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COOPERATIVE BRANCH -COOPERATIVE DEVELOPMENT - CD 11

Creating a favorable climate and conditions for cooperative development in Central and Eastern Europe

This preliminary document circulated in a limited number of copies solely to stimulate discussions and critical comment.

Foreword

The need to create a conducive environment for the development of autonomous, economically viable and democratically controlled cooperatives has always been a concern of the ILO as expressed in its Recommendation No. 127, concerning the Role of Cooperatives in the Economic and Social Development of Developing Countries. This has led the ILO to examine in more detail, under the prevailing conditions in the different regions of the developing world, the different factors which contribute to the creation of a favourable climate and conditions for cooperative development and those which inhibit them.

The findings from the different regions have been compiled in a series of studies. The first study on "Creating a favourable climate and conditions for cooperative development in Africa" was published in 1993. It comprised 8 English-speaking African countries (Botswana, Egypt, The Gambia, Kenya, Lesotho, Nigeria, the United Republic of Tanzania and Zimbabwe); the bi-lingual countries of Mauritius and Cameroon, and 11 French-speaking countries (Burkina Faso, Burundi, Chad, Côte d'Ivoire, the Republic of Guinea, Madagascar, Mali, Niger, Senegal, Togo and Tunisia).

The second study was published in 1994 for the Asian region. This study examined the situation in Afghanistan, Bangladesh, China, Fiji, India, Indonesia, Iran, Japan, the Republic of Korea, Malaysia, Pakistan, Nepal, the Philippines, Singapore, Sri Lanka, Thailand and Vietnam.

The third study covering Latin America was published earlier this year. It included references to Argentina, Brasil, Colombia, Costa Rica, Ecuador, Honduras, Mexico, Peru and Venezuela.

This fourth study examines the situation in Central and Eastern Europe and makes special reference to Russia, Estonia, Bulgaria, Poland and the Czech Republic. The study is meant to stimulate discussions on the challenges of creating conditions conducive to cooperative development within the region and also among the different regions. Similar outlines were chosen for all two studies in order to make them comparable.

I wish to express my thanks for the valuable contributions and comments in the completion of this document from Ms. G. Ullrich, Mr. J. von Muralt and Ms. A-B. Nippierd. And particular thanks to the authors of the original version in German, Prof. R. Steding, Mr. J. Kramer.

J. Fazzio, Chief, Cooperative Branch

Contents

Foreword iii

Abbreviations vii

Executive Summary 1

1. Introduction 7

1.1. Preliminary remarks 7

1.2. Object of the study 8

1.3. Definitions 10

2. Origin and development of cooperatives in Central and Eastern Europe 11

2.1. Cooperatives in the pre-socialist era 11

2.2. Cooperatives in the socialist era 13

2.3. Cooperatives in the post-socialist era 17

2.4. East German cooperative development as a model for Central and Eastern Europe? 20

3. Types of cooperatives in the region 23

4. Country profiles 24

4.1. Russian Federation 24

4.1.1. History of cooperative development 24

4.1.2. Cooperative legislation 25

4.1.3. Variety and concept of cooperatives 27

4.1.4. Cooperatives in the process of transformation 28

4.2. Estonia 30

4.2.1. History of cooperative development 30

4.2.2. Cooperative legislation 31

4.2.3. Variety and structure of cooperatives 32

4.2.4. Cooperatives in the process of transformation 33

4.3. Bulgaria 34

4.3.1. History of cooperative development 34

4.3.2. Cooperative legislation 35

4.3.3. Variety and structure of cooperatives 36

4.3.4. Cooperatives in the process of transformation 37

4.4. Poland 39

4.4.1. Historical development of cooperatives 39

4.4.2. Cooperative legislation 41

4.4.3. Variety and structure of cooperatives 42

4.4.4. Cooperatives in the process of transformation 44

4.5. The Czech Republic 45

4.5.1. Historical development of cooperatives 45

4.5.2. Cooperative legislation 47

4.5.4. Cooperatives in the process of transformation 49

5. The potential contribution of cooperatives to social and economic development 51

6. Experiences of cooperative development in Central and Eastern Europe 53

6.1. Achievements and innovations in cooperative development 53

6.2. Mistakes and weaknesses in cooperative development 55

7. Main actors of cooperative development 56

7.1. Members 56

7.1.1. Member status in socialist cooperatives 56

7.1.2. Responsibilities and problems of the members in the transition of existing

cooperatives 58

7.2. The state 60

7.3. The cooperative movement 63

7.3.1. The management of external market economy problems 64

7.3.2. Coping with the problems caused by transformation 64

7.3.3. Management of the internal transition 65

7.4. Independent local and national organizations 67

7.4.1. Trade unions 67

7.4.2. Employers' organizations 68

7.4.3. Other NGOs 68

7.5. Supporting international organizations 68

7.5.1. International organizations within the United Nations 68

7.5.2. The International Cooperative Alliance 70

7.5.3. Other organizations within the international cooperative movement 72

7.5.4. Other internationally active NGOs 75

8. Factors influencing cooperative development 75

8.1. The image of cooperatives in Central and Eastern Europe 77

8.2. Policies of cooperative development 79

8.3. Legislation relevant to cooperatives 82

8.3.1. Political framework 82

8.3.2. Cooperative legislation 83

8.4. Institutions of cooperative development 85

8.5. Supporting institutions 87

8.6. Cooperative education and training 88

8.7. Tax system and subsidization policy 90

8.9. Specific fields of responsibility and target groups for cooperatives 94

9. Conclusions 95

9.1. Types of cooperatives 95

9.2. Potential contributions of cooperatives to social and economic development 97

9.3. Main actors within cooperative development 97

9.4. Influential factors of cooperative development 98

9.5. Final remarks 99

Bibliography 101

Annex I: UN: Status and role of cooperatives in the light of new economic and social trends 107

Abbreviations

Beil : Beilage

Ber. Ldw. : Berichte aus der Landwirtschaft

BfAi : Bundesstelle für Außenhandelsinformation (Deutschland)

Bl. : Blatt/Blätter

BzD : Beiträge zur Diskussion, Schriftenreihe des Genossenschaftsverbandes Sachsen

CA. : California

CEA : Confédération Européenne de l'Agriculture

CSFR : Czech and Slovak Federal Republic

ECORD : European Cooperatives for Rural Development

et al. : et alii

FAO : Food and Agriculture Organization of the United Nations

GDR : German Democratic Republic

GPG : Gärtnerische Produktionsgenossenschaft (horticultural production

cooperative)

HRD : Human resource development

ICA : International Co-operative Alliance

IGB : Internationaler Genossenschaftsbund

ILO : International Labour Office

Jg. : Jahrgang

LPG : Landwirtschaftliche Produktionsgenossenschaft (agricultural

production cooperative)

Mass. : Massachusetts

Md. : Maryland

NGO : Non-governmental organization

NÖP : Neue Ökonomische Politik (New Economic Policy)

N.Y. : New York

PHG : Produktionsgenossenschaft des Handwerks (production cooperative

for handicrafts)

SEF : Stiftung für Entwicklung und Frieden (Foundation for Development and

Peace)

SHO : Self-help organization

Suppl. : supplement(s)

UN : United Nations

UNIDO : United Nations Industrial Development Organization

URSS : Union of Socialist Soviet Republics

USSR : Union of Socialist Soviet Republics

VOCA : Volunteers in Overseas Cooperative Assistance

VR : Volksrepublik ( peoples's republic)

WOCCU : World Council of Credit Unions

ZfgG : Zeitschrift für das gesamte Genossenschaftswesen

Executive Summary

The whole economic background for the current development of cooperatives in Central and Eastern Europe is historically unique: the metamorphosis of economic structures changing from a social system based on a planned economy to a market economy. Yet, it becomes evident that it is by far easier to abolish traditional economic structures (as an act of destruction) than it is to actually launch market economy mechanisms (as an act of creation). In this case cooperatives, as a "cooperating manner of learning" could play an important role.

The origin, current state and future prospect of cooperatives in Central and Eastern Europe differ very much depending on the countries in question. In each country cooperatives have to find a way of their own and follow that track. Searching for new standards and models for their future economic system, their view is focused mainly on the Western half of the European continent. Although they can be expected to find help there, for many reasons the orientation they will find will be limited: Even Western European cooperatives differ very much from each other. Besides, they also need reforms. The major reason, however, is that in their own countries Western European cooperatives find economic conditions that are rather favourable.

The study considers all those countries to be part of Central and Eastern Europe which are located in that particular geographical region and which have previously had socialist systems of government and economy. It offers examples for the development of cooperatives in that region, especially in Russia, Estonia, the Czech Republic, Poland and Bulgaria. Regarding the concept of cooperatives, the study defines a cooperative as an association of persons who are, as a collective, running an enterprise (a cooperative enterprise) based on self-help with variable capital assets and a variable total number of members. The cooperative promotes mainly the common economic interests of its members and has to be somehow officially registered.

Cooperatives in Central and Eastern European countries have more or less a pre-socialist tradition. Their point of origin in the socialist era is the result of an understanding of cooperatives that was embedded in the marxist-socialist theory. Although the structuring of the cooperative system in certain countries was influenced by national and other traditions and peculiarities, it was designed to create an overall discontinuity in the development of cooperatives in important points, to try and find a politically focused and different way of cooperation. It has to be said that this attempt has failed.

The transformation of cooperatives is going on in the whole area as a part of the transformation process of the region's overall economic structure. This transition will probably continue throughout this decade and part of the next. The scale and speed of this process differ very much depending on the country in question. The new (or better: the existing) powers have different opinions on "their" cooperatives (and very often thoughtlessly prefer capital companies), assuming that cooperatives have only little ability to adapt to changing market conditions. The modalities of the ongoing transition are in a constant state of redirection. This makes it especially difficult to create strong cooperative pillars within the economic systems in Central and Eastern Europe.

The variety of cooperatives in the various countries in Central and Eastern Europe is (with the possible exception of Poland and Hungary) rather small. Cooperative credit societies are of minor importance (mostly due to national banking monopolies). Cooperatives designed to aid in the stages before and after the production itself were not all that numerous.

The form of cooperative that was probably the most important, and which was the one most commonly found in Central and Eastern Europe, was the production cooperative. It was usually found in the agricultural sector. The production cooperative was very important in all former socialist countries and is still leaving its mark in the cooperative systems of the countries in question. In the future, it will be very important to develop all types of cooperatives and to put into use whichever is the most helpful kind. In this context, it is remarkable that cooperatives are seldom used to solve problems that belong to the so called "alternative economy". Even though the ongoing transformation process offers chances for such economic and political behaviour, "alternative cooperatives" are rarely found, which stems mainly from the fact that economic structures are still too "open", or - in other words - not stabilized enough to look for alternatives at the borders of the framework. Instead, there is a tendency to copy the Western European example, which in itself is dominated by limited and joint stock companies in their various forms.

Of all economic enterprises inherited from socialist times, cooperatives in Central and Eastern Europe, as self-help organizations, have by far the best chances of counteracting the existing economic and social problems. However, they first have to strengthen the traditional cooperative values of self-help, self-administration and self-organization. This includes a major organizational restructuring process as well as a necessity to redefine the political and economic role of cooperatives and their linkages to the state. Advantageous in this context is the continuance of their economic existence and functionability in several major branches of the economy. Furthermore, they offer at least a partial job security for their employees, even though most cooperatives in post-socialist countries tend to be traditionally overstaffed. Besides, newly founded cooperatives are important in establishing middle classes and thereby stabilizing the market economy as well as the political system.

Another aspect in this context is of major importance: Cooperatives are especially able to act in times of social changes and economic transformation as a stabilizing factor as far as organization, learning and vocational training are concerned. They are able to help people (members, employees) to adapt to a different environment without cutting the "personality roots". During the transition phase they can act as a lifeline for the people concerned, more so than all other forms of enterprises because the influence of the "human factor" is stronger. Here, however, a difference is visible between the "transition phase" from a centrally planned towards a market economy, as seen in Central and Eastern Europe, and the "advanced phase" of a market economy, as in Western Europe or North America. The role to be played by cooperatives in these two different settings can, of course, not be identical.

Finally, it is important to note that cooperatives have frequently proven themselves to be able to overcome economic hindrances and barriers. As the structural changes in Central and Eastern Europe necessitate an economic upswing (at least for the time being) especially in the agricultural sector and among the craftsmen and artisans, cooperatives offer comparative advantages: They have been particularly able to substitute the economic factor most commonly missing in all of the region, financial capital, through human capital

There are many indicators that lead to the conclusion that cooperatives will continue to be an important type of enterprise in Central and Eastern European countries. However, the final result of this development can as yet not be determined. A stabilization of cooperatives and the cooperative system can not be reached without from an overall economic stabilization because of the interdependence. The cooperative systems currently in existence have already experienced a major organizational transformation: the former aim of developing a more just and socially-oriented economic framework has been abolished. Instead, they are using profit-oriented market economy mechanisms. Cooperatives no longer view themselves as a path towards a post-capitalist society but as an element of democracy performing an important social function within the market economy.

The development of cooperatives in Central and Eastern Europe is difficult not only for internal political and economic reasons but also for external reasons. The deformation of cooperatives and the lack of consensus on what cooperatives are about, pose an external hindrance that is hard to overcome. It is also a major disadvantage that the European Community has as yet been unable to pass a statute of the European Cooperative. A common definition of a cooperative has thus still not been found. The development of cooperatives in the eastern part of Germany can not serve as an example, as their metamorphosis was heavily influenced by the unification process of a centrally planned and a market-oriented economic system. This process included a transfer of capital, law and human resources that can not be copied in any other country.

A further problem has to be mentioned in this context. In many countries the influence of the state and the government has not been clearly defined. Within a market economy, cooperatives are privately owned enterprises and there is therefore a tendency to barr the state from influencing cooperative development. This is quite understandable, even though it may not be advisable during the ongoing transformation process. The participation of the state is necessary but only to a certain extent: Cooperatives have to be a part of the economic structural policy including their establishment, activity and support - under the overall requirement of absolute equality in the sense of equal rights and equal burdens for all forms of enterprises.

As mentioned above, it is necessary to cooperate closely with the government at its various levels (national, regional, local) to help cooperative development. This cooperation does not aim at the involvement of the state in running cooperatives but in creating equal opportunities. This needs, in the first place, the legal permission to establish cooperatives and, at the same time, a favourable climate climate at the lower levels of government which would include emphasizing the "changed nature" of the new and/or transformed cooperatives.

Therefore it is necessary to work within the international cooperative system, looking into the possibilities and, if necessary, asking for help from the national cooperative movement, but also from outside. A twofold strategy is necessary: The orientation of cooperatives towards market competition has to be put into practice, while at the same time reforming the cooperative unions into support organizations is necessary. The aims of their membership will have to set the goals for the primary cooperatives, while the needs of these cooperatives are the guidelines for all activities of secondary-level cooperative institutions. This means not only looking into the existing structures, but also redefining the duties of the unions. Instead of handing down orders from the government they have to support the cooperatives. This will probably require in most countries an additional set-up of cooperative auditing units.

A third aspect that has to be mentioned is the question of training and education. It is necessary to convince institutions like universities and academies to offer training and education facilities according to the needs of the market oriented cooperatives. This requires not only an adaptation of the existing business administration and economics departments in accordance with their Western European counterparts as a first step, but also requires either a reshaping and restructuring of such facilities within the cooperative movement or newly establishing such places of learning at the workplace. While the overall transformation is already taking place, it is doubtful whether the special needs of cooperatives in post-socialist countries are already being considered.

In co-operation with or, if need be, in opposition to the institutions mentioned above, it is necessary to develop policies adapted towards the needs of the countries in question. These policies have to take the (economic) needs of the people as their basis and to find ways of supplying products and services which are able to serve these needs. Cooperatives will have to see themselves as "servants of the people" if they wish to continue their own existence.

This requires a twofold strategy: First, the set of cooperative beliefs and ideals has to be defined in a way that can act as a guideline for the cooperative movement itself as well as for the various cooperatives. It is therefore necessary to develop such a strategy considering all the factors that influence cooperative development. This task has to be fulfilled at the national level, preferably by cooperative unions or a round-table of cooperatives.

At the same time it is necessary to assist the existing cooperatives in coping with all the factors that either cannot be changed by them at all, or at least not in the short run. It is therefore necessary to develop strategies for the various cooperative enterprises as a way of economic survival. This requires information on the ever changing environment in which a cooperative is acting while at the same time developing intra-cooperative methods of adaptation. It is therefore necessary to learn about instruments such as marketing while looking into the needs for new cooperative institutions (e.g. banks run by cooperatives). The existing shortcomings in the areas of information, education and training cannot be solved by the national cooperative movements alone, but call for support from the international cooperative movement and its institutions like the International Co-operative Alliance (ICA).

Cooperatives in Central and Eastern Europe are at the crossroads between socialist history and capitalist future. This includes an increasing set of possibilities which can be seen as chances as well as dangers. Either way the economic pressures will increase while, at the same time, government support is likely to decrease. This puts cooperatives in an environment where they have to cope with all or most of the following steps on the path towards establishing market economy systems in the various countries:

To ensure the continuing existence of cooperatives in post-socialist countries, they have to recognize the demands resulting from the transformation process and they have to learn how to solve the problems. br br br br

1. Introduction

1.1. Preliminary remarks

The social and economic system, labelled "real socialism", which had been practised in most of the Central and Eastern European countries during the last few decades, collapsed at the end of the eighties and the beginning of the nineties. As a result of this collapse, even the minimal economic efficiency of these countries suffered much damage, as most of the economic institutions, which had been barely functioning in the first place, broke down. Caught by the necessity for a transition from a planned economy towards a market economy, the countries in question are now searching in Western Europe for models, methods and milestones for their own future economic constitutions. Simultaneously, they are studying as well as evaluating the concepts of various company structures in the view of their usefulness for their respective countries.

The necessary requirements in the Central and Eastern European countries for the transition from a planned economy to a market economy, will be economic reforms that respect the national, historical, and other particularities of each country. These reforms will be oriented towards private ownership, competition, free pricing, commercial independence and private initiative. The belief in some of these Central and Eastern European countries that a simple process of copying or transferring the conditions of established market economies as practised in Western Europe would suffice, has quickly proved itself wrong. In the meantime, this realization has been widely recognized.

The restructuring of the economic system in the countries of Central and Eastern Europe is a highly complex process. It illustrates that the destruction of the handed-down mechanisms from a planned economy (as a destructive act) seems comparatively simple while the setting in motion of the working principles of a market economy (as a constructive act) creates many difficulties. Besides, the absence of a theory of transformation is a severe hindrance. Its duty would have been to offer strategic solutions for the transition from the planned economy to a market economy. In this respect, an noticeable deficit still exists, therefore causing the transformation process to follow a method of "trial and error". The speed as well as the extent of this process varies from country to country.

Additionally, there is another fundamental aspect characterizing the current special development situation on the European continent: The "fate" of Europe as a whole will be decided in its Central and Eastern region; this is to say that if no solutions for a socially, economically and politically peaceful development are found, this lack of development with its many complex problems will cause a backlash on Western Europe. Against this background, it becomes obvious that the governing principles, conditions and beliefs of Western European society may not be readily applicable to the countries of Central and Eastern Europe. At least partially, this is due to the fact that Western Europe tends to consider its present form as a more or less final "state of the art". This way of focusing on present conditions while disregarding possible alternative solutions is not helpful at all, neither for the countries in transition, nor for the Western market economies themselves. They all need to reconsider and strengthen the conditions for entrepreneurs and economic self-help solutions.

A highly successful form of economic self-help, not only for the Central and Eastern European countries, is the cooperative society. The success of cooperatives depends upon a favourable climate and similar conditions, and whether these prerequisites can and will be achieved. "Capitalism has to be learned. Shortening this process of learning is the core problem of all developing countries. There exists hardly any other situation where the process of learning is as hard and painful as in learning capitalism. A successful outcome of this learning process ... depends ... on countless incalculable risks. However, risks that can be borne together are easier to bear. Besides, as long as individual responsibility and initiative are not stifled, this cooperation could become a helpful form of mutual learning. It is at this point that cooperatives have to be taken into consideration."(1)

1.2. Object of the study

The radical changes in the Central and Eastern European countries and the subsequent development of market economy structures, also caused a re-evaluation of cooperatives. Their fate, however, is influenced by a broad variety of factors. There exists, most importantly, a certain negative ideological image of cooperatives in those countries. This is a result of their experience with cooperatives as important parts of socialist economic policy, not taking into account that the cooperative concept is not directly related to socialism, and that cooperatives in socialist countries were politically forced to disregard important cooperative principles. The negative image especially exists in regard to production cooperatives in the agricultural sector, but also, at least to some extent, in the handicraft sector. Moreover, there exists generally an ignorance among the ruling political powers concerning cooperatives and their role in market economies, which, as a rule, is coupled with a distinct preference for individual entrepreneurs or joint stock companies which are considered to be the principal instruments for market economy privatization, no matter how high the importance of cooperatives in Western countries is.

As cooperatives in the Central and Eastern European countries were already relatively numerous during the socialist period, one could assume that cooperatives would prove themselves particularly suitable during the transition to a market economy. Such an assumption did not, however, prove to be true. Neither the learning aspect (the chance of a collective approach from the manufacturers' side to govern the market economy mechanism), nor the cultural aspect (the possibility of equal entitlement and obligation to the democratic participation in the management of a cooperative as a way of living for people in the working process), had a significant influence in this context. More often than not, other factors caused the favoured emergence of joint stock companies and limited liability companies instead of a cooperative renaissance.

The origin of cooperatives in the socialist countries is in most cases not based on the models designed by Raiffeisen and Schulze-Delitzsch. These cooperatives were, on the contrary, heavily influenced by different goals, beliefs and ideologies. Nevertheless, they should not be excluded from the international cooperative domain because of their origin. Instead, they should be understood as cooperatives, which, with their own peculiarities, also create an economically and culturally colourful aspect in the spectrum of enterprises. Despite their, retrospectively immensely close bonds to the former political system, they have to be clearly separated from state-owned enterprises, because even under socialist conditions, they offered more chances for individual and independent economic activities than state-owned enterprises. In any case, they were able to observe the cooperative principles, at least partially, even though they were used as a part of the socialist economic system.

The development of cooperatives in the various Central and Eastern European countries before the revolution followed different paths. Consequently, the transition process in those countries did not follow one predetermined way but a variety of options and measures were taken. In the beginning, cooperatives were predominantly moulded according to the example of the soviet cooperative model, which played the role of a guideline for the so-called socialist community. Later on, however, the individual Central and Eastern European countries respected national traditions and peculiarities more frequently when forming their cooperatives. Therefore, even in 1980s, there were extreme differences between the cooperatives of the different countries. Similarly diverse is the situation of the current metamorphosis of cooperatives with socialist roots.

The concern of this study will therefore be to analyse, define and evaluate the specific role of cooperatives as a part of the transition from a planned economy to a market economy, and under the conditions of market economy structures in Central and Eastern Europe. Most importantly, the study should provide some answers to the questions of why and how these cooperatives could participate in the development of the economies, improve the social climate in the societies, and further the process of democratization. A necessary requirement for cooperatives in the Central and Eastern European countries to contribute to this development, is the chance to compete on equal terms with other enterprises and companies. Although the study takes into account all the countries of Central and Eastern Europe whose societies practised real socialism, it also exemplifies and illustrates special paths taken in the development of cooperatives by taking a closer look at the Czech Republic, Estonia, Hungary, Poland, and the Russian Federation.

1.3. Definitions

The cooperative system in the countries of Central and Eastern Europe had created its own development path under the conditions of real socialism. This path differed somewhat from one country to the other; it certainly distinguished itself fundamentally from the development paths of the cooperatives in Western Europe (if the cooperative sector in Western Europe can be defined as monolithic). Because today's cooperatives in Central and Eastern Europe can be distinguished on the basis of their individual developmental paths from economic institutions of a planned economy to those of a market economy, an explanation of some expressions seems to be necessary to create a common basis concerning terms used in this study.

In this context a cooperative is to be understood as an association of persons based on a mutual contract (social contract; by-laws), which may be somehow registered with the state, and whose members have chosen the mutual goal of creating a enterprise with a democratic voting system, sharing also in the financial responsibilities and risks involved in the process.(2) This is a comparatively wide definition, thereby allowing the expansion of the term "cooperative" to various forms of economic self-help organizations in many different forms, as long as the organization fulfils the criteria of a cooperative. In this respect, the definition comprises a great variety of institutions based on the concept of cooperation.

The social contract in the shape of cooperative by-laws is the determining basis for the creation and functioning of a cooperative. In signing this contract, all members commit themselves to support the common goals as defined by the contract. The by-laws have a double character. They form the basis of the cooperative society and are relevant in the context of the law of obligation. The by-laws are the "constitution" of the cooperative in the sense that they regulate the life of the cooperative and the relationship to their members and between their members, and vis-a-vis third parties. The by-laws of a cooperative as a (private-law) social contract cannot be replaced by an act of state jurisdiction.

Cooperative principles are understood as the basic set of beliefs of a cooperative entity which, in the most condensed form, expresses the concept of a cooperative. The cooperative principles have therefore the character of specified declarations that determine the behaviour of cooperatives and are at the same time an obligation. They include the voluntary subscription to membership without restriction, the democratic leadership of the cooperative based on the principle that each member, regardless of the individual capital input, has only one vote. Furthermore, the cooperative principles regulate the sharing of the profit, the training and education of the members, and the willingness for regional, national and international cooperation. The cooperative principles help to identify the cooperative and its members.(3)

The definition of all the aspects that determine a cooperative, its aims, goals, and principles, is of extreme importance to the development of cooperatives in Central and Eastern Europe and can be of help in the transformation process of each country's cooperative development. A definition helps to distinguish genuine cooperatives from other types of companies which show cooperative aspects but do not belong to the cooperative sector even using a very broad definition. Such entities can be just as suitable and even necessary for the transformation process, but require different considerations regarding their development.

2. Origin and development of cooperatives

in Central and Eastern Europe

2.1. Cooperatives in the pre-socialist era

The cooperative idea is part of an old tradition in the history of thought. Already at a very early point in time, it played a particularly significant role in the philosophical outlook on society as can be seen in the writings and speeches of various great thinkers in history. However, the cooperative idea has been used for a vast variety of different options and concepts. Nevertheless, one can identify cooperative philosophy as the age old dream of a humanized society where an association of people each pursuing individual economic goals are at the same time acting jointly and in solidarity. This abstract view of cooperative thought and its basic principles has so far retained a certain continuity. However, modern-day cooperatives can no longer be considered as direct strains of their earlier historical (pre-cooperative) models.

Modern cooperatives are practical manifestations of an idea, which is somewhat more than a century old and whose features are self-management, self-help and self-responsibility. This type of cooperative, which came into existence in the last century, evolved more or less simultaneously and independently in many countries, including several nations in Central and Eastern Europe. Since then this concept has not simply experienced relative success, but has also shown a rather high rate of durability. As an ideal synthesis of freedom and bonding, cooperatives played an original role from the very beginning.

A historical analysis of the development of cooperatives in the Central and Eastern European countries leads to an interesting result: Cooperatives in the Western part of the European continent during the second half of the last century showed a larger and faster spreading than in the eastern part of the European continent. However, in some of the countries of Central and Eastern Europe, cooperatives became pillars of economic and social development. The following assertion can therefore be made: "In the countries of Eastern Europe, a strong cooperative tradition can be recognized. Earlier on, more informal ways of economic cooperation within and among families existed, but cooperative ideas and concepts reached the Eastern European countries within a relatively short time."(4)

In the development of the first cooperatives in some of the Central and Eastern European countries during the second half of the last century, one can clearly detect the influence of the ideas of Raiffeisen and Schulze-Delitzsch. In contradiction to some generalizing news, the concept of cooperatives was, however, the result of the economic and political situation in each individual country, without a direct recourse to Raiffeisen or Schulze-Delitzsch. This is evident from the simultaneous birth of early cooperatives in several countries. Examples of this development are the attempts to establish cooperatives in Russia during the second half of the 19th century. These were led and supported by progressive intellectuals, whose concepts were linked to the philosophical thoughts of the utopian socialists, especially Fourier.

An interesting aspect of such a historical analysis of the Central and Eastern European cooperatives regarding their early years is the fact that like in Western Europe nearly everywhere credit societies evolved as the earliest type of cooperative. In 1845, for example, in the small Slovakian town of Sobotiste, the presumably very first continental European cooperative was established as a credit association for farmers and craftsmen. In Russia, the first savings and loan cooperative was founded in the year 1865. The development of cooperatives in Lithuania began in 1872 with the establishment of a credit union, which actually existed outside Lithuania in St. Petersburg. The development of credit societies was supported by consumer cooperatives, which also spread comparatively fast.

While credit and consumer cooperatives were dominating cooperative development in the second half of the last century in many Central and Eastern European countries, the breakthrough of other possible and theoretical forms within the spectrum of cooperatives followed rather slowly. This is especially true for cooperatives in the craft sector as well as service cooperatives (especially purchasing and marketing), not to mention housing and building cooperatives - an economic area which was conquered by cooperatives only fairly recently. In the agricultural sector, cooperatives, including production cooperatives, developed rather well, even though their stamina varied immensely and they were never numerous or, of a great economic significance. This would only change at a later point of time, due to the socialist overthrow of the political, social and economic environment.

Pre-socialist cooperative development in many countries of Central and Eastern Europe can well be viewed as successful, without ignoring the fact that the development differed very much from one country to the next and one sector to the other. During World War I, this development came to an abrupt end, first in Russia, then in the Baltic states, and finally, during World War II, in several other Central and Eastern European countries. Even though this discontinuity did not mark the total end of the cooperative idea, it nevertheless was a fundamental turning point in cooperative development with a new direction. This became especially obvious by the fact that most pre-socialist cooperatives (usually with the exception of consumer cooperatives) were disbanded. Instead production cooperatives were established, which led to a severe cutback in the diversity of cooperatives.

2.2. Cooperatives in the socialist era

Socialism did not seem to have any room for cooperatives in its historical plan. In every Central and Eastern European country that "tried out" socialism, cooperatives were exploited from the beginning as an economic organization for and within the social revolution. Though in the beginning it was a common belief that the cooperative was connected with capitalism and had neither a reason nor a foundation for its continuing existence in a socialist society, new types of cooperatives already appeared during the 1920s in the Soviet Union which was the first country to "practice" socialism. Since then, cooperatives have played a certain role in the concept of applied socialism as a form of democratization of social life and of the use of the market.

Marxism supplied the conceptional basis for the evolution and development of new cooperatives, at first in the Soviet Union and then later on in the other Central and Eastern European countries. K. Marx and F. Engels had not outlined a cooperative theory, but had developed some fundamental ideas on the topic of cooperatives, which were inserted into their overall theory. These declarations were basically concerned with cooperatives in the production sector, and in particular in agriculture. This also explains why in almost all socialist countries in Central and Eastern Europe, agricultural production cooperatives were at the centre of attention.

