JZjybbo INTERNATIONAL LABOUR OFFICE CO-OPERATIVE MANAGEMENT AND ADMINISTRATION ILO ¿/SO ^ S S? u r- 3 GENEVA i960 ,<^¿?W ¿ A ^g£$5i?A STUDIES AND REPORTS New Series, No. 57 PRINTED BY KUNDIG, GENEVA (SWITZERLAND) CONTENTS Page INTRODUCTION CHAPTER I: The Economic Function of Co-operation What is Co-operation ? Co-operative Law Co-operative Principles Fields of Co-operative Action Agriculture Distribution of Consumer Goods Fisheries Handicrafts and Small-Scale Industries Banking and Insurance Other Services Co-operative Structure and Scale of Operations Co-operation and the Techniques of Management CHAPTER II: Democratic Control and Policy Making The General Meeting District and Delegate Meetings Choosing a Committee Renewing a Committee Size of Committees and Frequency of Meetings Educating Committee Members Committee Procedure Duties of Committees Deciding Policy Reviewing Results . . . . ' . . Relations with Members and the Public CHAPTER III : Character and Functions of Management The Art of Management Ends and Means The Working Plan Internal Structure and Organisation Devolution of Authority Line and Staff Appointments Giving Orders Controlling Operations External Relations Character and Qualifications of a Manager . CHAPTER IV: Staffing and Personnel Management Need for a Personnel Policy Staffing of Small Co-operatives . . Recruitment Training Promotion Conditions of Work and Staff Welfare Remuneration Staff Management and Teamwork Staff Organisations Relations of the Staff with the Co-operative and Its Members 1 . . 5 5 6 6 8 9 10 11 11 12 12 12 15 17 17 19 21 21 22 23 24 25 25 27 28 29 29 29 31 33 33 34 35 36 38 38 40 40 41 42 43 44 46 47 48 49 50 IV CO-OPERATIVE MANAGEMENT AND ADMINISTRATION Page CHAPTER V: Plant and Premises Choice of Site Design of Buildings Safety and Comfort of Employees Storage Capacity Movement of Materials Installation of Machinery Upkeep, Depreciation and Replacement Laying out a Co-operative Estate CHAPTER VI: Office Organisation and Methods Importance of Office Work Choice of an Office System External Communications Division of Functions Handling Money Wages and Staff Records Planning and Costing Layout, Machinery and Equipment Pooling Services CHAPTER VII: Marketing Knowledge of Commodities Marketing Finance Contracts to Deliver Weighing and Grading Movement and Storage of Produce Processing Selling Markets and Prices Federal Marketing Co-operatives Marketing Boards and Government Controls Producers' and Consumers' Co-operatives CHAPTER VIII: Merchandising I : Consumer Goods Some Problems of Consumers' Co-operation Membership and Capital Choice of Site Choice of Stocks Layout of Shops Competition between Co-operatives Prices and Qualities Bookkeeping and Stock Control Purchasing and Sources of Supply Democratic Structure of Wholesale Co-operatives Management of Wholesales Relations between Wholesale and Retail Societies CHAPTER IX: Merchandising II: Means of Production Aims of Co-operative Supply Single and Multi-Purpose Co-operatives Commodities Handled Fertilisers Feeding Stuffs Seeds Pesticides, Tools, Machinery and Miscellaneous Supplies Cash and Credit Plant, Premises and Transport Fishermen's and Craftsmen's Supply Co-operatives 52 52 54 56 56 57 58 60 62 63 63 65 66 66 68 70 70 72 73 75 75 76 77 78 79 81 82 83 84 85 87 88 88 89 91 91 92 94 94 96 97 98 99 100 102 102 102 105 105 106 107 107 108 109 109 CONTENTS V Page CHAPTER X: Processing and Manufacture The Decision to Establish a Factory Premises and Staff The Production Plan Controlling the Plan Work Study Procurement and Movement of Materials Inspection Dispatch Maintenance Costs Co-operation and the Management Approach Ill Ill 112 113 115 116 118 118 119 119 120 120 CHAPTER X I : Transport Organisation Public Transport Internal Transport and Materials Handling Road Transport Choice of Vehicles Transport Staff Maintenance Planning Routes Loading and Unloading Drivers as Representatives Transport Co-operatives 123 123 124 126 128 129 130 131 132 132 132 CHAPTER XII: Co-operative Capital I : Credit Societies and Banks Financing a Credit Co-operative Lending Policy of a Co-operative Regional and National Co-operative Banks Long-term Loans and Land Mortgage Banks Banking for Co-operatives CHAPTER XIII: Co-operative Capital II: Production and Trading Societies . 135 135 136 139 142 ' 143 . 145 Share Capital Reserves Loan Capital Deposits Revolving Funds Bank-Loans Government Advances Trading Credits Comparison of Capital Structure 146 147 148 148 149 149 150 150 152 CHAPTER XIV: Co-operative Accounting 153 The Trading Account The Manufacturing Account The Profit and Loss Account The Balance Sheet Accounts as a Management Tool The Use of Budgets The Revenue Budget The Capital Budget Cost Accounting Use of Statistics 153 154 155 156 157 158 158 159 160 162 CHAPTER XV: Public Control Character and Purpose of Audit The Financial Audit The Methods Audit 165 165 166 167 VI CO-OPERATIVE MANAGEMENT AND ADMINISTRATION Page Auditing and Supervisory Agencies Private Agencies . . Central Co-operative Bodies Government Departments Loan Conditions Control of Staff and Appointments CHAPTER XVI: Legal Responsibilities of Co-operatives Rules and By-laws Admission of Members Internal Control Share, Loan and Reserve Capital Trade with Non-Members Duties and Privileges of Co-operatives Co-operatives and the Common Law Co-operative Contracts Co-operatives and Property Laws Liability for Injuries CHAPTER XVII: Relations with Members and the Public Membership in New Societies Membership and the Mature Society Attendance at Meetings Classes, Visits and Exhibitions Women and Co-operation Approach to the Young Visits by Co-operative Representatives Use of Reports and Journals Use of Films Advertising and the Press Co-operation and the National Authorities CHAPTER XVIII: Research and Advisory Services Research into Co-operative Business Methods Technical Research Agricultural Research Non-Agricultural Research CONCLUSIONS The Character of Co-operation and Its Problems Management Studies and Their Value Co-operation and Technical Problems Financial Management and Control Co-operation, the Law and the State Co-operative Management in a Planned Economy Co-operation and the Technical Advancement of Co-operative Members . Modern Management and the Future of Co-operation APPENDIX: Suggested Reading List 168 168 169 170 172 173 175 175 176 176 176 179 180 180 181 183 185 187 187 188 189 190 191 192 193 193 194 195 197 199 199 203 204 207 209 209 211 213 215 217 217 219 219 221 INTRODUCTION In the course of its activities in the field of co-operation during recent years, the International Labour Organisation has witnessed an increasing preoccupation with problems of management and internal administration of co-operatives, both in government circles concerned with co-operatives and among co-operative organisations themselves. It is generally accepted that the co-operative movement has both a social and an economic content and that the presence of each of these elements is necessary for the healthy and balanced development of co-operative institutions. If, on the whole, in the study of co-operation emphasis has been placed perhaps more extensively on the social aspect, it would also be widely agreed that the sound functioning of co-operatives as economic enterprises is indispensable as a basis for the successful fulfilment of their social purposes. Operational efficiency has therefore to be kept constantly in mind by those responsible for the conduct of co-operatives and co-operative activities. It is important among the newly established organisations, especially in countries where the co-operative movement is being promoted in the context of development planning; it is also important among the more mature co-operatives where the social interest which provided the initial impetus and constituted the main driving force for some time after may now need to be supplemented and reinforced by a re-thinking of concepts and motivations in the light of modern conditions. The I.L.O. has reflected this preoccupation where possible in its own programme of work, e.g. by bringing forward questions of cooperative management and administration for examination and study at technical meetings, training courses and seminars, while at the same time undertaking a number of technical assistance projects in which such questions have been among the major matters requiring attention. In this connection the need has clearly transpired for a practical handbook dealing with the day-to-day management and administration of co-operative societies, and drawing on the experience both of countries where co-operatives have long been established and of those where they are still in earlier stages of development. 2 CO-OPERATIVE MANAGEMENT AND ADMINISTRATION The present work has been conceived with that aim in view. Readily available documentary material on many countries 1 has been supplemented by special inquiries in Latin America, Asia, Africa and the Near and Middle East, and an attempt has been made to synthesize the resultant data in order to provide a text of broad general interest. The material has necessarily had to be presented in a condensed manner with but few references to individual cases. The International Labour Office is, however, prepared to supply further information or references on particular matters in so far as it is able to do so. The present manual does not attempt to survey the whole field of modern business theory and practice. Many large books have been written on this topic and a few have been listed in an appendix for those who want to read further. The object of this work, rather, is to look at each stage of co-operative management and administration, to see in broad terms how it is carried on in well-run small and large societies, and to point out from what experience, inside or outside the co-operative movement, committees and senior staffs ought to be able to draw in order to see that a new society gets off to a good start or an old society has the best chance to keep up with modern demands. The volume does not purport to provide special advice for special cases. It is intended to provoke intelligent men to think again about their own problems. It does not give the answers, but indicates where and by what sort of thinking the answers may be found. The order of the chapters will, it is hoped, make for clearness and easy reading. Chapter I contains a general sketch of the co-operative movement for those who are unfamiliar or only partially familiar with the subject. The next chapter is devoted to a fundamental condition of co-operative management: control by a democratically elected committee. After that it seems advisable to give some thought to the character and functions of co-operative management; all that follows therefore deals with the various aspects of this problem, some of them common to all co-operatives, but some peculiar to a single branch of the movement. All co-operatives except the very small have staffs, usually a mixture of manual and clerical workers, and some of the regional and national organisations may employ several hundred persons. All, therefore, should have some knowledge of personnel management. Again, all have premises, and more and more have buildings specially designed for their own purposes. Office organisation also is of common interest to all societies. The chapters dealing 1 The practice of co-operatives in the Soviet Union and other countries with centrally planned economies is not, however, described in detail in this volume. INTRODUCTION 3 with these matters are therefore fairly general in scope. The next five chapters, on marketing, merchandising, processing and transport, are more specialised, though they may still be of interest to more than one kind of co-operative. Merchandising concerns consumers' societies, the large number of agricultural co-operatives which meet their members' production requirements, as well as the relatively few which retail their members' products direct to the consumer. Processing may be carried on either by agricultural marketing societies or by consumers' wholesales. There are a limited number of specialised transport societies, but many co-operatives are interested in transport as an ancillary service. With the chapters on finance, the subject is once more of general interest. They have been placed after the more technical chapters because finance is not, except in banks (which have a chapter to themselves), an activity in itself. It makes possible other operations, the nature of which will already have been considered, and it is to a very considerable extent from financial records that the success or failure of these operations must be judged. The last chapters deal with the control of co-operatives, which is closely related to matters discussed in the financial chapters; with the legal responsibilities of co-operatives, considered from the standpoint of management; with membership relations, which raise a particular aspect of the problem of democratic control; and with research, which shows the need for a continuous and critical study of all the subjects which come under review in this book. Co-operatives no doubt have something to learn from other forms of enterprise: they have even more to learn from one another. CHAPTER I THE ECONOMIC FUNCTION OF CO-OPERATION WHAT IS CO-OPERATION ? Co-operation has been defined for different purposes and in slightly different ways by economists, lawmakers and others. Perhaps it is enough to say here that the co-operative is an association of persons, usually of limited means, who have voluntarily joined together to achieve a common economic end through the formation of a democratically controlled business organisation, making equitable contributions to the capital required and accepting a fair share of the risks and benefits of the undertaking. The tradition of mutual aid in village and even in town life is very ancient, and much working together of an informal kind has always taken place, especially among farmers and fishermen. The modern co-operative movement, however, has usually come into existence just when these mutual obligations of traditional societies were beginning to break down and a new, more formal organisation was needed to take their place. Such an organisation has to be sufficiently " businesslike " to hold its own in the new market economy, which has now almost completely superseded the old self-sufficient economy of the village; but if it is to serve its purpose, it must also stand firm on certain broad moral principles of mutual aid and shared progress. Modern co-operation began in Europe over a hundred years ago. Today there is hardly a country in the world in which co-operative organisations do not exist. Some are old, complex and powerful. There are many countries in which every farmer is a member of a co-operative, and practically the whole output of farming is sold through co-operative organisations. A quarter of the population may buy its food through co-operative stores, and the largest and most important banks and insurance societies may be co-operatively owned. Elsewhere, however, the movement is still young and co-operative societies are rudimentary, inexperienced and struggling, sometimes uncertain of their aims and very often uncertain of the best means of attaining them. Small, scattered groups, are trying to better their own conditions, or a few far-seeing pioneers are hoping gradually to 6 CO-OPERATIVE MANAGEMENT AND ADMINISTRATION alter an economic system which is ineffective or unjust by modern standards. CO-OPERATIVE LAW The early co-operatives were mostly the result of spontaneous efforts by simple people to help themselves. Before long, however, the value of the co-operative method and of the organisations it produced was noticed by governments and their advisers, and steps were taken to make co-operative organisation easier and to lay down some standard methods of operation. The first step was the passing of a co-operative law. Such laws are now to be found, often carefully amended and adapted over the years, in the vast majority of countries throughout the world. They serve a number of purposes. In the first place, the law lays down that a co-operative is a lawful organisation serving a desirable end and that it is, as such, entitled to receive " legal personality ", that is the right, which an