University of Wisconsin Center for Cooperatives
Edwin G. Nourse and
The Competetive Yardstick School of Thought
By Thomas P. Schomisch
UCC Occasional Paper No. 2, July 1979
The author was a Cooperative Program Specialist, University
Center for Cooperatives, University of Wisconsin--Extension, Madison,
Wisconsin. He is currently a Professor in the Agricultural Journalism Dept., University
This paper was presented at the Graduate Institute of
Columbia, Missouri, July 16, 1979.
For further information or permission to reprint, please
UNIVERSITY OF WISCONSIN CENTER FOR COOPERATIVES
427 Lorch St.
Madison, Wisconsin 53706 U.S.A.
In accepting this assignment I would like to say
at the outset that I truly feel that I have been treading on "hallowed
ground" the past few weeks in researching the subject. Dr. Edwin Nourse
and the competitive yardstick school of thought he initiated have left
a profound impact in shaping and molding the agricultural cooperatives
we know today in North America.
To help us develop a clear understanding and appreciation
for the unique characteristics of the competitive yardstick school of thought,
I would like to share my findings with you in the following framework.
First, to gain a perspective of his work I believe
we need to briefly glance at the factors that influenced his thinking in
the period of 1910 on into the 1920s. We will examine the evolving rural community
structure, technical advances, the political environment and ongoing cooperative
progress at the time Nourse emerged as one of the most respected cooperative
scholars of our time. I would also like to share with you a few insights
into his personal background and professional development
I have sought to distill the writings about the
competitive yardstick and set forth the basic propositions supporting his
theory and resulting school of thought. I have identified eight factors
upon which he constructed the influential theory. I will also propose a
model to help you visualize the theory in operation.
After we discuss the propositions I would like to
present a contemporary
analysis of the use and acceptance of the competitive yardstick school
thought. I hope my remarks will stimulate your imagination and provoke
Competitive Yardstick School Defined
Simply defined, the competitive yardstick school
of thought views the cooperative enterprise as a yardstick for individual
members to measure the performance of the capitalistic system. Cooperatives
function to improve the
competitive performance of the total economic system, thereby restraining
system and modifying any excesses associated with it.
Many of the characteristics of this school will sound
to you. You most likely will have heard of your cooperative organization
the merits of the very same operational premises. This school is regarded
prevailing school of cooperative thought in most sections of the U.S.
very well may provide the underpinnings for your organization.
Background of Forces for Competitive Yardstick
Joseph G. Knapp, prominent cooperative historian
and associate of Nourse,
provides an excellent profile of the conditions influencing cooperative
development in the first two decades of this century in his information-packed
book, The Rise of American Cooperative Enterprise.2
Let's quickly trace some of these forces which built
up to 1922, the date
associated with the introduction of the competitive yardstick school.
of 1897 to 1920 produced a revolutionary change in the character of
the position of agriculture in the economy as a whole.
2Joseph Knapp, The Rise of American Cooperative
Enterprise: 1820-1920, pp. 99-109.
It was during this period that the migration West
officially brought a
close to the frontier movement. The farm population began to take on
and develop a system of farming efficiency. No longer could producers
pull up stakes and go West. Now to make a success of farming, families
improve the efficiency of available land.
During this time the nation became more and more
industrial in character.
The rural population fell from 60 percent of the nation in 1900 to
in 1920. Farmers had to depend increasingly on commercial marketing
with the urbanization trend or they could provide the necessary linkages
cities themselves through cooperative activity.
Another factor which helped promote the growth in
cooperation in this period was the influx of immigrants in our rural population
from 1880 to 1910. They settled within nationality blocks. Many brought
with them an appreciation of working cooperatively from their homelands.
The Scandinavians were especially
noted for applying their cooperative experience to the conditions in
Technical advances on farms, and the introduction
of power machines on farms, promoted the development of cooperation. Machines
reduced the time of farm operations so that farmers could attend meetings
and educational training sessions. Here they could consider their economic
and social problems. They could examine the possibilities of marketing
the greater output machines made possible through cooperative methods.
Improvement in road systems to the country, coupled
with the introduction of trucks, also enhanced cooperative development.
Farmers from a wider area could exchange ideas. Trucks made greater operating
efficiencies possible for cooperatives,
Likewise the improved communications systems closed
distances. The rural free mail delivery stimulated farmer interest in community
and national problems and finding methods to improve the standard of living
for their famlies. The spread of the rural telephone served to bring people
together. Memberships in telephone cooperatives gave farmers a dramatic
lesson in the value of cooperation.