In fact Marx had already made his recommendations regarding the creation of cooperatives in the production sector even under capitalistic conditions. He wrote that "in order to turn social production into a complete and harmonic system of free collective labour, overall social changes are necessary, changes of general conditions of the society, that can only come into being through a shift of the organization of the society, i. e. state authority, which has to be taken out of the hands of the capitalists and the landowners and to be put into the hands of the producers themselves. We recommend to the workers to organize themselves as production cooperatives rather than consumer cooperatives. The latter only touch the surface of today's economic system while the former attack its foundations."(5)

In this context, and especially with regard to agriculture, Marx was of the view that the organizational structures in agriculture had to differ from those in other economic sectors. "Rational agriculture ... either needs the hand of the self-employed small farmer or the control of the associated producers.(6)" This perception which, in principle, is still very much applicable today, was in the social development as understood by K. Marx, an assignment of an additional important responsibility to those cooperatives: they had to collectivize the farmers politically as well as socially, thereby enabling the working classes to join forces with the farmers.

One general statement of Marxism regarding cooperatives requires explicit emphasis: Marxism demands that the cooperative development must never be separated from the question of power, and that it had to be secured under the conditions of proletarian dictatorship. F. Engels wrote that "the particular interests of cooperatives against those of society as a whole must not be allowed to establish themselves."(7) One may view this statement in several different ways; however, it can be presumed that Engels was in favour of subordinating cooperatives to the state hierarchy, and thereby making cooperatives conform to society's interests.

The short overview of some statements by K. Marx and F. Engels regarding cooperatives shows that cooperatives were to play a certain role in the marxist concept. However, the role was very limited and more or less reduced to production cooperatives. The understanding of cooperatives to be found by K. Marx and F. Engels differed immensely from the understanding of e.g. H. Schulze-Delitzsch and F. W. Raiffeisen. Besides, cooperatives belonged to the marxist system of society only as far as they could be used as instruments for political purposes.

The first practical attempt to adapt the Marxist view of cooperatives was the so-called Leninist cooperative plan, which at first was applied in Russia and then in the Soviet Union. This cooperative plan consisted of several writings, speeches and other works of W. I. Lenin regarding cooperatives; Lenin never formulated a concept with all the necessary details. In his search for suitable development paths under socialist conditions, he came to the conclusion that a certain role, even though economically and politically limited, could be assigned to cooperatives. Mainly the consumer cooperatives and the agricultural cooperatives were considered to be useful. According to him cooperatives were indispensable in solving the existing agricultural problems.

The forcible integration of the Baltic states into the Soviet Union and the communist takeover in a number of other countries such as Bulgaria, Romania, and Hungary, following World War II, caused an attempt to transplant the cooperative model as practised in the Soviet Union's social system, to many of the Central and Eastern European countries. And basically, it succeeded. An unbiased evaluation of this development would probably reach the conclusion that the cooperatives in these countries were moulded in accordance with the Soviet example, at least in the 1950s. National traditions and peculiarities were only marginally taken into account and only later on were cooperative development paths of a more individual design.

However, such an evaluation must not be generalized. Cooperative development in Poland showed probably the most traditional perseverance among all the socialist countries, and did not favour collective cooperatives in the production sector particularly in agriculture. Using the traditional cooperative principles as a measure, Hungary also had a comparatively healthy cooperative system. The cooperative systems in Czechoslovakia and the GDR gained quite some economic importance, but nevertheless suffered from serious shortcomings. Finally, the cooperative system in Bulgaria, to name another example, had in the beginning copied the Soviet kolchos model very closely, but it disassembled itself in the eighties.

Following the Marxist recommendation, the political powers in the Central and Eastern European countries directed special attention towards the production cooperatives, and especially those in the agricultural sector.(8) Only Poland was in a way an exception to this rule. Consumer cooperatives were of similar importance, as it was their responsibility to provide consumer goods to the people in rural areas. However, other forms of cooperatives, i.e. especially purchasing and marketing, and credit cooperatives were hardly favoured in practically all Central and Eastern European countries. All the same, the cooperatives did not just exist; they were an important part of the social and economic constitution of these countries and performed a necessary role.

Qualities like adaptability and social neutrality even to adverse political conditions allowed cooperatives to continue under the social restrictions of socialism. They became a widely practised organizational form in Central and Eastern Europe which was used to integrate farmers and craftsmen into the political system of socialism. This process of integration became easier because of the socio-economic fundamentals of the cooperative concept, which corresponded, at least to some extent (for example, regarding the solidarity aspect), to some socialist values. Therefore, socialist governments were able to instrumentalize cooperatives for their political, economic and social goals.

From the very beginning, the cooperatives existing under Socialism distinguished themselves from those of Raiffeisen and Schulze-Delitzsch. Due to their different economic and social role, they viewed themselves as associations to politically organize and collectivise farmers and craftsmen. They were supposed to join forces with the working classes, while at the same time being part of society's guiding and governing system. Accordingly, the cooperatives did not concentrate on fulfilling the aims and needs of their members, but were used to purpose politically determined goals of the society as a whole.

Without taking into account the necessary differentiation between the cooperative branches and from one country to the other, it is necessary in this context to stress the following fact that is valid for most cooperatives: As a rule, socialist cooperatives in the countries of Central and Eastern Europe came into existence by disregarding the free will of their members, even though this was supposed to be one of the most important principles of the so-called cooperative plan of W. I. Lenin. In spite of the fact that many members of these cooperatives identified themselves with their cooperative after some time and thought the situation to be normal (even though they did not consider themselves as entrepreneurs but as employees), it can not be denied that cooperatives were founded by force.

Retrospectively, the cooperatives in the Central and Eastern European countries distinguished themselves from their Western namesakes mainly because of several important deviations and deformations from the genuine cooperative concept:

Without discarding this perversion of the cooperative idea, but to get rid of certain adverse characteristics of these cooperatives, mainly those that hindered their economic efficiency, the majority of socialist countries endeavoured to reform their cooperative movements in the 1980s: Poland, for example, passed a cooperative law in 1982: in the same year, the GDR followed suit with a law on agricultural production cooperatives; Bulgaria passed a new cooperative law in 1983; Hungary updated its cooperative law twice in 1988; Albania passed a model statute for agricultural production cooperatives in 1988; and Czechoslovakia passed a cooperative law and a LPG-law in 1988. Nevertheless, these attempts for reform, as seen in the legislative measures, more or less failed because the measures were too tentative and only touched the surface of the cooperative system.

2.3. Cooperatives in the post-socialist era

The societal turbulences in the development of the Central and Eastern European countries during the last decade of this millennium and the commonly recognized need in these countries to convert to a market economy, represent the ultimate challenge for cooperatives and will determine whether they will continue to exist or disappear. Stripped of their foundations of receiving state support and organizational help, cooperatives had reached the limits of their past development. They have to restructure themselves, and, above all, need to find a new sense of self-understanding in today's radically changed environment. Cooperatives must free themselves from state patronization and support, and prove themselves in the market as viable self-help organizations. The dimension of this challenge is immense and, from the Western European perspective, the difficulties are often underestimated.

Production cooperatives in particular are facing severe problems. For them, it is especially complicated to undergo such a transformation. In several countries, this type of cooperative tends to oppose the necessary behavioural changes both as regards relations with members and activities in the market. This is at least partially due to the fact that the members of these cooperatives are used to the former system, and neither aim at an entrepreneurial isolation nor are they competent in this respect. The 46th general meeting of the Union of European Agriculture (CEA) in Budapest offered ample evidence of this attitude.(9) At this meeting it became obvious that the existing agricultural cooperatives in some countries were not at all sure whether to stay cooperatives or to transform into other legal forms of enterprise. The most important questions in all Central and Eastern European countries are how the new political powers should relate to cooperatives; whether cooperatives will concede suitability to the new environment, and how the necessary transformation can be organized. The answer to these questions varies from country to country.

The transformation of production cooperatives will be regarded and understood, in more or less all of the Central and Eastern European countries, as an aspect of privatization of the economy. This is independent of the fact that cooperative property even under socialist conditions was predominantly private property. Nevertheless, in some countries all cooperatives with socialist roots are regarded as quasi state-owned organizations. Without a doubt, such an undifferentiated attitude draws the wrong conclusion from the undeniable fact that cooperatives in socialist environments were heavily influenced, and to a certain extent even run, by the state. However, undue political influence of former governments on cooperatives should not lead current governments to the wrong conclusions and a neglect or disregard of the many differences between cooperatives and state-owned enterprises. This kind of attitude creates unnecessary barriers against market-oriented cooperative activities, while at the same time increases the danger of the wrong political measures being taken that could even be harmful for the whole society and its transformation.

In addition, there is another factor that makes the tranformation of production cooperatives in Central and Eastern Europe significantly difficult. This is the fact that the political breakdown of the socialist systems in these countries had always been predicted but when it happened, it nevertheless came as a surprise. Not only the politicians, but also the scientists were surprised by this breakdown without any forewarning. Moreover, to this day, science is unable to offer suitable guidelines to control this revolution; the deficit in this area is still significant. "Therefore, there is as yet no suitable theory of economic transformation for the transition from a governmental command economy to a market economy ... and in everyday practice, the trial and error method still in use."(10) A certain lack of orientation of the cooperative systems in Central and Eastern Europe is a reflection of this condition.

An answer to the question of which development path the cooperative movement in Central and Eastern Europe will choose is still extremely difficult. Anyway, there will be no general pattern for the development, as different countries will choose different options. Moreover, cooperative development in Western Europe will also affect the speed as well as the direction of cooperative development, even though the impact and its effects will vary. "The cooperative system in Western Europe currently faces a serious identity crisis. Even though cooperatives prove to have only little regard in public opinion, the number of cooperatives and their impact on the economy are not to be neglected. In the reform countries of Central and Eastern Europe, cooperatives are often regarded as relics as they were instruments of the former planned economy and are thought to act as a refuge for members of the former ruling parties."(11)

It can not be denied that the transformation of cooperatives in the Central and Eastern European countries is not, or at least not only, proceeding in accordance with the ambitions and intentions of those directly involved in cooperative development. The governing political powers at a given point of time influence the direction of the development much stronger than the members. They sometimes even determine the development. Correspondingly, in their efforts to overcome the previous economic structures, and to establish market-oriented forms of enterprises, they discriminate against cooperatives in some of the Central and Eastern European countries. This is done, for example, by permitting antagonist external effects to harm cooperative development, or even by political intolerance by favouring individual private entrepreneurs, joint stock companies, or limited liability companies.

In these actions, the political powers in Central and Eastern European, while trying to copy the Western system, tend to ignore the special ability of cooperatives to overcome certain social deficits, particularly in times of need. This leads to the following conclusion: If it is "true (as is highlighted by several comments) that the restructuring of the economic system in Central and Eastern Europe - at least in its first phase - has to be supported and led by rapid improvements in the agricultural sector and for the benefit of the small and medium sized enterprises, then cooperatives are the most suitable vehicle for modernization. Especially in relatively economically disadvantaged countries, cooperatives offer numerous possibilities of substituting inputs that are otherwise lacking in these societies such as capital and know-how of market economies and market information etc."(12)

A particularly critical problem in the reconstruction of the economies in the former socialist countries, is the fact that the phase of transition from the planned to a market economy and the phase of a mature market economy is unfortunately not differentiated. This differentiation is necessary for the application of the cooperative legal form. Although cooperatives also have real opportunities under the conditions of a fully developed market economy, taking objective criteria of assessment into account, it is safe to say that the opportunites for cooperatives are significantly better within a transition phase. In a process of transformation from a planned economy to a market economy, cooperatives are not only a highly suitable form of organization, learning and stabilization, but also a way of gradually becoming familiar with new ways of working and living.

Cooperatives in Central and Eastern Europe, as special forms of economic self-help organizations, are in a position to be a comparatively effective reaction to the new challenges with its economic and social problems. "The cooperative movements in Eastern Europe are presently undertaking great efforts in developing assimilation strategies for the new market mechanisms in order to secure their future existence. The maintenance of their economic capacities in many branches of the economy, ... and the security of jobs are, in the present situation, enough motivation for action. New cooperatives could offer important contributions to this process of change, namely in the establishment of a new middle class thereby helping to shape the market economy system."(13)

In the majority of the Central and Eastern European states, e.g. in the Baltics, the Czech and Slovakian Republics, Russia or Hungary, cooperative development seems to take a quite different direction compared to the countries of the European Union. However, one can assume that these cooperatives will also have a future. It is certainly and decidingly too early to pass a conclusive judgement. Certainly, it is possible that among the various types of enterprises that exist nowadays in Central and Eastern Europe, the legal form of cooperatives will be found not only today, but in the future as well, but only where it proves to be successful. In other words, within the scope of the socio-economic constitution, cooperatives will continue to play a role as one among different forms of enterprises.

At this point in time, it is not possible to predict the results of the development of cooperatives in Central and Eastern Europe. In order to be able to do this more time and experience is required and our means to make prognoses need to be improved. There are many indications that in most, but not in all of the states, a certain number of cooperatives will continue to exist. But it can also be predicted that the number of cooperatives within the foreseeable future will not increase but rather decrease. Therefore, against the background of the current economic and political development, the cooperatives of Central and Eastern Europe will not be the shining stars among the various forms of enterprises. Much will depend on a mutual cross-fertilization of cooperatives in the East and the West and only if this process is successful, will cooperatives in Central and Eastern Europe become more socially and politically accepted.

2.4. East German cooperative development as a model

for Central and Eastern Europe?

Cooperatives in Central and Eastern Europe are on the lookout throughout Europe for a role model. In doing this, they are also certainly taking a closer look at developments in Eastern Germany. During its 40 years of existence a broad variety of cooperatives in many sectors of the economy had developed which played an important role in the agricultural and handicraft sectors as well as in the housing, trade and finance sectors. On 1 January 1990, there were about 3,850 agricultural production cooperatives (LPG) in existence, with more than 850,000 members (and with an average operational size of 4,500 hectares of arable land or with an average cattle stock of 1,500 animals); 2,700 handicraft cooperatives (PHG) with 160,000 members and 200 horticultural cooperatives ( GPG) with approximately 30,000 members. These cooperatives substantially determined the development in their respective economic sectors. Moreover, the consumer and cooperative housing/building societies were of impressive economic importance. In the banking sector, however, cooperative influence was comparatively weak.

Considering the political background - the unification of Germany - the metamorphosis of the Eastern cooperatives was a highly exceptional development right from the start. The unification was not a merger but rather, at least in legal terms, a transfer of the West German system to Eastern Germany. For the East German cooperatives, this situation meant they were given a completely new role in a system that in itself was already very stable. The inevitable result of this development was pressure on the Eastern German cooperatives to adapt themselves to Western cooperative law and to transform themselves into market-oriented cooperatives. This pressure to adapt and transform was supposed to result in copies of already existing cooperatives models in West Germany. The cooperatives in Western Germany were, however, mostly unaffected by this development. Although, especially in the financial sector, new lucrative business fields were opened for them.

This characterization of the situation of East German cooperatives should, nevertheless, not be allowed to hide the following aspect: the irrefutable need to free East German cooperatives from the phenomenon of socialist deformation was just a reproach, legitimized by the fact that these cooperatives were burdened with unproductive elements and a history of creation by political force. Understood as an alternative to private property, cooperatives were sponsored and furthered by the socialist government and therefore to a large extent under its influence and used to obtain political goals. The need for a metamorphosis of these cooperatives can not be denied, not even retrospectively.

A critical analysis of the restructuring of the cooperative system, must conclude that at least in one respect the necessary metamorphosis of cooperatives seems to have been rather ambivalent since the restructuring very often did not concentrate on an inner transformation of cooperatives but simply on their survival. In many cases, this caused the distrust of the people concerned towards the market economy while at the same time leading to a rapid decline of their social and economic conditions. Besides, taking an objective view, it would have been proper to retain and strengthen the cooperatives fundamentals of GDR cooperatives instead of burdening them with the responsibilities for all the inadequacies that were immanent in the system of real socialism.

A central question in the restructuring of the East German cooperatives was right from the start whether or not congruency should develop (between the old and the new German Länder), in respect to the sectors, types and structures of the cooperatives. It culminated finally in the question of whether or not, the reformation of cooperatives in East Germany could help in initiating a process of bringing German cooperatives closer to their ideal form. In actual fact, however, not only the positive aspects of the West German cooperatives were applied to the Eastern cooperatives during their restructuring; certain negative aspects, uncertainties and ambiguities were transferred as well. The dark spots of the East German cooperatives, their stained reputation from being somewhat established by force and the many non-cooperative elements, have unfortunately in many cases prevented an objective view of certain shortcomings in West German cooperatives.

In some places, efforts to repress these deformation appearances cannot be denied but they are, nevertheless, generally known. One example is cooperatives' obligation to the needs and aims of their members which has been an aspect widely neglected by many cooperatives in recent years. Instead cooperatives tend to strive for maximum profits and this leads to more concern for members' capital input than members' needs. An associated effect is the marked weakening of the ties between cooperatives and their members, often going hand in hand with a certain negligent attitude towards the members. Finally, there is the growing omnipotence of the board of directors at the expense of membership participation in the running of the cooperative.

The opportunity created by the German unification, to create an attractive plurality for the cooperative system, was left unexplored, even though it would have allowed the members and their cooperatives in East Germany to maintain their identity to a certain extent. The ability to tolerate differences in cooperatives was rather low. Better chances in this respect exist for the other Central and Eastern European cooperatives. On the other hand, the question of whether or not the East German cooperative development could present a model for Central and Eastern Europe, could be answered in the following way: Their development is an exceptional case, as their experiences are only conditionally applicable.(14) The national political unification process was accompanied by a transfer of capital, services, manpower, and regulatory systems from West to East Germany, which resulted to a large extent in the imposition of the West German structure onto East Germany without even allowing the East Germans to forge their own paths. Hence, the East German cooperative development neither can nor may be used as a model for Central and Eastern Europe, although it can offer some help. The Central and Eastern European countries have to find and follow their own individual developmental paths under the conditions set up by the transition to the free market economy.

3. Types of cooperatives in the region

Under the conditions of the free market economy there exists a large variety of cooperatives. The number and characteristics of the types of cooperatives certainly differ from one country to another, as is the case in Western Europe. The types of cooperatives, existing in a given country, depend on the respective national cooperative law and its regulations. Still, despite different methodologies, the following basic types of cooperatives usually exist: The sales/marketing cooperatives (as cooperatives that sell the products of the members); the buyer cooperatives (from which the members can purchase goods and/or services); the production cooperatives (in which the members are employed); credit and savings cooperatives; consumer cooperatives; and finally, housing and building cooperatives. Beyond these types of cooperatives exist further special, mixed and other variants of cooperatives.

In the different Central and Eastern European countries (except maybe Poland), the variety of cooperatives was comparably limited such as in Albania, Bulgaria and Romania. The explanation for this lack of variety is most likely found in the intended model role of the Soviet "Kolchos", or collective farm, which dominated the cooperative system in agricultural production also beyond the Soviet Union. Other types of cooperatives also existed but they played a minor role compared to production cooperatives. Only the consumer cooperatives could be considered as somewhat of an exception of this rule.

The most important and common type of cooperatives in Central and Eastern Europe were the production cooperatives, particularly the agricultural production cooperatives. They played a role in all former socialist countries and still have significant influence upon the cooperative system in their respective countries. All the same, in the future each country wil have to develop a large variety of cooperatives and use their possibilities, when and where they are suitable within the framework of the economic constitution. This will most probably occur in the handicraft and trade sectors as well as in the service sector. Mainly due to the former state-controlled banking monopoly, credit cooperations played a marginal role, while cooperative banks were not in existence at all. In many Central and Eastern European countries, special efforts have been made during the past few years towards the development and expansion of credit unions and cooperative banks. This has happened with external influence and good progress has been made.

A worthy observation in this context concerns the fact that the cooperatives very seldom appear to solve alternative problems in self management, or to take on other original requests at a time when, in the Central and Eastern European countries after the collapse of the former regimes, all possibilities were and still are existing. This situation can be explained by the fact that among Central and Eastern European countries, not a single one has a solid economic structure which would enable alternatives within the system to be looked for. In regard to the main directions of development, one can observe a tendency to copy the Western model in which investment companies (of various types, e.g. also as joint stock companies) dominate completely.

4. Country profiles

4.1. Russian Federation

4.1.1. History of cooperative development

The first Russian cooperatives appeared during the Czarist empire in the 1860s. In 1865, the first consumer cooperatives appeared and were joined also by the first agriculturally oriented credit cooperatives as evidenced by a special governmental legal act. Cooperative development, originally limited to rural areas, expanded further and spread into the commercial sectors of the cities. According to statistics, 3 years after the establishment of Soviet Russia, 7,000 agricultural cooperatives, 53,000 consumer cooperatives, 16,000 rural credit cooperatives and 4,000 handicraft and service cooperatives already existed.

Immediately following the Russian Revolution in October of 1917, there were several very different interpretations of the role of cooperatives under the new social order. In 1920s, Lenin expressed the opinion in this reasoned explanation of the new economic policies (NEP) that cooperatives played an important role within the concept of socialism, and particularly for the grouping the small production units. Even if only applicable to the transitional phase, Lenin discovered in the cooperative association that "degree of combining of private interests, of private business interests, their control and supervision by the state ..., which had formerly been a stumbling-block in the eyes of many socialists."(15) After Lenin's death, however, the tentative euphoria about cooperatives vanished again.

Statistics show that even in the 1920s many cooperatives were still founded in the sectors of retail trade, production and banking, as well as in the service sector. However, under Stalin, the cooperative system was considerably curtailed. Firstly, the spectrum of cooperatives in the agricultural sector was increasingly reduced to collective farms (without restricting thereon). Secondly, in the 1950s and 1960s many of the collective farms in agriculture were turned into "Sowchoses" or state-owned farms. In the end, in 1960, handicraft cooperatives were also done away with. In the 1950s there had been still about 114,000 handicraft workshops in the Soviet Union, with a total of 1.6 million workers and market shares of 40 per cent in furniture, 70 per cent in metal kitchenware, and 43 per cent in clothing.(16)

If one investigates the motives for the administrative limitations on cooperative development, one especially comes across the prevailing view that, as means of production, cooperative property was of lower quality compared to that of the State. Thus, the goal was to raise the quality of cooperatives' means of production by turning cooperative property into State property in a relatively short time. Consequently, cooperatives had been unjustly degraded and, to a certain extent, demoted to the status of symbols of economic underdevelopment. From such a constraint the cooperatives had no chance for development and in this way were forced into regression.

A new approach to cooperative development was undertaken during the 1980s by M. S. Gorbatchev. Following his initiative in 1986, which paved the way for a better development potential for cooperatives connected with the programme of the CPSU, Gorbatchev declared before the congress of collective farmers in 1988: "We have to create a modern cooperative system at a high cultural level, which is comprehensively integrated as are state enterprises and organizations... Cooperatives can and must play an important role in modern society and have not by far exhausted their potential."(17) This view contained a strong feeling for cooperatives. From the beginning, however, the difficulty lay in the practical execution of implementing this policy.

4.1.2. Cooperative legislation

The cooperative system in the USSR had not been codified for a long time but, with regard to the freedom of cooperative association for the citizen, it was constitutionally licensed and protected. However, there existed rules for special functions of a cooperative, the most important of which was probably the model by-law for collective farms, as provided by the government. On 26 May 1988, the first cooperative law of the USSR was passed. This law marked a certain break in Soviet legislation after seven decades of Soviet rule. Above all, it ended the one-sided legal reduction of cooperatives to collective farms, while at the same time a new assessment of cooperatives was undertaken.

Even though the cooperative law of 1988 was a legislative step in the right direction, the core problem remained unsolved: the property rights legislation. The law provided an answer of a kind and encreased the options for cooperatives. However, a consequential real privatization and individualization of property did not take place.(18) Instead the law still relied on the idea of cooperative property being some kind of group property which eliminates private ownership. This approach had effects which necessarily had to curb the functioning of cooperatives.

The cooperative law gave an unmistakable push to cooperative development in the USSR. This initiative occurred not so much in the area of collective farms or consumer cooperatives as in the areas of handicraft, service and in small industrial production. The tourism sector was also affected by this cooperative law. In this way the variety of cooperatives expanded and became more diversified. The barriers created by the cooperative law hindered the breakthrough of new economic conditions, and the Soviet bureaucracy with state controls of cooperatives was also to blame for the slow development.

A new attempt in cooperative legislation was undertaken after the founding of the Russian Federation. On 30 November 1994, the "Duma" passed the first part of the Russian Federation's Civil Code, which was first enacted on 1 January 1995. In the context of the regulations concerning legal persons, also cooperatives were dealt with. However, in comparison to other legal bodies, cooperatives were very only fragmentarily regulated. Lacking an all inclusive or comprehensive regulation, i.e. through a uniform legal definition of a cooperative or through the commitment to cooperative principles, references to cooperatives in the Civil Code are restricted to cooperatives in the production sector (paragraphs 107 - 112), and a special regulation (paragraph 116 of the Civil Code) is dedicated to consumer cooperatives.

One regulation that preceded the passing of the Civil Code and would consequently have to be amended in accordance with the basic principles found in the Civil Code, was the Russian law of 19 June 1992 on the consumer cooperatives. Another piece of legislation, namely the law regarding the agricultural cooperative system, which was to be enacted, would also have to be amended in order to be in line with the Civil Code. These new legal elements correspond to some extent to the new demands, but lack a certain systematic approach and do not incorporate the whole variety of all cooperatives operating in the Russian Federation. The regulation on the founding of a cooperative, its property, management, transformation and disbandment are, however, in accordance with the requirements of a market economy.

4.1.3. Variety and concept of cooperatives

In the course of Russian history, the cooperative system underwent several radical changes. During the founding years of the cooperative system some credit and consumer cooperatives existed here and there, but the variety of cooperatives expanded until the October Revolution of 1917. During the decade following the Revolution, cooperatives continued to expand and covered more areas of business and trade. Nevertheless, it became unmistakably clear that the collective farm took centre stage. Later, other new handicraft cooperatives emerged as well such as those in the areas of housing development, fishing industry and banking.(19)

The "Kolchos" (short for collective farm) dominated within the Soviet cooperative system over many decades and next to the "Sowchos" (short for state farm) was the dominating form of organization in Soviet agriculture. After the cooperative law of 1988 along with its by-laws, the collective farm was understood as a cooperative organization for agricultural production joining together farmers voluntarily and agreeing to the following: Free use of their property regardless of whether it was owned privately, leased or given to them by the Government for use without financial retribution, respecting the principles of self-help, self-management and self-financing; taking into account the material interest of the members and the collective and social concerns. The collective farms were in character production cooperatives which really had come about through forced collectivization.

Similar to other cooperatives, the collective farms suffered under the property concept that barred private initiative as well as from state control and the incalculable economic strategies being pursued. Certainly, these were not just negative elements due to the internal structures of the Soviet cooperatives; rather their slow progress should be attributed to the non-existent free market economy environment and their status inside Soviet bureaucracy. However, in the end, the main deficiency of the Soviet cooperatives was their officialization in the sense of being part of the nationalized economy. In regard to production and consumer cooperatives, this officialization has been, at least legally, done away with in the Russian Federation by the Civil Code.

According to paragraph 107 of the Civil Code, production cooperatives are founded on the personal work of their members who have joined together on their own free will, and share the management of their business interests. Each cooperatives' property is to be distributed to its members (except when a by-law states that a certain part in the collective property consists out of indivisible funds having a specific function). The highest organ of the cooperative is the general meeting which has exclusive competence in a number of questions. When a cooperative consists of more than fifty members, a supervisory board with control functions may be established. The cooperatives are run by an executive management and its president. Termination of membership is regulated according to the same principles as in other countries. Finally, a production cooperative is permitted to reorganize itself freely or even dissolve itself, based on the decision of the general meeting.

Consumer cooperatives were established on similar principles based on paragraph 116 of the Civil Code. Their statutes must include at least the following: Regulation of the volume of each member's shares; composition and arrangement of the shares and liability for the non-payment of the obligatory shares; staffing of and rules for the leadership organs and the procedure for the acceptance of decisions by them as well as procedural measures to cover losses. The founding, functioning and termination of consumer cooperatives are the sole responsibility of their respective members, as is the case with production cooperatives. They are independent from the state authority and in this sense the consumer cooperatives have become "de-officialized".

4.1.4. Cooperatives in the process of transformation

The cooperative system in the Russian Federation occupies important fields within certain segments of the economy such as agriculture, commerce, housing development and also in the area of small production and the fishing industry. Thus it plays an essential role in the Russian economic system. With the intention to create a free market economy, the transformation process has been taking place for several years now. However, progress is rather slow and partial setbacks can be expected.

The opinions about the chances for a successful reform of the socialist-rooted cooperatives existing in today's Russia vary immensely depending on the individual point of view. Proof for such an evaluation has among others been offered by R. Peterhoff, who wrote: "Today's Soviet cooperatives are mostly private small enterprises and not at all cooperatives. The experiences with enforced cooperatives that had been embedded within the administrative centralized planning system have ... discredited the cooperative idea for the time being."(20) This evaluation does not include an answer to the question of whether or not "cooperatives" can be reformed. In Russia itself, the question on the possibilities of the transformation of cooperatives has not even been raised.

It can not be denied that todays Russian cooperatives are the result of their socialist origin characterized (at least in most cases) by their establishment by force; their muddled property rights and their dependence on the Government. However, these aspects fade into the background, if one takes into account that the situation of public administration becomes more and more disastrous. Besides, legislation pressures the cooperatives to pass new by-laws and statutes regulating their future cooperative behaviour. It may therefore be said that Russian cooperatives are gradually gaining a new cooperative form by adapting to a changing environment and its requirements.

The path towards a new cooperative shape can follow different tracks. T. Todev and J. Brazda outlined four different scenarios for cooperative development, at least for the structural adjustment of agricultural production cooperatives in Central and Eastern Europe. However, these four paths may presumably be generalized also for other types of cooperatives: their continuance after a period of cooperativization; their disbandment; their change of this legal form and new foundations. Todev and Brazda favour clearly and understandably the first solution via the creation of a new and favourable environment for a continuing existence of traditional cooperatives. This environment would include aspects such as optimization of the enterprise size; reshaping the production structure; marketing improvements; cooperativizition; increasing the capital resources; staff reduction. This would enable the cooperatives "within the framework of the reforms to show their ability to survive under market economy conditions. ... This request is ... an expression of political and practical sense, as in principle a market economy should offer equal opportunities for all types of enterprises, based on freedom and self-responsibility."(21)

As yet it cannot be foretold which direction the development of cooperatives in Russia will take. However, it seems to be clear that cooperatives will continue to exist in several sectors of the Russian economy and will be able to fulfil their functions. On the condition that they will be recognized and supported by the Government, they even may be able "to perform important and necessary functions within the transformation from a planned economy to a market economy, if they adjust themselves quickly to the new situation and take on the new challenges."(22) This includes, among other aspects, the creation of new job opportunities and gradual social adjustment. However, Russia's cooperatives are still caught in the process of transformation and they have to face several internal as well as external difficulties.