individual person already enjoys, to own property, buy and sell goods, borrow and lend money, sue and be sued. In the second place, the law lays down what kind of organisation a co-operative is, what are its objects, who may be a member of it, how it is to be financed and controlled, how surpluses or losses are to be distributed and how, if necessary, it is to be brought to an end. In the third place, the law will probably, though not necessarily in every case, lay down ways in which the government, acting usually through some administrative department, is prepared to help co-operatives to develop. The help may be of a very limited kind. It may, for example, be confined to a mere requirement that co-operatives for their own good should submit their rules, as well as amendments thereto, for official approval, and should make certain annual reports indicating the state of their affairs. On the other hand, government assistance may go very much further and take the form of reduced taxation, capital loans on easy terms, contributions to share capital, grant of subsidies and guarantees, or the provision of trained staff, consultants and supervisors. This frequently happens in the developing countries where co-operation has not sprung up spontaneously but has been deliberately introduced as a social policy, and where those who would gain most from co-operative organisation have little business or administrative experience. CO-OPERATIVE PRINCIPLES Co-operatives have considerable freedom to draw up their own rules, but there are certain principles and practices marking off a co- THE ECONOMIC FUNCTION OF CO-OPERATION 7 operative from a private business, to which all must adhere. The most important of these are as follows : (1) Membership in the society must be fully voluntary and, within certain limits, open to everyone (the principal restrictions being that people of known bad character need not be admitted, nor trade rivals, nor those who live too far away to take part in the activities of the society). (2) All members must have an equal voice in the affairs of the society. This usually means that in a primary society each member has one vote only, no matter how many shares he has subscribed. (3) All members make a roughly equal contribution to the capital of the society, although they need not all contribute exactly the same amount. One man may propose to do more business with the society than another, or may be in a better position to save and invest. Domination by a single large shareholder, however, is always avoided either by fixing a figure for the highest individual shareholding or by laying down that it shall not be more than a fixed proportion of the total capital. (4) Interest on shares is restricted and relatively low. It is either fixed by rule or fluctuates within narrow limits. The purpose of a co-operative is not profitable investment but service to members. (5) Surplus must be distributed to members in proportion to the business which they have done with their society during the year. It becomes, in fact, an addition to the price of produce sold by members, or a lowering of the price of supplies bought by a member, not a profit in the ordinary commercial sense. (6) A co-operative society must be owned and controlled by those who use it. Borrowers own and control a co-operative credit society, consumers a co-operative store, agricultural producers a co-operative marketing society, dairymen or consumers a cooperative milk supply society, artisans and craftsmen a co-operative industrial society. Various other co-operative principles have been laid down from time to time, but not all are valuable or possible to apply in all countries at all times. The early consumers' societies laid great stress on the sale of pure goods, but in many countries this is now enforced on cooperatives and private traders alike, by law and government inspection. Much stress was also laid on the sale of goods for cash only in 8 CO-OPERATIVE MANAGEMENT AND ADMINISTRATION order to avoid the evils of indebtedness and to encourage thrift. This, however, though suitable for wage earners, is difficult to enforce when the members are farmers, for reasons which will become clear later on. It is generally agreed that co-operative members should do business only with their society and sometimes this obligation is enforced by law. Elsewhere, however, it is left to the members' common sense and feeling of solidarity with their neighbours. It is sometimes held that a co-operative should not do business with anyone who is not a member, but this raises considerable difficulties: newcomers may want to sample the society's services before joining, and in any case the society must often sell produce to or buy supplies from the outside market. In a credit society where the members cannot among themselves raise all the funds needed for loans, they will have to borrow in the form of deposits from non-members. In a consumers' society, the goods needed by the consumers usually have to be purchased from nonmembers, while in the producers' society the goods produced by members have to be sold to non-members. Political and religious neutrality is strongly recommended for co-operatives, and sometimes legally enforced. It is particularly necessary where strong differences of opinion on these matters exist among people who live in the same town or village and whose social and economic interests can best be served if they join the same cooperative. A political co-operative also runs the risk of receiving government favours when one party is in power and having difficulties put in its way when a different party takes over the government. No co-operative movement which has to rely on government support should become involved in politics, and it is doubtful whether even those which have always been wholly self-sufficient have really gained anything by political party connections. Finally, co-operatives should not confine their interests wholly to business. They should, in particular, devote some of their resources to the education of their members, e.g. in literacy, or in wise spending, or in the adoption of more productive methods of farming and fishing. This may be done through an educational or " common good " fund or through the employment of advisers as members of the co-operative staff. FIELDS OF CO-OPERATIVE ACTION The purposes which co-operation can serve are very numerous and very diverse, but the system is never likely to take over the whole economic life of any country. There are, for example, no co-operative THE ECONOMIC FUNCTION OF CO-OPERATION 9 railways, ocean liners or international airlines. Co-operation has played little part in heavy engineering and there are very few co-operative mines, though there are some co-operative quarries. There are cooperative oil wells and spinning mills, but they came at the end of a long process of organisation, beginning with retail distribution of oil products and yarns. The fields in which the co-operative movement is strong, and in which it would seem still to have almost unlimited scope for development, are agriculture and the handling of agricultural products; fishing; the production and distribution of consumer goods; banking and insurance for the small man and for other co-operatives. Co-operation has also played a useful part in the organisation of forestry, local transport, housing, some light industries and certain public services, where these are not provided by local or national government. Agriculture In agriculture the services which co-operation can provide are themselves very varied. It is possible for a group of farmers to pool their land, labour, implements and livestock, and carry on the whole business of agricultural production on a basis of joint ownership and management. This method is widespread in some, though not all, countries with planned economies, but is exceptional elsewhere. Co-operation for a more limited form of land management, for irrigation, soil conservation, the consolidation of fragmented holdings. or the use of. heavy machinery, is more widespread. It is also more generally acceptable because it does not conflict: with the deep attachment of the peasant farmer to his land and his desire to remain his own master. Co-operative tenant farming societies have in some countries secured either better cultivation of land which is already the common property of a village or institution, or better management of communal pastures and woods. As higher output from farming depends in very large measure on the use of improved means of production, co-operation can perform a valuable service by making available to the small farmer at reasonable prices selected seeds, fertilisers, animal feeding stuffs, implements, fencing and building materials, preparations for the control of pests, veterinary medicines, and all the numerous agricultural requirements which distinguish profitable modern farming from primitive scratching of the soil. In order to purchase such things, and to provide for himself and his family while waiting for his harvest to ripen and his animals to 10 CO-OPERATIVE MANAGEMENT AND ADMINISTRATION reach maturity, the farmer must have capital. This he can obtain either through his own thrift or in the form of long or short-term loans. In the past, the need to borrow often involved the peasant farmer in a ruinous association with money-lenders. Co-operation has been particularly effective in dealing with the problem of farm capital, both by providing loans on reasonable terms and by creating the conditions and the habit of thrift. Finally, co-operative organisations have taken charge of the marketing of farm produce, including not only selling, but collecting, weighing, grading, storing and often processing commodities into more acceptable forms. Sometimes these activities are co-ordinated with those of national marketing boards. Agricultural co-operatives are the most numerous and widespread of all co-operatives. Marketing, supply and credit activities are carried on side by side in Europe and in North and South America. Collective farming has been introduced extensively in the Soviet Union and China. Credit societies have, at least until recently, been the most numerous type in the rest of Asia. Marketing has been more important in Africa, Australia and New Zealand. Distribution of Consumer Goods In the field of distribution, the main co-operative achievement has been the creation of consumers' co-operatives, sometimes rather misleadingly called " industrial " societies. These are responsible for running a shop, or sometimes a chain of shops, in which the members can buy foodstuffs, frequently also clothing, and in some cases every possible article of domestic use, of assured quality and at fair prices. The co-operatives may themselves manufacture the goods which they distribute, though this will usually be done by a federation rather than a local society. Not infrequently, consumers' societies also provide services, e.g. by operating laundries or restaurants. Some of the consumers' co-operatives in the Western nations accept thrift deposits and act as bankers for their members, besides insuring their Uves and property. In the East, where the consumers' movement has not yet spread so widely, co-operatives do not combine banking with trading, lest members borrow to make their purchases and fail to repay their loans. They adhere for the most part to the principle of sales for cash only, although in societies composed of workers paid regularly credit sales are sometimes allowed in some countries up to a proportion of the members' monthly income and provided that the latter agree to deduction of their debts from their pay packets by the employer. THE ECONOMIC FUNCTION OF CO-OPERATION 11 Consumers' co-operatives grew up first among the industrial workers, e.g. the weavers, miners and shipbuilders of north-western Europe, but they were soon followed by farmers in Scandinavia, Switzerland and elsewhere, and there are today many consumers' co-operatives, all of whose members are country people and most of them farmers. Such societies are likely to combine the provision of agricultural implements and supplies, referred to above, with the sale of groceries and household goods. Consumers' co-operatives have been most successful in Europe, and though there have been local and even national successes elsewhere, the problems of introducing them in the developing countries have not yet been fully mastered. Fisheries Co-operation amongfishermenflourishesbest where the industry is carried on by individuals or family groups rather than by large companies. It may cover the joint ownership of boats, thrift and credit, the supply of fishing gear, the insurance of fishing vessels, or the marketing and processing of fish. It is in fact very much like co-operation among farmers. It is well developed in western Europe and in Canada, but not to the same extent elsewhere. Handicrafts and Small-Scale Industries Co-operation among craftsmen has an interesting history and has come to mean rather different things in different countries. It began in the earlier stages of industrialisation in western Europe, with groups of skilled workmen who wished to set up their own factories. Some succeeded, especially in trades such as printing, shoemaking and light metal work where, at least in earlier years, capital for equipment was less important than skill; but the movement never became of national importance. Elsewhere in Europe craftsmen tended to set up their own small but technically modern businesses, and thereafter join together to form co-operative banks from which they could borrow working capital, or co-operative trading societies for the supply of raw materials. In Asia and parts of Africa the craftsman has so far continued to work by hand in the traditional way. Co-operation was first called in to supply him with loans, raw materials or a market, but though largescale organisation of this kind, with the financial backing of governments, has been able to keep thousands of handworkers from total unemployment, it remains doubtful how long they can continue to compete with the machine and the well organised factory, unless the co-operatives go on to introduce far-reaching technical changes. 