Political Environment Builds Cooperative Movement
President Theodore Roosevelt appointed the Country
Life Commission in 1908 and charged them with developing policies which would improve the plight
of farmers. The Commission surveyed a vast number of rural people
(550,000) and conducted hearings at 30 locations across the land.
The upshot of the Commission finding, just a year
later, was that the introduction of effective agricultural cooperation
throughout the United States is of first importance to helping farmers
Cooperatives Marketing Progress
The Granger Movement of the late 1800s spawned widespread
organizational development. While this movement opened up cooperative activities like
stores for goods, machinery manufacture ant handling farm commodities, much
of it succumbed to the strain of inadequate business organization when early
When Nourse entered the agricultural scene in the
early 1900s, farmers
were struggling to make the cooperative concept work in agriculture,
dairy, livestock and grain, fruit and vegetable industries. California
was advancing rapidly in attempts to organize the commodity marketing.
3John Daniels, American Cooperatives, Yesterday-Today-Tomorrow,
4H. E. Erdman, "Trends in Cooperative Expansion,"
Journal of Farm Economics, November, 1950
The first integrated cooperative marketing system
- the California Fruit
Grower Exchange - had a lasting influence on Nourse. Their system of
united into local associations which in turn were joined together in
a series of
district exchanges, federated together in one central exchange, intrigued
It was while studying the trial and error development of this system
developed his model for the competitive yardstick school of thought.
appears that the greatest influence in provoking Nourse to prepare
and promote a
grass roots approach to cooperative development was an ideological
Aaron Sapiro. Nourse simply could not accept Sapiro's emphasis on monopoly
learned about earlier today. He attempted to counter Sapiro's evangelistic
to built top-down autocratic cooperative doctrine with a solid business
Nourse Personal Background
It is against this sketchy backdrop of conditions
in 1900 to 1920 that I
would like to now consider Nourse the man and identify the major propositions
the competitive yardstick.
Nourse could readily identify with farmer needs from
his own mid-western
experience. Born in Lockport, Nourse was reared on a small farm in
Illinois. He received his first degree from Cornell University in 1906.
served as an Instructor at Wharton School of Finance and Commerce,
and professor and head of the Department of Economics and Sociology at
the University of South Dakota. He completed his Ph.D. at the University
of Chicago in 1915.
5Joseph Knapp, "Nourse - Dean of American
Scholars," American Cooperation, 1974-75, pp. 372-374. pp. 9-14.
He reached an academic position of influence as an
agricultural economist serving as professor and department head for Economics
Departments at the University of Arkansas, 1915-1918, and Iowa State College,
1918-1923. A chance for national exposure lured him to take charge of the
agricultural studies for the Institute of Economics in Washington, D.C.,
from l923-27. He was named Director of the Economics Institute of the Brookings
Institute When it was established in 1927.
Nourse was deeply involved with the cooperative movement
throughout his career. He helped establish the American Institute of Cooperation
in 1925 and was called upon once again to breathe life into the organization
following the lapse caused by World War II. His thinking was instrumental
in many of the farm programs developed in the New Deal era.
President Truman called upon his talents to serve
as the first Chairman of the Council of Economic Advisers under the Employment
Act of 1946.6
Basic Proposition of Cooperative Yardstick School
While he was head of the Agricultural Economics
Department at Iowa State College he had the chance to study the problems
of farmer cooperatives in depth. His outstanding publications soon gave
him the stature as a cooperative marketing authority. His article published
in the American Economic Review in December, 1922, "The Economic Philosophy
of Cooperation," is considered a classic in cooperative enterprise theory.
From it has developed the competitive yardstick school of thought.
The theory embraces at least eight distinct propositions.
Let's examine each:7
6Joseph Knapp, Great American Cooperators,
chapter by Orion Ulrey, pp. 366-378.
7Edwin G. Nourse, '-the Place of the Cooperative
in Our National Economy," American Cooperation, 1942-1945 (Propositions
adapted from pp. 33-39.)
1. Establish organizations with bottom-up democratic cooperative
Nourse felt cooperatives should grow democratically
from the ground up with a body of informed participating members. He could
not subscribe to Sapiro's emphasis on monopoly power for he did not believe
it was attainable on a voluntary basis even with iron-clad membership contracts.