4.2. Estonia

4.2.1. History of cooperative development

Estonia belongs to the few countries in which the development of the cooperative movement began in the early 19th century. Due to the initiative of some impoverished owners of large estates, bank cooperatives were the first to be founded. There were different types of credit cooperatives in existence influenced by German or Russian cooperatives. In many cases, they were even founded by members of these minorities.(23) The credit cooperatives served as capital collection places which were also very important for the economic development during the drive for a national independence.

In 1902, in Tartu the first truly Estonian credit cooperative came about under the direction of the Estonian cooperative pioneer Jaan Tönisson. This cooperative was based on the Schulze-Delitzsch concept. In the following years , credit cooperatives became part of the backbone for Estonia's emancipation in the beginning of the 20th century and continued to play an important role until independence in 1918. Other types of cooperatives which began to emerge at that time included consumer cooperatives and dairy cooperatives. Due to the support from credit cooperatives, other types of societies could also develop in the rural areas.

Along with the economic growth in Estonia, which created better conditions for the population, cooperatives lost their role as instruments for national emancipation. The type and volume of business changed and non member business gained in importance. This was particularly noticeable among credit cooperatives out of which emerged some very complex banking cooperatives. The Estonian people's bank ("Eesti Rahwapank"), founded in 1920, served as central bank and among its members was the Central Bank for Agriculture founded in 1928.

The land reform passed immediately after independence had positive effects on agricultural cooperatives. It resulted in a large number of private enterprises of uniform size which proved helpful in the formation of agricultural cooperatives. The transition from plant cultivation to animal production led to the emergence of marketing and processing cooperatives, among which the dairy cooperatives played an ever increasing role. Fishing cooperatives, land improvement cooperatives, machine cooperatives, peat cooperatives, blacksmith cooperatives and cooperative mills also existed. Consumer cooperatives along with their central cooperative experienced increasing importance within the economy. "In general the cooperative system in Estonia developed quite uniformly and the individual economic branches generally supported each other. Government always played a central role in supporting cooperatives, recognizing the existence and success of these cooperatives as essential to the growth of the national economy. Nevertheless, during the time of national sovereignty, cooperatives along with their central institutions were not free from state intervention and political influence."(24)

This economic as well as cooperative development, ended with the Soviet annexation in 1940. The model of the centrally planed economy was imposed upon Estonia. The integration into the Soviet economic system resulted in an increased industrialization of the country which, until then, had been an agricultural region. Already in 1940, all cooperatives were transformed into socialist cooperative structures. Consumer cooperatives were nationalized and agriculture was forcibly collectivized. German occupation (1941-1944) interrupted the process briefly but after reoccupation in 1944, nationalization and forced collectivization continued.

4.2.2. Cooperative legislation

The legal basis of cooperatives in Estonia dates back to 1917 when the Russian regulations on cooperatives were adopted due to the fact that Estonia was not yet independent. Already in 1920 they were, however, replaced by a decidedly more liberal law, which was directly responsible for the upswing of credit cooperatives. This law was rendered meaningless in 1941 and then again in 1944, when it was replaced by the Soviet regulations on cooperatives.

After Estonia's renewed independence on 21 August 1991 a completely new arrangement of the legal system began including a complete renewal of the business law. In this way many new types of business were created alongside the already existing variety of cooperatives.

The cooperative law itself was passed by Parliament on 27 August 1992 replacing the former law of 1940. Of particular interest are the three goals set up by the new cooperative legislation for the cooperatives:

The possibility for cooperatives to be exclusively profit-oriented hardly exists in any other country and is one of the essential characteristics of the Estonian law. Hence the legal form of the cooperative enters into competition with the other business forms which are in essence also profit-oriented. Through this regulation, cooperatives moved closer to the legal construction of joint stock companies, especially since the liability of cooperative members is limited to their share capital.

A considerable weakness of the new cooperative law, and a step backwards in comparison to the regulation of 1940, was the waiver of mandatory auditing of each cooperative. The old cooperative law required the mandatory membership of cooperatives in an independent auditing institution which had to audit the economic situation twice a year.

4.2.3. Variety and structure of cooperatives

The centralized structure of cooperatives with their governmentally dependent organizations made it easy to integrate the Estonian cooperative movement into the system of the centrally planned economy of the Soviet Union in 1944. In this way two types of procedures complemented each other. On one side, the direct expropriation of cooperative property and its transition into state property and, on the other, the indirect integration of cooperatives into the system of central planning and guidance along with the instrumentalization of the cooperatives.

The consumer cooperatives were nationalized and the credit cooperatives were first nationalized and then done away with completely. Through economic and political pressure so-called "work cooperatives" emerged as a way to organize independent craftsmen. The collectivization of the agricultural sector proved difficult and was possible only through obligations for high production quotas at prices below production costs and unreasonable taxation for independent farmers.

Concerning the arrangement of the cooperative system in Estonia and the existing variety of cooperatives, reference should be made to the chapter on Russian cooperatives, due to the fact that the Russian cooperative system was forced upon Estonia.

A revitalization of the cooperative idea came about in 1988 under Soviet rule when Gorbatchev wanted cooperatives to take on the important role of improving the existing catastrophic economic conditions. Many of the then newly founded cooperatives were cooperatives only on a nominal basis. In reality, they were nothing but a legal opportunity for establishing a private enterprise without subscribing to the cooperative philosophy at all.

4.2.4. Cooperatives in the process of transformation

The conditions of the transformation process in Estonia differ tremendously from those in any other country mentioned in this study, not just because Estonia was influenced by the Soviet Union, but because it was a part of it. Estonia had been fully integrated into the economic structure of the Soviet Union and, in contrast to Poland, Hungary and Bulgaria, there was no chance of individual development. Accordingly, after independence it was extremely difficult to settle the question of property.

The picture of Estonia's cooperative movement currently is characterized by the following three groups of cooperatives: The "new" cooperatives based on the law of 1988; the former officialized cooperatives (especially the consumer and housing development cooperatives); and the collective farms and their successors. Cooperatives supporting the household or the enterprises of their members are just now reappearing. The founding of cooperative banks is being blocked by the rejection of licenses following recommendations by the World Bank, which considers the existence of a few nationwide commercial banks to be sufficient.

The so-called "new" cooperatives are mainly small-scale and are predominantly active in the service sector. They emerged at a time when this type of business was the only kind offering a private free enterprise function. Because of the larger range of possible legal forms, these cooperatives are turning more and more into joint stock companies or corporations with limited liability. The image of these "new" cooperatives is rather poor because they distinguished themselves during their foundation period as speculative businesses which operated often at the cost of the State supply enterprises.

During the time of Soviet occupation, consumer cooperatives were connected with the State's central plan and were able to increase their importance and strengthen their structures. After Estonia's independence, consumer cooperatives underwent a complete revision. The consumer sector has three different levels with primary cooperatives, regional centres, a national centre and additional enterprises in various industrial sectors. Because of the increasing competition in the area of retail trade, the future of consumer cooperatives is uncertain. Problems arise because of the break-down of the wholesale trade, the loss of the former monopoly and through the lack of identification of the primary cooperatives with their centrals.

The collective farms in Estonia were mostly privatized. For the production agricultural cooperative, the transition into a joint stock company or a service cooperative was permitted as an alternative to privatization or a break-up.

The development of agricultural cooperatives in Estonia has succeeded only to the extent that purchase and sales cooperatives are increasingly emerging in order to compensate for the deficiencies of small farms. Problems in this area arise because of the lack of business knowledge and the shortage of financial institutions, especially in the rural areas.

4.3. Bulgaria

4.3.1. History of cooperative development

The modern cooperative movement in Bulgaria enjoys a tradition of more than one hundred years. Its founding was closely related to the emergence of a free market economy. With the war between Russia and Turkey (1877-1878) the feudal system of the Ottomans on Bulgarian soil was done away with, making way for independent development on a national scale.(26)

Bulgaria then developed primarily as an agricultural country (80.6 per cent of the entire population at the end of the 19th century lived in extended families in the rural areas), and was a classical example of small-holder agriculture. However, lack of capital, high interest rates and high taxation among other things, were threatening the farmers' livelihood and existence. As a possible solution to these problems, the concept of cooperative self-help organizations arose - an idea which was promoted by a small group of intellectuals but, moreover, was sponsored or supported by the State.

The first cooperative to appear was a savings and loan society in 1890 in the small town of Mirkovo near the capital of Sofia. Thereafter the basis for other cooperatives was laid. With quick growth, they adjusted themselves to accommodate the many faceted needs of their respective members and developed themselves further into multipurpose societies. These "universal" cooperatives joined together to form a three level federation whose responsibility it was to represent the cooperatives' interests, audit the cooperatives, and perform independent economic functions. In addition to these universal cooperatives, there emerged another 18 different types of specialized cooperatives.

After 1936, 66 agricultural production cooperatives were founded to work the land collectively. Of these only a few were able to survive for a while on the market. The members of these enterprises were also their employees. Land as well as agricultural goods brought into the cooperative remained the property of the members. The criteria for the distribution of profits included the amount of work done as well as the quantity and quality of the inventory that had been invested in cooperative. The economic importance of these cooperatives was rather limited.

As of 1903, the scarcity of capital, economic stagnation and lack of credit led to the establishment of people's banks (Populjarna banka) after the model of Schulze-Delitzsch. Next to the savings and loan function, these cooperatives operated an extensive production business and developed into very efficient economic units. The people's banks formed a union which acted as pressure group, audited the cooperatives but eventually became the cooperative central bank.

Besides those already mentioned, other types of cooperatives to appear were sales and purchase cooperatives predominantly for craftsmen; cooperatives for the joint use of machines and facilities; several specialized cooperatives; and even cooperative hospitals and sanatoriums. Many attempts to set up industrial or commercial production cooperatives experienced such little success that they are hardly worth mentioning.

Consumer cooperatives played a very modest role in the beginning. They were closely linked with the rise of the workers' movement and influenced by social thought, although there were also consumer cooperatives for students, officers and non commissioned officers.

4.3.2. Cooperative legislation

The perspectives of cooperatives depend upon many different factors acting together which can only be influenced by cooperatives to a certain extent. The highly important legal structures, in particular, are outside the sphere of influence of cooperatives and remain uncertain as shown by the permanent discussion on cooperative legislation and land law as well as the differing approaches to these topics.

Cooperative legislation is proving itself to be especially problematic. Even during the times of Perestroika there were approximately 20 different drafts for a new cooperative law, but not one of them was passed. The first result occurred finally in July 1991. The new cooperative legislation regards cooperatives as self-help organizations, in contrast to their former socialist predecessors. At the same time cooperatives are defined as pure support-organizations for their members.

The law contains the fundamental principles essential for the establishment of a cooperative and allows for all types of cooperatives. At the same time, cooperatives' independence is guaranteed by the Government. In other words, the basic rules are created for a new understanding of cooperatives based on the Western concept. However, it becomes increasingly noticeable that the piecing together of Bulgarian cooperative legislation by taking parts from different Western European countries, is not without problems and has led to several attempts at revision. Putting the cooperative law into practical use creates considerable difficulties.

Politicians fight heatedly about the land law, which is also extremely important for cooperatives. Each respective political majority in Parliament wants first of all to amend this law according to which the necessary legal security is not nearly guaranteed. The land law has been amended and revised several times within four years and three of these times was fundamentally revised. Tremendous problems are caused by the fact that the socialist (former communist) party still views cooperative property as a form of social property, and the agricultural production cooperative as a suitable type of organization for restructuring the agricultural sector. Different motives are hidden behind these concepts, mostly aiming at maintaining the loyalty of their rural voters. For this reason, they support the existing concentration of arable land, just like the recollectivization of parts of Bulgarian agriculture, in the wake of the latest revision of the law dating from April 1995.

4.3.3. Variety and structure of cooperatives

Following the communist take-over of 1945, the Bulgarian cooperative system was forcibly adapted to the Soviet model. With this adjustment, cooperatives were instrumentalized as means for a collectivization of the private property of the means of production and as helpers in the transition from a free market to a planned economy. In order to reach these goals, production and consumer cooperatives received special attention. The focus on the aims and needs of the members was replaced by a State planning process; the cooperative system was subjected to State and party access.

Owing to Bulgaria's predominantly agricultural structure, the officialized and instrumentalized cooperatives were mainly agricultural. The establishment of State monopolies in many branches of the economy led to the break-up of existing specialized cooperatives. First of all, credit and financial business was taken away from the multipurpose cooperatives before they were turned into consumer cooperatives. Only the agricultural production cooperatives and their union structures survived and increased in importance as new cooperatives were forcibly set up. In the end, however, these too were nationalized after 1970, through the creation of State agricultural complexes.

People's banks and specialized cooperatives for certain professions as well as their unions were taken over by the State without any compensation. The handicraft cooperatives organized by economic branches were forcibly turned into production cooperatives.

The transition of the universal cooperatives into consumer cooperatives led to a considerable increase of their number (1950: 4,560 cooperatives with a total of 2 million members). Through several waves of forced mergers and nationalization tendencies, the number sank until 1987 back to 395 with a total of 2,090,286 members. The size of the cooperatives and the State instrumentalization resulted in members' disillusionment; members no longer identified themselves with "their" cooperatives.

4.3.4. Cooperatives in the process of transformation

Five years after the change Bulgaria finds itself in a crisis situation encompassing the whole political and economical spectrum. These difficulties are only partially the result of the challenges faced in the "new" environment. In many cases, it is a question of inherited problems or old debts which still need to be addressed when coping with the political, economical, legal and organizational shortcomings of the socialist era. Cooperatives are certainly affected by these factors as well.

In the agricultural sector, the problems resulting from the confiscation of private property as well as from the transition of agricultural cooperatives into state-owned enterprises have not yet been satisfactorily solved. The restructuring process of the agricultural sector began with the restitution of confiscated or semi-expropriated property (§10 of the Land Law of 27 February 1992), and continued with the dissection of the structures from the socialist era. Simultaneously, a decision was made to break up the agricultural production cooperatives along with their associated institutions. This step was both economically and politically controversial. Some even considered this procedure to represent a total destruction of all agriculture, as it was believed that the transformation of the agricultural sector could and should be accomplished with the aid of the old types of organizations.

In the course of the transformation process, two types of production cooperatives emerged, albeit with fundamentally different member property rights regarding invested land. Members of the one cooperative keep their property rights regarding the actual boundaries and inputs, whereas the property rights of members of the other cooperative type only consists of claims to nominal rather than real pieces of property. The former present a continuance of the cooperative traditions that emerged in the 1930s (mutual working of the soil), and the latter was initiated by the socialist party and emerged under its influence and shows characteristics of the old agricultural production cooperative from the period of real socialism. What is new to them are the criteria for profit distribution. In addition to labour, quality and quantity of land and quantity of capital invested in the cooperative, are taken into consideration. The business side of the production cooperatives not only includes joint farming, animal husbandry, and the production of agricultural goods, but increasingly also the storage, processing and marketing of products as well as the management of auxiliary enterprises. A trend to create multipurpose cooperatives has arisen. Parallel to the new establishments at the primary level, there have been some on the secondary and tertiary levels as well.

On the initiative of the central association of agrarian cooperatives, the "Agricultural and Industrial Bank" AG ("Semedelskai promischlena banka" AD) was founded in Sofia on 19 October 1994 as a universal bank to help manage the financial burden of rural cooperatives during the transformation. It is a joint stock company with a base capital of 200 million Leva, or 200,000 shares, each share having one vote. Shareholders of this bank may be Bulgarian nationals or foreigners but no-one is permitted to own more than 25 per cent of the total number of shares. Organs of the bank are the general assembly, the board of directors and the board of supervisors.

Ever since the revolution in the country, there has been a process to re-establish the production cooperatives in the handicraft sector along with their union structures. The number of these cooperatives and of the members of their central association reactivated in 1988, shows a rising tendency (1988 - 139, 1994 - 312). The central association acts as the respresentative of interests but has also built up its own enterprises. A process is taking place within the production cooperatives, albeit with varying intensity, to split the base capital in various parts depending on the length of membership and the capital input. To prevent a decrease in capital through numerous resignations, the paying out of cooperative shares is linked to a corresponding decision of the general assembly. At the same time, 51 per cent of the capital must remain within the property of the cooperative, and the creation of reserve funds to the amount of at least 20 per cent is required.

Handicraft and trade were mostly destroyed during the socialist era, which is responsible for the fact that a renaissance of support cooperatives in this sector is only taking place very slowly. In order to reduce unemployment, several State companies on the verge of bankruptcy or dissolution, were turned into worker production cooperatives. Whether or not these cooperatives will survive in the long run is doubtful.

More recently, there has been a revival or new establishment of people's banks. Presently, there are 45, but there are many applications waiting for legal approval. As successors of the former people's banks, they attempt to participate in the market as universal banks, but often fail to obtain approval for lack of necessary funds. In the middle of April 1995, the central association of the people's banks was formed to represent interests and perform other economic functions.

As the only officially recognized type of cooperative during the period of real socialism, consumer cooperatives enjoyed a somewhat preferential treatment. This, however, was done away with following the economic overthrow and the resulting increase in competition has led to a severe crisis. To overcome this crisis, the consumer cooperatives are relying on deconcentration, economic efficiency and membership orientation. However, after the records were updated, and because of resignations, the number of members in the cooperatives was considerably smaller. As a rule, the cooperatives emerging in this way are small and active in business areas not exceeding a municipality or medium-sized city with some suburbs. According to § 61 of the Cooperative Law of 1991, those associations which functioned during the socialist era as "extended arms of the State" are presently only permitted to take on service functions (counselling, information collection and dissemination, training, etc.), or act as representatives vis-à-vis third parties. As successors of the multi-functional agricultural cooperatives, the consumer cooperatives are striving to expand their own responsibilities.

In 1992, the Central Cooperative Bank ("Zentralna kooperativna banka") was founded as a universal bank in the form of a joint stock company with its main office in Sofia. According to § 1 (2) of the by-law, shareholders of the bank may include natural and legal persons. Legal persons that are not cooperatives and natural people are only allowed to apply for non-voting shares. The capital amounts to 500 million Leva in the form of 500,000 shares. The right to vote is not connected with the person but the number of shares held.

4.4. Poland

4.4.1. Historical development of cooperatives

The cooperative system in Poland can be traced back to the end of the 18th century. The emergence of cooperatives is not only attributed to economic or social needs but also to political reasons. At that time Poland was not independent but divided between Russia, Prussia, and Austria. Cooperatives therefore served also as suitable safeguards of national identity and independence. Because of these politically motivated influences, the institutional and structural conditions for the establishment and development of cooperatives were also set by outsiders.

In the Prussian area, the establishment of cooperatives had been regulated since 1867 by a cooperative law. In the cities, there was a rapid expansion of people's banks and consumer cooperatives. Agricultural credit and marketing and supply cooperatives as well as the so-called land allotment cooperatives were founded in the rural areas. The latter were supposed to help in the sale and partitioning of large holdings into individual plots. As a whole Polish cooperatives enjoyed a strong economic influence on Prussian land.(27)

Since 1873, the establishment of cooperatives in the Austrian occupied area (Galicia) was also regulated by a cooperative law. In comparison to the establishment of cooperatives on Prussian occupied soil, there were considerably fewer political tensions in the Austrian sector, which could well be attributed to the fact that these cooperatives were more economically and not politically motivated. Dairy cooperatives and purchase cooperatives for consumer goods sprang up in the rural areas. In the cities, handicraft cooperatives and people's banks emerged but it was the credit cooperatives, in particular, which experienced rapid expansion, thus "breaking the ice" for the development of other cooperatives.

Until 1905, the establishment of cooperatives in the Russian territory was dependent upon a permit from the local administrative authorities. These permits were not easily obtainable thus hindering the development of a comprehensive cooperative sector. Only following the 1905 Revolution was there a "growth push"(28) in the Polish cooperative movement on Russian occupied territory. During this period, mostly consumer and credit cooperatives emerged but the number of handicraft cooperatives also rose. Moreover, in the rural districts, many dairy, purchase and sales cooperatives were founded.

World War I not only interrupted the development of the cooperative system in Poland but rather severely damaged it for a long time thereafter due to the far reaching destruction of cooperative property. Cooperatives in Poland, which had at the end of the First World War regained its national unity and independence, found themselves at a completely new beginning. However, the opportunity to create a new and homogenous cooperative system was only used to a small extent because of the various specific interests of different ethnic groups.(29) It was only in 1920, that a common cooperative law for several branches emerged as the beginning of the standardization of cooperative legislation, which furthermore, proved to be a blessing for the revival of the cooperative movement. Just the same, there were several differing opinions of what role the cooperatives should play in society.

After World War II, Poland again faced a complete new beginning concerning the development of a cooperative system, as the previously existing one had been fully destroyed during the German occupation. As a result of its subordination to the Soviet State and economic model, Poland's cooperatives were given a new task after 1947. "Just like the State enterprises, cooperatives were incorporated into the central plan where the economic tasks were precisely defined, giving absolutely no chance to exceed the boundaries."(30) As a coordination unit for the integration (and instrumentalization) of Polish cooperatives, a central cooperative association with far-reaching competencies, was founded. Agriculture was collectivized; dairy and horticultural cooperatives were liquidated; credit cooperatives were practically nationalized and only consumer cooperatives were somewhat able to avoid the embrace of the State.

More favourable conditions for the cooperatives came about in 1956, as more economic freedom was permitted in the course of doing away with "inefficiencies", but without disposing of the system of central economic planning. New cooperatives in the rural areas as well as in the cities evolved. Dairy, horticultural, and credit cooperatives were again allowed, and the first housing cooperatives were founded. "As a whole, one can not escape the impression that the responsible parties in Poland at that time, had conceived cooperatives, if not as a singular solution in the sense of a "third way" between capitalism and socialism, at least as a compromise between the two extremes, and tended to use them in this way."(31)

In Poland after 1982, there were frequent attempts to reform the inefficient central economic planning system, but because of the fundamental character of it, the entire system could not be altered, and these attempts at reform were doomed to fail from the very beginning. This failure can be attributed to the fact that, at that time, the necessary institutional and structural conditions were not available. In this respect, the more than 3,000 cooperatives that emerged after 1989 were in no way an indication of a recovery of the cooperative movement.(32)

4.4.2. Cooperative legislation

Besides the Polish Cooperative Law, many other regulations and legal provisions of considerable importance for cooperatives existed. However, this overview shall focused on the cooperative law itself and its recent amendments and revisions.

The Cooperative Law of 16 September 1982 - still in socialist times - was the first real attempt to free cooperatives from the constraints of the central planning system and to give more weight to their real strength towards the members. It was therefore only logical for §1 of this law to read: "In its economic activities, (the cooperative) is governed by the needs of its members and the demands of the central and local socio-economic problems, (...) in order to improve the material and cultural standards of living as well as the confidence of its members and to work towards the well-being of the People's Republic of Poland."(33) This law and economic liberalization caused by it can be classified as one part of the overall experiment, which took place during the 1980s, to integrate more elements of free enterprise into the Polish economy. Consequently, the Cooperative Law of 16 September 1982 was characterized by economic desires and replaced the opposing ideological plans.

In contrast to the law of 1982, the law passed on 20 January 1990 clearly contained political goals and considerations influencing the changes made to the law in reference to the function and organization of the cooperative system. In it, the far-reaching destruction of the system of cooperative unions was regulated, led by the goal of releasing primary cooperatives from the outside influence of these unions. At the same time, representatives of the old nomenclature should be banished from essential sectors. However, this process led to considerable economic problems as cooperatives on the primary level were left alone to deal with the impending problems without knowledge on how to function "economically correct" under the altered conditions.(34) Furthermore, under the law, cooperatives were compelled to elect new boards almost immediately. The aim was to replace the old board members with new staff but this did not happen.

The law on the revaluation of cooperative shares from 30 August 1991 was again economically motivated. Its goal was to help primary cooperatives through the renewed admission of unions, whose influence was restricted to auditing, training and counselling in order to limit their influence. At the same time, the material revaluation of members' shares in their cooperatives was regulated. Before then, the shares held by each member usually constituted only a very small part of the cooperatives' overall assets.

The revision of the Cooperative Law of 19 September 1991 contained yet another a change in the legal definition of a cooperative along with an attempt to repress non-economic or non-member oriented influences. In doing so, the law opened up to cooperatives the possibility of making free decisions on the further use of profit (only 5 per cent of the profit had to be put into the reserves). This freedom of determination also applied to the distribution of the assets in case of liquidation.

4.4.3. Variety and structure of cooperatives

The cooperative sector in Poland is among the most developed of the cooperative systems of the countries of Central and Eastern Europe. In rural areas there are sales and procurement cooperatives, horticultural cooperatives, cooperative banks, dairy and agricultural production cooperatives. Also, the agricultural circles in Poland have to be mentioned, which during socialist times acted as links between the interests of private farmers and the central planning system. In the cities, the consumer and housing development cooperatives are of special importance. Besides, there exist supply and sales cooperatives for trade and commerce, handicraft production cooperatives, credit cooperatives here as well, but also pupil and university student cooperatives and cooperatives for handicapped people.(35) In 1990, there existed approximately 15,000 cooperatives in Poland;(36) however, the number may have dropped considerably since then.

Some of these types of cooperatives are relatively new. They emerged in the wake of the socialization of Poland following World War II and, as in the different countries of Central and Eastern Europe, certain types of these cooperatives were regarded as suitable and efficient means for the collectivization of private economic activities. Particularly agricultural and handicraft production cooperatives emerged due to these incentives.

Until the end of January 1990, the primary cooperatives were being integrated into a comprehensive network of unions, including regional, branch related, as well as central units. Membership in these associations had been obligatory in the past, but this was abolished during the 1980s. In contrast to cooperative unions in Western European countries, these organizations in Poland not only assumed service functions of an economic and legal nature in addition to pressure group activities, but were also an important link for cooperatives' embodiment into the socialist system of economic planning. The latter, however, was the cause of the break-up of the cooperative unions at the secondary and tertiary levels, as regulated in the law on amendments in the organization and activity of the cooperative movement from 20 January 1990. Thus only primary cooperatives remained with the Supreme Cooperative Counsel at the apex. With the restructuring of the system, it was hoped that cooperatives would be freed from the influence of the nomenclature which held various influential positions in the unions.

However, by abolishing the cooperative unions at the secondary and tertiary levels, one overlooked the fact that necessary tasks like counselling, auditing and other beneficial activities would also disappear. Neither the primary institutions nor the central institution were able to carry out thesetasks since neither had sufficient personnel nor the necessary organizational structures. Provisional solutions, in the form of so-called economic chambers were, on the one hand, only partly able to offset the negative effects while, on the other hand, they offered a certain economic refuge for former union functionaries which was exactly the effect that one wanted to avoid. Because the negative effects of this legislative measure were rapidly recognized, there has been an revival of unions and similar organizations since 1991.

4.4.4. Cooperatives in the process of transformation

A historical review shows that cooperatives were always of special importance when it came to managing rapid economic and social change. "The attraction of cooperatives as collective self-help institutions was understandably always very high, when individuals - left alone - felt overstrained by their environment."(37) Therefore, it may be assumed that the complete transformation of an economic and social system could possibly present a favourable climate for cooperative self-help, even though there is still no available historical evidence.

In this sense, the sometimes lamented decline of the cooperative movement in Poland need not necessarily be regarded as negative, although the social and economic effects upon those affected appear, as a rule, to be severe. This situation offers to the existing cooperatives another chance for a return to the principles of self-help, self-management and self-responsibility which, accompanied by economic efficiency, could present better survival chances in an environment characterized by a free market economy. Such a survival is already foreseeable in Poland, mainly because cooperatives have a strong tradition, and even though this tradition has undergone much abuse, it can still be used as a starting point. "Above all, it is the economic success of the earlier existing cooperatives which contributed to the development of agriculture and handicrafts that cause them to be relevant for coping with today's economic as well as social problems. The experiences of the cooperative movement of the period preceding socialism can therefore serve as an example for the successes and mistakes which offer a chance for learning.(38)

A smooth resumption or re-establishment of cooperative traditions in Poland is, however, not possible without problems. Institutional and structural conditions are required as prerequisites for successful cooperative activity. Fundamentally, cooperatives can "support their members as self-help organizations even under adverse structural conditions (....); but basically they are no substitute for state structural and procedural policy in a market economy, and in no way can they replace the introduction of framework conditions essential to a market economy.(39) In Poland, these tasks have already been addressed even if the process has not always proved to be successful, as was shown by the short-lived abolition of the secondary and tertiary levels of the cooperative system.

By no means can cooperatives in Poland be used as a universal tool for the "re-transformation" to a market economy, a possibility sometimes discussed in literature.(40) This view overestimates not only the efficiency of cooperatives but neglects also the essence of their basic functions. Certainly, cooperatives can and will fulfil important responsibilities in Poland. In general, these responsibilities will arise in the form of substitutional, supplementary, or stabilization tasks, of which the substitutional tasks are the most important. These include, in particular, the elimination of certain "transformation shortcomings" such as the shortage of capital, reluctance to face risks and, in general, the lack of private entrepreneurship, but also the absence of a healthy market structure with small- and medium-sized businesses, organizational know-how and practical financial experience.(41)

Especially helpful in this context was the Polish Foundation of Rural Cooperatives which was supported by the World Bank and by the European Union through a PHARE project. Its aim was to establish twelve regional centres for promoting and advising cooperatives and training of management staff, cooperative leaders and members. It also aimed at establishing a database on rural cooperatives and assisting in the establishment of new cooperatives with the support of regional networks.

4.5. The Czech Republic

4.5.1. Historical development of cooperatives

The first cooperatives to appear on the territory known today as the Czech Republic did so about 150 years ago. In the beginning, however, these cooperatives had really been first steps towards self-help organizations to counter the negative effects of the emerging economic liberalization and industrialization. They did, however, not belong to a cooperative system in the current meaning of the word. In the 1980s, after a long-lasting development, cooperative structures managed to evolve in the sectors of credit, retail trade and agriculture.