2 12 CO-OPERATIVE MANAGEMENT AND ADMINISTRATION Forestry co-operation may be akin to agricultural co-operation if the members are farmers who own woodlands, either as individuals or as a group, and have formed a co-operative for the improved management of their resources, or it may be a form of craftsmen's co-operation if the members are tree-fellers and woodworkers who undertake to exploit standing timber. Housing is also two-sided. The members of a housing or building co-operative are probably people who want to have houses built for themselves or to borrow money for that purpose. They may, however, be building workers who are ready to build houses on contract. Banking and Insurance It will have been noticed that co-operation for many different purposes includes promotion of thrift in some form or other, provision of working capital loans and other banking services, and facilities for personal insurance and the insurance of property. Banking and insurance organisations are among the most widespread, powerful and effective forms of co-operation. As a rule, however, they do not stand alone but are associated with an agricultural, industrial, consumers' or fishermen's co-operative movement engaged in other activities and thus tend to draw their membership from a given vocational group. There are exceptions, such as the credit union organisation in the United States, but as a general rule co-operatives of this type are specialised auxiliary organisations, often with considerable power and influence. In some countries, for instance, co-operative banks are the channel through which state aid passes to farmers and other groups whom it is the policy of the government to help. Other Services The public service co-operatives need only a brief mention. They may supply drinking water to a village, electricity or telephones, a ferry service, or they may run a health centre. Good work has been done in all these fields and there may be more opportunities in the future, especially in developing countries, but unquestionably the trend in all these fields is for the State to take over and organise such services on a uniform national basis. CO-OPERATIVE STRUCTURE AND SCALE OF OPERATIONS It is clear that co-operative activities are very varied, complex and on a considerable scale. This raises the question of the type and size THE ECONOMIC FUNCTION OF CO-OPERATION 13 of business unit by which they are best carried out. The first stage in any co-operative development is the formation of a local or " primary " society. It may have no more than a dozen members, perhaps less. Its capital resources may be very small, and it may have to rely on local talent, perhaps on voluntary service, for such business management as it may require. For all these reasons its operations will have to be kept simple. If, however, the co-operative is to be of permanent value to its members, almost certainly one of two things will happen : it will either grow in membership, in resources and in the scale of its operations until it is a business unit capable of holding its own in the economy of the region; or it will join with other small local co-operatives to form " secondary " or federal organisations, which will take over all the more complicated and difficult operations and run them on business lines. Both these lines of development have been followed with success. The primary society which grows large without ceasing to be primary may owe its success to particularly able management or to a favourable location at a centre of trade. Such societies begin to draw members from beyond their immediate neighbourhood; they may come to include smaller societies through amalgamation ; they may take on new functions or carry their existing services further. A large primary society has problems of its own—keeping in touch with some thousands of members will be one of them—but it can be a very effective business organisation, at once free to make its own decisions and commanding a good deal of local loyalty and respect. In other circumstances primary societies may remain small, e.g. if the village is the principal social and economic unit, if communications are difficult or, of course, if for some technical reason the business of the co-operative can only be carried out on a small scale. In such cases there will have to be a division of functions between the primary society and the secondary federation, either regional or national. The village consumers' store may sell bread, but will probably not have its own bakery. Instead, it may join with three or four others to run a mechanised federal bakery in the nearest town. The bakery will not mill its own flour but will be a member of a national co-operative wholesale society with its own flour mills. The primary society will not hold large stocks of commodities nor will it attempt to import directly from abroad. It will leave these and other tasks to the wholesale society, which has the capital to cover forward purchases, skilled staff trained in the art of buying to the best advantage, and premises in which large stocks can be stored, packaged and, if necessary, processed. 14 CO-OPERATIVE MANAGEMENT AND ADMINISTRATION In the same way the village bank will receive deposits and make loans, but it will not need to maintain an exact balance between the two and suspend operations at the point when one begins to exceed the other. If the members are thrifty and there are more deposits than can be profitably lent out to other members, then the society will itself deposit the surplus with a regional co-operative bank. If the district is one of agricultural development and there is a justified demand for loans which cannot be met out of deposits, then the regional bank will be prepared to lend. The village marketing society, again, may well have neither the premises to handle an agricultural product in any but a very simple way nor the experience to sell it in the best market. It will, however, do a useful job as a collecting, weighing and grading centre, and as an office through which payments can be made to members. Thereafter the product will pass to a properly equipped federal warehouse, cotton gin, sugar factory or other processing plant, under a trained manager, and probably in close touch with a regional co-operative bank. From the foregoing it will be seen that the picture of the small village co-operative with only the simplest problems of management and administration is far from typical of the co-operative movement today, in any country where co-operation has been in progress for any number of years. Co-operative organisations have been growing steadily larger, more intricate, more involved with one another and, though more successful, also more difficult to run. One aspect of this intricacy is the growth of what is called the multipurpose society. The old idea was that each co-operative carried out one operation only. It turned milk into butter, or made loans, or sold groceries or supplied fertilisers, but it did not do more than one of these things. If another service was wanted in the village, another co-operative was formed to provide it. There are countries where this system is maintained to the present day, and villages where a dozen single-purpose co-operatives flourish side by side. It is probable that much the same people sit on all their committees, and the chairman of one may well be the secretary or treasurer of another, but their business affairs are kept firmly separate. Elsewhere, however, the system has broken down: a successful dairy has begun to handle cattle feeds or groceries ; a credit society is taking orders for fertilisers ; or a consumers' society is buying its members' eggs. It has been urged that multi-purpose societies should be organised from the beginning on the ground that, with a larger volume of trade and no seasonal slack periods, it is possible to employ better-paid and better-trained staff, use capital to greater advantage and so have a THE ECONOMIC FUNCTION OF CO-OPERATION 15 more efficient and serviceable organisation. On the other side, it is pointed out that the whole body of members will not be interested in all the activities and that the business and financial complications may well be such that the organisation breaks down altogether, or the losses on one activity become a serious drag on the success of the others. One safeguard is very careful accountancy. Another is to see that the functions combined are really compatible and of interest to all the members. The promotion of thrift and credit, the meeting of members' agricultural and domestic requirements and the marketing of their produce are in several countries held to constitute such a group. Another safeguard is to see that the multi-purpose trading society is taking only limited trading responsibility and is in fact little more than the business agent of one or more well organised regional societies, usually working on a single-purpose basis. Questions of co-operative structure will be discussed in greater detail in later chapters. CO-OPERATION AND THE TECHNIQUES OF MANAGEMENT From all this it should be clear that, though the co-operative is first of all an association with a strong social purpose, it is also an enterprise with problems of size, structure, management and technical equipment, which it shares with all other economic enterprises. This has been recognised only with some reluctance in the co-operative movement itself, where it seems often to be felt that the fundamental rightness of co-operative principles can bring success regardless of managerial skill, or even that such skill is only needed in a system based on improper motives, such as private profit-making, and on cut-throat competition. This is not in fact true, for experience shows that even the most admirable principles (such as " production for use and not for profit ") have not prevented co-operative failures due to plain mismanagement or defective administration. Management and administration should therefore be subjects of study in the co-operative movement, even if this should also mean study of the methods of private business. The abler men in private business and national enterprise have long been aware of the increasing complexity and difficulty of managerial problems which have gone with increasing scale and growing technical elaborateness. In the past 30 or 40 years a great deal of study has been devoted to management as an art or science, and also to its various practical aspects—labour management, the study of work habits, the layout of offices and factories, the use of accounts and statistics as guides to policy. These have been studied by independent inquirers, 16 CO-OPERATIVE MANAGEMENT AND ADMINISTRATION by research departments in industrial firms, and by universities. A new profession, that of business consultant, has come into being, and its members are prepared to give advice exactly as would a lawyer, architect or engineer. Some co-operatives or their national organisations are aware of this development, and have made a beginning with researchers of their own, have had men trained to act as internal consultants, or have introduced management studies into the programmes of their cooperative colleges. There are many more, however, where management still depends wholly on the personality of the manager, and business procedures are based on old and not always good traditions. The need is not simply for greater awareness of what is being done and thought in private business. That is of course essential, since perhaps four-fifths of the problems are the same for any sort of enterprise. There are problems, however, which centre round the democratic control of co-operatives and the special relation between members, committees and staffs, which are peculiar to co-operation and which only the cooperative movement itself can understand and resolve. CHAPTER II DEMOCRATIC CONTROL AND POLICY MAKING THE GENERAL MEETING A co-operative is controlled by the general meeting of members, all of whom are entitled to attend and each of whom holds one vote. A general meeting is normally held once a year and has three main items of business before it: to receive and approve a report of the year's work, accompanied by a financial statement; to decide how any surplus on the year's work shall be used; and to elect a committee or committees to direct the affairs of the society for the year to come. In some cooperatives the chairman and secretary of the managing bodies are also elected by the annual general meeting, and there is often a formal election of auditors. There may be other business, such as a proposal to amend the rules or by-laws, to raise the minimum level of share capital contributed by each member, or to amalgamate with another society. For such purposes it may be necessary to call a special general meeting, either because the matter is urgent or because the rules require that the decision be taken at two successive meetings held fairly close together. All general meetings are restricted to members of the society, except that auditors, who need not be members, usually attend to give explanations ; in some countries, moreover, an officer of the co-operative department of the government may also be present. In some co-operatives, such as consumers' societies, where business goes on steadily day by day, winter and summer, the annual general meeting can be held at any time of the year. When the business of the society is strongly seasonal, e.g. when it is concerned with the production or marketing of a single crop, the report and financial statement can only be prepared when the business of the year is finished, and this will determine within a month or two the date at which the annual general meeting can be held. In the first years of a co-operative, general meetings give little trouble. Members are relatively few; they all live in the same village or section of a town; they are interested in the co-operative or they would not have joined it; they have put money into it, which they do not want to see lost or mishandled; village life is often uneventful, and a meeting 18 CO-OPERATIVE MANAGEMENT AND ADMINISTRATION is an occasion of some interest. All this is good for the society, for it makes democratic control a live thing and promotes, or at least should promote, a spirit of co-operative solidarity among the members. If this happy state of affairs can be maintained, as it often can, then all goes well. It has occasionally happened, however, that instead of solidarity, factions have developed among the membership and have battled with one another for the control of the society. Where this has happened, it has not often been a result of differences of opinion on the conduct or aims of the co-operative, but has arisen from divisions already existing in the village, from political, religious or class differences, or simply from old family feuds. It is to exclude such ruinous occurrences that the rule of political and religious neutrality has been introduced. Factional quarrels in co-operatives are happily rather rare. A more serious danger is that of gradually growing indifference. The society is perhaps not very active or successful, and therefore its affairs become less interesting; members have never put much of their own money into it, and anyway " what is gone is gone ". Alternatively, and happily more often, the society grows and flourishes. But again, as this happens, it tends to attract new members who live further away from its headquarters and are not necessarily pioneering enthusiasts. They have not the time for a long journey or are shy of coming to a meeting with strangers, or they are sure they will " never understand figures"; in any case, the society is doing well, so why worry? The result may often be that, apart from the committee, only a handful of members arrive for the annual general meeting. They sit looking bored while the business is hurried through, and only the presence of someone who specialises in grievances may bring a little life to the proceedings, not usually of a very helpful kind. In some countries a general meeting is not legal unless a certain proportion of the members attend. The first meeting called may have to be abandoned if not enough members appear, and a second or even a third meeting (for which the quorum is lower) may have to be called before the report is formally adopted. All this does more than undermine the democratic principle in co-operation. It means that the committee, which must take active responsibility for the running of the society, is neither firmly based nor properly controlled. Committee members in such cases are selected from, and voted into office by, a small minority of the society's membership, and it is to a similarly small group that they give an account of their actions at the end of the year. This is the grand opportunity for the faction, who may be attending a general meeting which the DEMOCRATIC CONTROL AND POLICY MAKING 19 rest of the membership ignores, to succeed in putting in a committee of their own party. It may also be that if, as usually happens in consumers' co-operatives and some other types of society as well, employees are allowed to become members, they may, by coming in a body to a thinly attended general meeting, elect a committee consisting almost exclusively of employees, and this may not be to the advantage of the society as a whole.1 It must be admitted that co-operatives have grown and flourished in spite of these unsatisfactory features of general meetings, but the system is generally agreed to be fraught with dangers, and various methods have been devised for keeping democratic control a reality, especially in large societies. |.