INTERNATIONAL LABOUR OFFICE

AN INTRODUCTION
TO CO-OPERATIVE PRACTICE

GENEVA
1952

STUDIES AND REPORTS
N e w Series, N o . 32

PUBLISHED

BY T H E INTERNATIONAL
GENEVA,

LABOUR

OFFICE

SWITZERLAND

Published in the United Kingdom for the INTEBNATIONAL LABOUB OFFICE

by Staples Press Limited, London

FEINTED BY "IMPBIMEBIES POPULAIRES", GENEVA, (SWJTZEBLAND)

CONTENTS
Page
INTRODUCTION

1

CHAPTER I : Principles and Methods of Co-operation

3

CHAPTER I I : Place of Co-operation in the Community

7

Some Types of Co-operative Society and Reasons for Success or
Failure
Credit
Marketing
Consumer
Thrift
Industrial
Effect of Co-operation on the Community
Legal Aspects of Co-operation
The Law . .
The Functions of Government

7
7
8
9
11
12
13
14
14
15

CHAPTER I I I : Determining the Need for Co-operation

17

The Benefits of Combined Action
The Need for Simplicity
Exact Definition of Aims
Branches or Independent Co-operative Societies

17
17
19
19

CHAPTER TV : Organising a Co-operative Society
The Law as it Affects Co-operative Societies
Forms and Aims of the Co-operative Society
Area to be Served
Capital Required and Costs of Operation
Risks to Assume or Avoid
Manner of Settlement with Members
Preliminary Work
CHAPTER V : Administration

and Operation

Responsibilities and Rights of Members
Structure of the Co-operative Society
General Meeting
Committee
Elections
Office-Bearers
Working Procedure

21
21
22
22
23.
26
28
29
33
33
35
35
36
37
37
39

rV

CONTENTS
-

Relationships with Other Co-operative Societies
Educational
Commercial
Secondary Organisations
Financial
Commercial
Administrative
CHAPTER VI : Conclusion

Page

40
40
41
43
43
45
- 46
48

INTRODUCTION

The co-operative movement has long been the subject of attention by the International Labour Organisation. As early as
1921, the International Labour Conference adopted a resolution
requesting the International Labour Office, in view of "the close
relations which exist between the problems of labour and
those of co-operation", to " give careful attention to the study
of different aspects of co-operation which are connected with
the improvement of the economic and social conditions of the
workers".
With this end in view, the I.L.O. has built up a wide network
of contacts both with the Government authorities which assist
or supervise the co-operative movement in various countries, and
with co-operative organisations themselves, as well as other nonofficial institutions interested in co-operative activities.
This network of contacts and its documentary resources enable
the I.L.O. to serve as a kind of international clearing house for
information on the main problems common to all or most types
of co-operative organisation, as well as on the different branches
of the co-operative movement themselves. The I.L.O. has fulfilled
this function in a variety of ways, e.g., by publishing articles in
its periodicals such as the International Labour Review; issuing a
special bulletin, Co-operative Information ; preparing special studies
and reports on co-operative subjects; undertaking research in
reply to special requests; and by sending out exploratory, advisory
or assistance missions at the request of Governments.
Regional conferences convened by the I.L.O. in recent years
have re-focused attention upon the potential value of the co-operative movement in raising the standard of living of vast numbers
of workers in economically underdeveloped countries. The
Governments of many such countries have also displayed an active
interest in encouraging co-operative organisation to this end.
Resolutions adopted by I.L.O. regional conferences have underlined this official interest, besides emphasising the desirabihty of
intensified action by international organisations to assist underdeveloped countries in this work.

2

AN INTRODUCTION TO CO-OPERATIVE PRACTICE

I n this connection the need has frequently been expressed for a
concise appraisal of the main forms of co-operative organisation
and the conditions affecting their success or failure, in order to
provide an introduction to co-operative principles and practices
to all those who are taking part in the day-to-day work of surveying
the possibilities of co-operative development and of helping local
communities or groups to set up and run their co-operative societies.
I t is with this end in view that the present publication has been prepared. Its purpose is primarily to analyse briefly and in simple
terms, in the light of broad international experience, the principal
types of society likely to be of value in underdeveloped communities, the needs which determine their establishment, and
the chief conditions likely to affect their organisation, administration and operation.
Much more than is contained in the following pages could,
of course, be written on the subject. I t was felt, however, t h a t
what is essentially an introductory guide to the subject should
not be couched in the terms, form or language of an extensive
scientific study.
The contents are based on a text prepared at the request
of the I.L.O. (and on a brief drawn up by it) by Mr. W. K. H.
Campbell, who, as Registrar of Co-operative Societies in Ceylon,
as League of Nations Adviser on Co-operation in China, and as
consultant of the British Colonial Office in various African territories, has an extensive practical knowledge of co-operative societies
of different kinds, operating under widely varying circumstances.
I t is hoped that the result will be of service within its given limits
to Governments, non-official institutions, and others requiring a
basic document of an easily assimilated character for use by
workers in the field and others directly engaged in the preparation
and establishment of co-operative societies and the guidance of
their members.

CHAPTER I
PRINCIPLES AND METHODS OF CO-OPERATION
Co-operation has been defined as "a form of organisation wherein
persons voluntarily associate together as human beings on a basis
of equality for the promotion of the economic interests of themselves". 1 This definition embodies the four main principles of
co-operation :
1. The association is of human beings as such and not of
capital.
2. The members of the association are equal, the accepted
rule being one member—one vote.
3. The act of association is voluntary.
4. The association has objectives in which the members have
a common interest, and the attainment of which requires the
contribution of each.
Co-operation as a word means no more than working together.
In the form with which we are concerned when we speak of cooperation as a system, it means the grouping together of a number
of individuals, in order t h a t by association with each other they
may be enabled to obtain advantages not available to them singly.
I t is a commonplace of economics that anyone who operates on a
large scale does so on more advantageous terms than anyone who
only operates on a small scale. I t is cheaper to buy at wholesale
than at retail rates. The man who needs to transport 51b. of
a certain commodity pays proportionately far more than the man
who transports a whole lorry load, train load or ship load.
I n very general terms the object of co-operation is to make
it possible for the man who has only 5lb. of some commodity
to sell, process or transport it at the large-scale rate, by means of
group action.
One of the greatest advantages of co-operation is that it works
from the outer periphery inwards. Beginning with the remote,
1
H . CALVERT : The Law and Principies of Co-operation (Calcutta and
Simla, Thaoker, Spink & Co., 1926), p . 13.

4

AN INTRODUCTION TO CO-OPERATIVE PRACTICE

small-scale producer, for example, it organises him and his fellows
into a co-operative society, then a number of these societies into
a union, a number of unions into a federation, and so on. At
every stage the constitution is democratic, the freedom of the
individual is preserved and reinforced by machinery for collective
action.
I t was said t h a t co-operation means working together. The
emphasis is on the word "working". I t cannot be too strongly
stressed t h a t co-operation has nothing to offer to the man who
wishes to sit with folded hands and wait for the Government or
someone else to alleviate his difficulties.
I t may take an almost infinite variety of forms, but every
one of them demands t h a t the individual should make an effort
towards the achievement of the objects of the whole group. Without
industry, honesty and determination no co-operative can be
expected to succeed. There are, however, many people who have
all these qualities, but, for lack of means, education and, above
all, organisation, are unable to apply them to the best advantage.
These are the people whom co-operation can help most and t h a t
is the reason why the members of co-operative societies are generally, though not necessarily, drawn from t h a t stratum of society
which is not very richly endowed with this world's goods. Cooperation means work (if the repetition may be forgiven) and the
relatively poor man is more likely to be ready to sacrifice his
leisure and energy to secure substantial advantages than his richer
neighbour.
Given honesty and readiness to work, there are very few
people to whom co-operation has not something to offer. The
story of the Rochdale pioneers is now too well known to need
repetition. The efforts of a small group of 26 weavers, extremely
poor but honest and determined, were the beginning of the gigantic
business now conducted by the British co-operative movement, as
well as the prototype of many other imposing organisations throughout the world. This is striking proof of the unlimited possibilities
of combined action by even the weakest of pioneers. Nor by any
means does t h a t example stand alone.
I n North Italy a federation of co-operative societies whose
members were earthworkers, carpenters, bricklayers, glaziers,
masons, painters, etc., had a contract on a new railway between
Florence and Bologna and were engaged in building, among other
things, a tunnel over 18 kilometres in length (very little shorter
than the Simplón) and a bridge of 728 feet span. For this purpose

PRINCIPLES AND METHODS OF CO-OPERATION

5

they naturally needed first class engineers at first class salaries;
and these were engaged, paid, and if necessary, dismissed by the
federation, the individual members of whose component societies
were simple working men.
These two are significant examples of what can be done after
many years of work. I t may be worth while to mention one
more example at the other end of the scale.
This was a credit society in the Punjab in North India, not one
of the members of which could read or write any language at all.
Yet the society was issuing loans, fixing and recovering instalments and conferring inestimable benefits on its members. Like
many people of little education they had excellent memories, and
used to carry all the transactions in their heads until the periodical
visits of a touring literate secretary who wrote the books.
Admittedly this is not a desirable arrangement, but the society
was most successful, and a standing refutation of the constantly
repeated objection that such and such a group of people, though
highly deserving, are beyond the reach of co-operation for lack of
education and intelligence.
I t has already been stated that co-operation can take an
infinite variety of forms and that there are few whom it cannot
help in some way or other. I t is necessary, however, that it
should be skilfully applied under the direction of people who are
capable of detecting the presence or absence of the conditions
necessary for success. The process of producing the raw material
for some article, subjecting it to various processes in order to make
it suitable for its ultimate purpose, transporting it to the place
where it will subsequently be used, placing it within convenient
access of the consumer, etc., involves the interposition of a number
of middlemen. Some of these perform a useful function at a
reasonable rate of remuneration, some at an unreasonable and
exorbitant price, while some are unsatisfactory, both as regards
service and cost. I n the latter two cases it is worth-while to
investigate the possibility of forming a co-operative society as a
balance and as an alternative.
A co-operative society, when it is formed, adopts by-laws
by which its operations are to be regulated. One of these sets
out the immediate objects of the co-operative, e.g., to make loans
to members, to market their produce, to enable them to save, etc.
I n addition to achieving these immediate objects, a co-operative
society incidentally confers some other valuable benefits. I t is a
very fine training in democracy. Members associate on a basis

6

AN INTRODUCTION TO CO-OPERATIVE PRACTICE

of equality. Whether a man is rich or poor he has one—and only
one—vote at the general meeting. Office bearers are chosen and
can, if necessary, be dismissed by the votes of their fellow members,
and everyone learns to submit to the will of the majority.
The affairs of the co-operative are conducted in an orderly
and business-like manner and the importance of punctuality comes
to be appreciated. Confidence and self-reliance are engendered
by the successful performance of the co-operative's functions.
Those who have energy and initiative are provided with many
opportunities in which to employ their talents, opportunities
which they probably never had before. I n this way a surprising
amount of latent talent for leadership is disclosed and energy,
which might otherwise have been ill-expended or even not applied,
is provided with a legitimate and useful outlet.
Throughout all this the co-operative society remains an independent unit with full power to manage its own affairs, and provided
that it keeps within the co-operative framework set out in the
law and by-laws, no one has any right to interfere in its affairs.