Certainly the ideas of Schulze-Delitzsch and Raiffeisen affected the development of the cooperatives in Bohemia but the concept of self-help had its own fertile soil and advocates in the difficult economic conditions at the time. Hence the intensive development of the cooperative system of the present Czech Republic can be attributed to "the resolute engagement of three men: Franz Simacek (1834-1885) who founded urban loan institutions based on the system of Schulze-Delitzsch; Franz Ladislaus Chleborad (1839-1911) who is credited for being the pioneer of the Czech consumer association movement patterned on the "Rochdale Pioneers"; and Dr. Franz Cyrill Kampelik (1805-1872) who propagated the expansion of savings and loan associations for farmers based on Raiffeisen principles."(42)

The people in the countryside were most accepting and open to cooperatives. This welcoming attitude first led to rural credit cooperatives which, in turn, declared war against credit profiteering in that area. At the beginning of the 20th century, the Raiffeisen banks already included more than 125,000 members. The scope of rural cooperatives was also enriched at the turn of this century by the procurement and sales cooperatives, dairy, flax plantation, cattle breeding, fruit and vegetable cooperatives as well as machinery, construction and electricity cooperatives. "In 1919, there were almost 1,100 such cooperatives in the Bohemian countries. Altogether, more than 2 million individuals of the rural population at that time held some connection or another to those agricultural cooperatives."(43)

Consumer cooperatives also played an important role from the beginning of cooperative development in the Czech Republic. Already in the 1860s, they emerged in the cities and later on in the countryside, but they first flourished several decades later in larger areas of industry. In order to do justice to their mission - "distribution of household needs at reasonable prices" -they purchased their goods directly from the producers, but later founded their own production enterprises. Thanks to a stable economic basis, those consumer cooperatives (approximately 1,000 in 1919) were resistant to crises and therefore soon established themselves in the cooperative system in the areas which are today part of the Czech Republic.

Apart from the rural and consumer cooperatives, there were two other types of cooperatives which were both qualitatively as well as quantitatively important. First, there were the loan societies in the cities which controlled the distribution of credit among those in small handicraft as well as small retailers. In 1919, there were 1,200 loan societies but they were later severely affected by national as well as international competition. Secondly, the housing cooperatives, especially in the cities, made remarkable contributions to the alleviation of shortages of housing for workers. Finally, production cooperatives enjoyed only marginal importance in the cities as well as in the country, a situation that would change after World War II.

4.5.2. Cooperative legislation

From the very beginning, the Czech Government paid much attention to the cooperative system. Above all, with tax breaks, subsidiary guarantees, interest free loans, but also through direct subventions, it strengthened the ability of cooperatives to overcome their weaknesses regarding deficits of liquidity. This active support of Czech cooperatives can, to some extent, be attributed to national interests, at least during the first years of their development. Apart from providing material aid and assistance, the State also engaged itself especially through appropriate cooperative legislation.

Very early in their development, Czech cooperatives were the object of special cooperative regulations. Their legal status was regulated by the Austro-Hungarian Law No. 70 of April 1873 concerning joint economic associations, which lasted in Czechoslovakia until the middle of the 20th century. This law was supplemented by a variety of further regulations. Only in 1949, did Law No. 69 on agricultural cooperatives amend the traditional cooperative legislation, thus exempting the unitary agricultural cooperatives from the law of 1873. Half a decade later, all other cooperatives were subjected to Law No. 53/1954 (regarding people's cooperatives and cooperative organizations.)

The message of these and other regulations of the forties and fifties was clearly recognized. Heavily influenced by the cooperative system of the Soviet Union, the agricultural cooperatives, similar to the collective farms, were to be placed in the middle of the overall cooperative system and given special assistance. The dualism of cooperative legislation according to which agricultural cooperatives were distinguished from all other cooperatives through separate regulations, was preserved and supplemented in the then Czechoslovakia until the socio-economic revolution of 1989/1990.

Just before the turning-point in the overall social development in Czechoslovakia, a final "correction" of the cooperative legislation was attempted in 1988. Laws Nos. 90/1988 and 94/1988 concerning housing, consumer and production cooperatives, were passed essentially with the intention of getting rid of the deviations of the Czech cooperative law as opposed to the internationally accepted cooperative principles. These regulations respected "the internationally recognized principles in a formal legal sense and declared their validity for the then existing Czechoslovakian cooperative system. At the same time, however, there were other generally binding regulations that affected cooperatives. Through these other laws, the cooperatives' autonomy, which had been reinstated by the two new laws, was again partially annihilated. For example, the provisions of party nomenclature remained valid for the eligibility of candidates for cooperative functions as well."(44)

A half year after the fall of the totalitarian system in Czechoslovakia, the national assembly dedicated itself once again to the legal regulation of cooperative matters. With the passing of Law No. 162/1990 regarding agricultural cooperatives, and Law No. 176/1990 regulating the cooperatives in housing development, the consumer market and the production sectors, an important step in a new direction was accomplished. In this way, legal barriers were set to limit State interfluence in cooperatives and all members were obligated to participate with their property in the cooperatives. At the same time, nevertheless, these first two cooperative transformation laws did not yet create the necessary breakthrough to new conditions. The dualism of the cooperative legislation was maintained for no recognizable reason, and the establishment of cooperatives was limited principally to the types already existing.

4.5.3. Variety and structure of cooperatives

In 1989, at the time of the socio-economic revolution, Czech cooperative development had the following status: In the areas of agricultural production at the primary level, there were 1,202 cooperatives with more than 600,000 members cultivating 2,616 million hectares of arable land, corresponding to 62 per cent of the Republic's agricultural land.(45)

Cooperative retail trade was transacted by 74 regional consumer cooperatives with 1,500,000 members having a network of 17,050 stores and whose total sales took up 25 per cent of the total retail trade. In the service sector (especially in repairs and small production) there were 282 cooperatives with 133,000 members at 7,013 production sites. And finally, 247 housing cooperatives with 48,000 members managed more than 48,000 houses with approximately 700,000 apartments.(46)

Even though there was a rather comprehensively developed cooperative movement on the territory which today constitutes the Czech Republic, one can not overlook the fact that this system had inherent weaknesses. For example, the compulsory membership in cooperatives, in many cases, and the cooperative property system which during the seventies and eighties did not require a contribution of business shares in any way. Above all, though, it was the state officialization of cooperatives via state planning that characterized this deformation.

The legal regulation of the transformation of Czech cooperatives which in 1991 and 1992 resulted especially in the settlement of property rights, and also cleared up a number of questions about the functioning of a cooperative, caused a lot of controversy in the political debate. Above all, certain political powers regarded the deformations from the socialist period to be the real nature of cooperatives and saw this as justification for their liquidation. Behind this problem was the misconception that cooperatives were connected to socialism and therefore doomed to die with it. These views, however, did not prevail.

The cooperative law that was adopted by the National Assembly on 5 November 1991 and included in the commercial law code, was of major importance for the overall understanding of cooperatives and their structure. Simultaneously, this new law became a point of orientation for all cooperatives in the course of their transformation. According to § 221 of the commercial law code, a cooperative is "the association of an indeterminate number of persons that is founded to fulfil an economic function or to satisfy the economic, social and other needs of its members." With this new law, a legal term had been created to distinguish the new understanding of cooperatives from that of the socialist era which had been characterized by state instrumentalization, thus opening the way for business-oriented self-help organizations.

The regulation of cooperatives through §§ 221 - 260 of the commercial law code was a visible signal in regard to a cooperative understanding in the sense of a market economy: establishment of a cooperative by at least five natural or legal persons of their own free will; member responsibility for the cooperative's liabilities only up to their individual investment; creation of a base capital reserve of the cooperative and an indivisible fund of at least 10 per cent of the registered base capital; definitive regulations regarding the responsibilities of the general meeting, the board of directors and the board of supervisors; dissolution of the cooperative because the intended goal has been achieved, or expiration of contract, court decision, bankruptcy, or by decision of the general meeting.

4.5.4. Cooperatives in the process of transformation

Subordinating Czech cooperatives under the provisions of the commercial law code took place as part of a very complex process, the main problem being the settlement of property rights. For this reason - besides other regulations affecting the transition - Law No. 42/1992 on property rights and the compensation of property claims, was considered the most important transformation law. This law was to serve two functions. Firstly, to guarantee restitution of the prospects which had been used by the cooperatives without the consent of the original owners. And, secondly, to provide new regulations on property rights but especially to set a legal basis for the renewal of property management within cooperatives, thereby bringing about a certain harmonization in internal relations.

Without a doubt, the problem of property rights was a central point of attention within the transformation process, as it constituted the one problem of determining whether and how the Czech cooperative system would be able to adapt to a market economy environment. In this context, the legal measures for restitution "regarding cooperatives were supposed to guarantee the refunding of property possessions that cooperatives had used or acquired in each and every way that was incompatible with the inalienable rights of the original owners. Consequently, property was returned that had been taken away from its owners without compensation, i.e. property that had either been confiscated or acquired by the forced signing of a sales contract with unreasonable conditions, or through the forced refusal of an inheritance."(47)

The scope of the Czech transformation law affected all types of cooperatives established before 1 January 1992. The main focus was, however, on agricultural cooperatives, which constituted a large part of Czech cooperatives. As production cooperatives and in comparison to other types of cooperatives, they presented the greatest challenge. The greatest barrier for their own transformation was the necessity to obey the regulations stipulated in Law No. 229/1991 concerning property rights with regard to land and other agricultural properties. According to this land law, original owners were given the chance to claim previously owned property and other possessions including buildings and other inventory.

To meet the legal requirement of transformation, each cooperative had to work out its own plan for transition. Among the many important questions, this plan had to include a declaration of whether or not the cooperative would retain its status as such even after transition, or whether it would opt for a different legal form. A management, coordination and controlling institution for the conversion was formed within each cooperative (except for housing cooperatives) as a council, elected by the members and superior to the board of directors. This ensured that the transformation of Czech cooperatives would proceed according to the legal regulations.

The qualitative result of the transformation of cooperatives was that the existing cooperatives overcame their defects and mutated into institutions of a free market economy. The number of consumer cooperatives decreased and saw their share of retail trade sales lowered from 25 per cent to 5 per cent. Housing cooperatives almost retained the same number. Small-scale commercial cooperatives experienced a considerable decline in number. Agricultural cooperatives went through a highly amazing development, increasing in numbers from 1,202 to 1,221 and, at the same time, reaching optimum size. Only 30 were liquidated during transformation, while 32 joint stock companies, 94 limited liability companies and 18 other trading companies were founded. Lastly, new cooperatives in different areas, such as in the banking sector, are being created.

5. The potential contribution of cooperatives

to social and economic development

Of all the types of organizations that have survived socialism in Central and Eastern Europe, cooperatives have the best prerequisites for reacting to the new conditions and the socio-economic problems, simply because they are self-help organizations. This concept of self-help carries with it the one fundamental goal of cooperatives, which is the improvement of each member's standard of living by strengthening their power through collective action. By associating to a cooperative, each individual member aims at realising his/her ideas and interests in the market by joining together supply and demand. Self-help within the realm of cooperatives is therefore capable of creating additional economic profit for the individual through joint business operation.

Another important aspect falls under the transformation conditions in Central and Eastern Europe. In the situation of a break-up, which in this region was applicable, cooperatives are suitable in a special way for the transformation from a planned to a market economy as organizational, instructional and stabilizational structures. At the same time, however, they become a form of guidance by helping the affected individuals to adjust to the new socio-economic system. In the transition to the new conditions, cooperatives are in a way a type of life support system because of their humanitarian characteristic as self-help organizations. This, however, demands differentiation between the transitional stage from a planned to a free market economy and the stage of a "mature" market. In the different stages, cooperatives must take on different responsibilities.

In that respect, the transitional stage in Central and Eastern Europe requires an extraordinarily important contribution from cooperatives because, in comparison to other business structures, cooperative possess a much greater ability to balance deficits, especially in emergency situations. As the rebuilding of economic structures in Central and Eastern Europe is dependent on a strong recovery in the sectors of agriculture and small-scale industry (especially in the first stages of transition), cooperatives offer themselves as vehicles of this modernization. In addition, they are capable of substituting capital which is definitely needed in this region.

Of crucial importance in this context, is the fact that cooperatives can play a deciding role as stabilizers within the frame of the economic constitution. From this point of view, the simple maintaining of their economic functioning ability and potential to create job security in a number of Central and Eastern European countries may well be enough reason for active support of cooperatives. Cooperatives could then contribute to the establishment of a new middle class, thus in the shaping of a free market economy.

The principle question concerning cooperatives which has yet to be answered is, according to J. Laurinkari, "Will cooperatives at all or to which extent be able to observe the principles of a free market economy in a situation in which they must first of all acquire this functional ability? Theoretically, the answer to this question is yes. Cooperatives were, and are, not only a solid component of the system of market economy structures but, as their expansion in the industrialized market economies proves, they are also able to achieve great success within this system. Moreover, several of the qualities that cooperatives possess could be quite advantageous to a number of groups in the post Communist economy, because they ease the transformation to a market economy and soften some the most difficult problems."(48) The reduction of unemployment and the easing of income recession are major proof of the socio-economic success of cooperatives.

If one were to pose the question of what cooperatives' most important contribution to the socio-economic development of Central and Eastern European countries was, the answer would implicate the agricultural sector, which for many of the countries in this region is the most important branch of economy.(49) In this area, cooperatives can and must play an important and indispensable role in the redesigning of agrarian relationships, first in the areas of production, but increasingly in marketing and procurement. In several of the countries of this region, this need is certainly not being recognized by the ruling political parties, as they place more importance on rural family enterprises, joint stock and limited liability companies. The development in a number of Central and Eastern European countries proves that cooperatives have already successfully laid the foundation for an adaptation to market economy requirements. It is, nevertheless, paradoxical that in several of these countries, the state organs which had previously meddled in the internal affairs of cooperatives are now busy creating external problems for them, thus placing cooperatives at a disadvantage in respect to other types of business organizations. The reason for these political obstructions towards cooperatives may be attributed to the insufficient knowledge or misconception of the political powers regarding cooperatives' potential to contribute favourably to the socio-economic development of these countries.

6. Experiences of cooperative development

in Central and Eastern Europe

6.1. Achievements and innovations in cooperative

development

The social development in the countries of Central and Eastern Europe following the socio-economic revolution questioned the existence of many phenomena, forms and institutions of the previous system. With a few noticeable exemptions, like for example, Albania, cooperatives were certainly not rejected as a matter of principle. From the very beginning, however, there were recognizable attempts to burden cooperatives with the defects of the previously existing socio-economic system and to blame cooperatives for those inadequacies resulting from the political system of the socialist society. These problems were apparently most damaging to the stages of the transformation of production cooperatives in the handicraft and agricultural sectors.

Meanwhile, many indicators show that cooperatives will play a certain role within the realms of the future economic constitution of all Central and Eastern European countries as an alternative business design. However, the end of this present development is unforeseeable. In any case, stability in the cooperative field will have to wait a while longer, as cooperatives develop only as one part within the framework of the respective economic structures. At the same time, however, it is apparent that cooperatives in the countries of this region can no longer offer a potential path towards a more just and socially orientated society, but rather are marked by a strong tendency of adjustment to the profit-orientated mechanism of free market economy.

In its present state, cooperative development in Central and Eastern Europe suffers considerably. This problem may be attributed to the recently increasing lack of faith towards the cooperative system in Western Europe too. Another disadvantage arises because of the fact that EU countries have not yet been able to agree to a model statute of a "European cooperative" and, because of this delay, no point of orientation for cooperative development is being set. The experiences of East Germany offer little assistance because the metamorphosis of the East German cooperatives was and is an exceptional case. The whole transitional process to a market economy in East Germany was coupled with a process of national unification and accompanied by a transfer of capital, people and the lead systems which meant a transfer of the West German structures to the East.

Of all the achievements and innovations of cooperative development in Central and Eastern Europe, the following special aspect stands out: The metamorphosis of the cooperatives that had existed until then, consisting primarily of officialized enterprises, into private legal entities. This metamorphosis was, and is, not reduceable to the legal transition only. It has altered and continues to alter fundamentally the character of cooperatives, their capital structure and the relationship among the members, as well as the relationships between the individual members to their own cooperative. The extent and depth of the interruption of the development of cooperatives resulting from these fundamental changes differ, however, from country to country; from one type of cooperative to the next; and from one case to the other.

In Hungary, for example, cooperative legislation aimed at the distribution of so-called indivisible cooperative property and its transformation into private property. At the same time members were permitted to decide whether they wanted to stay within cooperatives, continue as private entrepreneurs, or transform their cooperative into a different company. The presupposition was that agricultural cooperatives would break up. It was assumed that members would take advantage of their right to withdraw their land and establish independent farms.(50) In Bulgaria on the other hand, the current Government consisting mainly of members of the former communist party favours the continued existence of the agricultural production cooperatives and considers them highly suitable for agricultural development.

An analysis of the development which has just taken place in the cooperative sector of Central and Eastern Europe proves that almost all cooperatives were put to a very hard test. Several of them who failed to overcome the difficulties of this test either succumbed to liquidation or were turned into different types of enterprises. Those cooperatives that emerged from the transition in a renewed form have established themselves on the market and have, for the most part, made considerable achievements. They have every chance of survival within the present economic constitutions of their countries.

A new aspect within cooperative development is the revitalization of the production cooperative. Although the ability of this type of cooperative has been questioned concerning its adaptation to a free market economy, production cooperatives in many countries of this region have managed to survive and secure "their place" in the market. It is expected that several of them will continue to hold on, even though a generalization of this assumption is not yet possible. First, these cooperatives will have to establish themselves as stable and essential elements of the economic framework - not just during the transitional stage but also as part of the "mature" market as well.

A further new appearance in the cooperative system of Central and Eastern Europe which is somewhat unexpected is the expansion of the range of cooperatives. While there existed only a limited variety of cooperatives under the conditions of real socialism, at least in the majority of Central and Eastern European countries, the cooperative system has been conquering new markets within the last few years. Examples of this development are credit cooperatives, procurement and marketing cooperatives as well as taxi cooperatives. However, even though these new kinds of cooperatives are not yet that numerous, they do indicate an enrichment of the cooperative scope.

6.2. Mistakes and weaknesses in cooperative development

With the socio-economic revolution in the countries of Central and Eastern Europe, cooperatives in just about every country affected by the revolution found themselves in a situation of disorientation. Having held a status somewhere between state ownership and private property under the conditions of real socialism, cooperatives were looked at somewhat doubtfully by the new political powers. Again, there was an undeniable attempt to blame cooperatives, and production cooperatives in particular, for all the inadequacies of the political and economic system as it had been practised under socialism.

From this point of view it becomes apparent that the real crux of the adaptation of structures in the economies of several Central and Eastern European countries, resulted from direct political influence which dominated the "pros and cons" of cooperative development more intensely than the actual competition between different types of enterprises. In this regard, it would have been more beneficial to the stability and functional capacity of the future economies to have let competition decide this question. There is good reason to believe that, in such a case, the outcome would clearly have favoured cooperatives and not joint-stock companies.

One factor which plays a very special role in this connection is the impact of the state on cooperative development. As cooperatives are legally, private entities under the conditions of a market economy, there have been efforts to exclude state influence from their development. These efforts, even though understandable are very badly timed, because it is during this process of transition from a planned to a market economy that the cooperatives need a guiding hand from the state. The state must therefore integrate cooperative development into its economic policies constitution and lay down the basic rules for the establishment, function, and support of cooperatives on the principles of equal treatment.

More or less all Central and Eastern European countries did not recognize that cooperatives, as self-help associations, are an indispensable and highly effective means of helping to create a functioning middle-class, without which a market economy can not properly function. There are many causes for the underestimation of cooperatives in this respect such as the lack of experience with a cooperative system based on self-help; the fact that the former (and often forced) collectivization is still very much in people's minds; and finally, the widespread conviction that strong individualism would always offer the best chances for operation in a market economy.

A major weakness, which was overlooked in all countries of Central and Eastern Europe from the very beginning, was that although there existed certain networking structures within the cooperative system, these structures were inadequately linked to each other; especially the needs of the primary cooperatives were not sufficiently recognized in the network structures. There are production cooperatives in practically every country in the region but there is hardly any linkage between them and marketing cooperatives and cooperative banks. It is primarily this weakness within the growing cooperative systems of these countries which has negative effects and needs to be overcome.

7. Main actors of cooperative development

7.1. Members

The main reason for the creation and initial spreading of cooperatives are the members and their needs. Just the same, cooperatives in the countries of Central and Eastern Europe moulded earlier by socialism have neglected their members and sometimes even "forgotten" their existence.

During the era of governmental socialism, cooperatives were not meant to serve their members, but assist in the attainment of state planning goals. This can be seen in each and every country in this region, even though the extent of influence varied.

7.1.1. Member status in socialist cooperatives

State instrumentalization created many problematic consequences for cooperatives and their members. Cooperatives had been reputed as socialist economic units and in some cases even regarded themselves as such. This meant that the inherent cooperative promotional idea was directed not towards the individual goals of the members, but upon the collective well-being defined by the state. Satisfying the needs of the population in each sector was then the main priority.(51) Benefits for the members were, as a rule, only an indirect result; production cooperatives, however, are an exception to this rule. It shall not be denied that membership in a cooperative did provide advantages for their members. For example, there existed not only in East Germany but also in several other countries of Central and Eastern Europe, many purchase and supply cooperatives which provided access for their members to urgently needed machines and raw materials. It is doubtful, however, that these cooperatives offered any real advantage to their members, as they were usually business monopolies sanctioned by the state.

Along with this state-organized support came a loss of democracy within the cooperative. Essential decisions were made by the government - outside of the cooperative realm - and had to be accepted and enforced by cooperatives. This type of state control extended even to staffing the board and other positions within the cooperative hierarchy. Member assemblies were still held, but they had no real influence. Instead they mostly had to formally approve decisions made by outsiders.

This type of state manipulation of cooperatives ultimately led to the condition where members would identify less and less with their cooperatives, which they regarded as the aim and not the means for the satisfaction of individual needs.

In the course of the transformation process, considerable problems arose from state instrumentalization and lack of member identification, and because the cooperatives were understood as economic tools of socialism. Because the distinction between a cooperative's duty and reality were so severe, each member had to make an evaluation of his or her cooperative in order to determine future association to it. Some of the questions to be considered were: Does the cooperative help me? Is there a logical connection between my contribution to the cooperatives and the results thereof? How can I modify the cost and profit relation to my benefit? Which responsibilities can/should/must cooperatives fulfill? Will the cooperative survive economically on the market? And finally, can the cooperative reasonably function on the market?

Answering these questions was difficult for many reasons. First of all, there was simply not enough time to pose the question explicitly. Secondly, the answer also depended upon several external factors neither influenced by the members nor by the cooperative. Thirdly, there was no knowledge available of the future market in which the cooperative would participate. And lastly, members were mostly oblivious to the alternatives to cooperatives.

In many cases, even until the present, these problems have yet to be solved. Nevertheless, several remarks can be made about the role of members for the future development of cooperatives in the reform countries of Central and Eastern Europe. In doing so, however, it will be necessary to differentiate between the requirements of cooperatives already in existence and those just newly established or about to be established.

7.1.2. Responsibilities and problems of the members in the transition of existing cooperatives

The reform of the already existing cooperatives constitutes the greatest challenge. The first task is to bring about a new identification of the member for his/her cooperative; the second is to secure the capacity of the cooperatives to function under the changed socio-economic, political and legal conditions: De facto, this means that the previous members have to re-evaluate whether a continued association with their cooperatives is to their own benefit; if the answer is yes, then they have to learn what the cooperative represents and how it should act. In this respect, there are many difficulties to be overcome, but a return to the essential aspects seems to be inevitable for the existing cooperatives. It is for this reason that cooperatives must undergo a metamorphosis to become member-oriented, democratically managed and economically efficient, self-help organizations. Such an undertaking, of course, implies the setting in motion of an immense learning process which will require great efforts not only from the members and managing staff of the cooperatives in question, but also from the cooperatives' social environment. This transitional stage will certainly take its toll. It is not to be forgotten that the"officialized" cooperatives under socialism had been integrated into their socio-economic and political framework and hence taken on tasks and responsibilities that in Western democracies are carried out by the public sector.

To enable cooperatives to concentrate on operating a business in the interest of their members will almost definitely mean doing away with unproductive responsibilities. Naturally, this process will evoke great opposition because it will be unclear who will take over these tasks once cooperatives step down. On the other hand, the continued activities of cooperatives in these aforementioned fields would only lead to an unnecessary as well as dangerous burdening of responsibility upon cooperatives, which would most likely lead to their economic downfall.

Another problem to be solved is that many, if not all, cooperatives have too many employees. For reasons of economic efficiency, personnel cut-backs will have to be made and the operational structures rationally designed. Socially compatible rationalizations are desired, but it is doubtful whether this is a realistic goal. This problem of overstaffing is particularly acute in production cooperatives, because of whether or not they had been established of free will or under pressure from the state, the employees of these production cooperatives were, as a rule, also members. As recent experiences show, it is an extremely difficult and delicate situation when a cooperative has to plead for a member to uphold his or her association, especially when, for economic reasons, that cooperative can no longer offer employment to the member. The promise of renewed employment under better economic conditions will in all likelihood not suffice to ease the awkward situation. This is especially true for agricultural cooperatives which in many smaller communities are often the only employers. Nevertheless, in the majority of cases, many employees have to be laid off in order to ensure the cooperative's surival.

As mentioned above, a new understanding of the cooperative and its functioning has to evolve. This insight is not only important among the members to enable them to better identify themselves with the cooperative but it is also essential for the cooperative's management. Cooperative leaders must become aware that the ir responsibility to members' interests is not abolished by the newly found freedom from state control, but rather reinforced by it as the highest goal of each cooperative. A cooperative's board must also come to understand the demands of a developing market on an enterprise, and secondly, what the interests of the members are, and how they should best be satisfied.

7.1.3. Responsibilities and problems of the members

by newly establishing cooperatives

This "new", or rather renewed understanding of the cooperative concept, is especially important for the establishment of new cooperatives. As important as the de-officialization of the existing cooperatives determined by socialism may be, it will not lead to the necessary formation of new cooperatives. The founding of new cooperatives is, nevertheless, a requirement for the renewal of the cooperative system, but more importantly, it is essential to a successful future economic development. Not only do cooperatives have to be redesigned and rebuilt as replacement for former socialist cooperatives or as additions in certain economic sectors, but as necessary supplements in important economic areas, namely banking, insurance and leasing.

This requires innovative behaviour or the existence of a cooperative entrepreneur as "cooperative opportunities do not realize themselves. Like any other idea, cooperatives need to be recognized and realized. Without cooperative entrepreneurs there are no cooperatives."(52) Because of the present situation in the countries of Central and Eastern Europe, it is rather unlikely that a strong (re)establishment of cooperatives will occur. Experiences with the cooperative movement during the past decades, the cooperative understanding created therein, as well as the persistent negative image of cooperatives in the region are to some extent responsible for this pessimism.

This is not to say, however, that the need for economic self-help organizations has not already been recognized. A large problem arises, though, with the difficulty of connecting the essential competence for business operation with this need for cooperative-type organizations, which have largely been discredited by the term "cooperative." This presented (and continues to present) an immense responsibility and challenge for cooperative promoters, whose task it is in this respect, on the one hand, to convince sceptics of the potential usefulness of cooperatives and, on the other hand, to provide the essential knowledge for effective operation and management of cooperatives under market economy conditions.

7.2. The state

The essential precondition for a successful development of cooperatives in Central and Eastern Europe are the creation of and, more importantly, the consistent establishment of market orientated economic structures, which can be characterized by principles such as private property and competition. These requirements can be seen as a ten-step-programme which includes the following:(53)

1) efficient civil law system

2) legislation of competition

3) labour law in conformity with the market economy

4) delimination of the public and private sector economy

5) splitting up of the public enterprises into competitive units

6) protection against sell out

7) encouragement of the foundation of new enterprises

8) product liability law, law on the protection of the environment and tax law

9) measures on infrastructure, telecommunications and the protection of the environment

10) questions of management and remuneration.

One important aspect not mentioned by Säcker is the need for an operational vocational training system, as all countries in Central and Eastern Europe need well-educated and highly trained personnel at the various levels of government and administration as well as in the various areas of the economy.

In this connection it must be realized that these framework conditions constitute a combination of legal and political factors which determine and influence each other. In their entirety, they represent the requirements for the functioning of a social market economy. At the same time, it can be generally assumed that, besides the requirement of equal rights and obligations for the various kinds of enterprises, the success of it all depends really upon the creation of a sort of "legal peace". It cannot be beneficial to any nation when one amendment follows the other in an attempt to create the "legal optimum". This becomes apparent in the case of the Bulgarian land law. In this respect, it is essentially wiser to keep an "acceptable" regulation for the time being in order to guarantee legal stability, which, of course, is of utmost importance in the economic and political development presently taking place in Central and Eastern Europe.

Relating to cooperatives, this means that they are entitled to equal treatment just like other enterprises. From this viewpoint, it cannot be the goal of a cooperative to obtain preferential treatment from the state, as much as this could be of assistance, but a policy of non-discrimination should be applied.

The only remark which can be made about the current situation in the different countries of Central and Eastern Europe is that the development is not homogenous. The relationship between the state and cooperatives is regarded differently from one country to the next, and often changes with each new government. Altogether, it can be stated that the entire range of views is to be found, partially in actual economic occurrences, and partially in propagated business management and policy suggestions. Kowalak notes in this context: "Both approaches to the problems of relations between the State and co-operative movements, that of absolute independence from the State of privately owned and managed co-operatives, represented i. a. by German cooperative scientists, and that looking at co-operatives as one of several possible instruments for the solution of national or regional general problems, such as unemployment or regional economic development, seem to be present in the discussed region of Europe. Bulgarian and Rumanian law-makers seem rather to represent the view, that co-operative movements have to play a role in the realization of the State's policy. Hungarians seem to share the opposite view."(54)

Altogether, the state's responsibilities in regard to its relationship to cooperatives is distinguishable through six aspects:(55)

As legislator - the state is responsible for the legal framework in which cooperatives operate. This clearly applies not only to pure cooperative legislation but also includes among others regulations, the Constitution, social law, tax law etc. In the countries of transformation, there exists a special need for state action in this respect, whereby the legal statutes are supposed to create the largest possible amount of freedom for cooperatives.

As initiator - the state uses cooperatives in order to realize some goals of its own. Cooperatives thus act as instruments under state control and with state assignments or as independent units with supplementary functions. In the countries of Central and Eastern Europe, the state previously exploited cooperatives in this way; here, it is wise to aim at a shifting in the direction of more independence and with it, the use of cooperatives as only units supplementing official policies.

As promoter - the state supports cooperatives through the creation of a favourable climate, which includes support institutions as well as subsidies. In this respect, however, efforts must be made to implement a non-discriminatory policy in regard to cooperatives. Although state subsidies and tax breaks might be helpful for cooperatives, the basic principles of market economy, such as competition, as well as fiscal constraints, stand against it.

As a supervisory organ - the state has the fundamental responsibility of enforcing and/or supervising the observance of its rules and decisions. Putting the state in the position of general supervisor with far reaching powers in regard to cooperatives appears to be less sensible. It would be much more effective to leave this task of self-management as well self-responsibility to the members themselves.