| One comparatively simple device is to make the general meeting so attractive that members do not wish to stay away. The most obvious method is to offer members a meal at the expense of the society. It need not be anything but simple, and friendliness matters as much as food. Instead, or in addition, there may be a concert, 01 a film may be shown, or an effective speaker, possibly on co-operation, possibly on some technical subject like a new method in farming, may be called in. But whatever the additional attraction, the business itself must be made interesting. The report and financial statements must not only be full and informative (which is not always the case) but they must be set forth in terms that the ordinary member can understand. If the committee cannot do this, then perhaps the auditor or an official of the co-operative department of the government may be able to help with a clear and simple explanation. The elections to the committee must be genuine, not a kind of co-option arranged in advance by the outgoing committee and the chief officer of the society. Questions, discussion, criticism even, should all be encouraged. DISTRICT AND DELEGATE MEETINGS If the society is very large, even the measures outlined above may not suffice to ensure a satisfactory turnout at general meetings, for busy men with limited resources do not travel long distances to attend meetings. Many large societies have broken their general meeting into a series of district meetings, and in some countries it is compulsory to do so if there are more than 1,000 members. Sometimes such district meetings go through all the business of a general meeting, and the votes cast at each in favour of candidates for committees are afterwards 1 This, of course, is quite a different position from that in craftsmen's productive societies, where the members and the employees are the same and must necessarily elect the committee. 20 CO-OPERATIVE MANAGEMENT AND ADMINISTRATION totalled in order to determine who has been elected. Sometimes each district meeting elects one or more committee men to represent its own area. In some cases permanent district committees are chosen and made responsible for local interests. In others the district meetings discuss the business to come before the general meeting and then appoint one or more members to represent them at a central delegate meeting, where final decisions will be taken and elections held. In France, and perhaps elsewhere, each district has the same number of votes in the delegate meeting as there were members present at the district meeting. This in itself supplies a motive for attending and pressing others to attend. There are countries—e.g. Finland, Germany and Sweden—in which the members' meeting in some large societies has been cut out altogether, except as a social and educational occasion. Instead, a delegate council is elected by ballot, as in a parliamentary election, each co-operative branch store serving as a polling booth. The delegate council elects the executive committee but remains itself in being, meeting from time to time to adopt the annual report and to give its consent on broad questions of policy. A system of this kind, in which members delegate their powers to a representative central body, is particularly appropriate in societies with a scattered membership, such as those formed by railwaymen. A rather different type of members' meeting is that of the secondary co-operative wholesale society, regional bank or marketing federation. Here the members are themselves co-operative societies, represented by delegates who have probably been chosen and instructed by the general meeting of their own society. They in turn elect the committee of the secondary society, although this is sometimes done by postal ballot in order to enable the committees of primary societies to reach a considered judgment on the merits of the candidates for what are posts of considerable responsibility. The general meetings of secondary societies are usually well attended. The delegates are picked men, qualified to discuss reports and balance sheets, and the visit to the society's headquarters is in itself an attraction. These meetings are not usually subject to the co-operative rule of " one man (or one primary society), one vote ". This may be a reasonable rule if all the primary societies are of about the same size and do a similar amount of business with the secondary society, but as soon as they become very dissimilar in membership, and consequently in volume of business, it is unreasonable to expect all to have the same voice in their federal organisation. Votes may then be distributed in proportion to the number of individual members of each primary society, and in some cases allowance may DEMOCRATIC CONTROL AND POLICY MAKING 21 also be made for the volume of business carried on with the secondary society. Close co-operative solidarity thus gives additional power in the higher councils of the co-operative movement. CHOOSING A COMMITTEE The members' meeting, and certain substitutes for a members' meeting, have been described. It has been noted that perhaps the most important function of such meetings is to elect a committee to which they delegate the power to run the society. Committees, however, vary a good deal in their character and composition. Experience shows that co-operative committee members tend to be men who are attracted by public work in general. They may be leaders in their profession, but in countries where democracy is new, they may simply be local notables who expect to lead in everything. As already pointed out committeemen are sometimes chosen to represent the different districts served by a large society. They may also represent different sections of the membership—perhaps farmers, fishermen and wage earners in a consumers' co-operative, with a special arrangement for the representation of women; or large and small farmers, or agriculturists, livestock breeders, and market gardeners in a farm co-operative. Sometimes no such provision is made. A fair distribution of seats may be achieved through common sense or roughly equivalent pressure on the part of different groups, but there may also be a committee which unfairly favours one group. In most countries it is for members to deal with this situation; however, where co-operation has not grown up by itself, but has been initiated and fostered by the State, the law sometimes provides that a committee which is serving the interests of a group, exercising favouritism or interfering with the work of the staff may be temporarily superseded and a suitable person appointed to supervise the affairs of the society. In some countries the State holds shares in some of the larger co-operatives and appoints some of the members of the committee. There are also secondary societies which have both primary societies and individuals among their members, and a provision by which both categories are fairly represented on the committee. RENEWING A COMMITTEE A point of interest is the length of the normal term of office of committeemen. In some societies all resign at the end of the year and are then eligible for re-election. Sometimes they are elected for two or three years, and half or one-third of the committee retires each year. 22 CO-OPERATIVE MANAGEMENT AND ADMINISTRATION This is intended to secure continuity and avoid the possibility that the entire committee will be thrown out together and a set of people take their place who know nothing of the past history of the society. In practice this does not often happen, and committeemen are only too likely to be re-elected year after year, through indifference or unwillingness to give offence on the part of the members. There are, of course, advantages in retaining an able and disinterested man on the committee as chairman for as long as possible. There is, however, the possibility that men of no special gifts and few ideas will likewise be retained, to the detriment of the society. Even if the committee are a satisfactory body of men, it is likely rather to damp down the interest of young and alert members of the society if they know they have practically no chance of being elected until the present committeemen die or retire of their own free will. For this reason some societies have a rule that no committeeman shall serve for more than two terms of office in succession. He must then step down for one term and let someone else have a chance. After this he can stand again. The result is that a larger number of members have the distinction of having been on the committee and at the same time have a clearer idea of the real problems of the society and the way in which its business is carried on. With the problem of preventing committeemen from becoming permanent and reaching a stage when they have neither energy nor new ideas goes the problem of ensuring that there are capable young members ready and able to take their places. General methods of interesting the young in co-operation will be discussed in a later chapter, but it is worth mentioning here that in several countries it is a custom for co-operatives to form " shadow " committees of young members under 25 years of age, who sit alongside the real committee at all meetings and are often allowed to express their opinions and even to vote, as a test of their judgment, although their votes are not counted when a decision has to be made. The members of the shadow committee sit for one year only and may not be re-elected, though they may afterwards stand for election to the real committee. SIZE OF COMMITTEES AND FREQUENCY OF MEETINGS The optimum size of a committee is a matter of opinion. A large committee makes it possible for all districts and all groups of members to be represented and for a larger number of people to share in the interest and responsibility of running the society. A small committee is likely to be more businesslike and to do its work better and more DEMOCRATIC CONTROL AND POLICY MAKING 23 quickly. Many countries solve the problem by having a large committee or delegate council which meets at comparatively rare intervals and itself elects a small executive committee which meets more frequently and takes all the day-to-day decisions. The general manager of the society is usually a member of such a committee. Some societies, as already noted, have district committees to look after local interests and perhaps take special responsibility for the branch of the society in their own district. Some split the main committee, if it is large, into subcommittees entrusted with different aspects of the business— finance, staff appointments, public relations and so on. This may be useful in keeping too much detail out of the main committee, but in some urban co-operatives it means that the unfortunate manager and secretary of the society have to attend committee and subcommittee meetings three or four nights a week—a situation conducive neither to good work nor to clear thinking. The committees of agricultural societies usually meet once a month or even less often. Large secondary societies may have a large committee meeting quarterly and a small executive meeting more frequently. The members of co-operative committees are almost invariably unpaid. This goes a long way to ensure that they are genuinely interested in the co-operative and prepared to make some sacrifice of time and energy to serve it. In small societies a paid board would in any case be impossibly costly. In large societies, however, and especially where committeemen may have to give up a half-day's or a day's work to attend, it is usual to pay small out-of-pocket expenses. In the large secondary federations, a fee is sometimes also paid, and where membership of the board of directors or the executive committee is a fulltime appointment, a salary is obviously necessary, though it is not always easy to persuade the committees of primary societies, who are often themselves poor farmers or wage earners, that men who are managing an important business with heavy responsibilities, long, irregular hours of work and much travelling, must be paid a salary not so very different from that of the managing director of a private concern. EDUCATING COMMITTEE MEMBERS Persons who have worked their way up through all levels of the co-operative movement have in general acquired the experience and knowledge which they require to carry out their duties. They should not stand in need of outside advisers. With the men and women who become members of the committees of primary societies, the position is rather different. Most of them have no previous experience of 24 CO-OPERATIVE MANAGEMENT AND ADMINISTRATION business; often they cannot understand accounts or read a balance sheet; they may never have planned any course of action for more than a few days ahead, nor given orders nor controlled the work of other people. They have to learn or be taught how to do these things. They are, however, adult, and often middle-aged or elderly, and do not want to admit ignorance, or feel that they are being sent to school. A tactful chairman, auditor or government inspector may do a good deal to explain the working of a co-operative to new members on a committee. This may be easier where there is a shadow committee of young members at whom instruction may appear to be aimed, since they can receive it without shame. In some countries a representative of the government co-operative department regularly attends committee meetings; in others, more formal instruction of committeemen is attempted. There may be one-day or two-day schools carried on by a co-operative department or by a co-operative federal body, or these may take the more dignified form of " directors' conferences ", or as discussion groups with the staffs of farm economics or business training departments of universities. Senior paid staffs of co-operatives may or may not be included in gatherings of this kind. Not only co-operative and business advice, but technical advice may be made available by colleges or government services. COMMITTEE PROCEDURE If a committee is to work with success, it is necessary that all the members, and especially the chairman and secretary, should have a firm grasp of both the procedure and the functions of the committee. Without a simple but consistently observed procedure, committee work becomes chaotic, decisions are queried, discussions reopened after they have been closed, and there are justified complaints from members whose views have been ignored. All meetings of committees should be announced in advance to their members, and (except in the case of a totally illiterate committee) there should be a written agenda setting out the business to be discussed. This is to prevent a difficult or controversial proposal being raised suddenly, in such a way that members have no time to think it over, or even at a meeting from which its principal opponents are absent. Chairman and secretary usually discuss the business together before the meeting, and may decide on the line which they, on the basis of their longer experience, believe the committee should take. In no case, however, should they attempt to force a decision on the committee, and the chairman should be careful to give those DEMOCRATIC CONTROL AND POLICY MAKING 25 who hold differing views the fullest opportunity to express them. As far as possible, the chairman will try to get the committee to arrive at a unanimous decision, or at least one in which the minority spontaneously agrees to adopt the majority view. If the matter cannot be decided without a vote, then a formal resolution must be proposed and seconded. It may be voted on at once, or an amendment may also be proposed and seconded. The committee will vote first on the amendment which, if accepted, becomes the decision of the meeting. If it is rejected, the meeting must then vote for and against the original resolution. If, in either case, the votes are equal for and against, the chairman can settle the matter by giving a " casting vote ". A written record (or minutes) should be kept of all committee meetings. This should describe briefly the business which was discussed, and in particular the decisions taken. This is very important, as the recorded decisions of the committee are the authority on which the secretary or manager of the society acts when, for example, he invests money, engages more staff, or instructs a builder to enlarge the premises of the society. Without written authority his actions might be questioned, and if the decision turned out badly, the committee might disclaim responsibility. It is a matter of discretion how much of the discussion which takes place in committee need be recorded in the minutes. The record should be kept as short as possible, but occasionally the reasons why a decision is taken are important, and there are other occasions when an opponent of the decision would like his views to be put on record. DUTIES OF COMMITTEES Deciding Policy It should be clear from the foregoing that the work of a committee is to take decisions. Many of the older committees called themselves " committees of management " and, if the work of the society was fairly simple, they really did the job of a manager. They personally interviewed, appointed and dismissed all staff; they assigned duties and supervised work; they decided what goods should be ordered and at what prices they should be sold; they directly carried out the annual stocktaking. There are still committees which behave, or try to behave, in this way, but they are usually those of very small societies. If a large society appears to be run in this way, it will usually be found either that it is not making progress or that in fact an able manager or secretary is managing the committee. 