He warned that the technique of bottom-up development is slower and more
difficult than any other business form, but once perfected outruns and
outlasts the others.
2. Cooperatives become integral segment of existing capitalistic
While Nourse could not accept a monopoly position
for cooperatives in the agricultural economy, he did expect cooperatives
to become a legitimate business force within the existing capitalistic
system. He viewed cooperatives as being supplementary to capitalistic enterprise.
He argued that the place for cooperatives in the national economy is not
to displace other forms of businesses, but to occupy certain strategic
points. The true place for the cooperative is "that of economic architect,
not commercial Napoleon."
3. Build business efficiency of total economic system
Nourse advocated people joining hands in a business
enterprise to promote maximum efficiency, stability and prosperity for
the economic business as a whole
4. Control a modest share of commodity, supply or service market
Nourse contended the success of the cooperative
movement should be judged more by the quality of its performance than by
the size of its membership or volume of its operation. When a cooperative
has to maintain its position by constant evangelism, sentimental appeals
to membership or government favors and special aid, Nourse felt the organization
would have overgrown or outlived its true economic need and value. Cooperation
is hard-headed business, not an ideological crusade. He did not affix an
actual market share percentage he felt adequate to introduce competition
in a given business area. He felt the amount would vary greatly, but a
goal of 15 to 30 percent would likely permit cooperatives to meet their
5. Keep other business forms competitive with balance function
This proposition is the very core of the competitive
yardstick school of thought. Nourse viewed cooperatives as correcting many
of the evils associated with capitalism. He felt cooperatives should perform
a balance wheel or checkpoint function that would improve the performance
of the entire economic system. The place in the nation's business marked
out for cooperatives is that of "pilot plant" and ''yardstick operation."
Cooperatives should set a pace of competition which will assure for the
farmer efficient service at true long run cost/income benefits.
6. Preserve individual producer freedom of decision making
Nourse sought economic freedom for individuals.
The cooperative is merely an extension of the farming enterprise. The system
must maintain a delicate balance between gaining high economic efficiency
gained through group discipline while protecting the individual freedom
to make effective decisions for their total business operation - farm and
off farm enterprises.
7. Organize only if competitive influence is necessary
Nourse asserted that the farmers' role in the economy
is that of raising crops and producing livestock. He expects that under
traditional principles of division of labor and specialization, industrial
agencies will manufacture market, distribute, and finance these functions.
He felt that when such services are furnished efficiently
and in a truly competitive manner, there is no need for the farmer to divert
his resources of limited capital and managerial time. Farmers shall have
both the legal institutions and organizational "know how" to step into
these non-production fields when and to the extent that service is inadequate
or costs unduly high. Farmers must then remain in these fields with cooperative
organizations large enough to attain high efficiency to protect themselves
from lapses in quality of service or non-cooperative profiteering.
8. Government should provide assistance with basic framework for
organization and operation
Nourse felt there should be definite limits to the
extent of government control of cooperatives: He fought for the need of
enabling legislation to establish the legal framework for cooperatives
to organize and operate. But he vigorously opposed temporary gains by invoking
government aid and support to enlarge the power of the cooperative.
He contended that these temporary gains would be
costly when an outraged public opinion would eventually kick the props
out from under any such artificial economic structure.
Model of Competitive Yardstick School of Thought.
The model below illustrates the three points where
cooperatives exert a competitive influence in the agricultural economy
within the framework of the competitive yardstick school of thought. (1)
Cooperatives introduce any inputs or services not currently supplied by
capitalistic system (2) Cooperatives seek to hold down prices of supplies
and services for production, (3) Cooperatives seek to raise prices received
for commodities within limits of acceptable price variation.
Contemporary Analysis of Competitive Yardstock
School of Thought
Cooperatives organized and operating under the provision
of the competitive yardstick school flourish today in the United States.
That fact alone is valid proof that the theory Nourse espoused has left
a lasting impact.
However, I believe we must attempt a brief analysis
of how the propositions of his theory have withstood external and internal
pressure. Surely the pressure of time is embodied in each of the factors
we will consider.
First, let's examine the external pressures.
1. How have cooperatives weathered economic conditions?
The pressures of depression, inflation and war times
took their toll of some of the organizations which could not turn to greater
business efficiency to weather these economic stores. However many cooperatives
matured through these times. Increasingly, farmers have turned to cooperative
organizations to exert a competitive influence on supply, service, and
marketing sectors of the economy.