As partner - the state can only act as a partner if it accepts cooperatives and its representatives on equal terms. Such an attitude, however, was unusual in all of the transformation countries until now. There are examples of such behaviour in Germany, Italy and Great Britain among other countries, where such public-private partnerships function as housing development cooperatives or as labour procurement cooperatives.

As a mediator - in the classical British-Indian cooperative concept the state acts as an intermediator in cases of dispute. In the present context, however, this aspect may be disregarded.

All of these aspects require attention when defining the state's attitude towards cooperatives. The cooperative movement also must enforce boundaries to limit state participation in the interest of its members. The principle to be followed should be "as much as necessary; as little as possible", in order to allow for development of self-help powers within the cooperative.

7.3. The cooperative movement

The cooperative movement is of considerable importance for the future development of the cooperatives system in the different countries of Central and Eastern Europe. In this context, the cooperative movements in the individual countries are to be understood as the major players, but they require the support of international cooperative organization stretching across international boundaries. This is due not only to the internationalization of the economic scene, or a strong orientation to the West which can be observed in many transformation countries since the political disruption, but more because of the fact that the individual cooperative movements (at least as long as they are a part of an international cooperative association), require assistance in the rebuilding of their structures and organs as well as in their understanding of the cooperative concept.

This point of view does not imply complete failure on the part of cooperative movements in the countries of this region, especially regarding the roles they played as cooperative unions or representatives of cooperative interests. Nor does it mean that the potential models in other countries have been completely successful. It also does not mean that one should copy the effective system of another country. Nevertheless, there seems to be a considerable need for reform inside the cooperative movements of Eastern Europe but, first and foremost, within the organizational structures i.e. the cooperative unions.

All in all this means that the cooperative movements in the different countries of Central and Eastern Europe are generally being confronted with new problems which previous experiences have not prepared them for. These problems which need to be addressed are found in all branches of the entire structure. Some are of legal, socio-economic or political nature, immanent to a social market economy. Western European democracies may serve as something of a model as may also similar democracies on other continents.

Other problems arise in the transition from a centrally planned to a market economy, a process that has no predecessors in history and is therefore very tricky to deal with. Even the development in the different countries of Western Europe characterized by market economies can not be accepted as simple guidelines, because the economic as well as political and social structures originated from different patterns. Those comparisons often made in this connection with the reconstruction of West Germany after World War II, or with the development of East Germany following German unification, are only conditionally helpful in solving the problems presently faced in Central and Eastern Europe because they happened under completely different conditions.

In addition to these difficulties of more external nature, all of the cooperatives generally need internal renewal of their structure and personnel. Owing to the instrumentalization of cooperatives during socialism, the individual (primary) cooperatives were characterized by the pursuit of state goals, but, and to a much greater extent, so were the organizations at the higher levels of each cooperative association. Fundamentally, it can be said that the higher the level, the stronger and more direct was the state influence. This linking together of the structures and political influences must be broken.

7.3.1. The management of external market economy problems

The general problems confronting cooperative movements in a developing market economy are to be handled in a comparatively simple manner. There are countless examples from other countries and their respective cooperative movements, and there are international organizations like the ICA which avail themselves as reference assistance. Furthermore, there is plenty of publicly accessible literature in different languages dealing with a great variety of problems regarding socio-economic development. The literature can offer not only examples of practical relevance but also provide the theoretical basis for certain aims and procedures to be followed.

Beneficial in this context are, for example, the experiences of developing countries with their attempts at the de-officialization of cooperatives. Information on this topic is available from the relevant governments, cooperatives, local practioners and scientific experts as is the case with DNOCS in Brazil.(56)

Cooperative associations in transformation countries are now faced more with the hurdle of getting access to this information, or processing it, than with finding the solutions themselves. Moreover, they need to adopt their own individual procedure when adapting the available know-how to the conditions in their own country. If necessary, a cooperation between the cooperative organization of one country and external advisers may prove to present the most sensible procedure.

7.3.2. Coping with the problems caused by transformation

Clearly of a more difficult nature is the management of the problems resulting from a country's transition from a socialist centrally planned economy to a democratically designed social market economy. The proportions of the problems to be overcome here lead one to recognize the fact that a general theory of transformation is lacking, even though definitely needed. The world was simply unprepared for the breakdown of the so-called Eastern Block, and neither from a political standpoint nor from a scientific one, did plans exist for a solution. It is this great dilemma which the cooperative movements in Central and Eastern Europe countries now have to cope with.

A shortage of examples and models, theories and developmental experiences leads to a "learning-by-doing" situation with an outcome that is very uncertain. This means that the cooperative organizations find themselves in an uncomfortable situation. On the one hand, a solution to these pressing problems cannot be put off until sometime in the future but must be addressed immediately. And , on the other hand, the cooperative movement must proceed with utmost care in order to avoid mistakes which may threaten its own existence.

The most reasonable path is probably not to wait for suitable concepts but rather to learn from mistakes (one's own just as those of others). This is the reason why constant evaluation and exchange of these pioneering procedures, as well as the results of these procedures, are needed just like the exchange of information and ideas with members of cooperative organizations in other transformation countries. This also includes and requires experience, both good and bad, of the cooperative movements in first world countries just as in third world countries.

7.3.3. Management of the internal transition

Probably the most difficult problem which meets considerable organizational opposition, is internal reform of the national structure of a cooperative movement. The first reason for this is that a careful evaluation of the present structure along with its branches is necessary. The second reason is that personnel consequences are unavoidable.

The federal structures of cooperative movements in the different countries of Central and Eastern Europe are characterized by their long-time connection with the state apparatus. This relationship, which lasted several decades, resulted in the building up of several structural elements at all levels of the cooperative organization. It also resulted in many party functionaries occupying important positions within the cooperative system. This problem exists in all transformation countries, including former East Germany, but is being dealt with differently from one country to the next. The chosen procedure ranges from the radical abolition of the politically overloaded unions (e.g. in Poland through legislation); to a nearly total neglect of the problem, and the complete maintenance of old party cadres along with their organizations.

Neither extremes are helpful in resolving the present tasks. The first implies a loss of essential specialized competence along with important organizational structures, while the other extreme involves a waste of resources on superfluous organizations and means that competent and willing reformers cannot climb to positions where their competence is most needed.

The necessary reform of the cooperative movement requires therefore a careful evaluation of the existing bodies and institutions as well as their respective office bearers. A fundamental requirement, in this case, also has to be a willingness to reform the cooperative movement from the inside. Finally, the legal bases and, if necessary, the statutory provisions for the new structures have to be in existence or need to be drawn up.

In this context the legislator is asked mainly to assure that the national cooperative legislation provides for a democratic restructuring. Previous experiences, both in Western as well as Eastern and Central Europe, show that exemption from obligatory membership in a cooperative auditing union will eventually be harmful. These mandatory audits have shown not only to have positive effects on the further economic development of the institutions, but also to tend to positively influence the image of cooperatives. This means that the establishment of, and merger into, competing unions has to be admissible in order to prevent a monopoly with its conditionally undesirable influence (economically as well as politically) on the cooperatives.

The question often raised in this context as to whether the state shall just tolerate or rather promote cooperatives is difficult to answer. One the one hand, the promotion of cooperatives would be very helpfully. On the other hand, chances are that the state would prefer to promote cooperatives if it could influence the cooperatives and interfere with its principles. Therefore, state promotion for cooperatives is helpful only as long as cooperatives continue to be autonomous organizations. As soon as state interference is impending, simple toleration is definitely preferable.

It is very important and essential to the development of the cooperative movement that access to all markets is granted and that cooperatives are not barred from entering any economic sector. This is especially true for the banking and insurance sectors, which serve as capital reservoirs and potential financiers for cooperatives. Besides this, rural credit cooperatives have a considerable responsibility in offering access to credit in rural districts which are clearly less important for commercially orientated enterprises. In this context, it is the duty of the cooperative movement to act as a pressure group (as is now happening in Estonia) until access is permitted.

The establishment of cooperative delivery and marketing organizations in the agricultural sector, as well as processing and finishing enterprises, have proven to be important to economic development. In the Czech Republic, this path was not followed as the processing industry in the food sector has almost exclusively been taken away from cooperatives.(57)

A rather psychological aspect needs to be addressed here. The leadership personnel at the different levels of the cooperative structure must be made absolutely aware that those bodies at the secondary and tertiary levels (and if necessary on higher levels as well) are working in the interests of the primary cooperatives and their members, and not the other way around. Fundamentally, in a democratically structured cooperative system, the delegation of tasks and responsibilities originates from the ground-level upwards. This point has to be made clear, because it reverses the direction of delegation of responsibility as it was practised in socialism.

7.4. Independent local and national organizations

In comparison to those actors already mentioned, i.e. members, the state and the cooperative movement in general, the role of the local and national NGOs is relatively insignificant. This can be either because they have to battle with considerable external and internal restructuring (as do the trade unions) or, because they are still in the process of being established (employers' associations).

7.4.1. Trade unions

As far as trade unions had already been in existence during the period before the socio-economic revolution in Central and Eastern Europe, they appeared simply as mass organizations embedded within the state's structure. This implies that they, too, must now struggle with the same fundamental problems of emancipation that cooperatives face. Consequently, partnerships and/or cooperation with cooperatives are, at most, of secondary importance.

"The role of trade unions in cooperatives is likely to undergo substantial change from the past, when employee-members were represented by a monopoly trade union confederation. Variation is increasing as competition for membership increases within the labour movement."(58)

In addition, independently of whether or not it involves reformed or newly established unions, the trade unions have relatively little influence because of the unfavourable economic conditions in the transformation countries. Apart from their old connections to the party, the unions also are affected by the high level of unemployment (as in Russia), and from the "Wild West" capitalism with certain Mafia-style features.

Cooperation is most likely to be found in the area of consumer cooperatives because they share similar traditions with the labour union's movement. And yet even here, it is more a matter of exception than the general rule.

7.4.2. Employers' organizations

Employers' organizations in the Western meaning of the word were non-existent before the breakdown of real socialism. The result is that these organizations, if and when they exist, have little importance and must now concentrate on discovering their own role and defining their own tasks. A congruency of interests needed for collaboration can develop only over time.

7.4.3. Other NGOs

Apart from the above mentioned NGOs, there are a large number of institutions which exert influence on the cooperative sector in one way or another. As a rule, common interests arise only on certain points which seldom constitutes a basis for joint activities. These NGOs include occupational organizations, social institutions, church institutions, farmer's unions, youth associations and women's alliances. Like the cooperative movement, they are currently caught by the need for their own restructuring which limits their influence on cooperatives as well as on society as a whole.

7.5. Supporting international organizations

There are a large variety of organizations that offer active support to cooperatives in Central and Eastern Europe; some of these organizations will be discussed in the following section.

7.5.1. International organizations within the United Nations

With its numerous international organizations, including several institutions that promote cooperatives, the United Nations is a rather complex creation. Some of the UN's institutions include the International Labour Organization (ILO), the Food and Agriculture Organization (FAO) and the World Bank. The characteristic shared by all three of these institutions is the fact that the function they perform in support of cooperatives, is only one aspect of their overall agendas. Since the goals of these institutions differ from one another, so does the cooperative-oriented support they provide.

The ILO is of special significance because of its active support of cooperatives at the international level which has resulted in the establishment of the "Enterprise and Cooperative Development Department".

ILO Recommendation No. 127, which forms an important basis of ILO's activities concerning cooperatives, has created a framework for outside support for cooperatives. The Recommendation includes guidelines for the safeguarding of the independence of those cooperatives receiving financial support from outside i.e. government and/or other institutions. ILO activities in relation to cooperatives orientates itself increasingly upon the areas of human resources development, management consulting and the development of entrepreneurial activities. In this connection, the ILO has made the following statement:(59)

"Cooperative development understood as a development of self-reliant organizations is only possible by a careful step-by-step process of mobilizing human resources, financial material resources and the capability of managing these resources in an institutional (formal and informal) context. The predominant feature in this process is "learning by doing" and "trial and error". Becoming an economic factor by this process, cooperatives can contribute to macro-economic objectives like self-marketing in food supply, provision of services like supply of input, credit, marketing, transport and others actually often provided by the public sector of the economies. However, cooperatives tend not to function once taken as an instrument for macro-economic programmes. Their institutional advantage lies mainly in their capacity to mobilize human resources when their members believe them to be own organizations. Otherwise their performance cannot be expected to be better than that of any other institution under the prevailing conditions."

The FAO also carries out projects which include cooperatives and their development in a broader concept of development and promotion. This approach is based on the concept of human resources development and aimed at the creation of dynamic, integrated and member- orientated cooperatives. The concept consists of five essential aspects: training, participation, management, integration and diversification.

Cooperative training implies basic training and further education of cooperative members, employees and leadership personnel. Participation is understood as the active integration of members into the economic activities as well as management of the cooperative. Management, in this connection, means the effective employment of the various talents and capabilities for the benefit of the cooperative community, wherein management abilities are the most important. Under integration is meant the cooperation between cooperatives on an international scale through network arrangement both horizontally and vertically. The principle of diversification permits primary cooperatives, in particular, to expand their economic activities for the promotion of their members as well as a reduction of their own financial risk.

Among the other specialized agencies of the UN, there are several which include activities relating to cooperatives as a part of their work programme. Foremost among these is the United Nations Industrial Development Organization (UNIDO) which actively promotes industrial cooperatives in an attempt to develop small-scale industries. This is done either through direct assistance at the country level in the framework of UNIDO'S technical cooperation programme, or through the organization of seminars, meetings, conferences and workshops on cooperative topics.(60)

In connection with the aspects mentioned above, the World Bank plays a rather conflicting role. On the one hand, it directly promotes cooperative projects in many different regions of the world and offers financial support as well. On the other hand, the advice offered by the World Bank regarding the restructuring of national banking systems has already raised tremendous barriers for cooperative activities in this field. An example of this can be found in Estonia where counsel from the World Bank along with the International Monetary Fund have led the Estonian Central Bank to adopt a "more than rigid" licensing policy concerning rural cooperative banks.

Alongside the above explicitly presented institutions, there exist numerous other organizations of the United Nations which, in the process of fulfilling their own special mandate, may become involved with cooperatives. There is one factor common to them all: their support of cooperatives is fundamentally based upon the realization of their own goals (economic, political) and predominantly of a social nature, achieved through the assistance that the cooperatives may provide.

7.5.2. The International Cooperative Alliance

The International Cooperative Alliance (ICA) naturally plays an important role in the future development of cooperatives in the countries of Central and Eastern Europe. Three facts of its work are particularly noteworthy. These are the distribution of country and special theme publications; the organization of special meetings and conferences and its cooperation in relevant networks.

The fact that the ICA, whose activities in the seventies and eighties were somewhat controversial, is dedicating much attention to those countries caught up in the transformation process in Central and Eastern Europe, becomes already clear by a very first analysis of its publications. Since the beginning of this decade, there has been an increasing amount of articles, essays, analyses and comments in the "Review of International Co-operation", in reference to what is happening in Central and Eastern Europe. Not only from its conception, but also from its circulation, this periodical offers an excellent forum for the exchange of opinions from cooperative scientists and practitioners from around the world. In this way, it contributes in its own manner to the transformation process in accordance with cooperatives, their members and their cooperative associations.

Of similar and perhaps even greater importance in this context are the meetings and conferences organized by the ICA. In 1995, the ICA held a meeting to celebrate its centenary and numerous other specialized meetings were held on the same occassion. The importance of the changes in the cooperative movements in Central and Eastern Europe are reflected in the programme. In addition to the large conventions, there are other meetings sponsored and directed by the ICA which offer useful assistance. For example, the last two meetings of the International Cooperative Research, Planning and Development Committee, in Mojmirovce (1993), and in Cracow (1994), were characterized by the large spectrum of represented countries as well as by the practical relevance of the discussions. However, the wider circulation of the papers presented at the conference always poses a problem. It would be in the interest of the engaged scientists, practitioners and politicians, to find better ways to make the documents and research material more easily accessible. Apart from having them published in ICA periodicals, a potential solution to this problem of circulation may be found in the electronic networks such as the Internet, world wide web and electronic mail.

CO-OP NETWORK, which was recently integrated into the ICA-Europe, might be a useful source of distribution since it was established specifically in support of the cooperative development in Central and Eastern Europe. The network's goals are as follows:

To conclude, it must be admitted that the activities of the ICA in regard to the support of the cooperative movement in Central and Eastern Europe have already shown valuable results; its efficiency will, nevertheless, have to improve in some areas.

7.5.3. Other organizations within the international cooperative movement

The ICA is just one of the many organizations inside the international cooperative movement which is active in international cooperation and support. The cooperative movements of many countries support cooperatives and their organizations in Central and Eastern European countries and, in particular, the Scandinavian countries, Finland, Germany, Great Britain, the Netherlands, the United States of America and Canada. It must be emphasized that assistance on a movement-to-movement basis can be more easily established than other assistance projects. This can be attributed to the fact that the partners speak the same language and have a common understanding of the nature, creation and goals of cooperatives. These common grounds also prove to be effective when differences of opinion exist as regards individual aspects, as is always the case in discussions between the cooperative experts from different regions. Yet, despite the different characteristics of cooperative movements and their organizations which have come about through more than fifty years of diverging developmental paths, there are common traditions and an agreement exists regarding essential criteria. Again, in this case, ILO Recommendation No. 127 has made a valuable contribution.

Cooperative support from one cooperative movement to another can take on different forms and methods. The simplest and presumably most commonly practised form, may be that of direct cooperation i.e. sending out experts from a national cooperative movement to certain bodies, organizations and institutions of the cooperative movement of another country. Receivers of this type of support are usually the cooperative federations along with their central institutions (e.g. central cooperative banks, apex cooperatives) as well as cooperative training institutions like cooperative academies and corresponding departments at universities and similar institutions.

An organization that needs to be mentioned in this context is the Plunkett Foundation, an independent charitable trust, whose objectives are to promote and develop cooperative enterprises, particularly in rural areas, throughout the world. The Plunkett Foundation provides training, research, statistics, consultancy and advisory work, as well as study programmes.

What has proven itself to be very effective is the concept of the Volunteers in Overseas Cooperative Assistance (VOCA), an American institution active in the different countries of Central and Eastern Europe including the Baltic Republics and Bulgaria.(62) The headquarters in the respective countries are run by nationals, but receive assistance from American advisers. They build and coordinate essential contacts between American experts and in-country cooperatives. This programme is financially supported by the American cooperative movement but also by funds from the U. S. Agency for International Development.

A different approach has been chosen by TACIS, which started a "Project Cooperative Credit Moscow Samara" with a threefold action programme:

As a part of this project, which has been carried out by the Rural Investment Advisory Service B. V. (Netherlands) and DG Agroprogress (Germany), a concept for rural banking was developed, including aspects of lending, funding on the market, operational basis and institution building.

It has to be mentioned that programmes of the European Union such as TACIS (which focuses on the former Soviet Union) and PHARE (which concentrates on Central and Eastern Europe including the Baltic countries) is not a part of the cooperative movement, but open for cooperative projects. Exclusively cooperative-oriented projects have rarely been carried out. Most projects have had mixed intents; they included cooperative as well as other developmental objectives.

One of the rare, exclusively cooperative projects was the support for a Foundation for Agricultural Cooperatives in Poland. The project, which was supported by the World Bank and PHARE, aimed at cooperative development in general and the development of twelve regional cooperative development institutions.(64) The project was carried out by ECORD (European Cooperatives for Rural Development). Twelve regional centres were established, offering services to cooperatives, including education and training of managers. The main obstacle to overcome was the inflexibility of the administration within the PHARE-programme itself and within the Polish bureaucracy.

The World Council of Credit Unions (WOCCU) follows a similar path in its attempt to establish credit unions in the Baltic countries and in Poland. Its focus, however, is not as general as the TACIS project. WOCCU supports the establishment of new credit unions as well as counselling institutions already in existence. Its general aim is to improve services rendered as well as to strengthen economic efficiency.

A somewhat different procedure was chosen by the Swedish cooperative movement which has established and maintains a close relationship with the Estonian cooperative movement. The Swedish approach involves an exchange of experts on a regular basis. Swedish experts travel to Estonia and sometimes stay for long periods of time to attend seminars but also to act as consultants for individual cooperatives. Among other things, this offers Swedish students who specialize in areas of economics, law and agriculture, the possibility of doing internships in Estonia. As a countermove, cooperative scientists and practitioners from Estonia travel to Sweden in order to learn from Swedish experiences.

Such forms of support from one cooperative movement to another have numerous advantages because of the less complicated forms of organization and administration. With this method of assistance, bureaucracy can be greatly reduced. On the other hand, one has to take into account that this kind of assistance and the fundamental concepts behind it is by no means ideal. A historical review of such development cooperation reveals that, at least in the beginning stages of cooperation, the donor often lacks knowledge about the type of support needed in the receiving country. At least during the learning process, this lack of knowledge can lead to a waste of resources. Another problem with this procedure is that those concepts which are effective in one country should not be integrated into the structures of another without proper investigation of their suitability. Sometimes the imported concepts just cannot take root in the other country or may even have a negative effect on the other country's system.

If at all possible, it would be wise to jointly develop procedures and strategies to which the institutions of the international cooperative movement could offer assistance. Through the employment of competent specialists, the German consulting cooperative Marburg Consult für Selbsthilfeförderung, for example, is able to carry out consultancies, organize seminars and undertake research according to the needs of both the giving and receiving sides.

In connection with the support within the international cooperative movement, one's attention is again called to the fundamental importance of the exchange of experiences between neighbouring cooperative organizations. Reference has been made already to the importance of regular exchanges of experiences among the transformation countries. Cooperation of this kind is of considerable value and, of even greater importance, is the exchange of education and training materials, the joint discussing of cooperative legal problems and the exchange of cooperative specialists.

Finally, it can be noted that support from one cooperative movement to another should essentially be obliged to stimulate and improve the development of independent, self-reliant cooperatives. This assistance should, however, never be allowed to exceed certain limits in order to avoid a relationship of dependency between cooperative organizations.

7.5.4. Other internationally active NGOs

In addition to the above mentioned organizations, there are a variety of other institutions which involve themselves in the support and promotion of cooperatives. They vary not only in respect to their own goals or specializations, motivations, backgrounds and procedures, but also by the size and means of their operations.

Among them are numerous foundations such as the Friedrich-Ebert Foundation and the Konrad-Adenauer Foundation, but also church related organizations which act in the same sphere. The latter will only offer support to cooperatives when a congruency of the objectives between the cooperatives in question and the goals of the assisting organization arises. In other words, cooperatives are not promoted because they are cooperatives but because of the objectives they may serve.

8. Factors influencing cooperative development

Cooperative development in general, but especially in the countries of Central and Eastern Europe, depends upon a variety of factors which do not necessarily all lie within the sphere of influence of the cooperative movement. In addition to this, is the fact that some of the areas in which cooperatives may exert some influence, are only influencable in the long run. One example is the cooperative image which, in the transformation countries, is definitely quite stained.

In their entirety, cooperatives are deeply embedded in the economic environment. As they act within the boundaries of their environment they tend to create an interdependent relationship with their environment. The development of cooperatives also depends very much upon the development of their environment. In the end, that is why not only the internal but also the external conditions of the cooperative have considerable influence upon the present design and the future development of cooperatives in Central and Eastern Europe. It is therefore necessary to pose the question: "Which external factors exist and how can they be influenced to positively affect cooperative development?" To answer this question one needs to distinguish between three categories of external factors, namely those of economic, political and socio-economic nature.

Further differentiation can be made between macro-economic factors which are influenced by the economy of the country as a whole, namely those having an indirect influence over cooperatives and those exacting direct influence on cooperatives. State finance policy, which influences different factors like interest rates; the rate of inflation or exchange rates; fiscal policy which determines the tax and custom systems; legislative policy especially in regard to competition law; anti-trust law; bank and credit system legislation and infrastructure policies belong to the first category of factors. The second category includes special legislation and economic policy measures concerning directly selected or all types of cooperatives. This ranges from subsidizations linked to the form of cooperative organization to prohibiting cooperatives from performing certain activities.

The political factors as well refer to the general political framework. On the one hand, to specific political measures put in motion by the state towards the cooperative movement and, on the other, its organizations. The overall political climate whether benevolent, indifferent, negative or even hostile, is essentially the result of a country's political system. Based on the overall political instability in the reform countries of Central and Eastern Europe, the conditions may even be determined by possible developmental variants of each country. The politically unstable situation inevitably has an impact upon those measures directed at cooperatives since, in comparison to earlier times, there is no longer a generally accepted understanding of cooperatives, their nature, potential and responsibilities This leads inevitably to a situation where opinions regarding cooperatives differ considerably from one party to another and thus change with each successive government.

Apart from the politically and economically determined factors which have considerable effects upon the development and function of activities, there exists a variety of socio-cultural factors which include the psychological-philosophical factors as well. These influences may include traditions, values, images and social attitudes and can either play a supporting role for cooperatives or can obstruct cooperative development.

With reference to Africa, Münkner and Shah state the following:(65) "Without going very much deeper into each of the individual factors referred to above..., it is here sufficient to highlight the major aspects concerning the environmental factors affecting cooperative development:

In the following, the essential factors along with their potential influences upon the present and future cooperative development in the countries of Central and Eastern Europe shall be analysed.

8.1. The image of cooperatives in Central and Eastern Europe

One of the most important influential factors which affect cooperatives in almost every country of Central and Eastern Europe and which continually and increasingly has a negative effect upon the establishment of new cooperatives, is the poor image of cooperatives stemming from the era of socialism. This negative image of cooperatives reaches far into many different areas of the economy.

The negative image of cooperatives is highly noticeable, especially among cooperative members. Many of the cooperatives in the countries of Central and Eastern Europe were established under coercion from the government as, for example, the handicraft and agricultural production cooperatives and also in the collective farms in the area of the former Soviet Union. As a rule it may be said that the stronger the pressure and the smaller the benefits from membership, the stronger is the incentive for members to abandon "their" cooperatives and work independently for themselves. Where members have had the possibility to leave their cooperatives during the course of the transformation process, many cooperatives may have lost a great deal of specialized know-how and competence in various fields. The experiences in East Germany especially display this tendency of dissociation with cooperatives when, after unification, the most competent specialists (those most able and inclined to become cooperative entrepreneurs), left their cooperatives to become independent, viewing their chances for success to be greater outside cooperatives rather than within.

Another problem in connection with this is that during the era of socialism in many cases the cooperative's leadership just had to be accepted by the members without proper elections. Due to the communist party's choice of the cooperative leadership, a cooperative member was practically degraded to the status of receiver of orders.(66) This procedure had several repercussions that proved to be problematic. First of all, the leadership personnel was not chosen for their competence but rather for their party loyalty. Secondly, as a result leadership positions were filled with people who were not committed to the cooperative idea. Thirdly, members identified less and less with "their" cooperatives and, finally, the leadership personnel was often not in any position to effect the necessary re-orientation of cooperatives once the transformation process had begun.

Repercussions of the negative image of cooperatives were also noted at the different political levels because those groups more orientated towards the market economy were rejecting cooperatives. This attitude resulted from the year-long experiences of the members who came to understand the terms of "cooperative", "communism" and "government control" as necessarily being related to each other. Bothersome and harmful to cooperative development is also the fact that the successor organizations of the communist party have engaged themselves in the promotion of cooperatives without having acquired a better understanding of cooperatives. For them, cooperatives are still an instrument of the state, ultimately confined to serve socialism.

Also within the population of the different countries of Central and Eastern Europe there is an attitude of scepticism and hesitance towards cooperatives, attributable not only to the above mentioned reasons, but also to the negative experiences with cooperatives during the transformation process. This type of mentality towards the cooperative system in Central and Eastern Europe is especially noticeable in Poland and Russia. In these two countries, for example, large parts of the population equated cooperatives with speculation and, at worst, associated them with organized crime.

In Poland, during the period following the cooperative law of 1982, many cooperatives were established. However, these cooperatives were nothing more than substitutes for private enterprises that, at that time, could not be established for legal reasons. Many people with entrepreneurial spirit saw an opportunity to make themselves economically independent through cooperation. This co-existence of State organizations and "new" cooperatives gave the latter the chance to enrich themselves at the expense of the State as well as the people. And because the State organizations were restricted to sell their goods at fixed and heavily subsidized prices, the "new" cooperatives were in the position to buy up the stock in order to resell it at higher market prices. Through this arbitrage-business, cooperatives made considerable profits and became the preferred places of shopping for the (few) well-off.

Similar developments occurred in Russia in 1987 and 1988 with the establishment of so-called "new" cooperatives, which for a long time were able to operate freely within the economy but were outside the realms of State control. These possibilities were exploited by many criminal elements as well, and hence, people are pessimistic towards "new" cooperatives. In Russia, the situation has gradually begun to change ever since the legal form of the cooperative has started to compete with other organizational forms of private enterprise.(67)

This mistrust vis-à-vis cooperatives, which is found among present-day members as well as former members both inside the state and within many political groups as well as among the general population, should not, however, be interpreted as mistrust towards economic self-help organizations. The opposite is actually the case, but the terms "cooperative" and "self-help organization" are not considered to describe the same phenomenon. A Polish scientist once brought up the following point in a discussion: "The problem of cooperatives is their name. The organizational form is needed and accepted, but the name should be changed."

8.2. Policies of cooperative development

A reasonable and economically efficient development of cooperatives is unthinkable without a corresponding developmental concept put forth by the state. The role the government must play in the development of cooperatives and the relationship between the state and the cooperative movement are two essential factors in the present and future development of cooperatives in Central and Eastern Europe. The current situation in this region is however characterized by a wide variety of different opinions, views and measures towards the cooperatives which in their totality offer a rather confusing picture.

All in all, it can be noted that those parties and groupings, which are left over from the national communist party and continue to be close to its ideology, are inclined to sympathize with cooperatives. Nevertheless, independent of whether this political view is held by the government or not, this type of support of cooperatives is only partially helpful. The cooperative concept adhered to by this political direction is as a rule not marked by self-help, self-reliance, and self-management, but rather by socialist instrumentalization.

The democratic parties favouring a market economy, however, tend to assume either a "wait and see" attitude towards cooperatives, or mistrust them altogether because they identify them with socialism. The role that cooperatives play in the countries of Western Europe has yet to be understood as a possible developmental goal for the cooperatives in the countries of Central and Eastern Europe where there exists a clear preference for joint stock companies and limited liability companies rather than cooperatives.

As it were, these two positions characterize the extremes of the spectrum. The opinions lying between the extremes have generally only a considerable dissension in common regarding the possible role of cooperatives. Some also see cooperatives as representatives of a "third way", and others that place cooperatives in the area of "Economie Sociale".