26 CO-OPERATIVE MANAGEMENT AND ADMINISTRATION It is^becoming more and more the custom to refer to the committee as a board of directors. This may sound like an attempt to be grand, or an imitation of private business. In fact, it expresses a necessary change. In a society of any size the committee or board is there to direct and not to manage. It is there in the first place to decide policy, and in the second to see that the affairs of the society are efficiently and honestly conducted, in accordance with the policy laid down. The board must appoint the chief officer of the society and be consulted by him on other senior appointments, but it should not appoint the junior and manual staff.1 It must decide the main lines of a society's business within the objectives set out in its rules or by-laws; whether, for example, it should be single or multi-purpose; or whether it should manufacture as well as market. It must decide on the investment of capital, whether in its own plant and premises or in the capital of a secondary co-operative. It must decide on price policy, e.g. whether prices are to be kept the same as those in private trade or whether the co-operative should try to make a price of its own; and what the rate of interest should be on loans or deposits. It must decide, though this will be subject to confirmation by the annual general meeting, on how the surplus shall be distributed; what sums shall be placed in reserve, having regard to the future expansion of the society; how much can be paid out in interest or bonus and at what rates ; and whether or not new capital must be raised by the members. Most of these decisions will be made on the basis of advice from the manager and perhaps the auditors of the society. This may be accompanied by plans and calculations which it is the duty of the board to study till they are fully understood. Such policy decisions are in some ways more complicated in a co-operative than they would be in a private business. A private firm aims at making a profit, and any plan which will bring profit is a good plan. The purpose of a co-operative, however, is to carry on activities which will raise the income of its individual members, or in other ways make their lives easier. If possible, the co-operative should itself make a surplus, and it should certainly avoid loss if it is to survive, let alone expand. Commercial surplus, even " profit " calculated as a percentage on capital investment, may well be a useful indication of the lines of activity which it will be prudent or rewarding to pursue, but it can never, in a cooperative, be the only basis for a decision. 1 There are countries in which co-operative managers have no power either to appoint or discipline their subordinate staff, but this practice is becoming increasingly rare. DEMOCRATIC CONTROL AND POLICY MAKING 27 Reviewing Results Once a line of policy is decided, the committee will need periodical reports from the manager as to how it is working out, what difficulties are being encountered, and whether unexpected costs or losses are arising. If the policy is apparently not a success, the board must decide, after weighing all the evidence, whether to extend the trial period even at some cost, or bring it firmly to an end, even if it is the pet scheme of the manager or an influential director. Petty inefficiencies and dishonesties among subordinate staff are for the manager to deal with. Gross dishonesty or mismanagement at a high level will be revealed by a good audit. The board must be capable of understanding what the auditors are trying to tell them, not only in their written report but in the accounts and balance sheets they submit. This may be difficult for directors who are not themselves accountants. A director who understands accounts is therefore a valuable member of a board. If the auditor's report shows the need for drastic action in any direction, the board must not shrink from taking it. This is the most important report of the year, the most searching and the only one which is quite impartial. Therefore it is essential that the committee should learn to understand it thoroughly and to draw conclusions from it on which they are prepared to act. If boards of directors show too plainly that they are incapable of understanding questions of broad policy and of taking difficult and sometimes unpleasant decisions, an able manager, even one who is an utterly honest man and devoted co-operator, will be all too likely to treat the board with kindly contempt, hurry them through important decisions and allow them to waste time on trivial matters which he supposes more within their power of understanding. What happens when the manager is not only clever but self-seeking can perhaps be left to the imagination. A strong board, on the other hand, which does not waste time on trifles, but is prepared to take broad decisions and stick to them, can be a most welcome support even to a strong manager. Good policies may take a long time to bear fruit; there may be a trade slump or a bad harvest, or a concerted attack on the co-operative by private interests; the members may become dissatisfied or frightened. In all this, the support which a board gives to its manager will be of the highest value. It should, however, be made perfectly plain that the board should not interfere in the day-to-day working of the society and that, in particular, its members should never attempt to give instructions to or receive reports from subordinate staff behind the manager's back. 3 28 CO-OPERATIVE MANAGEMENT AND ADMINISTRATION Relations with Members and the Public One other function of co-operative committees or boards remains to be considered—that of a bridge between the general membership and the paid staff. Board members are men in authority, but they are elected by the ordinary members and share their interests in a way the paid staff do not. They and the members want the same thing from their co-operative, and must therefore be at one on its policy. The directors are in a particularly good position to explain that policy to the ordinary member at the general meeting or individually in the encounters of daily life. In the workers' productive society their position is peculiar and testing, since they are themselves workers in the factory, directing the policy of a manager who is also a member, giving orders to other members who are his subordinates, in the daily factory routine. The situation calls for much wisdom, tact and forbearance all around. Directors also represent their society to the public, including those who may later be persuaded to become members. The knowledge that the most respected men in the district are directors of a co-operative adds to its reputation, and in itself tends to attract new membership. It also counteracts the more spiteful attacks sometimes made by trade rivals or hostile factions. Directors have a part to play in membership relations and public relations, and more will be said of this in a later chapter. But their first duty is to make wise decisions and see that they are carried out. • CHAPTER III CHARACTER AND FUNCTIONS OF MANAGEMENT THE ART OF MANAGEMENT Management is the art of directing the activities of a group of people towards an agreed objective. When the objective is simple, and the group small, no great problems of management will arise. The situation may be compared with what happens when three or four men get together to cut down a tree: the man with most experience of treefelling will give the orders, the most agile will go up the ladder, the oldest will put his foot on the bottom rung, and at the end the strongest will swing the axe. A good many small businesses, private as well as cooperative, are run in precisely this informal and often quite successful way. When, however, the organisation becomes bigger, the objectives more long-term and many-sided, involving complicated operations and calculations extending into the future, then it is time to consider just what management is and how it works. Only by forming a clear idea of the character and functions of management is it possible to decide what a manager should be expected to do, what he should expect others to do, and how his success or failure can be judged. Without clear thought on the subject it will be difficult to know what kind of man will make a successful manager and what kind of training a future manager should receive. In private business the art of management is studied with the utmost seriousness, and much has been written on the subject, but many co-operatives still seem unaware that such an art exists, and it is only gradually that management studies are being introduced into co-operative colleges and training schools. ENDS AND MEANS Management must in practice begin with the definition of the objective pursued. In a co-operative society the objective has been set by the members when they formed the society, and is written into the rules or by-laws. There it will be described in very broad terms, e.g. to market the agricultural produce of members, or to supply members with food 30 CO-OPERATIVE MANAGEMENT AND ADMINISTRATION and other domestic requirements. As shown in the last chapter, it is for the committee to define the objective in more detailed terms, and in the form of a plan for the immediate future : for example, to build and operate an egg-packing station capable of handling so many cases of eggs a week, or to open a shop providing foodstuffs and clothing for a given number of families. If the co-operative has just been formed, or even if it has been in existence for some time, a fairly detailed policy decision of this kind may be taken by the committee alone. It would be more prudent, however, for them to seek expert advice. Perhaps the number of eggs it is proposed to handle will be too much for one grading machine and not enough to cover the cost of buying a second. It may be, however, that there are no more eggs to be had in the neighbourhood. What is the proper thing to do ? Limit the number of eggs supplied to the capacity of one grading machine, even if this means limiting membership? Collect eggs from a distance by lorry? Move the headquarters of the co-operative to a better farming area ? Set up a chick hatchery and a poultry food plant in the hope of inducing local people to keep more chickens? Only an expert can reply. It may be possible for a co-operative to get advice, based on expert knowledge and judgment, from a technical adviser employed by a national co-operative federation or perhaps by the government. More frequently, however, the committee will turn to its own manager before taking any decision. It will be for him to consider the quantity of produce which members are likely to want to market; the kinds and quantities of supplies which they are likely to want to buy, and the sources from which these can be obtained; how much capital will be required to build premises and buy any necessary machinery; how much time must be allowed for building operations and for completing them in time for the busy season; how much capital will be needed to hold goods in stock and, if all sales are not for cash, wait until accounts are paid; where this capital is to come from and how much it will cost; how many workers will have to be employed at what wages and for how many weeks in the year; whether men and women with the necessary skills are available locally. There may be other important considerations, such as the availability of pure water or all-weather roads; but it is the goods to be handled, the kind of treatment they are to receive, and the capital and staff required for that purpose that are the main elements in the calculation. It is a calculation which any manager who is worthy of his job should be able to make and afterwards explain clearly to his committee, who may be men of good judgment but will probably not be technical CHARACTER AND FUNCTIONS OF MANAGEMENT 31 or financial experts. If, as a result of his calculations, he concludes that the activity which the committee had in mind will have no chance of paying its way, he should have the courage to tell them so. If it can only succed if more capital is available, he should face them with the need to raise their own and other members' share contributions. If it can only succeed with a larger volume of business than the present membership can provide, then he should make it plain to the committee that they must take the lead in a campaign to increase the membership, or come to an understanding with a neighbouring society for amalgamation or some other form of joint operation. The manager may—and it is to be hoped he can—advise that the objective is attainable with the resources which the co-operative can expect to command. This does not mean that his plans are fixed for all time. They will have to be reviewed in the light of experience, probably every year and perhaps even more often. They may have to be altered, cut down if too ambitious, or extended in the light of new opportunities. In a co-operative, perhaps more so than in a private business, success along one line is likely to bring a demand that others should be taken up. Even in the course of operations, changes may have to be made as a result of events over which the cooperative has no control: the harvest may fail or exceed all expectations; a machine may not be delivered; a foreign country may raise its tariffs or an electrification scheme may not reach the district on time. THE WORKING PLAN Assuming that the objectives for the year have been fixed in accordance with the best advice available, it is now for the manager to draw up a detailed working plan. This need not—and probably should not—be discussed with the committee. It is a detailed memorandum for his own use and, in so far as it concerns them, the use of his senior subordinates. Many managers undoubtedly make carefully thought out plans which they do not commit to paper. This may work in a small business, but in a large organisation it is not possible to have a plan of operations which depends on one man's memory. Moreover, the manager will probably have begun by asking for written memoranda from some of his subordinates—the chief accountant, the sales manager or markets officer, the engineer—before coming to his own conclusions. They in return will work better if they know the general plan into which their activities have to be fitted. A plan of action for an organisation of any size or complexity will have to be broken down into a number of sub-plans for different 32 CO-OPERATIVE MANAGEMENT AND ADMINISTRATION phases of activity. One of the first jobs of the manager is to decide whether any of these phases have been omitted or, conversely, whether they are all in fact necessary or if one or two of them could be eliminated. Can a building be erected without permission from the local authority? Must each member's produce be graded separately? Can goods go direct from the railway to a branch store, or must they first be checked at a central warehouse ? When the jobs to be done have been reduced to the essentials, and none omitted, it is time to think of what exactly each operation will require in the way of space, either indoors or out, equipment, services (i.e. light, power and water), money and, finally, staff. Staffing is not only a crucial factor, but one in which the manager's judgment comes into play. How many men or women, with or without labour-saving equipment, can do a given job in a given time? It may depend on their skill or on how they are led. Who, on the present staff, is best qualified to lead them? Who will supervise and who will carry out the work? Are two activities sufficiently similar or linked together to put them under the same supervisor or the same departmental manager? What sort of wages, hours and conditions will call forth the best work and be within the resources of