CHAPTER II
PLACE OF CO-OPERATION IN THE COMMUNITY
The following brief description indicates a few of the types
of co-operative society likely to be required by people of limited
education and wealth and gives some of the principal reasons why
such societies succeed or fail.

SOME T Y P E S OF CO-OPERATIVE SOCIETY AND REASONS
POH SUCCESS OB FAILURE

Credit
The peasants of many countries are heavily indebted. This
is due partly to the lack of any habit of thrift, partly to the lack
of any safe and convenient place for depositing savings, partly to
incapacity for arranging personal budgets on correct lines, e.g.,
distinguishing between productive and unproductive, long-term
and short-term loans, and partly to the lack of any suitable source
of loans.
Agriculture needs the application of relatively large sums,
for the clearing of land, seed, ploughing, etc., followed by a long
wait for a return, with floods, drought and pests always threatening
in the background. The peasant has no money with which to
raise his crop. He goes to his only source of credit, the local
trader, who lends to him on condition that the loan is repaid by so
many units of product at such and such a price—a price, incidentally, often far below the proper free market rate. The crop is
reaped, the peasant dissipates the proceeds or buys more land and
does not repay, or the crop is ruined by weather and he cannot
pay. Another similar loan and the peasant is probably irretrievably indebted.
If land is communally owned, the only remedy is by the uphill
road of sustained thrift. If land is individually owned, a credit
co-operative society of unlimited liability will often provide the
answer. A group of members resident within a small area, and

8

AN INTRODUCTION TO CO-OPERATIVE PRACTICE

known for their honesty, jointly pledge their unlimited liability
for the loans received by the society from non-members. On this
security the society raises loans from outside its membership, uses
the money to finance the legitimate needs of its members and
recovers these advances a t harvest.
Such a co-operative society may fail for the following reasons :
1. I t s members continue to borrow from the local trader as
well as the co-operative and, a t harvest, pay the trader first, as
his loan carries a much higher rate of interest.
2. The society refuses to lend for necessary unproductive
purposes, e.g., illness, a funeral, subsistence between sowing and
harvest, and so forces the member to borrow from the trader.
3. The committee abuse their trust, take large loans and
fail to repay. They are then in no position to sue other defaulters
as they should.
4. The society issues large loans for the repayment of
old debts which cannot be repaid from the proceeds of a single
harvest.
5. When loans are unpaid the society issues a fresh loan
for the old loan (which it enters as paid) plus interest and a new
loan, hoping t h a t all will be paid from the new crop.
6. The society contains one member much richer and better
educated than the rest, the members leave all the management
to him, he tires of the burden or gets into financial trouble and
misappropriates the funds of the society.
7. The committee and general meeting fail to supervise and
the secretary or treasurer misappropriates.
All these causes of failure are due to defective organisation or
lack of supervision, and can all be avoided by improving both.
Marketing
The peasants may be unorganised and urgently in need of
money. Individually they sell their ungraded produce at harvest
time to the traders who come out from the nearest town and who
drive hard bargains—nearly always to the disadvantage of the
peasant producer.
The remedy is a marketing society of producers, who pool
and grade their produce. With a large consignment of graded
produce to sell, they are able to drive a much better bargain with
an itinerant trader or can evade him altogether and make a contract

PLACE OP CO-OPERATION IN THE COMMUNITY

9

with some outside purchaser. The produce loses its identity
when it is handed to the co-operative society and the member
merely receives a receipt for so many units of produce of A, B
and C grades. The society raises a loan on the security of the
produce in its store, and issues an advance to any member who
needs it, up to some conservative limit, say 60 per cent, of the
anticipated final net selling price. When the produce is eventually
sold, a final distribution is made to the members of any balance
available.
Such a society may fail for the following reasons :
1. A number of members have failed to disclose, and the
organisers to discover, the fact that they have borrowed money
on the terms described under the heading credit, above, and
are not free to bring their produce to the society, however much
they may desire to do so.
2. The society makes a contract and arranges a time for
collection. Owing to forgetfulness or unpunctuality a substantial number of members fail to deliver at the time and place
appointed. The new society, having failed in its first contract,
cannot get another.
3. A number of members are half-hearted, and sell some of
their produce to the traders and only the balance to the society.
The causes of failure are again due to insufficient thoroughness
in organisation, particularly to a failure to see that all the members,
and not only the few active ones who are expected to be members
of the committee, have realised t h a t it is vital in their own interests
to be loyal to their co-operative society.
Consumer
The retail shopkeeper is one of the middlemen who undoubtedly
performs a useful function. He invests his capital in buying or
taking on lease a shop, buys the necessary furniture, books, etc.,
maintains a staff, purchases stocks of goods and holds them available in a form and a place convenient for the ultimate consumer.
For all this and for the exercise of his own skill he is entitled to a
reasonable remuneration. If that is all his selling prices represent,
there is little cause for comment.
I t can happen, however, and particularly in remote and inaccessible places, t h a t t h a t is not at all the actual state of affairs.
The shopkeeper's prices may be grossly excessive and represent an
altogether unreasonable rate of profit. He may sell short weight

10

AN INTRODUCTION TO CO-OPERATIVE PRACTICE

and adulterate his goods. These facts need to be carefully tested.
There is a general tendency to imagine that far too much is
being paid for goods and services, and uneducated people in
particular are apt to think t h a t trade is easy, a mere matter of
buying something for five shillings, selling it for ten shillings and
growing rich on the difference. They do not appreciate the skill
needed for correct buying, the expense of maintaining premises,
books and staff, the losses incurred by stock going bad, the
leakage which is inevitable in buying wholesale and selling retail.
Even, however, when the fullest allowance is made for all these
things, it frequently remains true t h a t prices are far higher than
they should be. If so, then there is room for a co-operative
society, provided t h a t there are people who are prepared to work.
The basic idea for a consumer co-operative society is t h a t a
group of people, dissatisfied with the service they have been
receiving from commercial shopkeepers, decide that, instead of
merely complaining of their harsh treatment, they will take into
their own hands the business of supplying themselves with their
requirements. They raise the capital necessary to equip and
stock their shop, a record is kept of the purchases of every
member, at intervals fixed by themselves accounts are balanced,
and after a prudent allocation to a reserve fund, the rest of the
net profit is distributed among members in proportion to the
amount which each has spent at the shop.
I t is generally prudent for such a society to sell at current
market rates, as it must meet the normal expenses and incur the
expenses borne by any other kind of shop. The surplus, however,
instead of being retained by the individual shopkeeper, is shared
amongst the members. Here, too, it is vital that the fundamental
features of the system should be thoroughly understood, not
merely by the intelligent and- energetic few, but also by the
whole body of members. The most stupid and gullible members
are the most important of all in this respect as they are the ones
whose loyalty is undermined. Moreover, the women are extremely
important, a fact which presents difficulties in places where women
are either not allowed to appear in public or if they do are expected
to comport themselves in silent humility.
Such a consumer society should enjoy certain valuable advantages :
(1) a fixed and loyal cuéntele of members;
(2) a rigid insistence on cash sales ; and

PLACE OE CO-OPERATION IN THE COMMUNITY

11

(3) an amount of unpaid supervisory work b y members interested
in their own co-operative society; this has an appreciable commercial value.
Such a co-operative society may fail owing to—
(1) disloyalty of members who are tempted by rivals underselling
the society in certain articles, and who forget t h a t in their
own society all the surplus returns to the members ;
(2) bad buying which leads to goods rotting on the shelves or
having to be sold at a loss ;
(3) failure of members to maintain, once the novelty has worn off,
the supervision and checking of stocks which they promised
to undertake.
Such causes of failure can all be eliminated by intensive education of all the members at the organisation stage, supplemented by
reiteration in the early days of training, and drastic action by the
committee against those guilty of disloyalty. If such a society
can maintain the initial enthusiasm up to the point where the
first rebate on purchases is paid, it should be well on the way to
establishing itself.

Thrift
The man dependent on a monthly salary, if he has to borrow,
usually does so on particularly unfavourable terms, as the only
security which he has to offer to a potential lender is the fact
that he is employed and drawing a salary. He may fall sick, be
dismissed or transferred, so he is a bad risk and is made to pay
for t h a t in the rate of interest on his loan.
I t is a truism of course that he ought to live within his salary,
save for emergencies, and not borrow at all, but t h a t is easier said
than done. He is surrounded by temptations and opportunities
for extravagance. I t takes much determination for such a man to
maintain a resolve to p u t five shillings or ten shillings into a savings
bank every month as soon as he draws his salary. He wishes to keep
level with his fellow employees in smartness of dress, entertainment
and ceremonial expenditure and his efforts to do so frequently
lead him into debt. There is a simple type of co-operative society
which has conferred immense benefits on people so situated.
The member undertakes to pay a certain sum into the society
from his or her weekly or monthly wages or salary, and it can
usually be arranged t h a t the employer should make the agreed

12

AN INTRODUCTION TO CO-OPERATIVE PRACTICE

deduction and pay it to the society. I t is true that this gives a
little trouble, but the employer is well repaid by having a staff
free of debt. The sums thus deducted accumulate to the credit
of the member, who, when he retires, withdraws the total amount.
He may, of course, apply to the committee for loans against his
credit, but in such a society loans should be the exception rather
than the rule.
The task of the committee is an invidious and difficult one
because mutual knowledge and supervision cannot in the nature
of things be so close as in the case of a village credit co-operative
society, where every member knows all about the affairs of every
other member. Thrift co-operative societies usually operate in a
Government or commercial office and it is highly advisable t h a t
one of the by-laws should enact t h a t a member may not resign
as long as he continues to be in t h a t employment. That prevents a
bad member, incensed by the quite proper rejection by the committee of a bogus loan appbcation, from resigning and persuading
his friends to do likewise, so breaking up a society which was of
great value to the majority of members.
A co-operative society of this type, provided t h a t it never
lends to a member in excess of his own savings, runs practically
no risk at all, and ought to be exempted from the normal compulsion to accumulate a reserve fund. The amount of good it can
do will depend on the quality of its committee, but short of incredible inefficiency in supervision, resulting in failure to detect dishonesty by officers of the co-operative society, it can hardly fail.
Industrial
I n many countries the handicraftsmen and small industrial
producers (such as weavers, carpenters, metal workers, shoe and
leather workers) represent in point of numbers an important if
not the principal non-agricultural element of the economy. I t
also occurs, not infrequently, t h a t such producers are reduced to
working under conditions which are calculated to destroy their
independence, sap their initiative, and diminish pride in their
craft.
The social and economic circumstances of such a development
need to be studied carefully in each case; but experience shows
t h a t the remedy often lies in the establishment of a co-operative
society or similar organisation t h a t will buy the yarn, wood, brass,
leather or other raw material in bulk at wholesale rates, issue it

PLACE OF CO-OPERATION IN THE COMMUNITY

13

to the members, assist them to improve their manufacturing
techniques and quality of output, and arrange for the sale of the
finished article.
Such a co-operative society can materially assist in retaining
or restoring the freedom of the individual producers by the development of voluntary, mutual action among them. I t is of course
necessary in every instance to ensure that there is a real economic
market for such industries, that they have not been rendered
obsolete and redundant by large-scale factory production.
Where such a market exists, or can be developed—as is indeed
the case in many countries—handicraft and cottage industries
can benefit considerably by rational organisation for supply,
production and marketing on co-operative lines. Possible causes
of failure—and they occur in this field as in others—and the way
to prevent them, have been indicated in the foregoing references
to other types of co-operative societies.