There is a need for a policy of cooperative development which orientates itself on the following principles formulated by Münkner and Shah:(68)

"Such a statement has to be:

Such a cooperative policy must consider economic circumstances as well as political conditions and legal aspects. A policy aimed at the development of cooperatives has to be long-term in order to be able to create the necessary stability in the environment. In connection with this, it is important to point out that such a policy of support should be directed towards autonomous cooperatives (for the benefit of the cooperative movement and its cooperatives), so as to avoid their instrumentalization or officialization. The following resolution of the ICA, which was passed in 1990 at a Regional Consultation Meeting in Singapore, can serve as a guideline:(69)

Relating to Governments

Relating to cooperatives

Such a cooperative policy or, perhaps better put, such a concept referring to cooperative development, certainly requires not only the formulation but also its implementation. For the cooperative movement in Central and Eastern European countries, this implies the following: On the one hand, the cooperative movements themselves have to come to a decision on what role they will play in the future i.e. whether they will stay with the concept inherent in socialism or follow a path of developing more independence as part of a market economy. On the other hand, based on the final decision, cooperatives will have to organize and carry out lobbying in order to use their political, economical, legal and socio-cultural influence to create a positive attitude of the state towards them.

8.3. Legislation relevant to cooperatives

Legislation affecting cooperatives goes far beyond the limited boundary of a cooperative law. This becomes evident by the circumstance that some countries have regulated cooperative activities within the boundaries of that state without any corresponding laws, but by means of other relevant legislation. What is important in this scenario is not only the legislation that is directed especially towards the cooperatives in specialized branches but also the legal political framework.

8.3.1. Political framework

An essential requirement for the reasonable economic development of cooperatives in Eastern Europe is the creation and consequential implementation of an economic order that is based on market mechanisms and corresponding aspects such as private property and competition. Apart from economic policy decisions, this order includes the creation of a legal framework, which among others, has to include an efficient system of private law, corresponding legislation on competition, labour legislation conforming to market economies, and an unequivocal administration of the law concerning product liability, environmental protection and taxes.

These background conditions which are largely established through legislative measures make up the indispensable requirements for the functioning of a social market economy. Regarding cooperatives, this means that enterprises that are run like cooperatives have a right to equal treatment in the sense of non-discrimination. And it means that cooperatives have to be given access to all sectors and branches of the economy in which private enterprise are allowed to function. And when cooperatives act within one branch of the economy, they are not to be disadvantaged in comparison to other types of organizations. Most importantly, this refers to open as well as hidden subsidies. Cooperatives should not be given special advantages, but it is necessary for the survival of cooperatives that other forms of enterprises are not favoured.

8.3.2. Cooperative legislation

Cooperatives represent a special and original type of company within the spectrum of enterprise. This originality is expressed by a variety of aspects: an economic entity with clear elements of social concern; an organizational form between individualism and collectivism and an association drawn between freedom and obligation. "The fact that the constitution of a cooperative is orientated towards the people as individuals proves clearly that its economic activities are not an end-in-itself but exist to serve and benefit the members. The cooperative organization, furthermore, introduces an orientative framework for living together in a modern society, which corresponds well to the nature of mankind."(70) Such a cooperative model is being sought after in Central and Eastern European countries but for its realisation a special cooperative legislation is needed.

The legislation on cooperatives is an especially important and deciding factor in the development of the cooperative system. Whether or not, and how the cooperative system is legally regulated determines substantially the extent to which cooperative development in the countries of Central and Eastern Europe will be advanced or promoted. Cooperative legislation in the form of a special law accompanies and reflects not just passively the development of cooperatives but is actively involved in the design of this development. Consequently, it creates conditions which assist cooperatives in their evolution or which hinder their development.

A synopsis of the Central and Eastern European countries shows that each and all have taken steps within the last years to adapt the cooperative law to the changed conditions and to put it upon a new foundation. This process has brought with it not only different legislative solutions (which is normal), but uncovered certain inadequacies in these solutions and left some important questions open. Above all, in the legislation of several Central and Eastern European countries, strong after-effects of the former cooperative law in the planned economies can still be recognized. The cooperatives were therefore not regulated in every case as companies under private law.

The ways and means of this regulation of cooperatives through the Central and Eastern European national legislators differ considerably from one country to another. The variations range from the integration of cooperative regulation into the constitution, the civil code, a company law and the regulation of the cooperative system in a special law, to the splitting up of cooperative regulations according to economic sectors in separate laws. In addition, there are also intermediate solutions, according to which there is a superposition of standards regarding cooperatives, which are more or less coordinated with each other.

"Cooperatives", noted A. Shah, "differ from ordinary businesses because they are socio-economic, self-help organizations which are member-oriented in the sense that member participation is of vital importance and control is not based on the amount of the individual member's financial contribution. For these reasons ordinary company law could not provide a suitable legal framework for them: a special type of law is needed."(71) This view most likely expresses the optimal solution. Nevertheless, other legislative variants are conceivable, as long as cooperative legislation remains based upon a clear concept to which the legislator also sticks.

A crucial problem in several Central and Eastern European countries has to do with the fact that the legislation in many areas (property law, taxation law, subsidization law) stipulates rules that ultimately do not serve or benefit cooperatives, but contradict the cooperative regulation in a certain manner. To make things clearer, for example, agricultural cooperatives are not aided by a highly demanding cooperative legal codification, when the law regulating landed property takes away or threatens the cooperatives' most important means of production.

"First on the list of things to be done to strengthen the position of cooperatives in Central and Eastern Europe is to restore the legality of cooperatives as service-oriented private institutions. Questions related to the definition of cooperatives, their organizational particularities, their goals, administration and management and relationship with the state need to be clarified through the new laws under preparation in the countries. The legislation must also reflect the basic values and principles of co-operation.(72)

Cooperative legislation which actually maps out the way for the development of cooperatives and their framework is a condition sine qua non in all Central and Eastern European countries. But in regard to cooperative legislation, cooperative development also works the other way around. "Just as cooperative legislation directly affects the development of cooperatives so can the cooperative movement give impulses for the evolution of these legislative rules. This may happen through eminent personalities involved in the national cooperative movement or through cooperative unions, but could also be incited by foreign advisers. For the cooperative movement it is important that particular interests should not guide the way nor should models from diverse legal systems be adopted in the different branches."(73)

An important question arises concerning the contents that cooperative legislation should have, independently from the way it is organized within the respective legal system. The foundation of this legislation should specifically be the legal agreement regarding the cooperative concept which clearly distinguishes a cooperative from other types of enterprises as an economic entity having many different forms and being economically involved in many different fields, and at the same time being obliged to uphold the internationally recognized cooperative principles. Membership in a cooperative should not essentially be determined by the financial contribution but through the personal participation of the cooperators.

The concept of the cooperative should be laid down in such a legal manner that the individual member always uses the cooperative and its enterprise in order to improve his/her economic situation. Consequently, through clear regulation of the property rights, it must be guaranteed that the members will regard themselves as the owners of the cooperative, identify with their cooperative and thus be motivated to greater efforts, ultimately able to participate in the economic gains of the cooperative as well as in the decision making process of the cooperative bodies on the basis of "one man - one vote". As experience shows, the legal guarantee of such constitutional sovereignty will strongly support this concern.

An essential aspect of each cooperative legislation should eventually be the clear establishment of the cooperative's legal position. This regulation should be characterized by the three following principles:

8.4. Institutions of cooperative development

The term "institutions of the cooperative development" includes all the organs of the completely structured cooperative system. The basis is made up of the primary cooperatives in the various branches which, in the execution of their tasks are supported by regional or branch-specific secondary cooperatives. Depending on the size of the country these institutions had already to fulfil the tasks apex or and central institutions. In the smaller countries of Central and Eastern Europe, such as in the Baltic Republics and many other countries of the former Soviet Union, but also in Slovenia, a two level structure is sufficient. In other cases, tertiary level cooperatives should be formed on the basis of the secondary cooperatives.

Considering their responsibilities, these cooperative institutions are all economic self-help organizations which are bound by the principles of self-help, self-responsibility and self-reliance to serve the interests of the members. Within this federated concept, it has to be realized that the institutions implanted at the higher level are responsible to the lower level institutions and, in this way, observe the principle of cooperative democracy.

Such a construction of the "cooperative economic sector" is especially necessary when individual cooperatives are relatively small but manifold. In this case, a bundling together of economic interests will ensure the possibility of passing on the economies of scale to primary cooperatives.

As regards existing organizations, the cooperative movement must determine whether or not they are in a position to fulfil their responsibilities. This implies a definite need for a careful evaluation of the secondary and tertiary level organizations in regard to their responsibilities, their potential, their competence and integration into the cooperative network, but also in regard to their employees. It can be assumed that fundamental reform is very much needed in those institutions already in existence at the beginning of the transformation process.

In the countries of Western Europe it has proven helpful to carry out a separation between the economic structure and the movement's political responsibilities, an action justified by potential conflict of interest. Whether a multi-level structure is necessary or rather sensible depends upon the conditions specific to the country. Factors to be considered are especially the size of the country, its political structure (federal structure vs. centralization) as well as its infrastructure.

In this case too, an evaluation of what exists in this area must be performed with special attention given to the personnel. Such an evaluation has shown in Poland, for example, how the old cadres have attempted to uphold their previous positions and even oppose the reforms. It further revealed that the old cadres tried to create new jobs or positions for their comrades and other representatives of socialism who had been laid off during the transformation process. In this way cooperative institutions were used as a receptacle. Similar tendencies have been uncovered in the Czech Republic.

Alongside this political arm of the cooperative movement, an unconditional requirement for a positive development of cooperatives is the establishment of a cooperative auditing system. This system should include an mandatory audit which is based either on relevant laws or corresponding provisions in the statutes of the cooperatives. This compulsory audit, the importance of which is not to be underestimated, especially when it comes to cooperatives with many members (consumer cooperatives, etc.) and those cooperatives in the area of finance (cooperative banks, building and loan associations, insurance companies) has several purposes. The audit is responsible, for example, for determining whether or not the cooperative leadership has functioned in line with its duties or responsibilities (observing legal regulations; sensible economic management; observation of member-interest). In this way, it should help to reduce the risk of bankruptcy for cooperatives, and in so doing decrease the consequences for the members. Additionally, this mandatory audit can if necessary serve as a promotional argument, especially in the area of financial institutions, as the audit reports will indicate to members and customers that a particular cooperative institution is trustworthy.

Dependent on the needs in each country, the cooperative institutions discussed so far should be supplemented by institutions with specialized tasks. Among others, this may apply to cooperative insurance companies, leasing enterprises, but especially sales and marketing businesses. The importance of the sales and marketing companies should not be underestimated because in all transformation countries (including East Germany) it has become apparent that the production cooperatives had simply not been prepared to organize the sales and marketing of their products. In this respect, they were not alone but in company with the former state-run companies as well as several newly established commercial institutions but this did not reduce their problems. So, in for example Estonia, one seriously considered re-establishing the state-run central buying institutions, at least in the agricultural sector.

8.5. Supporting institutions

Among supporting institutions for cooperative development, institutions such as cooperative authorities, cooperative councils and ministers are included. As cooperatives in the countries of Central and Eastern Europe as a whole were tied to the economic planning system (although each was instrumentalized to a different extent), there was, at the beginning of the transformation process of each country, a variety of state-run or pseudo-state institutions which were somehow involved in cooperative development. The nature and extent of this involvement varies from one country to the next and from one branch to another. However, it can be said that the existence of all of these institutions represented a fundamental contradiction to the autonomy of cooperatives.

Privatization authorities and agencies pose a special problem. Their activity usually affects cooperatives very strongly. In some cases, when cooperatives were viewed as "state-owned" organizations, privatization agencies were even directly involved in cooperative development. However, it is doubtful whether these authorities can be labelled as supporting organizations, as they tend to oppose cooperative activities. This, for example, was obvious in Bulgaria, Romania and the Czech Republic.

The essential question, which continually surfaces in the debate about cooperatives and which is very difficult to answer, is whether or not it is sensible and advantageous for cooperatives to have state-run promotional institutions. Because of the present contradictory understanding of cooperatives, it may nevertheless be assumed that the retaining (or the new establishment) of such institutions would only hinder the creation of new (or the transformation of existing) cooperatives into competitive, market oriented and member obligated enterprises. The cause for this doubt has much to do with the fact that the most powerful (party-political) advocates of such institutions, who would support cooperative development and/or management as a rule, adhere to the socialist understanding of cooperatives and, along with it, tend to believe in state instrumentalization of cooperatives.

Therefore, it is more in the interest of a cooperative movement bound to the real cooperative principles, to press for the abolition of such state institutions in order to be free from state patronage. Should some of these institutions be maintained or created, cooperatives should ensure that their autonomy is respected. Such a solution, however, depends on the existing political constitution and needs therefore to be decided upon individually by each country.

8.6. Cooperative education and training

One of the most important factors for the creation of a positive climate and favourable conditions for cooperative development is the further education or advanced training of cooperative members which involves more than the traditional cooperative education system but aims broadly at human resource development (HRD). The development of an efficient communications and information system is one important aspect of HRD. Other essential elements are the implementation of suitable and qualified strategies in the areas of research, personnel development, future planning and individually orientated career-planning as well as the creation, maintenance and expansion of corresponding networks.

Regarding the situation in Central and Eastern European countries, the greatest problem cooperatives face today is making members better accept and understand the traditional cooperative goals. Because cooperatives had been instrumentalized right up until the very beginning of the transformation process, most members and even leadership personnel at all levels of the cooperative organization, have lost sight of the traditional cooperative values.

The necessary return to the basic cooperative values cannot happen by itself but requires informational meetings and seminars. As suggested above, one goal of the seminars and informational meetings will be to make members at all management levels understand that cooperatives are autonomous and democratically structured institutions established to undertake economic activities and committed to the principles of self-help, self-reliance and self-management. This also implies a need for a definitive clarification of the rights and duties of the cooperative leadership in regard to the cooperative itself and its members.

In addition to this, members have to be informed about their rights and responsibilities, especially regarding cooperative democracy and self-management. This is necessary not only to increase members' identification with their cooperative but also for members to understand and accept the difficulties arising from the restructuring of their cooperative.

At the same time, the cooperative movement is called upon (with help from its educational and training institutions) to provide members, and especially the cooperative leaders, with the necessary knowledge for the survival of the cooperative under the altered political, economic, legal and socio-cultural conditions. The resulting need for counsel ranges from fundamental knowledge about the market economy to specialized commercial and leadership information to legal advice.

In order to cope with this need for information, education and counsel in many countries of Central and Eastern Europe, there are educational institutions such as the Cooperative Institute of Education in Mojmirovce in the Slovakian Republic. However, because of the magnitude of the task, it can be stated that the Central and Eastern European cooperative movements are dependent on international assistance which can be rendered in different ways.

In this regard, attention should be called to the exchange of students and professors occurring between Sweden and Estonia, and Sweden and the Czech Republic. Other attempts have also proven very helpful such as those of the Ost-West Wirtschaftsakademie in Berlin, which provides specialized knowledge to leadership personnel in the form of intensive seminars held in Germany and transition countries. Another starting point is shown by the seminars "Training of Trainers" which are organized and run by the Marburg Consult for Self-Help Promotion. At these seminars, specialized knowledge is passed on through lectures to specialists who, in turn, pass on this new knowledge in their respective homelands. A similar approach are the summer university courses that have been organized and carried out by the business administration faculty of Vienna University for several years. Participants have been students and young entrepreneurs from Central and Eastern Europe who complete a comprehensive programme of economic sciences in a very short time. Since a short time ago, there have been corresponding summer courses at universities in Bulgaria promoted by the Austrian Government.

Other possibilities lie in the closer cooperation between cooperative academies and institutions in the different countries of Central and Eastern Europe. The ICA could, for example, take on the role of contact organization as well as directly participate in the further education of young specialists. In regard to Germany and the cooperative system, the Marburg Institute for Cooperation in Developing Countries has been given a pioneering role because it has been involved in the education of cooperative specialists from Third World countries for more than 20 years and has recently opened the courses to those interested from Central and Eastern Europe.

8.7. Tax system and subsidization policy

Prior to the onset of the transformation process, cooperatives were regarded as part of the socialist state's economic planning system. The fiscal policy and the treatment given to cooperatives depended upon the respective national evaluation of their importance and the potential role they were considered to play in the construction and maintenance of the socialist economy. The changes of the past years altered the conditions for cooperatives in the areas of company taxation and subsidizing of cooperative activity.

A complete account and evaluation of the regulations concerning the tax system, the subsidization policy and the auditing system and similar measures is hardly feasible. This is partly due to the fact that the necessary information is barely accessible, not to mention the language barriers. Furthermore, the procedure varies considerably from one country to the next, and there seems to lack a certain systematic approach even within the same country. Special treatments are partly regulated through the laws, sometimes in the form of ordinances or orders, and partly even silently granted under common law.

Bulgaria is an example of this inconsistency of regulation because it names all the legal forms permitted for commercial companies in its commercial law code. The legal form of the cooperative, however, is not included. On the other hand, it is expressly noted that bank and insurance activities can only be practised by joint-stock companies or cooperative organizations.

The Czech Republic provides an opposite example as its cooperatives are explicitly entered and regulated in the commercial law code. In the income tax law there is a supplementary regulation stating that cooperatives are also subject to taxation. But here again an exception is made for housing cooperatives. Their income coming from the renting out of cooperative apartments and cooperative garages as well as from payments for rent related costs, are exempted from taxes.

In Croatia, cooperatives are not even mentioned in the commerce law because they are not regarded as commercial companies. Instead there is a regulation in the enterprise law that stipulates that the regulations on economic gains applying to legal persons must also apply to cooperatives, as long as the cooperative law does not stipulate otherwise. Moreover, under the enterprise law as well as under the bank law, cooperatives are excluded from savings bank activities. These activities are open only to joint-stock companies or limited liability companies.

Because of the very different attitude towards cooperatives, but also because of the inconsistent understanding of cooperatives, there are a variety of different regulations, some of which are supportive and others which are discriminating. From the perspective of the national cooperative movement, equal treatment of businesses in the sense of "non-discrimination" should be a fundamental goal. Due to the severe financial problems in all transition countries the chances for the promotion of cooperatives through a policy of subsidies are rather slim especially since a return to state instrumentalization of cooperatives must be feared in such a case. If such a relationship to the administration were to exist, it would be up to the affected cooperatives and cooperative movements to ensure that state influence does not supercede or replace that of the individual member; that the member-orientation continues to exist; and that a reasonable reimbursement for the taking over of state-arranged activities be reached.

8.8. Bank and credit system

In comparison to earlier times, the changes in the sectors of money and in the credit system, including also the areas of banking business and stock market activities, are especially significant. The socialist banking system was characterized by its flat, single level structure on the one hand, and by the absence of independent commercial banks on the other.(74) In the meantime, the post-communist financial markets have, nevertheless, made their first improvements. The single-level banking system has been replaced by a two-tiered system with an independent central bank. In many countries, like Hungary, Bulgaria, Estonia, there are numerous commercial banks, some of which are reformed branches of the state bank and others which are new establishments. These changes have manifold effects on cooperatives.

In cooperatives just as in the state or so-called people-owned enterprises, not only were the productive activities but the financial aspects as well, steered from inside the centrally planned economy through corresponding plans. Part of this was especially the raising of credit for investment and operations as well as for socio-cultural purposes. As a rule, cooperatives enjoyed comparably little influence on their burden of debt as well as on the use of their financial means. This went so far as to force cooperatives to take up credit in order to finance the social institutions (kindergartens, for example) in their regions. The amount of credit allotted to cooperatives as well as the interest rates were fixed by the state. Because of this state policy of enforcement in this sector, considerations of rentability of an investment or of the degree of indebtedness of a company, played only a statistical role.

During the course of the transition this changed abruptly with the result that many cooperatives ran into economic difficulties. The causes for these financial difficulties were numerous and ranged from the previously existing debts to the incompetence of the responsible personnel in the financial sectors and even to criminal manipulation through cooperative leadership and external advisers. A special problem in this context, was the old debts which burdened the economic activities of the East German cooperatives after reunification. As a result, these factors eventually threatened the continued existence of many societies.

Even for the newly established financial institutions, the present situation is not void of difficulties, independently of whether these newly established credit institutions are cooperatives or operate in other legal forms. Because of the complete absence of a freely operating banking system during real socialism, all of the newly founded banks suffered from the considerable lack of competent and experienced personnel. On the one hand, this could lead to a situation in which the banks in their daily business become very careless, a condition which in many countries of Central and Eastern Europe (Hungary, Russia, Estonia and Poland) has led to the collapse of newly established banks, because the share of high-risk loans and credits had risen irresponsibly. On the other hand, it could lead to a situation of extreme hesitation on the part of the respective banking personnel in granting credit. Furthermore, the granting of credit to agricultural enterprises (including cooperatives) is very problematic, because the property rights are still controversial i.e. have yet to be clarified in full. This occurred in Estonia, for example, as the banks saw themselves unable to grant credit to agriculture due to the fact that the property rights had not been registered by the overcharged land registry office thus preventing landed property from being considered as security. At the same time there exists a widespread ignorance concerning the existence and the use of modern financing instruments which might be able to lessen the above mentioned difficulties. The sell-and-lease-back procedure, for example, would be especially helpful in the case of agricultural machinery, but is only used if either the corresponding bank management is familiar with it, or if an innovative bank manager had "newly invented" it.

The fact that the first banks have already gone bankrupt shows that the banking supervision in the countries of Central and Eastern Europe still has great weaknesses. In many cases, this is due to the fact that an institution of this kind often does not even exist, or has just been established and still faces initial difficulties, lacks experienced personnel and has to fight against weaknesses of a substantive nature. Such a banking supervision, in order to operate efficiently, must be independent of the state and have a sufficient set of instruments to intervene in the case of criminal offences. In this context, it makes little sense to connect the banking supervision with the state or central bank, as in Bulgaria and Azerbadjan. The scepticism behind this procedure lies in the fact that central banks could fall into a conflict of interests acting more as a regulating instrument rather than a supervisory organ.

Additional problems arise also in this area mostly because the state bank is frequently the responsible institution for issuing licenses for banking activities. It is often the case that neither the competence of the bank manager nor the survival potential of the new bank are the deciding factors for licences, but that other interests are involved.(75) These interests could be of the most different nature and range from political considerations to personal contacts "from the old days". In this connection it must be pointed out that only a few laws concerning banking activities refer to credit cooperatives or cooperatives as owners of banks. A positive exception in this respect is the banking law of Kazakhstan.

In Estonia for example, this licensing policy led to the disappearance of cooperative banks. This is because the World Bank considered the existence of a few nationwide commercial banks to be sufficient. This view was also accepted by the state bank and therefore any attempt to establish smaller regional cooperative banks was blocked. Chances to establish cooperative credit institutions are presently restricted to the setting-up of savings and loan societies whose business activities are restricted to one community and which are subject to other restrictions regarding potential banking activities.

On the whole, there is a lack of cooperative financial institutions in most Central and Eastern European countries. Bulgaria is, however, an exception with several cooperative banks which have close links to the various cooperative branches. In Hungary, there similarly exists a large number of cooperative savings and loan institutions. Presently, there are approximately 260 cooperative banks with about 1,800 branches which for the meantime act as branches for small enterprises. In Poland, the credit cooperatives (with the exception of the newly established Central Bank) have a relatively narrow field of activity, essentially restricted to the financing of small- and medium-sized cooperatives.

As a whole, the cooperative banking sector in the countries of Central and Eastern Europe is certainly in need of improvement. In this context, the first goal should be the establishment or licensing of cooperative credit institutions. This is necessary because these cooperatives have important financial responsibilities especially in the rural districts (of less interest to the commercial business banks in more municipal settings). In addition to this, is the fact that cooperative banks have to orientate themselves towards the goals and wishes of their members who are also their customers.(76) The hope, expressed in some countries in the region, that branches of foreign cooperative banks could take on these financing responsibilities, may well be an illusion for several different reasons.

At the level of cooperative primary banks, central banks should establish capital collection centres. Some of the already existing banks could be considered for this role. If necessary, however, new institutions will have to be created.

Mandatory auditing of banks is especially important for the security of depositors as well as members as, in general, cooperative deposit insurance funds should be set up.

8.9. Specific fields of responsibility and target groups

for cooperatives

In many parts of the world, cooperatives have been regarded time and again as suitable instruments for the fulfilment of certain social responsibilities, through people' own economic initiatives. Such concepts were first directed towards the improvement of the living standards of socially disadvantaged groups in society. These attempts ranged from cooperatives for the poor, to women's and youth cooperatives, and employment procurement cooperatives. Recently, discussions on establishing cooperatives for retired people as well as for environmental protection have been taking place, especially in Western Europe.

In the countries of Central and Eastern Europe there are few examples of such cooperatives with alternative concepts and aims. One reason for this is the fact that cooperatives under socialism were given certain social functions in addition to their own responsibilities. In this way, rural agricultural production cooperatives, for example, were in charge of operating kindergartens. During the restructuring of cooperatives in the last couple of years, these responsibilities were done away with. Unfortunately, however, these social activities and responsibilities were not continued by independent initiative and on cooperative basis due to the shortage of financial means of those affected and the absence of government support. Consequently, this has led to a situation in which a considerable portion of the population in Central and Eastern Europe find themselves less protected than during the era of socialism.

Nevertheless, it is unsure to what extent cooperatives could be engaged to cope with these social problems. This is due to the fact that cooperatives perform an economic function. In other words, they offer a product and/or services to others in a competitive market. Cooperatives that cope with social problems and responsibilities as mentioned above should also provide their services on a competitive basis. If they are not in a position to hold on in the market, then they should receive government help.(77) On the one hand, however, this could be problematic because of limited resources and, on the other hand, it poses the question of whether or not non-cooperative organizations (clubs, foundations, etc.) would be a better alternative for taking on some of the important social responsibilities which cooperatives are unable to fulfil.

In Central and Eastern Europe, cooperatives with social orientation usually find themselves in the category of cooperatives which benefit from financial support from the state. In Croatia, there are provisions in tax and company legislation for disabled or handicapped persons, according to which considerable favours are granted to those cooperatives and other institutions with at least 40 per cent handicapped employees. The survival of handicapped cooperatives is, however, doubtful. In 1993, the existence of at least 23 such cooperatives was threatened by liquidation due to insolvency. In addition to that, these cooperatives suffered from the problem of employee under-qualification and the fact that many tasks could be executed more efficiently by machines.

Apart from these cases, cooperatives have seldom been used in Central and Eastern Europe as an unconventional means for solving social problems and questions. This is partly due to the poor image of cooperatives stemming from the socialist era and also because these cooperatives could not have survived the initial phases of the transformation process without state support. Last but not least, the lack of cooperatives of this type in this region is due to a shortage of cooperative entrepreneurship.

9. Conclusions

9.1. Types of cooperatives

The future of cooperatives in Central and Eastern Europe depends very much upon the attitude of the state or the respective government as well as that of the people. From a general view, it can be said that the chances differ clearly from one cooperative type to another.

With great probability, the future development of the collective farms, agricultural production cooperatives and other similar organizations poses the largest problem. To begin with, they find themselves in the middle of a concentrated effort aimed at dismantling these cooperatives subjected to a comprehensive state instrumentalization. In addition to this, they have to fight against a growing lack of member identification with their cooperatives, which among other things, developed from their compulsory establishment during socialist times. Other problems exist concerning the image of cooperatives in the population and especially in respect to their operational economic efficiency, and their ability to hold their own in a market economy. In the remaining cooperatives of this type, it is absolutely necessary to realize a multi-dimensional strategy in order to improve its competitiveness and to return the focus of cooperative activities to member interests. Through this necessary restructuring of their internal set-up as well as the economic organization, there is at least a chance for a continued existence of the cooperatives. Because of the different interests between the landless members and the property owners, there will be a number of hybrid-forms which will range between landed property owner cooperatives and production cooperatives. This development is taking place within the Czech Republic and may also be observed in the area of former East Germany. The most important factor for the survival of these cooperatives is again the strength of members' interest in the cooperatives, and in how far the heterogeneous interests can be evened out.

Regarding the necessary restructuring, the situation of the handicraft production cooperatives is much less complex. As a rule, they were also created through pressure from the state, but the question of land property rights, which plagues agricultural cooperatives, does not apply to the handicraft sector. Their reform is hence much easier. Handicraft cooperatives could basically transform themselves into real production cooperatives with internal democracy. Their future prospects depend greatly upon the market potential of their products as is the case with all participants of a competitive market. During the reformation process, handicraft cooperatives must ensure that the leadership of the cooperative is permitted to act adequately and fast.

Consumer cooperatives have to adjust to great changes within the framework conditions and the market. The position of power given to them during the era of socialism, which created a type of duopol together with the state trading organizations, was lost during the transformation process. Competition has grown and the market controlling position has disappeared at least in the cities. Traces of quasi-monopolies can now only be found in the rural districts, but there business is less profitable. The consumer cooperatives in all countries of Central and Eastern Europe will have to take great care in analysing their strengths and weaknesses, and withdraw or separate from unprofitable areas. Furthermore, ways need to be found to increase member identification and loyalty with their cooperatives in order to keep them as customers. If necessary, this means that the consumer cooperatives will have to open up new markets, for example, cooperative travel agencies.

Even the situation of the housing and building cooperatives is complicated, simply because those buildings entrusted to them were usually in a rather bad condition. Therefore, they will first have to find a way to renovate these properties (which will lead to an increase in rent), and then have to figure out how to settle the social unrest created amongst the tenants by the raise in rent. Furthermore, they will have to take care not to be excluded from the market of new constructions. Opportunities for the establishment of new housing cooperatives often result from the privatization of state or communal housing enterprises.

In the next few years, particular challenges will have to be faced by purchasing and sales cooperatives in the sectors of trade, handicraft, services and particularly in the agricultural sector. These types of cooperative species were disadvantaged for decades, because both the purchasing of production means, and the sales and distribution of finished and semifinished products, were controlled by the state. An enormous need for such cooperative institutions has been the result of this, as well as from the challenges and new demands of the market. Nevertheless, there is a problem here, because the necessary knowledge for the establishment and leadership of such cooperative institutions is scarce.

There are great prospects for cooperative development in the financial sector. One reason for this is because such banking institutions rarely existed during socialism and another reason is

that those newly established commercial banks now favour some branches and regions while neglecting others. Because of this, there exists a need to create a comprehensive system of cooperative credit institutions in order to establish, on the one hand, capital collection institutions within the cooperative movement and, on the other hand, to help in coping with essential financial responsibilities, particularly in the rural areas. At the same time, there is also a need for supplementary institutions such as insurance companies, building associations, as well as leasing companies.

In addition there are good development chances for a great variety of cooperatives, which arise according to each respective national development, such as in the services sector (taxi cooperatives, etc.).

9.2. Potential contributions of cooperatives to social

and economic development

If cooperatives in the various sectors are given the opportunity to unfold and expand themselves, they could contribute substantially towards positive social and economic development. The prerequisite for this is that the framework conditions set by the state meet cooperatives' requirements. This does not mean the state should favour cooperatives over other types of enterprises or subsidize them, but rather that cooperatives must not be discriminated against. Neither should cooperatives be instrumentalized by the state.