the society? All these are essentially matters for the judgment of a manager even if he has eventually to get the committee's sanction for his more important decisions. Another point of great importance is time. The mill must be in working order before the harvest; the goods must not arrive in the rainy season before the roof is on the warehouse. In many less obvious ways there is a sequence of operations which cannot be altered without danger. It is necessary, therefore, to decide in advance which comes first and how long, with the necessary allowance for accidents, each is going to take. This establishes a time scale by which progress can afterwards be checked. Another factor is money. By spending more money on wages, on machinery, even on small things like telegrams instead of letters, work may be speeded up and a larger volume of business handled. In some cases this will be a definite gain. It may even make the difference between a surplus at the end of the year and a heavy loss. But it may also be that rapid increase is not essential, that a co-operative had better grow slowly, or that the necessary capital is simply not there. In most co-operatives capital is relatively scarce and a good deal of managerial judgment is required in deciding where it can most usefully be invested. Is the warehouse congested? Then it may have to be enlarged. Is money being lost because the office does not send out accounts in time? Then it may be advisable to purchase a battery of calculating machines. The man who knows just where to apply CHARACTER AND FUNCTIONS OF MANAGEMENT 33 scarce resources, either of men or money, has at least one important aptitude for co-operative management. INTERNAL STRUCTURE AND ORGANISATION If a plan is to be carried out successfully, there must be an established, though certainly not an inflexible, organisation inside the co-operative. As an organisational scheme once established tends to persist, and frequent changes cause confusion and sometimes resentment, it is important that careful thought be given to the organisation of a new co-operative, however small. It should not be forgotten that a society which had five employees on the day it was opened may well have 50 in a year's time, and 500 ten years later. Should deficiencies nevertheless come to light over a period of time, it is better to run the risks of disturbance than to cling to an imperfect or outdated system of organisation. Precedents should never be an excuse for keeping in existence a timewasting organisation or one which is taking care of the staif rather than the members. The organisation of co-operatives is not always the same. Not all have a single head. There may be a manager and a secretary with different but equal powers. There may even be several managers all reporting directly to the committee. Few people would regard this as a good system, though there are some national organisations covering a number of widely differing activities in which a small group of departmental managers themselves make up the executive committee. The more usual, and in most opinions the more effective system, is to appoint a single general manager, to whom all the rest are responsible and who is himself responsible only to the committee. DEVOLUTION OF AUTHORITY Once past the simplest stage of the single-purpose society, it is necessary to divide the staff and the work among departments each in charge of a separate activity or chain of activities. Each department will have its own head, to whom the general manager will delegate as much responsibility as possible for the work of his own department. Good delegation of responsibility is one of the marks of good management. If the general manager seeks to know everything and supervise everything that is going on in the departments, he will become so overburdened with detail that he will have no time to think about broad issues or form judgments on major questions. At the same time his principal subordinates, feeling that they are not trusted, will become timid, 34 CO-OPERATIVE MANAGEMENT AND ADMINISTRATION slack or resentful. The same holds true all the way down the line. The departmental manager must learn how much he can delegate to the branch or workshop manager, and he to the foreman or charge hand. The order of appointments will vary from country to country and from one type of co-operative to another, but the principle of a chain of authority, and of each human link receiving in turn as much responsibility as he is capable of bearing, is the same for all. A good deal of experience has been accumulated by this time on the number of subordinates which any one man can control directly. This is smaller in the senior ranks, where work is difficult and calls for much judgment, than in the lower, where it is largely routine. As soon as the number of subordinates exceeds the desirable maximum, it is time to appoint another assistant manager or foreman and divide the work again. The process of management is not, however, solely one of giving orders from the top down the line. Senior members of staffs, technicians and those with independent responsibilities will probably have been consulted before the plan of work was drawn up. It should certainly be explained to them fully as soon as it is adopted, and they should be consulted again as to how it can best be carried out. Subordinate staff should in turn be explained the part of the plan on which they themselves will be working, and how it serves the general aim of the society. They may also be given an opportunity to make suggestions on matters within their own competence. LINE AND STAFF APPOINTMENTS There are in most organisations certain members of the staff who do not fit into the pyramid-like scheme described above. There may, for example, be a personnel manager who has certain responsibilities for the staff of all departments, or a sales manager who controls the selling policy of a number of branches, or a statistician attached to the general manager's office, or an agricultural adviser for the benefit of members. These appointments are not as a rule part of the departmental or " line " organisation. They are " staff " appointments, and those who hold them are as a rule directly responsible to the general manager. It is obvious that a certain amount of confusion and perhaps dispute can arise between one department and another, or between people in staff and line positions, as to the exact limits of their authority. In large organisations written terms of reference or " job specifications " are often prepared and handed to each officer on appointment. This is aimed at avoiding, on the one hand, friction and, on the other, the CHARACTER AND FUNCTIONS OF MANAGEMENT 35 neglect of some duty because each of two departments thinks it is the responsibility of the other. Such a formal procedure would of course be out of place in a small organisation, where many more decisions can safely be communicated by word of mouth. The matter is not, however, one that can be left to spur-of-the-moment, perhaps inconsistent, decisions. GIVING ORDERS However much or little is committed to paper, it is essential that all instructions on any subject should be clear and unequivocal. Instructions may be vague because the manager has not made up his mind or wants to avoid responsibility. They may also be difficult to understand simply because, although his own mind is clear, he has not the art of communicating clear ideas to others. The art of communication, whether in speech or in writing, is an essential part of the art of management. Those receiving instructions should know not only what they are to do but, as far as possible, why they are to do it. If they understand what purpose their actions are to serve, they will not only take more interest in the job, but will be more likely to respond intelligently if confronted by some unforeseen accident or obstacle. Initiative in subordinates should be encouraged, but an employee can only take intelligent initiatives if he knows rather more about the job in hand than he would get from carrying out a single unexplained order. It may, of course, be useful to consult the employee concerned before giving an instruction, since he may well be better informed on points of detail than his chief, and his opinion may be valuable. But the final instruction should be definite. An instruction which allows too many alternatives may mean that no one has honestly accepted responsibility for the results. If the subordinate realises this, he may take a bold (and perhaps mistaken) initiative or he may, more likely, do as little as possible for fear of incurring blame. Although the chain of command should always be quite clear, it should not result in the setting up of a number of private empires— the accountant's, the sales manager's, the technical adviser's—each going their separate ways, nor of the still smaller empires of people who know how to carry out a single job and are not going to share that knowledge with anyone else who might, in any possible circumstances, occupy their places. Co-ordination and teamwork are nearly as important as clear direction. Teamwork in the small unit means that people help one another, and that if one of the team drops out, temporarily or permanently, there are others who know enough about 36 CO-OPERATIVE MANAGEMENT AND ADMINISTRATION his job to do it in his absence. Co-ordination between departments is needed in drawing up and carrying through any plan of work. This applies especially to timing. A department which cannot keep up with the work assigned to it may throw the whole plan out of gear if its difficulties—lack of staff, antiquated equipment, an incompetent chief—are not recognised at an early stage and steps taken to relieve them. Good relations between departments are also needed in the daily work of any organisation. Many operations pass through several departments which depend on one another and can greatly facilitate each other's work by goodwill and an understanding of what each is trying to do. Direction and co-ordination of effort is required in any kind of enterprise, but in co-operatives there are some special features not found, or not always found, in private business. Some of these have to do with personnel management and membership relations and will be discussed in later chapters, but others arise from the often federal character of co-operative organisation and the existence of a good deal of local autonomy. Even the manager of a branch consumers' store or collecting point for agricultural produce may have to be given a good deal of independent authority and allowed to work without much supervision. In a federation, made up of independent cooperatives, with their own members, committees andfinancialresources, the degree of independence is greater still. It may be important to secure some recognised standard of management, some uniform way of handling business throughout the federation, and some mutual loyalty between its members. Methods for dealing with this situation will be discussed at a later stage. CONTROLLING OPERATIONS Something has been said of the need to establish a plan, create a suitable organisation for carrying it out, and instruct the appropriate individuals to go ahead with its implementation. It is necessary next to see whether the instructions are in fact being carried out, and with what success. For this purpose manual workers and junior personnel will be under the direct and immediate supervision of someone in authority. Senior employees will be more likely to report at regular intervals, either verbally or in writing, on the progress of the work entrusted to them. This does not mean, however, that the function of management stops at ensuring merely that the instructions, once given, are properly carried out. It is possible that the original instructions were miscon- CHARACTER AND FUNCTIONS OF MANAGEMENT 37 ceived, that they called for more than could be done within the time allotted, or assumed information which was not in fact available. There may have been failures in co-ordination and timing involving other employees or other departments. Something may have happened for which no one in the co-operative was responsible—a building wrecked by storm, a change in the bank rate, a late harvest, the closing of a foreign market, the bankruptcy of a firm of contractors—and which may have upset some essential part of the plan. All of these situations place heavy demands on the flexibility and resourcefulness of management, as reflected in its ability to alter existing plans or adjust them to changed circumstances. On the other hand, something may go wrong for which a senior or junior member of the staff may have been personally responsible, through negligence or self-interest, and in that case disciplinary action will be the responsibility of the manager. The manager of a co-operative or of one of its departments must be in a position to measure at frequent intervals the actual performance of his organisation against the performance expected under the plan of operations. The comparison is often in the form of figures—the number of new members brought in, the level of deposits, the weight of cotton ginned—and a number of these figures can be shown together on a chart, and checked against the original plan. The manager has only to glance at the chart to see that in November new members were coming in well, but were not bringing in much share capital, that the new oven had doubled the bakery output, but that sales in No. 3 branch were still falling off. With such information he can take any necessary remedial action. For example, he may change the manager of No. 3 branch and open a new branch in the district where most of the new members live. At the same time, he may recommend the committee to raise the rate of interest on share capital or run a campaign for savings deposits. It may appear from the foregoing that the staff of a co-operative is exclusively engaged in carrying out a plan of buying, selling, manufacturing or banking on behalf of its members. It should not be forgotten, however that a co-operative or any other business calls for a good deal of work which has nothing to do with policy or with service to members, but simply aims at keeping the organisation itself in running order. Buildings must be kept in repair, offices painted, vehicles overhauled, wages, insurance premiums, rates and taxes paid, legal obligations fulfilled. All this may occupy quite a number of people under responsible direction. In a sense these activities make no direct contribution to the objects for which the co-operative was formed, 38 CO-OPERATIVE MANAGEMENT AND ADMINISTRATION but they are none the less essential if the whole organisation is to run smoothly, and make a success of the substantive part of its work. EXTERNAL RELATIONS Finally, it must not be forgotten that management is concerned with a number of institutions and people over whom the manager has no direct control and to whom he cannot give orders. These include the members of the co-operative, trade unions, local and national government departments, public transport authorities, banks, marketing boards, private firms from whom the co-operative purchases or to whom it sells, building and other contractors and also, in some cases, the general public. Good management of the co-operative's relations with all these may well contribute almost as much to its success as good internal management of its own staff and resources. This aspect of management calls for a considerable knowledge of laws and regulations, of the business and banking world outside the co-operative movement, and also of human nature and individual character. It calls for the power to judge other people's attitudes and ways of thinking, and to foresee the outcome of proposals which are intended to serve the interests of more than one party. It is, in fact, management by negotiation rather than by direction. The larger a co-operative movement grows and the more important the place it comes to occupy in the national economy, the more important this kind of co-operative diplomacy becomes and the more valuable the co-operative officials who can carry it on with success. CHARACTER AND QUALIFICATIONS OF A MANAGER All this leads to a consideration of what kind of man is best fitted to undertake the management of one of the larger co-operatives and how such men