E F F E C T OF CO-OPEKATION ON THE COMMUNITY

The average underdeveloped community consists of people
who suffer from certain difficulties and disadvantages t o which
they and their forefathers have been accustomed all their lives.
I n the absence of some enlightening agency, it would not occur
to them t h a t they could do anything to alter these conditions;
nor could they, individually. B y association with their fellows
in co-operative societies, with skilled and friendly guidance, there
is, however, a great deal which they can do to improve their
position. The organisers must be prepared to be received with
suspicion and to have doubts cast on their motives. They are
dealing with people who have been taught by bitter experiences
t h a t those who are more intelligent and better educated than
themselves are apt to use these advantages to exploit and defraud
them. There is nothing new and nothing unusual in this attitude,
and with perseverance it can be conquered, suspicion can be
allayed, and the way is then open to begin organising with some
prospects of success. When t h a t stage is reached, though there
may as yet be no co-operative societies as such, a great step forward
has been taken towards their creation.
The next step is the actual formation of the co-operative
society. If the foundations have been carefully laid, it should be a
success. The fact t h a t a group of people individually weak,

14

AN INTRODUCTION TO CO-OPERATIVE PRACTICE

poor and ignorant have been able by the formation of a co-operative
society to achieve substantial advantages, is a gain of inestimable
value. Not only does it give these people a pride in their achievement and a sense of self-reliance which they never had before, but
their achievement has been watched by neighbours who then
begin to think "they are no richer, no better educated and no
more capable than we are. If they can do so well, why should not
we also t r y ? "
The conquest of mistrust, the generating of self-confidence and
self-reliance, the lessons in the orderly conduct of affairs and the
value of punctuaHty, the reahsation of the supreme importance of
careful accounting and regular audit—all these constitute a notable
contribution by co-operative societies to the welfare of the community.
LEGAL ASPECTS OF CO-OPERATION

The Law
A law dealing with co-operative societies ordinarily consists of
three parts—
First, an Act, Ordinance, Decree, Proclamation or whatever
the word in local use may be, setting out the fundamental features
and vital general principles. This part of the law is formal and
difficult to amend or adapt and should therefore avoid detail.
I t should contain a section requiring or empowering the Government to make more detailed rules about various matters.
Secondly, the regulations framed in accordance with the
above-mentioned Act. These regulations should prescribe the
points about which registered co-operative societies must or may
make by-laws.
Thirdly, the by-laws which govern the procedure of a cooperative society and set out the way in which it is to work.
The by-laws are a most important part of the legal equipment
of a co-operative society. They are the basis on which registration
is granted. They must lay down in some detail what the society
may do and the way in which it is to be done, in terms sufficiently
simple to be intelligible to the members. The framing of the
by-laws is a task often beyond the capacity of the members.
Model by-laws should be provided by the registering authority,
and the details discussed and decided by the members.

PLACE OP CO-OPERATION IN THE COMMUNITY

15

The Functions of Government
When a Co-operative Act has been passed, the Government
will generally fiad it desirable to appoint an officer, to administer
it with the assistance of suitable staff. His strictly legal functions
are to register, and, if necessary, to cancel the registration of cooperatives—hence the title of "Registrar" in many countries—and
to audit their accounts or see t h a t they are audited by some competent person.
I n a highly developed community there is no more that this
officer need do.
If, however, it is a matter of helping a
co-operative movement to arise out of nothing in an undeveloped community, where the potential members are poor, illeducated and completely untrained in business methods and
procedure, he will need to do a great deal more. I t will be his
task to encourage, guide and control the operations of the cooperative societies. This is a task which calls for skill of a very
high order, fortified by knowledge of what has been done in other
similar countries, which methods have succeeded and which have
failed, etc.
The help of Government has to be given in an extremely skilful manner, without ever losing sight of the fact that the object
is not to perform work for the members of a co-operative society
b u t to teach them to do it for themselves. Too little supervision
may lead to societies running wild, attempting ambitious projects
beyond their capacity and not covered by their by-laws ; disloyalty ;
neglect of accounts and defalcations ignorantly or deliberately
committed.
On the other hand, too much supervision and interference
will devitalise the co-operative and lead the members to believe
t h a t the Government is to run it for them, instead of their doing
this themselves. Such an attitude is the very antithesis of cooperation. However, most Governments which have undertaken
to encourage co-operative societies will appreciate also the value
of encouraging the people to run their societies themselves. In
this connection, it is necessary to bear in mind t h a t while it may be
a long job to organise the first few societies, it is well worth-while
to allow time for them to be formed on a thoroughly sound basis
and so provide examples to be copied by others.
I n their early stages it may be necessary for the Government
to give co-operative societies a certain amount of direct financial
support. I n doing so the Government should bear in mind the fact

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AN INTRODUCTION TO CO-OPERATIVE PRACTICE

that it is aiming at leading them to a stage where they can organise
and control their own financing agencies. I t should therefore not
lend them money at uneconomic or charitable rates of interest,
but at the same rates which it is anticipated t h a t their own institutions will some day have to charge. If these rates seem to be
undesirably high, a portion of the interest charged can be set
aside for helping the societies in the matter of education in cooperation and/or supervision.
A co-operative society is a group of people who are aiming to
perform some service for themselves. I n doing so they maintain,
as a matter of elementary business prudence, a margin between
their buying and selling, borrowing and lending rates, etc. If,
however, this yields a surplus, it is either added to a reserve fund
which exists for the protection of members, or it is handed back
to them in the form of a rebate on purchases in a supply or consumer society, a lowering of the rate of interest on loans from a credit
society, or a supplementary payment by a marketing society.
Government may legitimately help co-operative societies with
respect to the custody of money where, as often, existing facilities
are inadequate. I t may help by giving grants to organising,
supervising or audit unions on the ground t h a t they are doing
work which Government would otherwise have to do itself. I t
may exempt co-operative societies from the stamp duty, which
would normally be levied for their registration, or the duty on
loan bonds, plaints, and pleadings when they are forced to go to
court. I t may provide in its legislation a cheap method of settling
disputes by arbitration. In all its attempts to help co-operative
societies it must be constantly ahve to the danger of devitalising
societies by undue pampering and spoon-feeding.

CHAPTER III
DETERMINING THE NEED FOR CO-OPERATION
T H E B E N E F I T S OF COMBINED ACTION

The need for co-operative action is generally to be found in the
economic and social conditions of the people. A few of these have
already been mentioned, for example, exorbitant rates of interest;
exploitation of the consumer by overcharging and the adulteration
of goods; inability of producers to obtain fair prices for crops
through lack of organisation; conditions of work among craftsmen, which destroy independence, initiative or pride in their
craft.
The various types of co-operative society to meet these needs,
i.e., credit, consumer, marketing and handicraft, have all been
referred to and in their establishment the economics of every case
should be carefully studied. Such societies retain and restore the
freedom of the individual through self-help, reinforced by mutual
action. At the same time, they provide the means whereby
traditional skills are maintained and improved and give back to
the people the ownership of, and responsibility for, the tools of
their trade. The benefits of combined action are displayed in the
sociological and economic aspects of life, in t h a t the community
spirit is encouraged and developed by the practical application of the democratic methods to the economic work of the
community.
T H E N E E D FOE SIMPLICITY

I t is important that co-operative societies for underdeveloped
communities should have simple constitutions which are within
the capacity of the members to understand and administer. I t is
generally also desirable that all the members should share
a common economic object, e.g., to sell their cotton to the
best advantage.
A miscellaneous group, some of whom principally want to sell
cotton, some coffee, some rice, etc., some to borrow money, some

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AN INTRODUCTION TO CO-OPERATIVE PRACTICE

to buy goods on advantageous terms, may find it difficult to
combine all these activities in a satisfactory single co-operative
society. Since the members have differing economic objects,
there will in such cases be parts of the work of the society in
which each member is totally uninterested. Losses on one product
may be concealed by gains on another. The accounts are too
complicated for the ordinary members to understand. The fault
is t h a t a single co-operative society is trying to do the work for
which perhaps half a dozen societies are really necessary, each with
its appropriate membership, by-laws, liability, etc.
At the same time, there is often a trend for co-operative societies, when they reach a position of adequately fulfilling their original
objectives, gradually to t r y to meet other common requirements
of their members. I n this connection it may be noted t h a t the
need for something more than a simple credit society, and for a
village institution able to deal with all the economic requirements
of the local population, has led, in certain countries, to a new
conception of the village co-operative society. As it gathers
strength and experience, a society of this kind undertakes to procure for members the goods which they require as producers as well
as certain staple consumer goods, and also endeavours to ensure
or facilitate the marketing of its members' products. I n short, it
tends towards what has come to be known as a "multi-purpose"
co-operative society.
I t is necessary to remember, however, that such a multiplication of functions within one and the same primary society presupposes an ever-increasing range of knowledge on the part of the
members and ability on the part of leaders and employees, as the
operations, management, accounting and other aspects of administration become much more complex in societies of this kind. The
problems of organisation, of the responsibilities of members and
committees, and of education and training in such cases necessarily involve special study and attention if co-operative societies
of this kind are to function on sound lines.
I t should perhaps be added t h a t there are types of co-operative
society such as "better living societies", the objects of which are
to reduce the besetting sins of the members, as well as societies
to combat diseases, to provide health services, and to afford inexpensive aid in legal disputes. In these the common object is
perhaps not directly economic, though the indirect economic
advantage derived may be enormous.