Time does not permit a detailed summary of the progress
farmers have made through their cooperatives. A quarter century comparison
by the Farmer Cooperative Service, USDA, (1950 - 1975) showed that cooperatives
handled 27 percent of agricultural products marketed in the U.S. in 1975.
This was an increase of 7 percent from 1950.8
8Statistics of Farmer Cooperatives, 1974-1975,
Farmer Cooperative Service, US Research Report 39.
Farm supplies handled through cooperatives totaled
1? percent in 1975 compared to only 12 percent 25 years earlier. Organization
numbers declined from 10,064 to 7,645 as farmers merged, consolidated and
strengthened their cooperatives.
2. How did cooperatives survive the challenge
of "quick-fix" champions"?
Numerous organizational challenges surfaced during
the past half century - milk strikes, union-type tactics for collective
bargaining, boycotts, demonstrations, even a tractorcade. The temptation
of a quick cure-all for the farmers price-cost squeeze has lured members
from cooperatives. However, the proposition of establishing sound business
efficiency for the economic system has regained the hallmark for cooperation.
3. Have cooperatives continued to grow to remain
a competitive influence in the marketplace?
Yes, but the growth has resulted in vertical integration
to the source of supplies as witnesses by the drastic achievement of the
interregional and regional cooperatives. Likewise, integration forward
into the marketplace has occurred as cooperatives sought to control farmers'
destiny. The establishment of franchises of consumer acceptance squares
with Nourse's proposition of only entering the market when competitive
influence is deemed necessary.
The growth of cooperatives produced an interesting
paradox. The democratically controlled organizations in many of the service-supply
and marketing segments of the economy have reached a growth point where
they are now each others greatest competition.
This duplication and overlap certainly are not embodied
in Nourse's concept of business efficiency.
Now, let's briefly look at the impact of internal
1. How have cooperatives resisted government interference?
Many organizations have fallen victim to the internal
pressure to control production, prop up commodity prices and turn to the
government to protect their economic success. As Nourse predicted, public
opinion pressures are currently attempting to strip cooperatives of their
temporary gains - and their operational framework in the challenge of antitrust
Cooperatives will need to demonstrate the value of
their pacesetting activities upon the entire economy to survive the current
2. Have cooperatives built an informed membership?
To grow slowly from a grass roots organization of
an informed participating membership was a major underpinning of Nourse's
concept. He might well have extended that notion to perpetuation of-cooperative
organizations beyond the first generation of members. Cooperatives have
made major efforts and expenditures to educate youth and young members.
Whether their attempts are adequate will be manifested in acceptance of
cooperatives as tools farmers will use to improve their economic lot.
The basic concept of the need to control only a modest
share of the market may be encouraging the current generation of producers
to take advantage of "free ride" the system makes possible. Only continued
informational and educational efforts will sustain cooperatives as a competitive
force in the economy.
3. Have cooperatives maintained member interest above organizational
The best measurement of this internal pressure is
the level of continued membership. Cooperatives have held their own in
recent years. However, a number of factors may be eroding support of the
organizations, The inter-cooperative competition and "free ride" issues
identified above any be leading factors.
Nourse may not have envisioned another serious issue
cooperatives face today. Failure to return earnings retained by Cooperatives
for operational financing certainly does not measure up to his insistence
of not tying up the member's limited capital in an organization.
Just last week, Randall Torgerson, Deputy Administrator
for Cooperatives, USDA Economics, Statistics and Cooperatives Service,
warned Wisconsin cooperative leaters that the lack of adequate programs
to meet the finance revolving issue may be costing cooperatives the participation
of would-be members.
He reported that a 1977 study of the Farmer Cooperative
Service found, "Only 32 percent have programs for retiring retained equities.
Another 39 percent have programs for retiring equities under special circumstances
such as death, retirement or hardship. The remaining 29 percent had no
Cooperative leaders will need to keep member welfare
above all other considerations if they expect their organizations to flourish.
Nourse's theory and resulting competitive yardstick
school of thought lives on. The terms may have been popularized within
the notion of cooperatives serving as "pacemakers." Cooperative organizations
have built slowly but their efforts have been rewarded with economic institutions
that "outrun and outlast" other forms of business established to meet farmer
needs. Cooperators will be well advised to return to the basics of Nourse's
competitive yardstick theory to build their future on a solid foundation
of business efficiency.
9Randall Torgerson, Talk presented to Legal-Finance
Conference, July 11, 1979, Fond du Lac, Wis.
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