the restitution of properties and enterprises to consumer societies and workers' co-operatives is far from complete, and the land redistribution is still only at the halfway stage. As for the sale of State enterprises, the plan is still in its infancy, and does not favour the workers' views and proposals for full participation in the auction and sales. Co-operatives are right in saying that settlement of the above difficulties and delays in transforming the State economy are not under their control. However, they have prepared themselves for the process and wish to be able to overcome these transitional problems as quickly as possible. The taxation system, which applies to most co-operative organisations, but particularly to consumer societies and to the Central Co-operative Bank, should take into account the fact that co-operative activities are not lucrative. Through its taxation policy, customs duties and other financial measures, the State should support and promote co-operatives as stipulated in Article 2 of the Law on Co-operatives of 1991. The tax exemptions which Article 37 of the same Law makes for some types of co-operatives should be enlarged to include those co-operative activities which are connected to production and to investment in labour. The administrative machinery of the State and other related bodies and authorities handling economic, legal and financial matters should be simplified so that it is ready to take snap decisions on developmental subjects. Also, the State's control over the activities of workers' co-operatives should be abolished and the burden of co-operative contributions to the State budget reduced. Credit facilities at affordable rates of interest, and other favourable conditions, should be organised for workers' and private farmers' co-operatives. The State should establish an appropriate physical, technical, technological and scientific infrastructure for the emerging agricultural co-operatives. Last, but not the least, Article 31 of the Law on Privatisation of State and municipal-owned enterprises permits the workers in such enterprises to bid in their auction or sale, and to receive favourable conditions of price and repayment. This should be extended to all types of co-operatives. As a matter of fact, agricultural, workers' and consumers' co-operatives are strongly interested in such an opportunity. In conclusion, the country's co-operative movement, in its capacity of private societies, wants the State to speed up the privatisation process, and to complete it by improving administrative channels and adjusting legislative texts in the light of the new economic conditions. 4.3 Perspectives of further co-operative development Within the new conditions of market economy, the three main types of co-operatives are working hard, each of them at its own speed and capacity, to renew, expand and diversify their economic and social activities. Far behind the other two, agricultural co-operatives are only just beginning to get off the ground. Their future depends on the effective implementation of the State's policy on the distribution, reallocation and renting of land. The organisation of agricultural co-operatives should start from scratch and involve both the State and individual farmers. Whatever the outcome of the steps taken to this end, the fact is that reconstruction of the agricultural economy and society can not become reality without the group action of individual farmers who own small plots of land. Co-operatives, therefore, are a viable choice for the State's privatisation of land and the survival of new farmers. The two are connected, representing two sides of the same coin. Workers' production co-operatives have decided to proceed with the creation of new production ventures for their members, in collaboration with partners from abroad. They intend to make better use of a workforce which desperately wants employment. The success of their expansion plans can be achieved only at the price of further sacrifices: firstly, the existing large co-operative organisations must be divided into smaller organisations and secondly, the high cost of production must be reduced. Staffing levels have to be decreased, and co-operatives which cannot keep up with changing economic circumstances abandoned. The workers' co-operative system should claim the right to bid in the auction of State' and municipal enterprises, some of which could be organised as employee buy-out units and run as co-operative type businesses. Through such a strategy workers' co-operatives can fight for their place in the industrial sector, securing employment and a better income for a large number of workers. Table 13 reflects the ambitious investment programmes of 144 production enterprises and workshops in the process of creation or re-organisation during the Workers' co-operatives' 1990-1995 period. Table 13: Investments required for the construction of small enterprises, workshops and production lines - 1990-1995 Small Enterprises Number Year Capacity Capital Workshops per Annum Investment (1,000levas) Yarn manufacturers 10 1991/95 5,900t 49,300 of which: cotton 1 " 1,500t - wool 8 " 3,400t - (short) flax filament 1 1993 1,000t - Weaving Workshops 8 1990/93 10,200thmr 18,500 Fur-dressing Enterprises 3 1990/92 2,000furs 2,000 3,000sq dcm 7,000 Shoe Manufacturers 10 1990/91 4,350 pairs 5,000 Metalworking Shops 40 1990/95 125,000 levas 37,755 China Manufacturers (ceramics) 5 1990/95 20,000 levas 3,000 Ready-to-wear Clothing 47 1993/95 2,290pcs 3,250 Knitwear 17 1993/95 7,285pcs 47,650 Packaging 4 1990/95 - 20,500 Furniture - 1990/95 - 80,000 Plastics - 1990/95 - 25,000 TOTAL 144 298,955 NB: estimates based on 1990 prices (exchange rate: 1,000 levas = CHF 1810.-) The consumer co-operative system is lining up its human and material resources to fight on three fronts: firstly, by up-grading the role and functions of the regional unions. These will collect information regarding members' needs and pass this upwards to the Central Co-operative Union, whilst also acting as central points for the marketing of goods and commodities to the primary co-operatives. Secondly, by organising new types of services such as food and catering chains and rent and leasing activities. Furthermore, they plan to expand the existing sectors of tourism and insurance services as well as production, purchase, processing and the sale of agricultural products. The restituted agricultural enterprises (dairies, canneries, wine and tobacco producers) will give a new impetus to this. Thirdly, by the adoption of a new approach regarding the distribution and utilisation of profits and investments, which will be used to create the motivation for further action. Members of primary societies will be given coupons corresponding to the volume of their purchases in the co-operative shops. The coupons will entitle the holders to dividends, which are reinvested in shares. Other projects will encourage members to save, and to deposit their savings within the co-operative system. The new plans already being implemented by the consumer co-operatives have a good chance of success for several reasons: the consumer co-operative system owns a considerable amount of property and capital. Furthermore, it has a long experience in managing trading activities, and it can rely on new generations of members, managers and technicians' being trained within its educational system. Consumer societies are not isolated. They don't hesitate to seek advice from international organisations, such as the ICA, ILO, and EU, and national co-operative movements from the developed countries of Western Europe and North America. Legislative policy has also created the necessary framework for long-term programmes and activities. This means that consumer co-operatives are ready to proceed without waiting for the completion of the restructuring and privatisation process conducted by the State and municipalities. It can safely be said that consumer co-operatives have not only the ambition to be successful but also the capacity to realise their ambitions. In addition, three other factors will determine the smooth development and efficient functioning of the Bulgarian co-operative sector: 1. The creation of a unified structure for all types of co-operatives (fourth degree apex organisation) for coordination, planning and defense purposes. Preparatory work is already in progress and basic guidelines are under discussion by all concerned; 2. The growth and consolidation of the co-operative saving, credit and deposit services. This will facilitate co-operative activities and will contribute to the relative financial autonomy of the co-operative sector. The key role in this matter will be that of the Central Co-operative Bank, which must attract a large membership among all types of co-operatives and also extend its services to the commercial sector. The Central Co-operative Bank should therefore prove that it has the capacity to provide financial support for the promotion of the country's co-operative movement; 3. The definition and role of labour and trade unions in the new context of privatised co-operative organisations and enterprises has not been adequately studied. Any weakening in the trade unions' voices regarding the role of workers in the process of privatisation may lead to further disputes between the labour force and management regarding the role and position of the former in the context of the privatised enterprises, including the use of hired workers who have no financial stake in the organisation.