DETERMINING THE NEED FOE CO-OPERATION

19

EXACT D E F I N I T I O N OF AIMS

If a co-operative society is to succeed, the members must at
the time of its establishment know exactly what service it should
aim a t providing for them. This must be carefully and exactly
set out in the by-laws dealing with the objects of the society.
I t is most important t h a t these by-laws should be so framed as
to cover all that the society needs to do. This is necessary in
order to protect the members from a temptation to embark on
grandiose and complicated enterprises which they may not have
the necessary ability to handle. I t is hardly necessary to add t h a t
as the co-operative society and its members grow in skill and
experience, the scope of operations can be enlarged by the amendment of the relevant by-laws.
The procedure for amending a by-law purposely requires the
highest possible attendance of members. The intention of this
provision is to bring home to all the members the importance of
the step being taken, which may alter the whole nature of the
society. An additional safeguard for their protection consists
of the fact that the amendment of a by-law is not valid until it
has been registered by the appropriate authority.
BRANCHES OR INDEPENDENT CO-OPERATIVE SOCIETIES

Where a co-operative movement is already in being, and existing
co-operative societies have achieved enough success to inspire
other groups with a desire to organise themselves on similar lines,
it will often be necessary to decide between two alternative methods
of achieving the end in view. Either the existing society may
establish branches to cover additional areas or new societies can be
organised for the purpose. This is not a point on which it is
expedient to dogmatise. I t must be decided according to the
circumstances of each particular case. Members of existing cooperative societies, in the pride of their achievements, are sometimes tempted to over-rate the value of their own acquired skill
and experience, and to lean unduly towards the extension of their
own society by the formation of branches. Though this is sometimes the correct answer, there is another point which needs to be
borne in mind.
The larger a co-operative society becomes, the more difficult
it is to maintain the co-operative ideal of every member taking
an active interest and part in its management. This is easier to

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AN INTRODUCTION TO CO-OPERATIVE PRACTICE

maintain in the case of separate local societies, which also have the
merit of encouraging local initiative and leadership. On the
whole the balance of advantage tends to be with the formation
of local co-operative societies, which can then be grouped together
in unions to secure the benefits of larger-scale operations.

CHAPTER IV
ORGANISING A CO-OPERATIVE SOCIETY
T H E L A W AS I T AFFECTS CO-OPERATIVE SOCIETIES

The registration of a co-operative society confers on it certain
advantages, which are conceded to it on the ground t h a t it is a
manifestation of self-help, and that it is not in the ordinary sense
of the term a profit-seeking association. The enjoyment of these
advantages is conditional on conformity with the principles of
co-operation, which are embodied in the law.
A co-operative society applying for registration must satisfy
the registration authority, as the institution charged with the
administration of the law, t h a t its intentions, as well as the procedure by which it is proposed to try to realise them, are in fact
co-operative. To secure all this, the law requires t h a t the application for registration should be signed by a sufficient number of
intending members, in order to show t h a t it has some substance
and reasonable prospects of success. The number of founder
signatories required is usually ten, occasionally seven. With the
application the society must send two copies of the by-laws which
it proposes to adopt. If, after scrutiny, the registration authority
approves the application, it will issue to the society a certificate
of registration and return one copy of the by-laws with the official
approval signified on it. This is the legal constitution of the
co-operative society according to which, and only in conformity
with which, it is thereafter entitled to operate. Amendments may
be made from time to time as circumstances may require, but these
must similarly be approved and registered. On receipt from the
registration authority of the certificate of registration the society
becomes a legal entity. I t will then normally hold its first meeting
at once, proceed to admit members and collect the necessary share
capital. The main advantage of registration is that it makes the
society a corporate body with power to sue or be sued. Without
this legal basis the co-operative society would be a mere group
of individuals, every one of whom would have to be joined as
plaintiff or defendant in any legal action by or against the group.

22

AN INTRODUCTION TO CO-OPERATIVE PRACTICE

Such a necessity would be so irksome to anyone trying to recover
from the society, that it would deter any ordinary merchant from
entering into business relations with it.

FORMS AND A I M S OF THE CO-OPERATIVE SOCIETY

Area to be Served
The area to be served by the co-operative society varies widely
according to the nature of the society and the work it is proposing
to do.. In the case of a credit co-operative society of unlimited
liability any member runs the risk of having his property sold up
because his fellow members have failed to pay their debts. Consequently, he needs to know all his fellow members very intimately
a n d to be able to prevent the admission of undesirables. Secondly,
he must be in a position to supervise the use of the money lent,
know when a member sells his crop and see that he does not dissipate the proceeds without paying what he owes to the society.
All this demands t h a t the area of operations for a credit cooperative society should be very small. I t is impossible to lay
down any hard and fast rule as to what the area should be. I t
varies according to density of population, ease of communications,
etc. As a rule, the area of such a society should be small enough
t o ensure t h a t no member lives more than about a mile from any
other fellow member, but in a very sparsely inhabited area this
ideal may well be unattainable.
When the object of the co-operative society is to market the
crops of its members the case is entirely different. The deciding
factor will then probably be the area from which this particular
type of produce is ordinarily sold at one point. If t h a t criterion
gives an area too large for members to bring in their produce and
return the same day, this may necessitate subsidiary collecting
points.
Again, the deciding factor may not be an area from which
the produce is sold at a particular place, but the point at which
it is subjected to some process preliminary to sale. The position
of rice huileries or cotton ginneries may thus govern the suitability
of the area.
In the case of a consumer co-operative society it is different
again. This type of society is largely dependent on the loyalty
of the members and their realisation t h a t it is in their own interest
to deal with their own store.

ORGANISING A CO-OPERATIVE SOCIETY

23

However, a consumer society must not rely entirely upon the
loyalty of its members. I n the early stages it is of considerable
value but it must be reinforced as soon as possible by first-class
service, quality and price.
I n the planning of the store, its location and size must be carefully considered as it will not be possible at the beginning to
deliver goods to the members and therefore the store should be
located in a place accessible to the majority.
Among secondary co-operative societies the criterion is again
different. In the case of a co-operative central bank (i.e., a union
of primary credit societies), for example, the bank must lend to
its affiliates at a rate higher than that which it has to pay to its
depositors to obtain the money. The difference has to meet all the
costs of running the bank, interest on shares, reserve fund, etc.
The area of operations should be one in which there are enough
primary co-operative societies to handle sufficient borrowed
money to cover the expenses of the bank on a reasonably small
margin between the rates at which it borrows and lends.
Capital Required and Costs of Operation
At the outset it is wise to concentrate on obtaining cash subscriptions to the capital of a co-operative society rather than
promises. The latter are much easier to obtain, but often very
difficult to translate into the cash they are supposed to represent.
Some societies endeavour to collect a relatively large unit per
member of share capital, to be paid gradually over a term of years,
b u t it is often extremely difficult to secure the later payments.
Though the by-laws will probably contain a provision that anyone
in arrears with his payment of share capital is debarred from
dealing with the society, the average member of the type of community under consideration here is much better at passing a
sensible by-law than at enforcing it when the need arises. I t is
usually better, even where a relatively large share capital is required,
to work on a smaller capital unit per member and to t r y to
secure that members pay numbers of units in proportion to their
means.
The capital which a co-operative society will require depends
naturally on the number of members and the scope of the operations
which they wish to finance.
With some types of co-operative society it is possible to begin
on a modest scale with a view to later extension. This is only

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AN INTRODUCTION TO CO-OPERATIVE PRACTICE

partially true in the case of a credit society. The reason is that,
if it is to be sound, a credit co-operative society must aim a t
financing the whole of the legitimate needs of its members. If
it does not, it inevitably happens that, for the balance of their
requirements, the members continue to go to the professional
moneylender. If they do this, they are faced with a choice when
they have any money, between using it to pay a debt to the moneylender, which may cost them 30 to 50 per cent, in interest, or a
debt to the co-operative society which may cost them perhaps
10 to 12 per cent. I t is only natural t h a t they should be inclined,
first, to get rid of the debt which is costing them more in interest.
Though this factor limits the power of the credit co-operative
society to restrict the scope of its operations, it is still true t h a t
it may, and almost invariably should, in its early stages, confine
itself to short-term loans up to, say, a maximum of 12 months for
raising a particular crop.
Loans which will require the profits of several harvests t o
repay, such as those for sinking wells, buying land or the redemption of old debt, should be left till a co-operative society has acquired
a large sum in owned capital and has incidentally gained experience.
Subject to this qualification, the way to estimate the capital required
is to examine the circumstances of each member, decide how much
he legitimately needs, is competent to handle and able to repay.
These sums represent the maximum credit limits of the members.
I t may usually be assumed t h a t not every member will require
the whole of this maximum at the same time, and the requirements
of the society must be estimated accordingly.
A group of people would have no need to accept unlimited
liability if they were in a position to raise for themselves all the
funds they needed. They ought to be made to raise, b y paying
for shares, a sum which, in consideration of their circumstances,
constitutes a genuine effort, and proves t h a t they are in earnest
about applying the principle of mutual aid. The rest of what
they need they can borrow on the security of the unhmited liability
of all the members.
A marketing co-operative society ordinarily needs capital to
erect warehouses in which to store the produce of its members
while it is being graded or is waiting for a suitable sellers'
market. I n addition, the members are usually in urgent need
of cash, and the society must be able, when it takes over their produce or very shortly afterwards, to make at least a part payment
of what it estimates to be the ultimate selling price. I t is usually

ORGANISING A CO-OPERATIVE SOCIETY

25

possible for such a society to borrow on the security of grain or
other produce stored in its warehouses.
For the establishment of a consumer co-operative society, the
first question i s : "How much capital is needed?" The second
question is : "How big a store do we need to operate successfully?"
The size of the store, and consequently the amount of capital,
are the most important factors influencing the co-operative
societies' results. Far too often failure has occurred because
the societies had insufficient capital when they started.
These two questions condition the work and services that can
be undertaken and provided.
I n assessing the capital required the following items must be
taken into account: (1) premises, to be rented or purchased outright;
(2) shops and office equipment; (3) stock; (4) initial promotional
expenses to cover the first weeks of staff wages, etc., the amount
so used in this respect being replaced out of surplus at the end of the
accounting period.
The cost of items (1) and (2) can be readily assessed, b u t in
relation to item (3) stock, an estimate must be made of what is
considered to be the requirements of the members, known or
potential. A common practice is to obtain pledges from the
members that they will purchase a certain amount each week,
but such pledges have to be implemented faithfully in order
-that the co-operative society shall not become overstocked.
I n the preparation of the by-laws, careful thought should be
given to the question of the minimum share capital required from
each member, and in deciding this the foregoing should obviously
be taken into account.
I n its early days the consumer co-operative society is not in a
very good position to borrow as it has not had time to prove its
worth or its business capacity. The main security which it has to
offer is the goods in the shop. If, in terms of the by-laws, the
paid-up shares are, as they ought to be, transferable but not withdrawable, their total does represent some security, but the bulk of
this will be tied up in furniture, fittings and stock which would not
realise their true value a t a forced sale.
If the standard of co-operative quality and service is high, it
should be able to do much towards reducing the cost of operation.
The members of a credit co-operative society watch to see t h a t
money borrowed is duly applied to the purpose for which it was
lent; they know when a borrower sells his crops and see t h a t he
uses the proceeds primarily to repay the society. All this mutual