can be found. A good co-operative manager must have the necessary technical knowledge of the business he is to carry on, or else he must be particularly good at understanding and using the expert knowledge of technicians on his staff. He must have the power to plan the work of the organisation realistically and yet in a sufficiently imaginative way to keep it steadily developing and expanding. He must be able to choose good subordinates, get them to work as a team and still retain his authority over them. He must be able to work with a committee without becoming either domineering or unduly subservient. He must have an understanding of co-operative methods and be able to maintain good relations with members and with the CHARACTER AND FUNCTIONS OF MANAGEMENT 39 public. Obviously, some managers will be stronger in one of these fields than in others. Perfection cannot be expected; but some measure of aptitude in all will be necessary if the manager is to make a success of his job. More will be said in the next chapter about the general recruitment of co-operative staff, but the search for a good manager is a rather special undertaking. In a large, mature co-operative movement he will probably be promoted, if not from the middle ranks of his own society, then at least from within the movement. In rapidly growing movements this may not be possible. The choice then lies between a man from private business, a government servant with experience of co-operative organisation but perhaps not of business, and an experienced man from any walk of like who appears to have the necessary ability. All will require some form of training or retraining. The business man will have to be taught co-operation; the official or the amateur will have to learn not only management but the special methods of the business he is to carry on. Not every country has facilities for all these kinds of training at a managerial level. CHAPTER IV STAFFING AND PERSONNEL MANAGEMENT NEED FOR A PERSONNEL POLICY Personnel management is the term used for that part of management which is concerned with human relationships in an organisation. It covers the methods of recruiting, selecting and training staff; placing them in the right jobs; fixing their wages and the way in which they are to be paid (by the hour, by the piece, or on commission) ; deciding on their working conditions and any welfare services (e.g. canteens and dispensaries) or social security benefits (e.g. pensions) which may be provided for them; methods of consultation between employers and employees (or their trade unions); and methods of settling disputes. This list of subjects, which would be accepted without question in any good private business, shows that the attitude to human relations which has developed in industry over the last 50 years is very different from that of an earlier day, when employees tended to be looked upon as " hands ", to be treated with rather less respect than pieces of machinery. Much thought is now given both in business and in government departments to a proper relationship between management and subordinate staff and between one employee and another. Often a personnel manager is appointed whose functions are concerned solely with the recruitment, training and placing of staff, their welfare, and the conditions which will induce them to give their best service to the enterprise. The co-operative movement, which exists to make a contribution to human welfare, has always been aware that in serving the needs of its members it should not neglect those of its staff, and that its treatment of them should be at least comparable to the conditions offered by the best private employers. This was a natural policy when, as in the early industrial consumers' societies, the employees came from the same class of hard-pressed workers as the members, were in fact often the members' own sons and daughters, and when the family atmosphere was still strong. As the co-operative movement has grown and spread, however, the position has become a little different. In many agricultural societies, for instance, the farmer members have no personal links with STAFFING AND PERSONNEL MANAGEMENT 41 the clerks, warehousemen and millhands they employ. Many consumers' co-operatives are far too large to be run on a family basis any longer. Many wholesale societies and central banks have a membership not of individuals, but of societies situated miles away and represented by delegates. In all such co-operatives, staff relationships and staff management tend more and more to resemble those in a private undertaking. Except in workers' productive societies, little attempt has been made to work out staff relationships of a typically co-operative kind through profit-sharing, group responsibility or advanced forms of teamwork such as are sometimes adopted by imaginative private employers. Co-operatives have been somewhat slow to appoint specially trained personnel managers or to take advantage of the experience and ideas on the subject which have been accumulating for some years past. STAFFING OF SMALL CO-OPERATIVES Before considering the personnel problems of the fairly large cooperative, it may be worth devoting a little attention to those of the small society or the society that is just beginning. Many such societies have started off with part-time staff, or with the unpaid work of one dedicated secretary. Many of the village credits banks of Europe and Asia were,'and perhaps still are, managed in this way, often by schoolmasters or priests, whose regular livelihood comes from another source and who have perhaps a little more leisure and more education than the hard-worked farmer or manual worker. The same system has been followed by some of the co-operatives carrying out one simple function, such as ordering seeds or fertilisers. But reliance on parttime or volunteer staffing means that the society must remain very small and rudimentary, and the service it can give its members will be correspondingly limited. If the part-time man undertakes anything more ambitious, he will find he has neither the knowledge nor the time, and he may well land his society in difficulties. If he has the intelligence to foresee this, but still wants to keep his job, he may resist an expansion which the members desire and for which the society is ready. One of the peculiarities of co-operative employment is that the solitary official of a small society, whether full or part-time, will have to work with a minimum of supervision, although the salary offered will probably only attract a man of modest qualifications. This implies a need for particularly careful selection and training of candidates. At a fairly early stage, the co-operative which means to grow will have to appoint a full-time paid staff. This may not be easy, for the very small society may well fail to make sufficient gross surplus to cover 42 CO-OPERATIVE MANAGEMENT AND ADMINISTRATION the cost of a full-time employee. In some countries, therefore, societies have received government subsidies to make possible the employment of paid staff, such subsidies being granted only during the early years and on a diminishing scale. Alternatively, there may be pressure to amalgamate small societies so that their combined business produces enough surplus to pay a professional staff. The risk of appointing the staff first and hoping that the surplus will follow may have to be taken; in such a case a really careful prior estimate of possible future development will, of course, have to be made. RECRUITMENT If the objects of a co-operative call for a good deal of manual labour, as in grading and packing, the staff may be fairly large, even on the opening day. A new co-operative, especially one in an isolated position, may be rather restricted in its choice of employees. Those selected will probably all be local people and they may be doing work they have never done before. There will inevitably be a good deal of trial and error, with wastage of the unsuitable. This is one of the dangerous processes through which young co-operatives have to pass. There are perhaps only two rules that can be definitely laid down: to appoint the best chief officer available, even if it means going outside the district, and to be careful about appointing too many friends and relations of leading committeemen. In some communities this is a real danger. The choice of a manager has been discussed in the last chapter. It may be made easier by two circumstances. If, for instance, there is a co-operative union or federation, or a government department looking after co-operation, it should be possible to get advice on the choice, probably accompanied by a list of candidates ; and if the appointment requires technical qualifications, as for the manager of a creamery, it will be necessary to appoint a man who holds the certificate or diploma of a recognised training school. This will not necessarily ensure the desired level of ability, but it does at least guarantee a certain level of intelligence. In many countries, however, there is a shortage of technicians, and the co-operative may have difficulty in getting well qualified men. Many co-operatives which made a bad initial choice of a manager have, for that reason, ceased to exist. Where the choice was good, the manager has grown with his society; he has pushed on new developments only as he has mastered the simpler operations on which they are based, and towards the end of his career he has become a man of STAFFING AND PERSONNEL MANAGEMENT 43 great experience and authority, surrounded by a large staff whom he has himself picked and trained. When this stage is reached, and certainly when the pioneer manager retires, the co-operative will have to look to the future and draw up a staffing policy suited to a fairly large, complex and impersonal organisation, a policy which will be at once fair from the point of view of the employee and effective from the point of view of the co-operative. Most co-operatives—perhaps most businesses—like to recruit a large part of their staff straight from school and train them from the beginning in their own way. Most lay down certain educational standards for all except manual staff. Senior posts may be advertised. The degree to which selection can be made on the basis of references, reports of schoolmasters or tests of intelligence and skill depends largely on the state of the employment market and the extent to which the co-operative can pick and choose. It is of considerable importance, both for the well-being of the worker and for that of the co-operative which he serves, that he be placed in a job which fits his natural aptitudes and calls for neither too little nor too much responsibility or initiative. Whether or not this is the case will sometimes be revealed only gradually during service, but there are methods of assessing qualifications and character which help in making appointments and later on in arranging promotions and transfers. TRAINING All new employees must undergo some form of training. In the early years (and in some co-operatives this is no doubt still the case) training consisted simply of doing elementary work under proper supervision. This is no longer thought to be enough by well organised societies. Some American co-operatives expect every new employee to attend a one-day " orientation school " at which the general work and aims of the organisation are explained to him. Many co-operatives in countries with widely differing conditions arrange for young employees to attend classes both in co-operation and in technical skills such as bookkeeping. Some insist that every employee who has not already taken a course of co-operative training should take one on joining the staff, this being a condition for definitive appointment as well as for future promotion. Some co-operatives make use of correspondence courses offered either by co-operative or by general professional organisations. In some cases it is felt undesirable to give certain kinds of training to one individual out of a team. He or she comes back with bright new ideas which only arouse irritation and perhaps jealousy in those who have not attended the course. It is better to arrange a short 4 44 CO-OPERATIVE MANAGEMENT AND ADMINISTRATION intensive course of training for the team as a whole, either while they are on the job or at a one-day or weekend schools. Finally, there are the co-operative colleges and training schools. These exist in a large number of countries but do not always do the same job. Some, especially in Asia, are run by governments and for many years were concerned primarily with training the officers of cooperative departments. Their functions are now being broadened so that they take in the non-official staff of primary and secondary co-operatives or candidates for such posts, and train them together with the officials. Such courses deal basically with the principles of co-operation, co-operative law, banking, bookkeeping and auditing. They have been extended in some countries to cover marketing, merchandising and business administration, the latter sometimes as a separate subject, but more often simply as an aspect of other topics. The need for more intensive training in this particular field is only beginning to be realised. In Europe co-operative colleges often have the dual function of training co-operative employees and of providing a general education in co-operation and in social and economic subjects for the members, particularly those who are on the managing committees. These colleges are for the most part residential, and they began by offering courses lasting a year and sometimes two years (not necessarily consecutive) for co-operative secretaries and managers. While this system is still applied, the tendency at present is to provide more short, intensive courses for special groups handling one commodity or one service. These may be at different levels : a basic course for juniors and a refresher course for senior officers which will take the subject further, covering in particular any new technical knowledge which may have become available since the employee received his first instruction. Some countries arrange to send senior or especially promising members of the staff to university courses or on study tours of other countries. PROMOTION Many co-operatives make the successful completion of a training course a condition for promotion in the co-operative, but promotion will also depend on a judgment of the employees' behaviour while at work. A man who is clever at courses and examinations may be idle in the office, or unable to make up his mind when it comes to action, or bad-tempered and unable to work with others. Not all senior appointments, especially in a rapidly expanding cooperative, can be filled by promotion from within. Technical posts— STAFFING AND PERSONNEL MANAGEMENT 45 e.g. for engineers, analysts or designers—obviously cannot be filled by promoted clerks, however intelligent. There are, however, a number of highly responsible non-technical posts to which employees may hope to rise step by step, but for which it is customary in some businesses to choose persons of higher general education, and especially holders of university degrees. Such persons are brought in at the age of 22 or 23, generally as management trainees, and spend some time working in each department in turn, usually in a quite humble capacity, and sometimes as manual workers, before they are given a junior manager's appointment. This practice often causes resentment among those of a similar age who have already served the undertaking for a number of years but have not been given similar opportunities for training and promotion. The knowledge that this will be so often, though fortunately not always, influences co-operative committees against the employment of graduates and the management trainee system. They prefer to maintain a system based, as they see it, on the principle of equal opportunity; but in so doing they may deprive the co-operative of the better qualified and trained minds. A possible compromise is a management trainee system with places both for well-educated young men from outside and for those already on the staff who have shown outstanding promise. A variant of the management trainee system is practised in some Asian countries, where the managers of central co-operative banks, marketing and consumers' societies