Cooperatives can work with greatest efficiency if and when they are allowed to function autonomously i. e. when the principles of self-help, self-management and self-responsibility are allowed to take effect. In connection with this, it is the state's responsibility not to attempt any direct interference in the activities of the cooperative; it must restrict itself to the setting-up of the framework conditions, through which it can only have an indirect influence upon cooperatives as with other enterprises.

Such an attitude of the state or the government towards cooperatives, enables them to contribute to economic development as well as social stabilization. They have already proven this in numerous countries of the world.

9.3. Main actors within cooperative development

On the basis of the above considerations, it can be concluded that the most important main actors for the future development of cooperatives in the countries of Central and Eastern Europe are certainly the state or the respective governments. It is within their power to give cooperatives the necessary elbow room but also to bring cooperative activities to a complete standstill.

The national governments have been and will be required to adopt a benevolent attitude towards cooperatives in the sense that the cooperatives neither be overloaded with political goals and directives, nor be subjected to sanctions against their activities. Nevertheless, it is necessary to view cooperatives not as the extended arms of socialist-communist politics, but rather as economic self-help institutions acting in the interest of their members.

The present attitude towards cooperatives and the widespread negative image of cooperatives make it clear that considerable efforts have to be made by the respective cooperative movements to clarify and convince the people of the true nature and responsibilities of cooperatives. A favourable attitude of the State, as well as support from international organizations might be helpful, but currently the main responsibility lies with the cooperatives themselves. They are the ones who are most interested in and depend on a better image. The foundation for this was laid down by the ILO in Recommendation No. 127.

This improvement of the cooperative image has to be aimed at several target groups because, besides the political decision-makers, the general public, the members and the cooperative leadership, there are still considerable misunderstandings concerning cooperative philosophy and economic functions. However, because the cooperative leaders will have the most influence upon future development, it is immensely important that they understand their responsibilities i.e. economic efficiency and responsibility towards the members. Both influential factors decide in the end whether the cooperative will survive or collapse.

The economic performance of a cooperative requires the corresponding "know-how", whereas the responsibility towards the members is the "know why" of cooperative activities. The present cooperative leadership requires not only specialized training, a task which (with international support) will have to be organized within the cooperative movement, but also a changed understanding of responsibility. The members of the cooperative have to consider themselves promoted by it; otherwise, the necessary identification will be missing. And a cooperative without the support of its members is destined to fail.

9.4. Influential factors of cooperative development

Next to those influences through the state or government, national cooperative movements just like the leadership and members mentioned until now, a considerable importance is given to international support of the transformation process of cooperatives. In this case, the ICA, the International Raiffeisen-Union and similar institutions can be mentioned, but the cooperative movements in the Western industrialized countries can be helpful as well. They offer specialized and cooperative know-how, and sometimes the financial means, which are absolutely essential to the cooperative movements of Central and Eastern Europe during the

transformation process. Much essential work has already been carried out, but the job has yet to be completed; the continued bi-lateral and/or multilateral exchange of information and know-how is absolutely necessary. This applies in particular to the transformation countries themselves, because their histories of the last decades are similar, and as they all find themselves in the midst of this transformation process, they must learn from one another.

In this context, one is especially reminded of the experiences made with the de-officialization of cooperatives in the third world, because they, too, to some extent, had been instrumentalized by the state similar to those cooperatives in the transformation countries. In addition to this, comprehensive literature about these issuses is available and experts can be found in many international institutions.

International meetings of experts are very important for the exchange of experience and in coping with the problems of transformation. The most important gatherings are the conferences where experts from the transformation countries themselves come together to exchange concepts and ideas. However, meetings on a larger scale are also helpful, as research on the problems of transformation is going on in Western Europe as well as in many other countries. It would be helpful, however, to have a regular presentation of experiences via international networks in order to guarantee a continual exchange of information and experience. The Association of Cooperatives in Slovakia, for example, works hard to offer annual international conferences, which have not only proved to be helpful to research but also to the association's practice.

The internationally active organizations can be helpful here, even if they do not necessarily promote cooperatives because of the nature of cooperatives, but rather because cooperatives appear to them as suitable means for accomplishing their own respective economic and social goals. This applies to organizations such as the ILO, FAO as well foundations, religious institutions, etc. that are active in Central and Eastern Europe.

Worthy of improvement in this context is the exchange of information, both specialized and specific information on cooperative activities. Here, networks like CO-OP NETWORK could become a very important source of assistance.

9.5. Final remarks

The cooperatives in Central and Eastern Europe find themselves in the middle of a restructuring process that has no historical precedent. They find themselves in the transition from state instrumentalization to stronger autonomy where the corresponding structural possibilities make up a large spectrum. Because of the negative image of cooperatives, the vague understanding of them, the rising pressures of competition, the altered economic and legal framework conditions and the loss of state support, cooperatives find themselves in a situation which poses considerable demands on their will to survive and their ability to reform. The remarks and suggestions made here can only offer some help in this case; the responsibility itself is left to the cooperatives and their members.

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Annex I

UNITED NATIONS General Assembly

Distr. GENERAL A/49/213 1 July 1994

SOCIAL DEVELOPMENT, INCLUDING QUESTIONS RELATING TO THE WORLD SOCIAL SITUATION AND TO YOUTH, AGEING, DISABLED PERSONS AND THE FAMILY

Status and role of cooperatives in the light of new economic and social trends

Report of the Secretary-General

CONTENTS

Paragraphs

I. INTRODUCTION 1 - 3

I. RECOMMENDATIONS 4

III. DIMENSIONS AND FUNCTIONS OF COOPERATIVE

ENTERPRISE 5 - 25

A. Developing countries 7 - 13

B. Developed market economies 14 -19

C. Transitional economies 20 - 25

IV. CONTRIBUTIONS OF COOPERATIVE ENTERPRISES TO THE

CREATION OF PRODUCTIVE EMPLOYMENT,

ALLEVIATION & REDUCTION OF POVERTY

AND ENHANCEMENT OF SOCIAL INTEGRATION 26 - 40

V. CONTRIBUTIONS OF COOPERATIVE ENTERPRISES

TO THE EFFICIENCY, QUALITY AND SUSTAINABILITY

OF ECONOMIES 41 - 53

VI. CONTRIBUTIONS OF COOPERATIVE ENTERPRISES

TO THE PROMOTION OF SOCIAL

STABILITY AND DEMOCRATIZATION 54 - 58

VII. CONTRIBUTIONS OF COOPERATIVE ENTERPRISES

TO ENVIRONMENTAL RATIONALITY AND SOCIETAL

SUSTAINABILITY 59 - 63

VIII. DEVELOPMENTS IN THE PROMOTION OF COOPERATIVES 64 - 71

IX. CONCLUSIONS 72

I. INTRODUCTION

1. In paragraph 7 of its resolution 47/90 of 16 December 1992, the General Assembly requested the Secretary-General to submit a report to the Assembly at its forty-ninth session on the status and role of cooperatives in the light of new economic and social trends, indicating in his report the progress made towards the goal of maintaining and increasing, within existing resources, the support provided by the United Nations to the programmes and objectives of the international cooperative movement.

2. The present report has been prepared pursuant to that request and refers to the period April 1992 to June 1994, in so far as information permits. As on the occasion of his preparation of previous reports to the General Assembly on this subject, the Secretary-General was able to benefit from the close collaboration of other members of the Committee for the Promotion and Advancement of Cooperatives (COPAC): the International Labour Organization (ILO), the Food and Agriculture Organization of the United Nations (FAO), the International Cooperative Alliance (ICA), the International Federation of Agricultural Producers (IFAP), the World Council of Credit Unions (WOCCU) and the International Union of Food, Agricultural, Hotel, Restaurant, Catering, Tobacco and Allied Workers' Associatione (IUF).

3. All members of COPAC provided up-to-date information. IFAP provided Position papers prepared by a number of its member organizations.1 Members of COPAC reviewed a draft annotated outline of the present report at the fiftieth meeting, held in October 1993 at Geneva, as a means to facilitate their inputs. They reviewed a preliminary draft at the fifty-first meeting, held in March 1994 in New York. Additional inputs became available from discussion at an Open Forum on Cooperatives and the World Summit for Social Development, organized by COPAC in New York in March 1994. The United States Overseas Cooperative Development Council subsequently provided further information.

II. RECOMMENDATIONS

4. On the basis of the present report, the following recommendations are made for consideration by the General Assembly:

(a) The General Assembly, having decided in its resolution 47/90 to consider the possibility of observing an international day of cooperatives in future years, following the observance in 1995 to mark the centenary of the establishment of ICA, might wish to consider proclaiming an international day of cooperatives as a recurrent annual event, to be celebrated jointly by the United Nations and the international cooperative movement and observed primarily at the national level. The purpose would be to bring to the attention of citizens the opportunities offered by cooperatives as well as to keep Governments informed of the possible benefits to society of cooperative activity;

(b) Governments that have not already done so may wish to establish formal institutional arrangements, such as a joint consultative council or advisory body, whereby an effective partnership between representative cooperative organizations and themselves may be planned and carried into effect;

(c) Governments of countries undergoing transition from centrally planned economic management might wish to bear in mind that private sector cooperative business enterprises are not only significant components of all industrialized economies, but that they are able to play a crucial role in the process of transformation itself. Consequently, they may wish to work closely with international cooperative organizations, and where appropriate through COPAC, in promoting and supporting new cooperative movements;

(d) Governments may wish to keep under review legal and administrative constraints upon the activities of cooperative enterprises with a view to eliminating those not applied to other businesses or associations of citizens;

(e) Governments, in collaboration with cooperative movements, may wish to develop programmes to improve statistics on the contribution of cooperative enterprises to national economies and to facilitate dissemination of information on cooperatives;

(f) In view of the effective role of cooperative enterprises in creating employment, reducing poverty and enhancing social integration, which are the three core issues to be considered by the World Summit for Social Development in March 1995 in Copenhagen, Governments may wish to channel a larger part of their funds intended for general developmental purposes through cooperative development organizations.

III. DIMENSIONS AND FUNCTIONS OF COOPERATIVE ENTERPRISE

5. Before considering the significance of major new economic and social trends for cooperatives and for their capability of contributing to the personal goals of their members and to societal goals, it may be useful to review the functions and dimensions of cooperative business enterprise.

6. There is widespread misconception among decision makers and other persons not members of cooperatives themselves of the nature of cooperative forms of business activity and of the dimensions and role of the cooperative movement in meeting society's goals within market economies. This misconception was compounded by use of the term "cooperative" to describe certain types of state-imposed and parastatally organized collectives which had nothing in common but their name with genuine cooperative business enterprises, which are democratic, member-run and member-financed and which are defined by ILO as associations of persons who have voluntarily joined together to achieve a common end through the formation of a democratically controlled organization, making equitable contributions to the capital required and accepting a fair share of the risks and benefits of the undertaking in which the members actively participate.

A. Developing countries

7. In the developing countries, in April 1994, if only member organizations of ICA were taken into account, 460 million persons were members of at least one cooperative enterprise: 20 per cent of the estimated population aged 15 to 60; and 63 per cent of ICA's individual membership of 726 million persons. Assuming an average household size of five persons, the population closely associated with cooperatives was 2.3 billion or 57 per cent of the total of all ages.

8. Private sector agricultural supply and marketing cooperatives were well developed in Argentina,
azil, Chile and Uruguay. Elsewhere in Latin America there were numerous examples of successful cooperative enterprises. For example, in Bolivia a poultry producers' cooperative in Cochabamba produced 60 per cent of the country's chickens and nearly 30 per cent of its eggs. In India, where they had played a major role in supporting the green revolution, 90,000 such cooperatives existed in 1993, when they supplied 34 per cent of fertilizer inputs. The Anand dairy cooperative movement was the largest producer of dairy products, comprising over 57,000 dairy cooperatives with more than 6 million members. In Tunisia, 60 per cent of milk production was marketed by cooperatives in 1993. In some of the economies in which agricultural exports were important, private sector cooperatives contributed substantial percentages of agricultural exports; for example, Uganda: coffee, 20 per cent, and cotton, 65 per cent; Kenya: cotton, 100 per cent, pyrethrum, 87 per cent and coffee, 52 per cent; Côte d'Ivoire: cotton, 99 per cent and coffee and cocoa, 44 per cent; Costa Rica: coffee, 37 per cent; and
azil: wheat, 50 per cent and cotton, 40 per cent.

9. The process of privatizing parastatal marketing boards and "cooperatives", usually to private sector or genuine cooperatives, continued rapidly, but was incomplete, particularly in respect of those engaged in traditional export crops. New cooperatives in Burkina Faso, Côte d'Ivoire and Mali marketing vegetables and fruits were able to export directly. ILO supported this development through its Interregional Programme for Commercial Exchanges among Cooperatives (INTERCOOP) and its Organizational and Cooperative Support to Grass-roots Initiatives (ACOPAM) project. In these economies, the continuing and accelerating process of restructuring from the compulsory (or parastatal) to the voluntary type of cooperative was the most important development affecting the cooperative movement during the reporting period.

10. Expansion in savings and credit cooperatives continued; in December 1992 national associations in 71 countries were members of WOCCU. In some countries, growth was very strong. In the Republic of Korea, for example, in 1992 the largest credit union movement in any developing country in terms of assets (US$ 7,730 million) and second in terms of membership (2.8 million persons) had only begun three decades previously. In India in 1993, 43 per cent of agricultural credit was provided by cooperative institutions.

11. Worker-owned manufacturing cooperatives continued to be formed from the informal sector, where a large "pre-cooperative" base existed. In 1990, ILO estimated that in African cities very high percentages of the economically active population belonged to some form of mutual self-help association. The International Committee of Industrial, Artisanal and Service Producers, Cooperatives (CICOPA) estimated that in India in 1993 worker-owned cooperatives included 25 million members. Cooperatives were significant in manufacturing inputs for agriculture, accounting for 25 per cent of fertilizer production. They also had high shares of the processing of outputs: 65 per cent of sugar, 58 per cent of handloom textiles and 12 per cent of cotton ginning. Women found them to be of particular value and used them to diversify from traditional occupations; for example, a women's worker cooperative supplied the public services with telephones.

12. Particularly in Latin America, but also in an increasing number of Asian countries, many rural electricity and telephone services were provided by user-owned cooperatives. Technical assistance has been provided by cooperatives from the developed market economies; for example, between 1962 and 1994, the United States National Rural Electric Cooperative Association helped to establish programmes supplying 32 million persons in 1994. Housing cooperatives and those providing urban infrastructure and services continued to play a major role. Consumer cooperatives were significant in some countries, but had not yet achieved the dimensions of those in developed market economies.

13. In April 1994, the total number of people in China who were members of national cooperative organizations themselves members of ICA was 160 million. Although parastatal "cooperatives" were still of major significance, much progress had occurred in their restructuring to form private sector cooperatives. For example, in 1993 the All China Handicraft and Industrial Cooperative Federation had 95 million members, of which about 30 million were thought to be members of private sector worker cooperatives. Cooperatives faced considerable challenges in the new economic conditions. Thus the Chinese Supply and Marketing Cooperatives organization experienced rising competition from new private enterprises; in 1993, commercial farms already accounted for over 60 per cent of agricultural production and the prices of 95 per cent of farm products had been liberalized. In response, the organization had set up 3,000 marketing centres designed to undertake the direct marketing of agricultural commodities to urban centres. Major investments were to be made in human resource development. A programme for developing international trade was under way: by 1993 about 1,000 joint ventures had been set up between foreign enterprises and Chinese cooperatives involving $l billion in capital.

B. Developed market economies

14. In the developed market economies, in April 1994 177 million persons were members of at least one cooperative enterprise: 33 per cent of the estimated population aged 15 to 60. Assuming an average household size of 3, the population closely associated with cooperative activity was 531 million, 62 per cent of the total of all ages. They made up 24.4 per cent of ICA's individual membership. Total employment of non-members was not known, but would add many millions to the number of closely associated persons. Cooperative enterprises continued to contribute major shares to national economies, but no firm statistics on share of gross domestic product were available.

15. Most small- and medium-sized rural production enterprises were member-owners of supply and marketing cooperatives which had expanded into the manufacture of inputs and into purchasing, processing, wholesaling and retailing of outputs. These were complemented by rural savings and credit cooperatives (credit unions) and cooperative banks and insurance enterprises. In Germany in 1991, for example, farmers made more than half of their purchases of inputs and more than half of their sales of outputs through the Raiffeisen cooperative movement, which had a membership of 4.25 million persons and a total turnover of 77 thousand million deutsche mark. In 1993, such cooperatives in the European Union, Austria, Finland and Sweden had 14 million members, 800,000 employees, a turnover of 205 billion European currency units (ECU) and shares of total farm inputs of 55 per cent and of marketing of 60 per cent.

16. In the United States in 1992 agricultural supply and marketing cooperatives served 4 million members and their gross business volume was $93 billion. Fourteen were included in the "Fortune 500" list of the largest corporations. In 1991, cooperatives' percentages of farm production expenditures were high: fertilizers, 45 per cent; petroleum, 43 per cent; and farm chemicals, 28 per cent. Percentage shares of marketing were 81 per cent for milk, 38 per cent for cotton and cotton seed, as well as for grains and oilseeds, and 18 per cent for fruits and vegetables. In 1992 in Canada, 8 of the top 10 agricultural firms were cooperative enterprises. Those in the prairie provinces marketed 75 per cent of western Canadian grain and oilseed. In Japan, almost every farm enterprise was a member of a supply and marketing cooperative, which in 1993 handled 95 per cent of rice production. In Japan also, approximately 90 per cent of fisheries products were accounted for by cooperative enterprises.

17. Cooperative enterprises accounted for major shares of manufacturing sectors inputs for agriculture or processing foodstuffs for industrial and household consumption, many being subsidiaries of agricultural or consumer cooperatives. Many small- and medium-sized manufacturing enterprises were worker-owned cooperatives. In 1993, CICOPA estimated there were 5 million members of such cooperatives in Europe. In some areas, cooperatives continued successful growth in heavy industry; for example the Mondragon Group in Spain, which in 1991 had a member-owner work force of 22,800.

18. Savings and credit cooperatives continued to be significant in the financial sectors of most countries. In December 1992, the percentages of the population of economically active age which were members of a credit union was 49 per cent in Canada, 41 per cent in Ireland and 35 per cent in the United States of America. In Canada, credit unions held 15 per cent of national savings. Moreover, in most countries they continued to expand: in Australia, between 1991 and 1993 they increased deposits by 30 per cent, reserves by 48 per cent and loans by 21 per cent. Cooperative banks continued to be of major importance; the Crédit mutuelle in France and the Rabobank Group in the Netherlands were among the largest banking institutions in those countries. Cooperative insurance enterprises were also of major importance; in Sweden, half the population had at least one insurance policy with the cooperative Folksam Group.

19. Substantial shares of housing and utilities were provided by cooperatives. In the United States in 1992, rural electricity cooperatives supplied 25 million people. Health cooperatives remained predominant in national health care in Japan and Spain and continued to expand elsewhere. In the United States they served 12 million people in 1992. High proportions of citizens were member-owners of consumer cooperatives; in December 1991 in the European Community, as well as in the Nordic countries, Switzerland and the former Czechoslovakia, consumer cooperatives had 21.6 million members and 393,000 employees and a turnover during 1991 of ECU 45,639 million. They accounted for over half of retail food sales in Switzerland, 34 per cent in Denmark and 30 per cent in Finland.

C. Transitional economies

20. In the transitional economies, in April 1994 89 million persons were members of national organizations themselves members of ICA. Some were members of parastatal "cooperatives", which were still surviving although already in the process of change to genuine cooperative status. They made up 12 per cent of ICA's individual membership. Membership was equivalent to 39.3 per cent of the population aged between 15 and 60. Assuming an average household size of 3 persons, the population closely associated with cooperative activity was 266 million, 70 per cent of the total of all ages.

21. By 1994, in the rural sector the previously dominant parastatal "cooperatives" survived in only slightly changed form in some countries, had been privatized, often to their former managers, in others, had become true cooperatives in yet others, and in some cases had simply disappeared without replacement. In the new German laender, 65 per cent of the collectives were transformed into genuine production cooperatives under German cooperative law; the remainder were converted into private enterprises in different legal forms. Those restructured along cooperative lines had to adopt innovations in processing and marketing in order to survive. For example, one of these new cooperatives, specializing in potato production, has designed new processing equipment and successfully marketed output on a daily basis to large institutional consumers in Berlin, several hundred kilometres distant. Similar developments were reported from Slovakia.

22. Considerable difficulties faced further transformation of the parastatal supply and marketing systems into true cooperatives. For example, in Bulgaria as producer cooperatives, formerly responsible for many essential services to agriculture, were liquidated, no alternatives were being developed. Cooperative organizations from the United States, Canada, the European Union and the Nordic countries promoted restructuring to fully private status and then commercial growth. For example, in the Russian Federation, where the Government still controlled most of the supply and marketing system, the American cooperative volunteers organization VOCA supported the establishment of the first private farmer-owned supply and marketing cooperative, the Golden Grain Cooperative, in the Saratov region. ILO and FAO also worked extensively to promote genuine rural cooperatives. For example, FAO organized at Gödöllo, Hungary, in 1992 a Sub-Regional Workshop on Reorienting the Cooperative Structure in Eastern European Countries, and in Sofia in 1993 a Sub-Regional Workshop on Developing and Strengthening Voluntary Farmers' Organizations in Central and Eastern Europe.

23. A significant decrease occurred in the manufacturing sector; in the Russian Federation from 310,000 parastatal "cooperatives" with several million members in 1990 to an estimated few hundred thousand members in private sector worker cooperatives in 1993. However, new entrepreneurial ventures appeared there and in other transitional economies; for example, at Kiev, persons with experience in the design and construction of machinery established a worker-owned cooperative. Generation and distribution of electricity was still mostly a state monopoly, but in Estonia state enterprises were assisted by the United States National Rural Electric Cooperative Association to begin to commercialize their operations and to consider developing local distribution cooperatives as a means to decentralize and privatize part of those monopolies. At Wist and Tyczyn in southern Poland the United States National Telephone Cooperative Association helped to establish in 1992 the first two cooperative telephone enterprises in Eastern Europe, providing services to 6,000 enterprises and households.

24. A beginning was made in the establishment of housing cooperatives, in some cases by transforming housing formerly associated with major industrial enterprises into cooperatives. For example, in May 1993, housing occupied by the former workforce of the Maxhutte steel plant in Thuringia, Germany, was taken over by the first significant housing cooperative in the new laender. In Bulgaria, Hungary and Poland, the United States Cooperative Housing Foundation implemented projects designed to demonstrate how housing cooperatives functioned, and it set up a model for cooperative forms of urban community development in the Timisoari region of Romania. Prior to transition, parastatal consumer "cooperatives" held virtual monopolies in the supply of household inputs, and also organized women's clubs, elderly persons' clubs, vocational training centres, children's day care centres and other community services. Most have been privatized, some to new genuine cooperatives; in Poland in 1988 there had been about three million members of parastatal consumer "cooperatives", while in 1992 there were 573,000 members of genuine consumer cooperatives. Most community service functions have been abandoned but others continued to function in the absence of viable alternatives. In Georgia, for example, parastatal "cooperatives" retained in 1993 a virtual monopoly in the supply of basic foodstuffs.

25. It was increasingly realized that savings and credit cooperatives (credit unions) could play a major role in mobilizing local savings and reinvesting them in local entrepreneurial activity for which neither state banks nor new financial institutions were willing to provide capital. With support from credit unions in North America and Europe, and from WOCCU, considerable progress continued to be made. In 1992, the first credit unions were set up in Poland and the Russian Federation; by April 1994 there were 56 in the former and 23 in the latter. The United States organization Agricultural Cooperative Development International has supported the establishment of rural cooperative banks in Albania, Hungary and Poland.

IV. CONTRIBUTIONS OF COOPERATIVE ENTERPRISES TO THE CREATION OF PRODUCTIVE EMPLOYMENT, ALLEVIATION AND REDUCTION OF POVERTY AND ENHANCEMENT OF SOCIAL INTEGRATION

26. In developing countries, structural adjustment continued to have a negative impact upon many individuals. In many areas social disintegration continued rapidly. In developed market economies, slow economic growth combined with an inability to absorb unemployment was the principal cause of unexpectedly persistent poverty, accompanied by accelerating social marginalization. In the transitional economies, restructuring brought widespread poverty, social tensions and new forms of dysfunction. These trends adversely affected sections of the cooperative movement, notably consumer cooperatives in some of the developed market economies. However, many countries affected by structural adjustment cooperatives benefited from new opportunities opened up by deregulation and liberalization, including the restructuring of the former parastatal "cooperative" sector, making room for the expansion of a genuine cooperative movement. In these circumstances, cooperative enterprises continued to be a major means to create or protect productive employment, alleviate and reduce poverty and promote social integration. Of paramount importance for members was the achievement of economic security and progress for themselves and their dependants. Cooperatives were a means to articulate their relationships with the market, assuring them a certain degree of control over their economic environment.

27. Employment as worker-members and worker-owners in cooperative enterprises continued to be very substantial. In 1993, CICOPA estimated membership in that sort of cooperative at about 100 million world wide. Many relatively secure and productive jobs existed primarily because, in the face of actual or threatened unemployment through closure, lay-offs, or relocation, employees of non-cooperative enterprises were able to create worker-owned cooperatives, often by means of collaboration with former management and local authorities. For example, in Italy, the Government encouraged the formation by national cooperative organizations of a cooperative financial development enterprise, to which governmental funding could be made for investment in new worker-cooperatives. Eighty per cent of their members were to comprise highly trained persons recently unemployed and willing to take over an enterprise in crisis or to begin a new business. Public contributions per worker were equivalent to the average unemployment benefit for a three-year period.

28. Employment in cooperatives as non-members was not yet known for all "sectors. In 1989, in the European Community, agricultural supply and marketing cooperatives employed 720,000 persons and in Japan in 1991 they employed 298,000 persons. Employment of that nature was high in developing countries also. In India, for example, large sugar refineries, spinning mills, dairies and other processing plants employed many millions of workers, many of whom were women. Substantial employment, including self-employment, continued in those non-cooperative enterprises whose economic viability was secured by the operation of supply, marketing and financial cooperatives.

29. It may be presumed that further employment was made possible only because of the efficient operation of the household economy, which increased the capacity of household members, particularly women, to engage regularly in the labour force. That efficiency was achieved in many countries partly by provision by cooperatives of appropriate and fairly priced goods and services. At least some employment may have been made possible only because of the ability of the cooperative movement to lobby for adjustment of public policies and because of the economic multipliers that originated in those activities of cooperative enterprises unlikely to have been undertaken by other private enterprises or public agencies. Much attention was being given to the employment creating capability of cooperatives by the movement itself and by Governments; in India a comprehensive study was under way. In 1993 ILO conducted a seminar at Kiev, on the role of cooperatives in employment creation in transitional economies, which resulted in a UNDP-financed project on twinning arrangements between cooperatives in Eastern and Western Europe. In 1994, ILO completed a study of the employment impact in developing countries.

30. Cooperatives continued to be an important means, often the only one available, whereby the poor, as well as those better off but at perpetual risk of becoming poor, have been able to achieve economic security and an acceptable standard of living and quality of life. Employment provided by them was responsible for a flow of income of central importance for the alleviation of poverty for many millions, and a safeguard against falling into poverty for many millions more. In many countries, a wide range of utilities and services was made available to the poor, at a cost and quality they would not otherwise have been able to afford, by consumer cooperatives.

31. Access to means of secure savings, insurance against risk, and credit at non-exploitive terms provided by membership in savings and credit cooperatives, insurance cooperatives and cooperative banks continued to be of the greatest value for the poor and those at risk of becoming poor. They provided credit on reasonable terms, either to render more efficient the household Sector (credit unions were in many communities the only financial institutions that provided housing loans to low-income families), or to provide capital and insurance for entrepreneurial activities, or to provide resources at times of emergency, whether personal or arising from natural disaster or civil strife. They enabled the poor to avoid permanent indebtedness, which might preclude their further ability to earn a living. For example, in Barbados the 48-member Credit Union League recently guaranteed full working capital funding for a new cooperative insurance company for 40,000 low and medium-income residents who were thereby for the first time able to protect themselves against risk.

32. Cooperatives were particularly effective in consumer protection, because as business enterprises they could take direct economic action. They took initiatives to reduce consumer indebtedness. For example, the Belgian Cooperative Center on Consumerism, with the help of the National Bank, organized a conference on this topic in September 1993. Swedish consumer cooperatives established their own advertising agency, whose policies were to conform to an ethical code. In many countries, the cooperative movements used their economic weight to combat monopolies and to influence governmental policies to favour the poor.

33. Within the Consumers Consultative Council of the European Union, the international union of consumers cooperatives EUROCOOP (the European Community of Consumer Cooperatives), assumed formal responsibility for drafting the directives of the Union on foodstuffs, and by lobbying succeeded in having a consumer protection section included within the Treaty of the European Union.

34. The contribution of cooperatives to the protection of existing, or to the creation of new, productive employment and to the alleviation and reduction of poverty continued to be a principal means whereby many millions of persons could integrate more effectively in society, overcoming contemporary tendencies to social disintegration. Not only were persons furnished with the material conditions and the economic base necessary for equitable participation, but they were enabled to gain self-respect and dignity and to move, in the perception of wider society, from a condition labelled negative to one labelled positive. This was particularly important for persons suffering not only from unemployment and poverty but also from exploitation and discrimination on the basis of their socio-cultural characteristica or of gender, age or dieability.

35. Women continued to find membership in cooperative enterprises a most effective means to achieve economic empowerment, to engage in entrepreneurial activities and in employment, and, of great importance, to retain the benefits thereof. Not least important was the protection afforded to their assets by their formal association within a cooperative. Credit unions allowed them to manage their own financial affairs and to obtain their own credit for entrepreneurial ventures. Membership in health, child-care, community development and consumer cooperatives reduced significantly the burden of their sole responsibility for the household economy. Cooperatives often developed practical means to achieve real equality. For example, in Sweden in 1992 the cooperative Folksam Group was awarded first prize by the Swediah Equal opportunities ombudsman for its internal gender policy. Moreover, cooperatives continued to seek ways to meet the particular needs of their women members, clients or customers. For example, since 1985 the Folksam Group has developed special forms of insurance to meet women's lesser financial security and exposure to financial discrimination when confronted by unemployment, illness, divorce or old age.

36. Through their improvement of the condition of women, cooperatives were able to improve that of children also, but some types of cooperative were particularly relevant, such as housing, health, education and child-care cooperatives. The latter expanded very rapidly; in Canada in 1993, an Association of Canadian Child-care Cooperatives was founded, representing 900 such enterprises. Many credit unions operated special facilities for the children of members and promoted branches in schoolo, partly operated by children themselves. Cooperative movements continued to take a close interest in the situation of young persons. Some held national meetings on the topic; for example, in the Philippines in october 1992 the National Federation of Cooperatives and the Cooperatives Education Center organized a first National Cooperative Youth Congress. Unemployed young persons themselves set up production or service cooperatives. In Cöte d'Ivoire, for example, unemployed school drop-oute formed a forestry maintenance cooperative and signed a contract with the Government to undertake that function within that local area.

