The Present Application of the Rochdale Principles of Co-operation (1937)

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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'

1. 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.

2. 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).

3. 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."

4. 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.

5. 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.

6. 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.