26

AN INTRODUCTION TO CO-OPERATIVE PRACTICE

supervision has a considerable commercial value. I t is a service
for which any other type of financing agency would have to pay.
Similarly in a consumer co-operative society, volunteers assist
from time to time to check stocks of some item of goods which the
society sells ; at the time of periodical stocktaking members come
in and help ; and the committee performs free of charge or for bare
travelling expenses many of the duties for which members of a
board of directors would be paid.
Risks to Assume or Avoid
I t would need several volumes to do anything like justice to
the subject of risks. All that can be done here is to mention a
few of the principal points to be watched. So far as the credit
co-operative society is concerned, one of the principal dangers is
that it may prematurely embark on medium or long-term loans,
or lend for short periods such as six to nine months money which,
applied to the purpose stated, will only yield a return sufficient for
repayment over a term of years. In the absence of skilled guidance
and supervision there is a very real danger t h a t co-operative
societies will attempt at too early a stage to free members in a
few months of debts accumulated over years or even generations.
Excessive land hunger is another common disease, and members
untrained in the use of money will try to borrow funds with which
to buy more land. Tactful advice is needed to convince them
t h a t the first thing they should do is to complete payment for the
land they already have or clear and develop land so far not in
use.
So far as the marketing co-operative society is concerned,
perhaps the most important rule to be observed is t h a t it should" on
no account buy outright from the members. I n the disposal of
their produce it should act only as the agent, and the title to the
produce should remain vested in the members.
I t is, broadly speaking, true that the selling price is at its lowest
just after harvest, when each producer has a stock of wheat, rice,
kurakkan or whatever the crop may be, and many of them are
prepared to sell at once at a sacrificial price, because they are
in urgent need of ready cash.
Another factor which tends to depress the price is the existence
of a large number of indebted growers who at that particular
moment are obliged to settle their debts by handing over their
produce, at a price dictated by the urgency of their need when

ORGANISING A CO-OPERATIVE SOCIETY

27

they borrowed, rather than the fair value of the produce even
immediately after harvest. Thereafter the market price normally
rises to a peak and then begins to fall again. In order to sell the
produce of the members at the best price obtainable, the cooperative society would naturally prefer to be the absolute owner
of it. Otherwise there is danger that the growers may claim a
right to be consulted before any bargain is closed, although bargains
will not necessarily wait for such consultations, and the delays,
complications and inconvenience involved can be immense.
To avoid all this, the discretion as to when to sell should be
definitely vested in the committee under the by-laws. I t is by
no means easy even for the most skilful and experienced traders
to detect accurately the moment when prices have reached their
peak, in order to sell at that point before the fall begins. I t is
much more difficult still for the average committee of a co-operative
society. Within limits it is a very great advantage for members
to have a co-operative to protect them from the need for sale
immediately after harvest, but the movements of the price need
to be gauged with skill, and it is not uncommon for a co-operative
society to find that it has missed the right moment to sell.
Some eminent authorities have gone so far as to assert t h a t
more money is lost than gained by this waiting for the market
to rise. There are co-operatives in which the period for which the
committee may wait is arbitrarily limited by the by-laws. I n
any case, the buying of produce outright from members with a
view to re-sale is not a risk which may properly be carried by a
marketing co-operative society.
A consumer co-operative society faces certain risks, some of
which, with careful planning, can be avoided; others which arise
during the developing stages can be minimised provided t h a t the
committee and members have a clear conception of their duties
and responsibilities.
Whilst some of the risks to be avoided and to assume are
economic risks, others are not so definite, as they are concerned
with human beings, i.e., the members.
Briefly stated, the risks to be assumed are the normal business
risks of fluctuating market prices and the changing demands and
requirements of the members.
Risks to be avoided are under-estimation of capital requirements; over-stocking; leakages, i.e., excessive wastage; inadequate
margins between wholesale and retail prices; over-expansion and
excessive caution; and inadequate reserve funds.

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AN INTRODUCTION TO CO-OPERATIVE PRACTICE

In general, constant educational work should be undertaken
amongst the staff and members in order to obviate as far as possible
t h a t irresponsibility which comes through the lack of knowledge.
Manner of Settlement with Members
Most co-operative societies which deal with strictly economic
transactions have to observe a safety margin in their operations.
The credit society lends at a rate of interest higher than t h a t
which it has to pay to attract deposits, the marketing society on
receipt of the produce pays to the members only a conservative
proportion of the price it hopes ultimately to realise, the consumer
society sells at rates higher than those which it has to pay to
obtain its stock-in-trade. These margins have to cover, in the
case of credit or marketing societies, debts which, owing to mistakes
by the committee or unexpected calamity falling on the borrower,
prove to be irrecoverable, or an unfavourable movement of the
market for something the co-operative society is trying to sell;
in the case of a consumer society, overhead charges, wages, depreciation, etc., falls in the current selling price, deterioration of goods
in stock, leakage, etc.
I t is obvious t h a t the wider these margins can be kept the
better and the safer it is for the society. The members should be
taught to realise t h a t it makes no difference to them in the long
run how much they pay to or receive from the society, because
any surplus which it may make will come back to them in the form
of a rebate or additional payment in proportion to the extent to
which they have dealt with the co-operative society.
This observation is not usually directly applicable in the case
of a credit society. There are many complications involved in
trying to pay a rebate to members in proportion to the amounts
they have paid in interest. In the credit society the return is by
way of a growth of the reserve fund which is the barrier between
the members and the danger of having unlimited liability enforced
against them, or by way of a reduction of the rate of interest on
loans.
The date on which a rebate on purchases or a supplementary
payment for produce is distributed can be fixed by the co-operative
society to suit the convenience of its own members. The value of
this distribution can be enhanced and its chances of being put to a
useful purpose increased, if it is timed to coincide with some other-

ORGANISING A CO-OPERATIVE SOCIETY

29

wise embarrassing call on the resources of the member such as
payment of income tax, insurance premium, school fees, annual
holiday, poll tax and so on according to the circumstances
of the case.
PRELIMINARY W O R K

Considerable importance must be attached to the preliminary
work which has to be done before a co-operative society can be
soundly launched for the benefit of people of a low standard of
economic prosperity and education.
A co-operative movement in a highly developed country
neither needs nor desires any assistance or interference by Government, but looks after its own affairs by itself.
People with a low standard of living have probably even greater
advantages to gain by organisation on co-operative lines, but
because of extreme poverty, ignorance, or some other economic or
social disability, they may be unable by themselves to make
anything but a very slow or uncertain start, or perhaps no start at
all. In underdeveloped countries therefore, the participation of
Government in the creation and development of a co-operative
movement is, in the main, necessary and essential, although in
various cases co-operative societies may also be established
through unofficial local effort.
I t should be realised t h a t the creation of a co-operative movement may not be an easy task, neither does it necessarily show
immediate and spectacular results.
At the outset, either Government or individuals embarking
on the creation of a co-operative movement, must take every
step to ensure that the elementary principles of co-operation are
thoroughly explained to the people. In this work, in addition to
using all the educational means at their disposal, it should be
comparatively easy to teach and explain by the already existing
examples of mutual aid which are to be found in almost every
country.
By using these examples, the people, however illiterate they
may be, can understand the value of self-help and proceed by
easy and elementary stages to the establishment of co-operative
societies.
The necessity for explaining the elementary principles of cooperation cannot be overstated, for by the understanding and

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AN INTRODUCTION TO CO-OPERATIVE PRACTICE

appreciation of what they mean, the strength of a co-operative
society is largely assured.
Forming co-operative societies for the sake of statistics is bad
business, for their failure has the effect of discouragement and
makes the task of beginning again far more difficult.
A certain amount of discretion is necessary to counteract the
initial enthusiasm of the first members. This enthusiasm should
not be discouraged, but, with teaching, explanation and example,
directed to practical and positive ends.
The Government officials should make it quite clear t h a t they
are merely the guides and helpers, and that their purpose is simply
to show the people the means whereby they can help themselves.
I t may be t h a t the initial members will demonstrate their
support by wanting to begin immediately, but it must be clearly
understood t h a t action should only follow when the organisers
are fully convinced t h a t an adequate number of people are aware
of the implications of the work t h a t is to be done.
Many co-operative societies on the promotion of which a
great deal of effort has been expended may never reach the stage
of registration at all. Disappointing as t h a t may be, it is still
preferable to making the mistake of registering a society which
is not likely to succeed. The latter involves not only the waste
of the time spent in organisation, but also all the inspections
and attempts to save it, and finally the long, troublesome and
unprofitable business of the liquidation of its affairs.
The principal contact of the co-operative society with Government services will, of course, be with the registration authority
or, as it is sometimes called, the Co-operative Department, the
officers of which have to aim a t establishing a relationship with
members of co-operative societies rather different from t h a t of
other branches of the Government service.
They have no coercive or penal powers, a fact which should
help them to avoid the suspicion with which any representative
of constituted authority is apt to be regarded. In fact, the more
closely they can identify themselves with the people amongst
whom they work the more successful they are likely to be. The
only differentiation should be the specialised training in the
practical work of co-operative organisation, which a member of
the Department has received.
The work of the Department in countries a t an early stage of
development will tend to be mainly with the rural classes. One

ORGANISING A CO-OPERATIVE SOCIETY

31

of the great difficulties is to find for its staff people with the necessary intellectual capacity who have not, in acquiring it, lost their
rural bias.
Another respect in which the co-operative staff is on rather a
different footing from that of other Government departments is
t h a t it is in a sense working all the time towards its own abolition.
I t is building up secondary organisations such as audit unions,
supervising unions and central banks which will progressively
take over more and more of the tasks originally performed by the
official staff. I t is also likely that for a long time to come
there will be enough newly formed co-operative societies to
provide sufficient work for all the staff that a Government is
prepared to maintain.
Although the principal contact of the co-operative societies
with Government will be through the co-operative staff, there are
numerous ways in which other Government departments and
co-operatives can be mutually useful to each other.
This occurs perhaps most frequently with the Agricultural
Department, which may, for example, have discovered by experiment a new and better yielding variety of seed. I t wishes to
propagate and popularise this. I t would take a very long time to
do so through the medium of isolated landowners whom agricultural officers could persuade to try it. Moreover, these would tend
to be the bigger and richer agriculturists, and the bulk of the
cultivators might still remain unconvinced.
The co-operative society provides an organised group which is
ideal for this purpose. Moreover, in the co-operative inspector
the agricultural officer has a ready-made intermediary whom the
members already know and trust. Similarly, in the case of antimalarial, anti-hookworm, health and hospital schemes, a registered
co-operative society provides a ready-made means of liaison with
the people and is accordingly an ideal unit on which officials of the
Medical Department can base their schemes.
Co-operative societies also have much in common with the
Education Department. I n fact, co-operation may itself be
regarded as a form of extremely practical education in everyday economics. Apart from that there may well be co-operative
societies for adult education or recognised (but not registered
because t h e members are below the legal minimum age) cooperative societies in schools for the promotion of thrift or the
sale of school books and stationery. These seem to be more

32

AN INTRODUCTION TO CO-OPERATIVE PRACTICE

successful than classroom disquisitions in bringing home to pupils
at an impressionable age the advantages and potentialities of joint
action. Craftsmen's co-operative societies with Departments of
Industry or Cottage Industries, and housing co-operatives with
Public Works Departments, are other examples of co-operativegovernmental relations from a list which covers practically every
branch of the Government service.