37. Cooperatives continued to be an important means whereby older persons could organize their own mutual self-help. They also enabled retired persons to provide services to others, based on their experience and skills. In the United States, a group of older persons in Washington formed the United Seniors Health Cooperative, whose function was to analyse the multiplicity of public and private programmes potentially beneficial to them, to evaluate and advise on options, and to help them make use of the opportunities available. Many cooperatives took an interest in the needs of their older members. For example, the Migros consumer cooperative federation in Switzerland continued a programme to help members see ageing as a challenge and to assist them to maintain and make the best use of their abilities. In Japan, agricultural cooperatives expanded services for older members to meet demand created by the rapid ageing of the rural population.

38. Worker-owned cooperatives continued to provide opportunities for the reintegration within society of persons with disabilities through vocational rehabilitative employment in a controlled and supportive environment. Experience gained in such cooperatives permitted many individuals to go on to employment elsewhere in normal conditions. Service cooperatives were established by parents or other responsible persons on behalf of seriously dysfunctional dependants. For example, in France parents of children with severe mental disabilities establiehed the Syndicat National des Associations des Parents d'Enfants Inadaptés. Because they were owned and controlled by members for their own benefit and that of the communities of which they were part, cooperatives were inherently concerned to take measures designed to prevent disability and dysfunction, including occupational safety, quality control of consumer commodities and measures to promote healthy living.

39. Socio-culturally distinct populations, including indigenous peoples, continued to find in cooperative business enterprises owned and controlled by themselves a valuable means for economic empowerment, enabling them to mobilize and utilize local resources and secure access to markets under fair conditions. They drew strength from their association as equal partners in national cooperative movements. During 1993, ICA's regional office for Central America supported cooperatives in 19 indigenous communities in seven countries and organized a Seminar on Indigenous Cooperatives and Human Rights at Quetzaltengo, Guatemala, which concluded that the cooperative model was appropriate for indigenous communities because it offered a means for economic and social development while respecting the distinctive culture and identity of its members. In India in 1993, there were 3 million members of cooperatives owned by indigenous communities and organized within a Tribal Agricultural Cooperative Marketing Federation, supported by the Government and by ILO in its Interregional Programme to Support Self-reliance of Indigenous and Tribal Communities through Cooperatives and other Self-help Organizations (INDISCO).

40. Cooperatives in a number of developed market economies made special arrangements for migrants. For example, the Ludwig-Frank Housing Cooperative at Mannheim, Germany, received a World Habitat Award for its work of renovating a residential area to provide housing and a community centre offering training and language courses for a population originating in 15 countries. The Latin American regional association of credit unions introduced special arrangements for the safe transfer of migrant remittances. Membership in cooperatives proved to be an effective means to reintegrate refugees and internally displaced persons. In Guatemala, for example, returning refugees chose them as the most appropriate vehicle for their resettlement in the department of El Peten.

V. CONTRIBUTIONS OF COOPERATIVE ENTERPRISES TO THE EFFICIENCY, QUALITY AND SUSTAINABILITY OF ECONOMIES

41. Even in those countries where economies continued or resumed growth, there were many qualitative aspects of their behaviour which caused public concern. Production of goods and services did not respond to the basic needs of large sections of the population, but catered for non-sustainable consumption by the more privileged. Diseconomies resulted from monopolistic structures and from over-regulation, for example of the labour market, and from imbalance in the distribution of economic activities and population within national territory. Considerable human, capital and natural resources were neglected or exploited. Quality of life deteriorated for many. Public agencies were decreasingly able to deal with the diseconomies created, while most private for-profit enterprises were unable, even when willing, to adjust their behaviour because of highly competitive market conditions.

42. In these circumstances, and in spite of inefficiencies and failures of their own, cooperative business enterprises operated to some degree as a countervailing force and were able in aggregate to create public goods by their contribution to the improved efficiency, quality and sustainability of national economies. As business enterprises constituted by and for large (and frequently less advantaged) sectors of the population, they were inherently motivated towards efficiency in providing high quality services to their memberships, thus automatically working towards widespread economic, social and environmental benefits. That is, in being concerned with the quality of their services to their members, they were ipso facto concerned with the quality of the economy. For example, in 1994 the Japanese Consumers' Cooperative Union declared that its aim was to help the country's society and economy move from their current focus on industrial growth. By making quality of life a central theme, the Japanese cooperative movement hoped to build a better future for its members and their communities.

43. Cooperatives constituted the organizational means whereby a constant inflow of entrepreneurs from the informal and household sectors forced existing enterprises to become increasingly more efficient. Cooperatives also promoted an efficient market because they were inherently innovative and capable of operating at low margins. Because benefits derived from the efficiency of their enterprise accrued to members alone, their motivation, creativity and openness to innovation tended to be considerable, particularly in worker cooperatives, supply and markeing cooperatives and new types of user- or client-owned cooperatives, although this was no longer the case to the same degree in the larger consumer cooperatives, where, however, efforts were being made to reinvigorate member involvement. Large-scale cooperative enterprises came to be professionally managed in much the same way as other enterprises, but an essential difference remained; namely that the surplus gained by increased business efficiency accrued directly and equally to the large numbers of member-owners, to be expended mostly within the communities where the cooperative operated. Moreover, the constant concern of members that their cooperative remain viable in order to serve their interests maintained pressure on management to be efficient. They responded by all the forms of business adjustment usual within the market, including amalgamations, backward and

forward grouping, development of specialist support institutions able to provide capital, business advice and opportunities, and technical assistance, to improve the efficiency of individual cooperative enterprises. The capacity of the resultant large integrated systems for achieving economies of scale became considerable and their economic weight lent power to lobbying. To some degree, this process tended towards a cooperative monopoly, particularly in food marketing. Unlike other monopolies, however, the beneficiaries were a large proportion of the rural population, while close links with urban consumer cooperatives limited a negative effect upon most consumers. Thus, although often seeking to close sections of the market to non-cooperatives and to seek subsidies, the impact upon society was on balance positive because large numbers benefited.

44. That cooperatives were effective in satisfying the needs of their members was proven by the fact that so many millions of persons continued to find their voluntary membership worthwhile. That they were efficient as business enterprises was proven by the fact that many cooperatives have grown from humble origins to predominance in highly competitive market conditions. Cooperatives have received awards for businees efficiency; for example, in India, the 1990-1991 National Productivity Council Award for best performance by bio-fertilizer producers went to a subsidiary of the National Agricultural Cooperative Federation of India. Governments recognized the efficiency of cooperatives in promoting their takeover of inefficient non-cooperative enterprises, as, for example, in India, where a survey conducted in Calcutta in 1989 showed that 20 worker-cooperatives formed from inefficiently managed enterprises nine years previously had all operated profitably since then. Agricultural supply and service cooperatives continued to be an important, often the only, means to diffuse new technologies, products and equipment and they did so effectively, given that they were managed to meet the needs of their member-owners.

45. A public good of undoubted significance and major proportions was the spill-over effect of the entrepreneurial experience and organizational, leadership and technical skills of members, management and other employees into other areas of their activity in the community. Members with the least educational status stood to gain the most; for women, young persons, immigrants and members of minorities, membership was an important means of educational advancement. Because members of cooperative enterprises benefited from the efficiencies thereby created, they were strongly motivated to improve their own educational status and that of managers and employees, in a range of skills from adult literacy to business operations. Indeed, cooperative legislation in many countries required that some percentage of surplus be set aside to finance members' education. They were able to draw upon cooperative training organizations supported by national and international cooperative organizations, with ICA acting as a catalyst and coordinator. For example, in Spain the Mondragon cooperative group included its own technical and managerial colleges and a cooperative university. ILO promoted the use of the comprehensive cooperative management training materials produced by its Materials for Training in Cooperative Management (MATCOM) project.

46. In addition to mobilizing human resources, cooperatives often made available capital and natural resources. Savings and credit cooperatives (credit unions) were able to mobilize the capital existing even in the apparently poorest of communities. For example, in the Zinder region of the Niger, a pilot credit union development project supported by WOCCU and the United States Agency for International Development promoted credit unions which, in their first year of operation, accumulated savings equivalent to $20,000. Cooperatives were a means whereby primary producers owning or having usufruct over natural resources might shift from subsistence or local semi-monetized activity to full participation in the national economy, bringing with them land, water and bio-resources hitherto not available to it.

47. The impact of cooperative enterprises upon the distribution of income and wealth tended towards enabling lower-income strata to improve their real and relative positions and protecting middle-income strata from retrogression. This contributed to reduction of diseconomies arising from societal imbalance: the opportunities lost because of the inability of the poor to contribute fully their human, capital and natural resources; the costs to society of the existence of a large deprived section of the population; and the capacity of the rich to use societal resources for exploitive, speculative and other non-productive purposes.

48. More balanced societal structure was reflected in better regional equilibrium and reduction of locational diseconomies; neglect and exploitation in rural regions, congestion in urban regions. Cooperatives protected rural economies, promoting their efficiency and sustainability and defending the interests of their members. They were vehicles for subsidiarity and sustainability and promoters of a high quality rural society. Their levels of investment in rural economies may be illustrated by the Raiffeisen system in Germany, which during 1988-1992 invested 7.5 thousand million deutsche mark in buildings and equipment alone. Cooperative organizations took a lead in promoting regional development in depressed rural areas. In Quebec, for example, the Mouvement des Caisses Desjardins funded, in collaboration with local authorities and other private enterprises, programmes of community and regional development. In urban regions, cooperatives facilitated the mobilization of under-utilized human and capital resources, including the resource constituted by neglected housing stock and urban infrastructure, helping to reduce urban diseconomies. They facilitated small-scale entrepreneurial ventures, provided vitally needed services to many for whom no alternative existed and contributed to greater communal solidarity. This capability has been observed with

increasing interest by public authorities; in Sweden, for example, the municipality of Vastervik decided in 1989 to turn over the operation of integrated social services in an entire neighbourhood to a housing cooperative.

49. By their contributions to better regional balance, cooperatives helped reduce rural to urban migration. By reducing poverty, improving the efficiency of the household economy and, particularly, by advancing the status of women, cooperatives encouraged reduction in fertility. More specifically, some cooperatives and cooperative movements promoted family planning as a contribution to the welfare of members and their families.

50. Cooperative enterprises were beginning to have a still very small but potentially significant impact upon imbalance in the global economy by means of their contributions to more balanced and sustainable growth in developing countries. This they achieved through strong endogenous growth supported by appropriate technical assistance and equitable international trade. They took advantage of new opportunities arising from structural adjustment, counteracting thereby the susceptibility of developing economies to the negative impact of global processes. While many cooperatives in developed market economies suffered from the impact of globalization on the local economies in which they operated, many were able to minimize these negative effects. They resisted the transfer of economic activities to low-labour-cost locations abroad because the membership had a strong stake in the local communities within which the cooperative operated. Because of their innovative capabilities, they were able to adjust, often towards greater compatibility with sustainable development. In Sweden, for example, as farmers, profitability declined, they formed small service cooperatives, offering know-how and machinery for use by municipalities, telephone companies and others in such work as construction and park maintenance.

51. Increasing international trade between cooperatives constituted a still small but potentially important means to reduce the exploitive and inequitable aspects of international economic relations. Consumer cooperatives in developed market economies increasingly developed partnerships with producer cooperatives elsewhere based upon an equitable division of the value added. In some cases, cooperative consumers paid top prices for commodities imported from particularly disadvantaged communities in Africa and Latin America. For example, Co-op Suisse, the principal consumer group in Switzerland, recently began sales of coffee produced by cooperatives in Africa and Latin America, many in indigenous communities, who received thereby an income of 3.2 million Swiss francs additional to market prices. International cooperative trade was strongly promoted by regional and global cooperative organizations, and by ILO in its INTERCOOP Programme.

52. Technical assistance provided directly between cooperatives in the same areas of business was particularly effective, given their common interest in commercial success. ICA, through its regional offices, worked with 27 development partners (including government agencies in Australia, Finland, Germany and Japan) to assist national cooperative movements in strategic planning, government relations, human resource development and institutional strengthening. IFAP increased its support to agricultural cooperatives in developing and transitional economies. Efforts were made to coordinate the numerous programmes. For example, in May 1993 at Geneva, 35 cooperative development organizations held the first annual meeting of a newly established East and Central European Cooperative Development Network. In some countries, cooperative development organizations and large cooperative business enterprises providing technical assistance set up institutions whose function included harmonization of programmes and promotion of governmental support. In the United States, for example, this was the case with the Overseas Cooperative Development Council. Movement-to-movement aid between developing market economies also grew in importance during the period. For example, the Philippines National Confederation of Cooperatives was training Vietnamese nationals in basic cooperative organization and business methods. In 1994, representatives of credit union movements in the Republic of Korea, Singapore and Hong Kong, together with the Association of Asian Confederation of Credit Unions and WOCCU, met to coordinate assistance to credit union development in China.

53. Governments continued to support and supplement cooperative technical assistance. All cooperative development agencies in Australia, Belgium, Canada, Denmark, Finland, France, Italy, Japan, the Netherlands, Norway, Sweden, Switzerland, the United Kingdom of Great Britain and Northern Ireland and the United States used funds from their Governments as well as from their own members.

VI. CONTRIBUTIONS OF COOPERATIVE ENTERPRISES TO THE PROMOTION OF SOCIAL STABILITY AND DEMOCRATIZATION

54. Mainly as a result of poor economic performance, but also because of the effect of a revolution in communications which did not always act as a positive force, the predominant trend in many societies was towards social disintegration and growing dysfunction among many sections of society. This was offset to some extent by the widespread expansion of democratic processes and of citizens' greater participation in government, accompanied by the departure of authoritarian regimes of many types. However, in many cases the structures of civil society that were needed to support new forms of societal organization had been absent and could not be constructed overnight. In particular, changes in perceptions and attitudes had shifted from concern for the community towards an excessive individualism. The legacy of inequitable economic relations and external political intervention in endogenous societal development was felt in racial and ethnic tension and even in the collapse of the State itself, leading to internal strife and in some cases war between nations.

55. To the extent that the activities of cooperative enterprises, supported by sectoral, national and international cooperative organizations, contributed to the expansion of productive employment, the alleviation and reduction of poverty and the enhancement of social integration, they strengthened participatory democracy and internal societal stability. Moreover, many cooperatives, in contrast to other types of enterprise, were able to operate effectively in economically marginal locations where the risk of instability and friction was higher than average and from which instability might affect the whole of society. In contemporary societal conditions, these unsafe margins were expanding.

56. Cooperative enterprises were indeed given their name because they were means for cooperation. Their principles emphasized dignity, tolerance and harmony in working together in a voluntary and democratically controlled working context. This encouraged mutual understanding between diverse members, enabling them to work and live together when otherwise they might never have done so. For example, in India the establishment of dairy cooperatives brought about a social revolution because members from hostile segments of communities perceived them to provide an organizational environment within which the benefits of putting aside mutual hostility were not only real, but were distributed equitably. This experience spilled over to other matters of common interest within their communities. Moreover, cooperatives were members of national movements which were also economically or socio-culturally heterogeneous, although imbued with a single set of cooperative values and principles. This introduced motivation and opportunity for working together within a common framework on an entirely pragmatic basis in order to seize common opportunities and resolve common problems.

57. By their existence, whether in homogeneous or heterogeneous communities, cooperative enterprises contributed to the diffusion of familiarity with democratic processes by means of their procedures for member control. These included active participation of all members in processes of consensus-building and decision-making by means of articulation of ideas and debate, adherence to election procedures and respect for the right of all members to vote. Members developed commitment, accountability, trust and honesty by these means. The experience could be replicated with confidence in other spheres of activity within the community and national society. It was in this sense that cooperatives were widely recognized as "schools for democracy". For these reasons, cooperative membership was particularly significant for women, as well as for young persons and other persons otherwise disadvantaged. Moreover, while not a monolithic sector or system, cooperative movements were coherently organized on democratic principles. They were essentially a bottom-up movement, responsive to a highly varied individual membership; producers and consumers, lower and middle income, core and marginal locations, socio-cultural variety. The process of managing such heterogeneous movements promoted experience of the values of collaboration, compromise, balance and responsibility, all of major significance to the building and protection of democracy.

58. Some members of smaller local cooperatives found it difficult to exercise their rights to control their cooperative, often run by dominant local interest. Many members of large cooperative enterprises, such as the major consumer cooperative groups in developed market economies, were unable or even disinterested in participating in the management of their enterprise. Nevertheless, an increase in levels of real empowerment was always latent in every cooperative. Because of their peculiar constitutional form, membership always had remedy and recourse; although sometimes requiring much courage, members could vote undesired officers and managers out of office and vote in their own representatives.

VII. CONTRIBUTIONS OF COOPERATIVE ENTERPRISES

TO ENVIRONMENTAL RATIONALITY AND SOCIETAL SUSTAINABILITY

59. In spite of growing concern with the continuing damage done to the natural environment by human societies, the logic of their organization continued to promote exploitive and damaging relationships. Cooperative enterprises, possibly more than other types of enterprises within the market, were able to contribute to the reversal of that condition. Member-owners, because they controlled business policies, were empowered to ensure that the operations of their cooperatives were environmentally sustainable. In this way they were able to safeguard their own long-term interests and those of their families and communities, resident in the areas where the enterprise operated. Their growing awareness of environmental issues could be rapidly translated into practical changes in enterprise operation. With growing practical experience, the cooperative movement took the lead in the environmental movement in some countries.

60. A cooperative environmental conscience has been energetically promoted by international cooperative organizations. In october 1992, the thirtieth ICA Congress adopted a Declaration on the Environment and Sustainable Development which called for the preparation of a "Cooperative Agenda 21", to be presented to the ICA's Centennial congress in 1995. The IFAP Environmental Committee adopted a statement on the leadership role of agriculture to be presented to its thirty-first General Conference, in 1994. Some regional cooperative organizations recently elaborated their own environmental policies. Movement-to-movement technical assistance on environmental issues expanded during the period. Some national level cooperative development institutions have been pioneers in environmental issues; for example, in Spain, since 1977 the Fundacio Roca Gales has coordinated the environmental work of concerned groups throughout Spain, as well as the environmental education movement in Catalonia. In some countries, cooperatives sought to mobilize the energies of youth in environmental issues. For example, in Belgium the Youth Movement of Socialist Mutuals, in partnership with a cooperative insurance company, set up the Environment-Health-Consumption Foundation. Elsewhere, cooperatives won awards for their environmental commitment; the Kerry Recycling Cooperative in Ireland received a United Nations Environment Programme "Global 500" award.

61. Agricultural cooperatives already promoted more sustainable forms of production. Farm supply cooperatives increased their concern for the environmental suitability of their products, while processing and marketing cooperatives became increasingly sensitive to the environmental impact of their operations. For example, in 1990 the California Waterfowl Association gave an award to Tri Valley Growers, a fruit and vegetable processing and marketing cooperative and a "Fortune 500" enterprise, in recognition of its effort to enhance wetland and waterfowl resources in areas adjacent to its canneries. In Canada, the Saskatchewan Wheat Pool established a "responsible stewardship" programme to make people, both urban and rural, better aware of the issues involved in sustainable agriculture. In Japan, in 1991 the agricultural cooperative movement adopted guidelines on environmentally friendly agriculture and the supply of safe and high quality food and other agricultural products. Forest owners and fisheries cooperatives adopted environmental protection plans in 1989. In developing countries also agricultural cooperatives showed concern for environmental protection. In Mindanao, the Philippines, the Federation of Cooperatives in Davao City and the Federation of Cooperative Banks in Mindanao organized "Project Raintree", a programme of aerial seeding to reforest denuded mountainous areas. The Kenya Planters' Cooperative Union became the first manufacturer in the world to make briquettes from coffee bean husks; "Kahawa coal" has already proved to be healthier and more efficient than charcoal.

62. Consumer cooperatives took the lead in applying environmentally compatible products, demonstrating that commercial objectives and environmental responsibility were compatible. Moreover, they provided an economic base from which members might engage in activities designed to achieve sustainable development. For example, Japanese consumer cooperatives reviewed life-styles, introduced environmentally friendly products, monitored pollution levels, recycled resources, lobbied local and national authorities, networked with civil organizations and organized campaigns requesting more effective national environmental policies. In 1992, the Japanese Consumers' Cooperatives Union adopted an "Environmental 21" action plan and called for collaboration on environmental issues between cooperative organizations throughout the world, for this purpose holding a workshop jointly with the ICA Consumer Committee and the International Organization for Consumer Cooperative Distributive Trade (INTERCOOP) in May 1992. In many countries, housing cooperatives have already taken a lead in promoting environmentally friendly shelter. In Finland, for example, the HAKA Construction Enterprise constructed an urban complex of ecologically operated apartment buildings. Innovative community-based approaches to protecting and restoring the urban environment were being undertaken by cooperatives in many countries.

63. Since financial incentives were among the most effective means to achieve a shift towards environmentally sound business practices, financial cooperatives were able to induce significant changes in attitudes and policies and found that this paid off in commercial terms. They adopted codes of ethics and promoted environmentally sound business activities by offering loans at concessional rates, low insurance premiums and other financial incentives. For example, in the United Kingdom the Cooperative Bank was the first bank to respond to the increasing public concern over the impact of business activities upon the environment. In 1991, over 80 per cent of its 1.5 million members said that they thought their bank should have a clear ethical policy on environmental issues. In 1992, the Bank formally included ethical considerations in all its business decisions, encouraging business customers to take a proactive stance on the environmental impact of their activities and terminating transactions with those whose activities were harmful to the environment.

VIII. DEVELOPMENTS IN THE PROMOTION OF COOPERATIVES

64. International programmes designed to promote cooperative enterprises increasingly accepted, as a guiding principle, full respect for the complete independence of the cooperative movement. By their very nature, cooperatives are self-reliant, self-managed and self-financed enterprises whose success in large measure depends upon their own efforts. To the extent that external support might be valuable, it should be provided mainly from within the cooperative movement itself. Support from outside the movement should be channelled through cooperative development organizations or should be devoted to improving the legislative and administrative environment relevant to cooperative business activity.

65. Global and regional cooperative organizations continued their efforts to support their members world wide. ICA pursued new global policies in respect of cooperative development, human resources development and women in cooperative development. In 1993, IFAD launched a comprehensive world-wide plan for the strengthening of farmers' organizations, part of which addressed the situation of rural cooperative movements. In most developed market economies and some developing countries, the economic dimensions of the cooperative sector and the effectiveness of its own financial institutions assured virtually complete financial independence. In the developing countries, and increasingly in the transitional economies, the movement showed marked capability for mobilizing hitherto under-utilized capital from within the societies where it operated. Technical assistance was almost completely provided within the cooperative movement itself. Nevertheless, in recognition of the value of cooperatives in the circumstances prevailing in these economies, important flows of financial assistance to them originated in governmental and private development agencies in the developed market economies.

66. Nevertheless, the cooperative movement operated within a global environment profoundly affected by governmental and intergovernmental policies and activities. Hence, the nature of the relationship between the global cooperative movement and Governments functioning at local, regional, national and international levels remained an issue of major significance. Much further progress was made towards a full understanding by Governments that cooperative enterprises were concerned primarily to meet the requirements of their members, who had established and who owned them precisely in order to satisfy their own goals. They realized more fully that, by their very existence, cooperatives contributed very substantially to the achievement of a wide range of societal goals. Therefore a basic premise of any policy in respect of cooperatives should be that they contribute best by effectively carrying out their own agenda; this is not only fully compatible with society's own agenda, but actually provides a model of a people-centred and sustainable society. Consequently, Governments and intergovernmental organizations might best concentrate their efforts on ensuring that the societal environment, in so far as it lies within their capacity to influence it, should be as favourable and supportive as possible to the achievement by the cooperative movement of its own goals. This implies that the governmental role is best limited to registration, regulation and ensuring compliance with the law. This should be no different from that applying to any other type of business enterprise, except to respond to the special characteristics of cooperative organization. The development of this consensus is partly an expression of further democratization in many countries and partly a result of the imperatives of structural adjustment programmes, which demand reduction in governmental involvement in a wide range of activities. It resulted particularly from the dialogue established between Governments and cooperative movements in a series of regional ministerial conferences organized by ICA in Africa and Asia.

67. During 1992-1993, Governments of 16 developing countries where laws had previously expressed an interventionist stance adopted new legislation which fully acknowledged the independent status of cooperatives. In nine others, proposals were under consideration. In the European transitional economies, not all Governments and Parliaments had realized that cooperatives were private sector organizations controlled by their members and some had introduced legislation designed to transform cooperatives into joint-stock companies. Particularly in Africa, much progress was made also in the dismantling of cooperative ministries and parastatal agencies and in the reduction of governmental controls over marketing.

68. In its resolution 47/90, the General Assembly had encouraged Governments, in formulating national development strategies, to consider fully the potential of cooperatives for contributing to the solution of economic, social and environmental problems. During the reporting period, it was increasingly recognized that this might best be realized by developing an active but equal partnership with the cooperative movement. In a number of countries, progress towards such a partnership was made, albeit not without initial conceptual and practical difficulties. In Nigeria, for example, in the aftermath of structural adjustment the Government implemented numerous programmes intended to promote sustainable rural development. These involved the establishment of numerous "group-based" or "pre-cooperative" entities, later registered as cooperatives. However, this was done without involving the national cooperative movement. Consequently, many collapsed because of inexperienced management and insufficient training and motivation. Later the situation was rectified and the relevant departments coordinated closely with the cooperative movement, which extended training and guidance to all new societies formed in the context of governmental programmes. In Zambia, in recognition of the vital role of the cooperative movement in the national economy, the Managing Director and Deputy Managing Director of the Zambia Cooperative Federation were appointed to the President's National Economic Advisory Council. In Canada, in October 1992 federal and provincial ministers responsible for cooperatives and cooperative representatives held a two-day conference where they examined a report on "The climate for cooperative community development", prepared by the Center for the Study of Cooperatives of the University of Saskatchewan. Participants agreed to seek ways to promote the use of the cooperative model in community development, to coordinate relevant governmental policies better and to discuss ways of ensuring that public programmes could be made available to cooperatives.

69. Intergovernmental organizations supported these processes. ILO undertook a comprehensive programme of research in Africa and Asia on the nature of relationships between Governments and the cooperative movement. In May 1993, it held a meeting of experts which also examined these relationships and in particular the need to revise the Cooperatives (Developing Countries) Recommendation, 1966 (No. 127). Partly on the basis of the discussions at that meeting, the United Nations in June 1993 circulated to all Member States a set of guidelines on the nature of a new partnership between the cooperative movement and Governments. Through its interregional programme for Structural Reform through Improvement of Cooperative Development Policies and Legislation (COOPREFORM), ILO promoted improvement of cooperative development legislation.

70. The United Nations system continued to support cooperative development. FAO promoted the full implementation of the Plan of Action for People's Participation in Rural Development adopted by the FAO Conference at its twenty-sixth session, in 1991. In Asia, FAO continued to support the Regional Network for the Development of Agricultural Cooperatives in Asia and the Pacific. In the context of its work within COPAC, it began a programme of research and development concerning capitalization in cooperatives. During 1993, FAO provided technical support, assistance and advice to the Governments of Ethiopia, Tanzania and Vietnam in restructuring their agricultural cooperative movements. For the same purpose, it organized in 1993 regional workshops on cooperative development and restructuring in China, the Philippines, Romania and Tanzania. It carried out two cooperative development and training projects, in Guinea and Zaire. A case study on the development of independent cooperatives in Zambia was completed. ILO continued its promotion of new cooperative legislation; new partnerships between cooperative movements and Governments; inter-cooperative trade, employment and human resources development; and cooperatives of migrants and indigenous persons. Special emphasis was given to Africa and to the transitional economies. The United Nations Development Fund for Women assisted women's integration in cooperatives through country-level direct support projects to women's groups in pre-cooperative and cooperative societies, and by providing institution-building assistance to global cooperative organizations. Its recent focus has been on helping women's movements and credit cooperatives to come together and formulate a framework for women's participation. The United Nations Centre for Human Settlements, the United Nations Industrial Development Organization (UNIDO), the United Nations Development Programme, the World Bank and IFAD maintained their programmes of technical assistance for cooperative development. The United Nations continued to promote partnership between Governments and cooperative movements, particularly in social and environmental areas.

71. COPAC continued to operate as the principal formal means for interaction between the United Nations system and the global cooperative movement. Its structure was unique in that an inter-agency component (the United Nations, ILO and FAO) was joined by a non-governmental component (ICA, IFAP, IUF and WOCCU). This structure, and the highly successful collaboration it facilitated, constituted a model which might well be replicated in other areas. Pursuant to General Assembly resolution 47/90, the Executive Secretary of COPAC invited the World Bank, IFAD and UNIDO to consider membership of the Committee. While conveying their full support, these specialized agencies were unable to take full membership during the reporting period.

IX. CONCLUSIONS

72. In view of the preceding examination of the role and status of cooperatives in the light of new economic and social trends, it may be concluded that:

(a) Cooperative enterprises provide the organizational means whereby a significant proportion of humanity is able to take into its own hands the tasks of creating productive employment, overcoming poverty and achieving social integration. By effectively looking after their own interests and resolving their own problems, they reduce pressures upon Governments while at the same time creating significant public goods;

(b) Cooperatives contribute substantially to the common good in market economies, principally by improving the efficiency and quality of the economy, but also by assuring democratization and environmental rationality. They constitute a model for a people-centred and sustainable form of societal organization, based on equity, justice and subsidiarity;

(c) It appears that the cooperative movement might be able to contribute significantly to economic efficiency and quality in developing economies, and in the transitional economies, including reduction in unemployment, poverty and social disintegration;

(d) Because cooperatives are business enterprises and formal components of the market, and because the cooperative movement is self-reliant, self-managed and largely self-financed, cooperatives function best when Governments refrain from intervention other than registration, regulation and enforcement of the law that exists in respect to any type of business or association of citizens;

(e) Financial and technical support to cooperative movements by the remainder of society might be one of the more effective means whereby sustainability could be achieved within an acceptable period of time. Such support is most effective when channelled through cooperative development agencies;

(f) In view of the fact, that by their very existence, cooperatives contribute to the achievement of conditions which are also the goal of Governments and civic society, an effective working partnership at all levels between Governments and cooperative movements might be an important means to mobilize and allocate societal resources effectively;

(g) The quantitative and qualitative significance of genuine and democratic cooperative enterprises is insufficiently known, particularly in transitional economies.


Updated by GT. Approved by HH. Last update: 24 January 2000.

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