CHAPTER V
ADMINISTRATION AND OPERATION
RESPONSIBILITIES AND R I G H T S OF MEMBERS

I n a joint stock company, voting power varies according to the
financial stake of the voter in the company. The more shares he
has, the more votes. The shareholders' list of the average company
comprises a few very large holders and many others, each of whom
has a relatively small holding. The average shareholder relies
on those with a large stake in the company to see t h a t an efficient
board of directors is appointed.
I n this respect the co-operative society is fundamentally different.
The members join as persons seeking common services and not as
investors of capital, and the principle of one man one vote is rigidly
applied. Whether a man has a shareholding of one shilling or £] 00
his right to the vote is the same. Moreover, it is bis duty as a good
co-operator to attend all general meetings and exercise his vote.
This point is of especial importance in the credit co-operative
society of unlimited liability.
Let us suppose t h a t such a society has borrowed money which
it has been unable to repay. I t is sued by a creditor who gets
judgment in his favour. I n order to execute the decree he has to
enforce the unlimited liability. He cannot be expected to seize
a little bit of land belonging to each of the members. What he
will do will be merely to look for one or two pieces of land on
which he can conveniently recover the whole of his debt, leaving
the apportionment of the burden as between the individual members
of the society to be settled between them afterwards. The lands
most convenient for his purpose are those of members A, B and C.
These happen to be members who have paid their own debts to
the society and seen to it t h a t others for whom they had stood
surety paid theirs. They not unnaturally feel aggrieved, but if
they had been good co-operators in the fullest sense, this could
never have happened. The co-operative society was unable to
repay its loan because some of its own members used the loans

34

AN INTRODUCTION TO CO-OPERATIVE PRACTICE

granted them by the society for unauthorised purposes and were
consequently themselves unable to repay.
All this means that the committee were not doing their duty
in accepting members and supervising the use of money lent.
I t means also that A, B and C, though blameless in their personal
transactions with the society, were bad co-operators. They should
have exercised the power given to them by the by-laws to demand
a general meeting, expose the shortcomings of the committee, and
proposed their replacements by others who would do their duty
more conscientiously. If the rot had not gone too far they would
have succeeded. If it had and they failed, then they could resign
from the society, in which case they would at least not be responsible for any liability incurred after they had ceased to be members.
This point has been set out in some detail in the case of the
credit co-operative society because it operates over a very small
area and co-operation can be carried to a more perfect degree
in it than in any other type. At the same time if all members
fail to do their duty and to be vigilant, the consequences can be
more serious than in any other type of society. But the same
principle applies to all types. Not only must every member see
t h a t his personal dealings with the society are blameless, but he
must also remember that he has a duty as a member of a corporate
body to be vigilant on its behalf and see that all the other members
behave as well as he himself does. The member of a consumer
co-operative society must be loyal himself and must, press for
drastic action against other members if they are disloyal. If he
sees faults in the organisation he should remember t h a t it belongs
to him and his fellow members and instead of merely grumbling
in private, or worse still, in public, he should bring up the matter
a t a general meeting and either have the defects rectified or hear
why they cannot be. I t is the same again with a marketing society ;
if a member thinks that the grading is bad or t h a t the committee
missed the right time to sell, he should raise the matter a t a general
meeting. After all it was the members themselves who elected
the committee and gave them powers to manage the affairs of the
co-operative. If they do not do it to the satisfaction of the general
body, they can be replaced by others who are expected to do
better. In any case the ventilation of the matter is all to the
good, and this is all part of the training in democracy and the
orderly conduct of affairs which co-operation can supply.
So much for the responsibilities of members to their co-operative.
As to the rights of members there is less t h a t needs to be said.

ADMINISTRATION AND OPERATION

35

Every member has a right to an equal voice with every other
member at the general meeting. If he is charged by his fellow
members with misconduct and threatened with expulsion he has
a right to know what is alleged against him and be given an
opportunity of defending himself before a general meeting.
A general meeting of all the members is not a suitable body to
handle everyday matters of detailed administration. For this
reason a committee is elected and entrusted with these functions.
So long as it exercises them properly, it has, for instance, discretion
to decide whether a particular loan should be granted, reduced or
refused. The applicant cannot claim it as a matter of right.
The member's rights in the matter of a refund of share capital
are set out in the by-laws. In the case of a credit co-operative
society, shares are not usually refundable until membership ceases.
In the case of a consumer or marketing society, shares are usually
transferable but not returnable. The transfer must be to an
existing member or someone eligible for membership.
Every member naturally has a right to receive notice of a
general meeting. A member of a marketing society has a right
to have his produce accepted, provided t h a t it is not of such bad
quality as to fail to come within any of the grades in which the
co-operative deals. Every member has a right, which, if he is a
good co-operator, he ought to want to exercise : to see the books,
with the exception of the deposit account of another member.
STRUCTURE OF THE CO-OPERATIVE SOCIETY

General Meeting
The fundamentally democratic nature of a co-operative society
demands that the supreme power should rest with the general
meeting at which all members have equal voting rights. This
applies in the case of all types of co-operative society. There are
certain matters which the general meeting itself must handle,
the chief of which are the following :
1. Election of the office bearers and committee.
2. Consideration of the annual statement of accounts, with
any inspection notes or comments by the registration authority.
3. The disposal of any surplus according to the law.
4. Confirmation of the admission of new members by the
committee.

36

AN INTRODUCTION TO CO-OPERATIVE PRACTICE

5. Fixing a limit up to which the co-operative may borrow
from depositors or others.
6. I n the case of a credit co-operative society, fixing the rate
of interest on deposits by, and loans to, members ; fixing the rate
of commission on produce handled.
7. Amendment of the by-laws in terms of the special procedure
prescri bed.
Committee
I t is obvious, however, t h a t a general meeting cannot be
summoned every time a decision is needed on some point of day-today administration, and for this purpose a committee is elected
and entrusted with certain defined powers, the chief of which are
as follows :
1. To maintain accounts of all money received or expended
and all stock bought or sold and prepare statements to be presented
to the annual general meeting.
2. To scrutinise the accounts at monthly meetings and inspect
and count the cash in hand.
3. To maintain the membership register.
4. To decide on all loan applications, fix periods, sanction
security and grant renewals if necessary.
5. To supervise the application of money lent for the approved
purpose.
6. To take action in case of default in repayment, or misapplication.
7. To authorise petty expenditure subject to any limits fixed
by the general meeting.
8. To raise loans or accept deposits subject to any limits fixed
by the general meeting.
9. To institute, conduct, defend, compromise, refer to arbitration, legal actions by or against the co-operative society.
10. To frame working rules within any scope allowed by the
general meeting, such rules to be subject to the sanction of the
general meeting and the registrar.
11. To acquire land, erect buildings, etc., with previous sanction of the general meeting.
12. To arrange for the safe custody and insurance of produce
entrusted to the co-operative.

ADMINISTRATION AND OPERATION

37

13.

To guard against adulteration of produce.

14.

To organise and control grading, processing and packing.

15. To make test checks of items and to take stock at necessary
intervals.
I n their conduct of the co-operative's affairs the committee
must exercise the prudence and diligence of ordinary men of business
and be responsible for any losses sustained through contravention
of the law, rules or by-laws. The committee may from time to
time appoint a subcommittee for a special purpose, e.g., negotiating a contract, supervising a building, etc., but must be responsible
for the work of such a subcommittee.
Elections
Elections should normally be held annually to maintain the
interest of members in the society; to provide an opportunity for a
periodical review of the attendance, conduct and efficiency of an
officer or committee member; and to give as many members as
possible a chance of learning by taking part in the administration
of the society. I n the case of secondary co-operative societies it
may be necessary to arrange for election for a longer period and
retirement b y some system of rotation in order to maintain continuity and experience.
Voting should wherever possible be by persons physically
present, on a one man one vote basis. Proxies should be discouraged to the utmost extent possible. There may be cases, such as a
thrift society for Government employees stationed and transferable all over a tract of country, so wide as to make a single
general meeting impracticable. Even in a case such as this it
ought to be possible t o avoid the use of proxies either by issuing
voting papers to all members, to be collected and counted at a
central general meeting, or by holding a general meeting in sections
at suitable places in the area.
Ofßce-Bearers
The president is normally the chairman of all meetings of the
co-operative society and its committee and, in case of equality
of votes, has an additional casting vote as well as his vote as a
member. This is the only exception to the one man one vote rule.
I n the absence of the president, the vice-president, if any, is the

38

AN INTRODUCTION TO CO-OPERATIVE PRACTICE

chairman; in the absence of both, a chairman is elected by the
meeting. I n all cases the chairman has a casting vote.
Though procedure varies, the president is more often than not
one of the officers authorised to sign on behalf of the co-operative
society any agreement or contract approved by the general meeting
or any withdrawal of money from a bank. A common arrangement
is that such documents should be signed by the president and
either the secretary or treasurer. The president has also the
power to convene meetings.
The secretary is, broadly speaking, the executive officer of the
committee in all its functions. He is the person who actually
writes the co-operative society's books, conducts the correspondence of the society, summons and attends the general and committee meetings on the order of the president, and records the
minutes of these meetings. One of the dangers to which a cooperative society is subject if its spirit of co-operation is insufficiently strong, is t h a t the secretary, with all these functions,
may be allowed quietly to arrogate to himself the whole management
of the society.
The committee, and to a smaller extent every member, should
be vigilant to see t h a t this does not happen, and if they have been
properly taught at the start there should be no danger.
The secretary may also act as the manager, and is generally
a paid officer. As such he should not have a vote at any meeting,
though he will, of course, attend in order to supply information
and present the business to be transacted in an orderly manner,
so that the chairman can conduct the meeting efficiently.
I t is desirable t h a t the posts of secretary and treasurer should
always be held by different persons. This in itself constitutes a
check and a safeguard, as it means t h a t no fraud or error can be
perpetrated without at least two people being concerned in it.
Some co-operative societies even go so far as to include in the bylaws a provision expressly prohibiting this combination of offices.
The treasurer, as his name implies, is the officer entrusted with
the handling of the funds. He should receive and pay out all
sums authorised by the committee. He sometimes keeps the cash
book, and if this is practicable, it is an excellent arrangement, but
it involves such close and constant association with the secretary,
who keeps the rest of the books, t h a t this is often impossible.
There should be a limit t o the amount of money which the
treasurer may keep in hand, anything over this being remitted to
the bank. This is important, because where remittance of money

ADMINISTRATION AND OPERATION

39

is difficult, inconvenient or expensive, there is always a temptation
to keep money in hand till an opportunity occurs of using it again.
This is undesirable on several grounds. A proper safe is an expensive luxury which co-operative societies in their early days cannot
afford. Even if they could acquire a safe, they probably would
not have a suitable building in which to keep it. Moreover, money
lying idle with the treasurer is earning no interest.
Finally, and most important of all, it puts an undesirable strain on the business capacity of the treasurer, who may
well be a man not deeply versed in the handling of other
people's money.
This is a matter which needs to be very carefully watched,
and the committee in particular ought to insist at every meeting
on inspecting and counting the cash in hand. Here again there is
often difficulty. Among people who are not accustomed to normal
business procedure, a request to produce the cash in hand is sometimes resented as tantamount to an accusation of dishonesty.
For this reason it is desirable t o include among the duties of the
committee as set out in the by-laws a specific requirement that they
should inspect and count the cash. In case of any difficulty they
are protected by the by-laws.
WORKING

PROCEDURE

Working procedure must vary very widely according to the
service which the co-operative in question is designed to render
and the standard of education and business capacity available
among the members who have to manage it.
Every co-operative society must have a set of by-laws and an
accounting system adapted to the object which it is pursuing and
the abilities of the members who are pursuing it. The one thing
which is common to them all is the vital necessity for careful
accounting and adequate audit. These are things the importance
of which ill-educated members in new co-operative societies have
still to learn. They may never have been accustomed to keep
any accounts of their private affairs, which is one of the things
which has made them such easy victims of traders and moneylenders with whom they have dealt. They are frequently under the
impression that they have been borrowing money or buying goods
on credit without paying any interest at all, whereas in reality a
crushing rate of interest is concealed in the terms of repayment
in kind, or in the prices of the goods sold on credit.

40

AN INTRODUCTION TO CO-OPERATIVE PRACTICE

For such people a very simple system of accounting must be
evolved, and a great deal of assistance must be rendered before
they can keep even the simplest set of books. In this matter the
instructor must maintain his patience and resist the temptation
to do the work himself, but, instead, teach an office-bearer to do it.
At this early stage where Government assistance is indispensable,
it must always be skilfully given, in a way which will make the
elected office-bearers feel that they have friendly backing behind
them in the carrying out of their duties.
The retention of this idea that co-operation is a form of self-help is
fundamentally important. If it is to be retained, it follows t h a t cooperative societies for people with little education must be
kept simple.
A frequent cause of failure and loss of heart is an attempt to
do too much too quickly. This is one of the reasons why singlepurpose co-operative societies normally stand the best chance
of success. The greatest care must be taken to avoid early failures.
For one thing, the failure of a co-operative society usually means
the loss of money which, though the sum itself may not be large,
represents the savings of people who cannot afford to lose, and
will probably never try again if they do.

RELATIONSHIPS WITH OTHER CO-OPERATIVE SOCIETIES

Educational
Co-operation is, in the case of people in underdeveloped areas,
very largely a thoroughly practical form of education in everyday
economics. I t is knowledge which is difficult to impart as a
classroom subject. I t is frequently suggested t h a t it should be
made part of the curriculum in schools. I t is not easy to achieve
much of practical value in this way. By far the best way of giving
instruction in schools in co-operation is by the organisation of
co-operative societies among the pupils for the encouragement of
thrift, the supply of school books and stationery and sometimes
the provision of meals. The more such societies are in the hands
of the pupils themselves and the less the teaching staff have to do
with them, the better the results.
Such co-operative societies cannot as a rule be registered, as
the members are below the legal minimum age, but they touch
the pupils at an impressionable and receptive age, and it has
been found t h a t ex-members of such co-operative societies go

ADMINISTRATION AND OPERATION

41

back to their villages and spread the idea among their elders,
while they themselves often become office-bearers or sometimes
members of the official co-operative staff.
In the early stages of co-operative development, education
in co-operation by means of classes, discussion groups, demonstrations, visual aids, etc., is necessarily conducted by the official
staff in the case of co-operative societies being organised by Governments. As time goes on, more and more educational functions
are assumed by the co-operative societies themselves. The need
for education exists in every part of the movement. Quite apart
from the staff of the Government agency concerned, the training
of which is necessarily an official responsibility, there is the great
body of members and office-holders, as well as the employees of
the co-operative societies such as secretaries, managers, salesmen,
clerks and so on. I t is especially to their education t h a t the cooperative societies themselves are likely to contribute, and in a
well-developed movement practically all the training classes for
office-bearers, members and their staffs are organised and conducted
by unions of co-operative societies.
This is a development which is in every way desirable. I t
is a contribution to the de-officialisation of the movement, it makes
opportunities of learning more readily available near the homes of
those who need them, and thereby effects economies of time and
money. Incidentally, it saves Government a great deal of money.
Commercial
I n the early stages every co-operative society is so fully employed
in grappling with its own problems, learning a new art and getting
firmly established, that there is very little room for relations
with other co-operative bodies.
As progress is made and experience gained, considerable
opportunities begin to appear. A co-operatively developed area
will have societies to provide credit, to market produce, and to
supply consumer goods.
I t was earlier explained why a credit co-operative society,
once established, must attain a position where it can supply all
the legitimate credit needs of its members before it is practically
sound. One of the principal purposes for which the members
will need to borrow is for seed, fertilisers, machinery, etc., in order
to raise the crop which the marketing co-operative society will
in due course sell for the member. Another principal need will

42

AN INTRODUCTION TO CO-OPERATIVE PRACTICE

be money with which to buy food and other domestic requirements
until the member sells his crops.
The credit co-operative society, before it grants a loan for t h e
raising of a crop of wheat, may require that the applicant should be a
member of the marketing society and sell his crop through it.
The marketing society when it sells the member's produce, after
deducting its own commission, instead of paying the balance directly to the member, as it has been informed by the credit society of
the loan issued, can transfer it to the credit society.which recovers
the loan and interest and pays any balance in cash to the member.
Thus, while each co-operative society has helped the member,
they have in this way materially helped each other. Economic
circumstances may make it necessary for a member to borrow
from his credit society for food ; if this should occur it is necessary to ensure that the money is really used for t h a t purpose.
This can be done by issuing the loan, not in cash, but in the form
of an order on the consumer society. As both the parties to this
transaction are co-operative societies, and the borrower and
customer is a member of both, it is probably unnecessary to fear
t h a t such an arrangement would involve any of the iniquities of
the notorious "truck" system. I t could be arranged t h a t the
consumer society should return to the credit society any part of
the order not spent on goods. Such arrangements as these are
inherently desirable, and though they do to some extent complicate
the accounts, they do not usually occur until the co-operative
societies have learned enough to be able to handle them.
The particulars of a typical arrangement between co-operative
societies have been set out in some detail, but this is only one of an
infinite number of possibilities. The economic life of any commodity usually consists in its production by one set of persons and
its consumption, often in a different form and at a distant place,
by another set of persons.
There is usually a wide difference between the price which
the original producer receives and t h a t which the ultimate consumer
pays—a difference which is often much greater than it ought to
be. Any arrangement for narrowing the gap or eliminating any
of the stages of the transfer from producer to consumer will usually
redound to the advantage of both. Co-operation frequently
affords opportunities for improvement on these lines T)y direct
business relations between producer and consumer societies ; such cooperative action leads to the elimination of the middleman and is
consequently beneficial to the members of both types of society.

ADMINISTRATION AND OPERATION

43

SECONDARY ORGANISATIONS

Following the organisation and development of individual cooperative societies, a stage is reached when the principles of cooperation can be extended from the individual co-operating with
the individual to groups of individuals joining together to form
what is commonly called a "secondary co-operative society".
Such secondary societies are in fact "co-operative societies
of co-operative societies", in that, for example, a group of consumer
societies in a region or country decide to form a federation for the
purpose of wholesale purchasing, producing, auditing, education
and publicity, etc.
By thus federating with each other the societies obtain for the
organised consumers and producers material benefits which they
could not otherwise obtain as isolated units.
Such federated co-operative societies, representing the combined
strength of their affiliated societies, will also be able to assist
weak local societies to pull through their difficulties, whereas if
these were left alone they might fail.
Secondary co-operative societies may be divided into three main
groups : financial, commercial, and administrative.
Societies classified under the first, are, in the main, federations
of credit societies, though other societies may well be included.
I n the second are purely business federations, which consist
of marketing, consumer, agricultural, and industrial societies.
The third group may be federations of co-operative societies
belonging to one or more types, which join together for the provision
of common services such as auditing, accounting, legal advice,
administration and management advice, educational and publicity
services, etc.
The type of secondary society needed in any particular country
is, of course, conditioned by what is required, and it is not
uncommon to find one federation performing two or even all
of the functions as listed in the three groups just described.
Financial
As a group of individuals join together in a primary credit
co-operative society in order to raise funds which they cannot
command individually, so a group of societies may join together
in a co-operative central bank to raise the funds which they need
to borrow.

44

AN INTRODUCTION TO CO-OPERATIVE PRACTICE

The members of such a bank stand in the same relationship
to the bank as individual members to a primary society. The
bank belongs to the co-operative societies, and their interests
are bound up with it. I t is managed by a board of directors or a
committee who are themselves co-operators and have more or
less the same intimate knowledge of the affairs of the affiliated
organisations as the committee of a primary society have of those
of its members. In the early stages it may, in addition to these,
co-opt as directors certain persons chosen for their good will
towards the movement and the confidence which their names and
reputations are likely to give to the investing public.
Such a bank raises the funds which it needs by attracting
deposits from the investing public or by receiving surplus funds
from affiliated organisations which themselves take deposits from
members. The security which it offers consists of its own share
capital, its reserve fund, when it has been working long enough
to have one, and the fact t h a t it lends only to registered societies.
The last is by far the most important item, and the soundness
of the bank depends ultimately on that of the societies which
borrow from it.
A low maximum dividend on share capital will prevent the
charging of unnecessarily high rates of interest to co-operative
societies in order to pay large dividends on shares, but the rates of
interest on deposits will have to be sufficient to attract the capital
which the bank needs. I t can never compete for funds used in
speculative and trading ventures or by the professional moneylender. I t does claim to offer a safe investment for funds saved
as a provision for old age or for a dowry, sums awaiting the coming
of age of minors, funds of local boards, sanitary boards, road committees, etc.
Government may reasonably give a lead and help to inspire
confidence by making a deposit, which should be on the same terms
as t h a t of any other depositor. I t is obvious t h a t the availability
of funds will depend on at least a rough and ready understanding
by the depositors of the way co-operative societies work, the
constitutions by which they are bound, and the reasons why
they are safe. The dissemination of this knowledge should have
been going on all the time the primary societies were being
organised.
The expenses of a co-operative central bank are not likely
to be so high as those of an ordinary bank. The directors are
usually unpaid of at most receive only travelling expenses. But

ADMINISTRATION AND OPERATION

45

there are items such as the rent of premises, the cost of furniture
and account books, and the salaries of clerical staff, which have to
be met, and in addition a reserve fund has to be accumulated.
To cover all these the bank will have to maintain a margin between
the rates of interest which it pays on deposits and those at which
it lends.
The area over which the bank operates must not be so large
t h a t it is prohibitively expensive in time or money to hold an
adequately attended general meeting. At the same time it must
be large enough to embrace a number of co-operative societies
able to borrow a sufficient sum of money to cover the working
expenses of the bank on a margin of, say, 2 or 3 per cent.
In the early days it is necessary to establish a ratio between
deposits and share capital. Where prospects are sufficiently
good to justify the launching of such a bank, something like 8 to 1
will probably be appropriate at the start. This may be increased
to 10 to 1 or even further when experience has been gained. The
bank may finance co-operative societies of every type requiring
loans in its area. I t will be well advised to steer clear of current
accounting work, with the possible exception of its own members,
at any rate till it has acquired a great deal of experience.
Commercial
So far the discussion has been concerned with secondary
Societies of a financial character. At the same time there is another
pyramid which ought to be under construction. This is concerned
with the extension of the commercial operations of co-operative
societies to a larger scale.
Sound organisation ordinarily begins on the fringe of the economic area. For example, the marketing route of a commodity
like rice or cotton is thoroughly unsatisfactory. Co-operation
will probably begin by tackling a remote group of primary
producers, poor and ignorant, who at present sell their produce
individually to an itinerant trader, who comes and buys
from them in their fields ungraded produce at ridiculously low
prices.
The first step is to organise these individual growers into a
primary society, which will grade the produce and sell it in bulk,
in the town from which the itinerant trader used to come, or even
at some point further along the line leading from the primary
producer to the ultimate consumer.

46

AN INTRODUCTION TO CO-OPERATIVE PRACTICE

Meanwhile, co-operative societies of the same type have
been formed in adjacent areas. A time will come when it will
be worth-while to form a union of several societies of this type,
which, dealing in a larger quantity, can occupy a further section
of the line. This process can be repeated till a country-wide
organisation is reached, and a co-operative union may even be
able to deal directly with foreign markets.
Somewhere in the course of development a stage will be reached
at which the co-operative union will command enough of the
produce to be able to establish its own processing plant, thus
further increasing the services which co-operative organisations
can provide the members.
I n the same way, consumer co-operative societies do not usually
travel far before they begin to need a joint organisation to purchase goods on a bigger scale.

Administrative
Other unions or federations undertake non-commercial functions
with a view to maintaining or improving the administrative standard of their affiliated members. They will work through visits
of consultants (who may be members of their own staff, or perhaps
well-tried leaders of good co-operative societies) to affiliated
organisations, by holding meetings at the seat of a society which
needs improvement, by holding conferences of directors and
officers of co-operative societies, by maintaining advisory services,
publishing periodicals and pamphlets, and soon such unions should,
among other duties, organise training classes for members of
affiliated organisations, their committees or employees. I t may
also undertake supervisory and auditing work. Sometimes it
is arranged that loan applications for affiliated societies should
pass through this union to the central bank. Its advice at this
stage should be invaluable, and this arrangement strengthens
the authority of the union.
Care must, however, be taken before adding an extra step
to the process of obtaining a loan. Loans for agricultural purposes
must be in the hands of the borrowers by the correct date if they
are not to become practically useless. The administrative union
will often have a representative as one of the directors of the
central bank, in which case the object is attained without any
complication or additional delay.

ADMINISTRATION AND OPERATION

47

The administrative union is one which often takes part in
propaganda and organisation. Until an advanced stage of development has been reached it will probably be necessary for the registration authority to have new co-operative societies inspected by
its own staff before registration, but this still leaves the union
with scope for useful work afterwards.
Non-governmental aid in organisation of work should come
from the administrative and not the financial secondary institutions. Organisation by central banks or other financing bodies
has occasionally produced some most undesirable results.
To entrust the organisation of co-operative societies to such
a body may tempt it to promote new societies because it has idle
funds which it would like to invest safely, and not because a
genuine need for new co-operatives exists. Moreover, there is
always a tendency for such a financing body to attach excessive
weight to the purely financial side of co-operative societies and to
have an inadequate appreciation of the fact t h a t the ultimate
source of the financial soundness of such societies consists in the
appreciation and application by the members of sound co-operative
principles.
Some unions, again, concentrate on audit. The law often
makes t h e registration authority responsible for audits, without
thereby meaning t h a t it should necessarily do this work itself.
In the first stages it undoubtedly will do so. I n fact, at the very
beginning such staff as it has will probably be both organisers
and auditors at the same time, though it is advisable so to arrange
matters t h a t no organiser is the auditor of a society he has been
responsible for starting.
At the same time, any contribution which the co-operative
movement itself can make towards its own audit should be encouraged. I t will probably be necessary for the registration authority
to lay down a standard to which the auditors employed by a union
must conform, or to require that they should pass a test administered by t h e Government.
The registration authority may still arrange for some unionaudited co-operative societies to be re-audited by its own staff,
the particular societies selected for this purpose being unknown
to the union whose work is being checked.

CHAPTER VI
CONCLUSION
The formation, organisation and administration of any type
of co-operative society require careful planning. Societies do
not spring up overnight. The nature and needs of the group
to be served must be evaluated, the problems involved in meeting
them have to be analysed, and the resources, both financial and
human, required for the successful launching and conduct of a
co-operative society need to be assessed.
When the formation of a society is suggested, there are often
some enthusiasts who believe t h a t it provides the answer to all
the problems of the people concerned. Often, under the influence
of this enthusiasm, too much is expected of the society from the
start, and the reaction when these expectations are not realised
may severely hamper or even halt an institution t h a t could have
performed a useful service, although perhaps in a more restricted
way than some of its sponsors imagined.
A thorough understanding of the objectives and possibilities
of the enterprise, therefore, is essential to the creation of a sound
foundation for a co-operative society. This is all the more important as societies often do not follow any set pattern. Many are
very small; some reach large proportions. Most of them serve
purely local areas, while others extend over large regions and even
over a whole country. They vary from single-purpose to multipurpose organisations, and not infrequently a co-operative society
of one type develops, as circumstances change, into another.
Whether a society confines itself to one activity only, or extends
into several related activities, or endeavours to work as a general
purpose society aiming to serve simultaneously most of the economic needs of its members, depends largely on local conditions and
the preferences and interests of the members. I n any case, the
size, range of activities and services rendered by co-operative
societies, as well as the ideas of their members, all tend to set up
variations in methods and procedures.
The same applies to the organisational structure of a co-opera-

CONCLUSION

49

tive society. This is determined among other things by legal
requirements and various other factors, such as its purpose, the
size of its membership, and the concentration or dispersion of its
area of operations. I t may vary from a quite informal mutualaid association to a registered enterprise with extensive economic
activities.
Co-operative societies are all alike, however, in that they are
owned and controlled by their members and function for the
mutual benefit of the members.
This fact, that co-operative societies are democratically-run
organisations, means that the success of a society must depend
essentially upon the support of the people which it serves. Widespread experience indicates that this voluntary support is much
more likely to be forthcoming when the people understand the
value of co-operative action to improve their conditions of life.
Those who undertake the responsibility of organising co-operative societies have to explain not only the economic purposes and
advantages, but also the social implications of "working together",
i.e., the direct participation of each member in the control of the
society, and the consequent responsibility which falls upon each
member in relation to other members as regards its operations.
Members of co-operative societies have to realise the importance
of electing the best men to represent them in planning and supervising the activities of their society ; of keeping themselves informed
regarding its progress; of judging its success by its long-term
influence rather than by short-term results ; and of not only making
their wishes and opinions known to their elected representatives,
but also of making their society strong financially in order to
serve them well.
Governments can in many countries contribute to a sound
development of co-operative societies. They can encourage the
people to inform themselves about the usefulness of the co-operative
method of dealing with many of their problems; by affording
educational and other facilities to enable people locally to plan
and carry out effectively any co-operative action they may desire;
by supplying technical guidance and supervision to societies at
least in their earliest stages; and by providing the legislative
framework within which the societies of the country can conveniently function.
In this connection, it is necessary to realise that laws relating
to the creation and operation of co-operative societies do not
establish the principles of co-operation. Rather, in the develop-

50

AN INTRODUCTION TO CO-OPERATIVE PRACTICE

ment of the co-operative movement in many countries, the practice of co-operation has preceded the laws. The prime purpose
of such legislation should be to protect the true character of the cooperative association, and to assist co-operative societies to maintain this character in their own internal organisation.
Whatever the degree may be in which the public authorities
may interest themselves in the promotion of co-operative societies,
the active participation of understanding members must be secured
if the enterprise is to be successful. This, at the outset, means
that all prospective members should be asked to participate.
I t also means that the education of members and leaders is vitally
important, not only education which provides instruction in the
management of a society, i.e., its finance, accounts and balance
sheet, but also education which gives the members an understanding of the meaning of co-operation as stated in the first
chapter, viz. "a form of organisation wherein persons voluntarily
associate together as human beings on a basis of equality for the
promotion of the economic interests of themselves".

PUBLICATIONS OF THE INTERNATIONAL LABOUR OFFICE

Industry and Labour
(Published

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Industry and Labour (formerly Industrial and Labour
Information,
published weekly from 1920 to the middle of 1940, and incorporated in
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Recent issues have contained the following articles on co-operation
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Joint Farming Co-operatives in Bulgaria.
Young Agricultural Producers' Co-operatives in Cuba.
Handicrafts in French West Africa and in Togoland under French
Trusteeship.
Co-operatives in the Chinese People's Republic.
Creation of Handicraftsmen's Co-operatives in Ceylon.
Establishment of a Council of Producer Co-operatives in Hungary.
Reorganisation of Consumers' Co-operatives in Greece.
Establishment of a Centre for Agricultural Co-operation in Italy.
First Indian Co-operative Congress.
New Act on Co-operative Societies in Sweden.
A specimen copy of Industry and Labour and a catalogue of International Labour Office publications will be forwarded on application to the
International Labour Office in Geneva, Switzerland, or to any Branch
Office or Correspondent of the I.L.O. (see cover).

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PUBLICATIONS OF THE INTERNATIONAL LABOUR OFFICE

Co-operation and Present-Day Problems
Studies and Reports, Series H (Co-operation),

No. 5

Part I analyses the possibilities of co-operative action in relation to
basic economic functions : agricultural production, fisheries, housing,
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post-war reconstruction : employment, improvement of standards of living,
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232 pages

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The Development of
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Studies and Reports, New Series, No. 19
Prepared for an Asian Regional Conference which met in Ceylon in
January 1950, this report presents a study of recent tendencies of the cooperative movement in Asia and the available methods of dealing with the
new problems to which these tendencies have given rise, with suggestions for
their solution.
84 pages

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Co-operative Organisation
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Surveys the present position and trends in co-operative organisation
in the Near and Middle East, studies various solutions for the problems of
co-operative action in agriculture, handicrafts and small-scale industries,
marketing, consumer supply, housing, nutrition, health and insurance, and
puts forward suggestions with a view to discussion by a Regional Conference.
Report II : 77 pages

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The Co-operative Movement
and the Welfare of the Worker
This article by Jean OBIZET, reprinted from the International Labour
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