are often drawn from the staff of government co-operative departments. An officer of the department, of an appropriate grade, is lent to the co-operative for a period of two to three years, during which he works under the board of directors. He may return to the department at his own wish or that of either the board or the department, but usually he continues for the proposed period or longer. Sometimes he will himself train a non-official manager who will eventually succeed him. Sometimes central banks deputise members of their staff, in the same way, to manage primary credit societies. It should be noted that co-operatives not infrequently take on men who have served their apprenticeship in other co-operatives and this, though sometimes annoying to the society which loses a useful man, is to the good as it makes for mobility of ideas as well as increased opportunity. Appointments are also made from private business, and good men have been secured in this way. It is necessary to remember, however, that they come knowing nothing of co-operation, and a short course of indoctrination is particularly important if they are not to make psychological blunders. As regards promotion to really senior posts, there is much to be said for the principle that co-operatives should " grow their own men ", 46 CO-OPERATIVE MANAGEMENT AND ADMINISTRATION if only because it offers an attractive " ladder " to the best type of junior. There are, however, some points to bear in mind. The smaller co-operative may have difficulty in attracting and keeping competent juniors if the ladder is too obviously short. On the other hand, in societies of any size an elderly second-in-command is not always the best man to succeed a retiring general manager. He may too easily be a mechanical copy of the man who has gone before, and too set in his ways to think things out afresh. A system of promotion at the scale of a national co-operative movement or a large federal organisation provides a good, long ladder and avoids too much inbreeding of ideas. It does, however, raise problems. Local societies may resent interference in their affairs, and the federation which inadvertently makes or encourages a bad appointment cannot escape responsibility and consequently blame from its members. Not all employees qualify for promotion, and some it may hardly be in the interests of the co-operative to retain at all. The man who is dishonest, incurably lazy or incurably quarrelsome should be dismissed. There may be others who seem to be trying, but are unequal to the job in which they have been placed. In such cases, transfer to a new job may be the answer: the individual may do better at something less exacting or, alternatively, he may need the stimulus of something more exacting to put forth his best efforts. CONDITIONS OF WORK AND STAFF WELFARE The conditions under which co-operatives staffs work will inevitably differ greatly according to prevailing standards in the country, the type of work being carried on, whether it is in town or in the country, and other circumstances. Hours of work, the hygiene of workplaces, guarding of machinery and protection of workers handling dangerous substances may or may not be governed by legal provisions. When they are, it is for the co-operative to know the law and see that it is carried out. Where the law lays down few safeguards, it should be a point of honour with co-operatives to equal the best standards set in their own country and if possible to lead the way to improvement. It must be admitted, however, that this sometimes imposes a heavy burden on the co-operative and may even prevent it from taking up certain activities. One obvious case is that of the consumers' store, which employs paid shop assistants working regular and not excessively long hours, but finds itself in competition with family shops which are open practically day and night. The degree to which the co-operative provides welfare services for its staff depends a good deal on the development of social insurance STAFFING AND PERSONNEL MANAGEMENT 47 within the country. Voluntary schemes for retirement pensions, provident funds, sickness and accident benefits, marriage and maternity bonuses are of great value where these needs are not met by the government. Where they are so covered the co-operative may not need to consider their provision, but many co-operatives and private businesses do continue to provide pensions even if there is a basic state provision for old age. They do so partly because the state pension is small, partly because the prospect of a pension tends to reduce labour turnover by making frequent changes of employment less attractive. REMUNERATION Co-operative wages and salaries, again, must be influenced by national wage levels, by the general policy of trade unions and sometimes by the decisions of statutory wage tribunals. It has always been cooperative policy to pay the best wages possible to all manual and lowergrade staff, and indeed some valuable pioneering aimed at ensuring a better reward for labour has been carried through by the co-operative movement in the past. Nowadays such wages are often regulated by national agreements, or a legal minimum is laid down. The record with regard to salaries in the higher grades is rather different. Many committees composed of small farmers or urban workers are, or at any rate have been, unwilling to pay salaries which much exceed their own earnings, and are unable to understand that certain kinds of knowledge, experience, judgment and power to take responsibility are scarce, and that the man who possesses them can ask a relatively high price for his services. If he does not get it he will think, if not of himself, then of his wife and children, and go elsewhere even if it means going into private business. In this way co-operatives lose, or fail to attract, good staff, especially in their earlier stages. A fairly high salary is also the price of honesty and complete loyalty to the interests of the co-operative. A man in a senior position in a trading organisation has considerable opportunities of enriching himself by methods which may not necessarily be illegal or exactly dishonest, but are not in the best interests of the co-operative. If a man is to resist such temptations, it should not be at too great a cost to his own welfare. Payment is not always in the form of a monthly or weekly wage. In some manual grades it may be on a piecework basis, and a good deal of study has been given in private business to the question of financial " incentives " to raise production. In the co-operative movement this is less common, partly because comparatively few co-operatives carry on repetitive factory operations to which this system can be 48 CO-OPERATIVE MANAGEMENT AND ADMINISTRATION easily applied. What is not uncommon is the payment of a commission to co-operative sales staff over and above their salaries. There has been a good deal of discussion about the advantages and disadvantages of this system, but not much study of the results. One co-operative inquiry into methods of paying co-operative lorry drivers who sold petroleum products to members suggested that good training and discipline gave better results than the payment of a commission on sales; but this is only one isolated experience. A quite different practice is the payment of a bonus to staff out of the annual surplus of the co-operative. This puts staff on a similar footing with members, and gives them an equal interest in the success of the society. The amount of the bonus paid to each member of the staff is generally related to his wages in the year just concluded. The distribution is usually to the staff as a whole, though some societies limit it to grades from foreman upwards, on the ground that manual staff come and go and are not permanently interested in the progress of the organisation. This assumption may well be less than fair to the manual worker. STAFF MANAGEMENT AND TEAMWORK Money is not the only incentive which makes men work and work well, nor is it even necessarily the most powerful. Work fills the greater part of most people's day and to many people it is a means of self-expression and a source of satisfaction as well as of social status. Encouragement and praise can be very precious and can change the workers' attitude more quickly than blame. Many people take pleasure in being trusted and responsible, in having the opportunity to make choices and express ideas. People enjoy belonging to a team, especially if they feel that they are esteemed by their group. The more people enjoy their work the better they will do it, but in order that it may be enjoyable, a number of things must be remembered. The worker should feel that what he is doing is, if not important, then at least useful, and that it is in keeping with his personal dignity to do it. He must understand what he is doing. He must have, as far as possible, a complete job which he can finish himself. No one is interested in a task or a process which he begins and someone else finishes. When the job is done, and done well, praise, or at least appreciation, is due to him. If it is done badly, it is the supervisor's first job to find out why. He can then decide who or what is to blame and, if necessary, deal out rebukes. In a co-operative it should be easier than in a private firm to bring about the right atmosphere and the right attitude to work, STAFFING AND PERSONNEL MANAGEMENT 49 precisely because the co-operative has a broad background of social aims, does not engage in class distinctions and has no motives for exploiting anyone. For the same reasons it may be less easy to take, on occasion, the firm but unpopular decision and to give the direct order, though this is also a part of the art of personnel management. STAFF ORGANISATIONS In many Western countries today the formal relations between a co-operative and its staff are only to a limited extent a matter of personal choice on either side. Salary scales, hours of work, holidays, overtime rates, even assignment of jobs to individuals, if not laid down by statute, are likely to be fixed, not between a co-operative and its staff, but by negotiations with trade unions, in which the co-operative may not take part or may be only one among a number of employers. If disputes arise within the co-operative as to whether agreements are in fact being kept, the co-operative will be directly engaged with the representatives of the trade union rather than with its employees as individuals. Many European co-operatives have welcomed this position, particularly those formed by industrial workers, who have experienced the value of trade unions in their own lives. Some consumers' co-operatives have gone so far as to insist that all their employees should be members of their appropriate trade unions, and in so doing have done much to make easier the trade union organisation of shop assistants working for private firms. Some co-operatives have house unions, confined to their own workers. Other societies, those with farmer members for example, accept trade union membership among their employees without going out of their way to promote it. In developing countries, where trade unions are often more political in character, the position may be rather different, and much depends on the stage of their progress and the character and reputation of the particular union concerned. Even where trade unions have been welcomed in the first instance, they may in time develop an opposition outlook of employee against employer. Large co-operative organisations or federations often set up special labour departments, one of whose main functions is to handle trade union relations. They are inclined, however, to concentrate on wages and conditions in the narrower sense, and have not always succeeded in bringing the trade unions into wider discussions of recruitment policy, labour turnover, staff training and promotion, bonus and incentive schemes, joint consultation, personnel relations and the broader economic aspects of industrial problems. To do so, however, would only bring the co-operative movement into line with state industries and indeed 50 CO-OPERATIVE MANAGEMENT AND ADMINISTRATION with the best private firms. A development of this kind would contribute to modify the defensive and even negative attitude which trade unions have built up during the hard past, and induce their leaders to take a constructive interest in a movement which not only gives work to large numbers of their members, but shares with them the same broad social purpose. RELATIONS OF THE STAFF WITH THE CO-OPERATIVE AND ITS MEMBERS In the great majority of co-operatives employees are not members of the society. This is the case in nearly all agricultural societies, for the employee is unlikely to be a farmer. The obvious exceptions are the collective farming and joint cultivation societies where the members work for the co-operative and the only non-member employees are the manager, bookkeeper and any technical experts or advisers who may be engaged. In workers' productive societies it is also in the nature of things that the employees should be members—indeed the only members—of the society, although some productive societies also have non-member employees; these may be either apprentices who have not yet qualified for membership, or manual workers such as cleaners and boilermen, who stand apart from the skilled craftsmen by whom the co-operative was founded. In all these societies the interests of each person as a member and as an employee are the same. In consumers' societies the position is rather different. The employee and his family are all consumers and it seems obvious that they should join the co-operative in which the employee works. If he is a member he also has a vote at the annual general meeting. He may in some countries be eligible for election to the committee. But, unlike the member of a co-operative farm or a workers' productive society, his interests as a member and his interests as an employee are not the same. They may even conflict. In this case, how much influence should he be allowed to exercise in the affairs of the co-operative ? Many co-operatives draw the line at the election of employees to the committee, some limit the number of those who may be so elected. Some make no distinction between employees and other members. It is, of course, easy to say that employees should not be deprived of their rights as consumers. In any case, they are few in number compared with the membership as a whole and it is the members' own fault if they are allowed to exercise undue influence in the society's affairs. In practice, however, the fact that the employees' whole lives are bound up with the co-operative does give them an interest which is keener than, though perhaps not STAFFING AND PERSONNEL MANAGEMENT 51 as impartial as, that of the ordinary member. They come in large numbers to what are often the rather thinly attended meetings of large urban co-operatives, and they may agree beforehand on nominations to committees. In a few instances the boards of societies have been entirely dominated by employee representatives. It is only fair to say that this can happen even if employees are not allowed to sit on the board, for they can elect retired employees or trade union officials. Employee-dominated committees are not necessarily inefficient or self-seeking, but they do confront the manager with, among other things, personnel problems which call for diplomacy as well as strength of character. The real remedy for a situation of this kind is a revival of interest and readiness for responsibility on the part of the membership at large. The normal relations between staff and members are, however, of quite a different character. They are, up to a point, like those between a private business and its customers, but there is, or at least there should be, an added element of shared purpose and co-operative service. In a private business, service must be given or the customer goes elsewhere. In the less well-run co-operatives, the staff may lapse into a bureaucratic take-it-or-leave-it attitude which does not encourage members to do business with the society. The loyalty of members will only be won if the staff are friendly and solicitous concerning their welfare. Petty irritations and discourtesies may send them away to private traders. A manager or shopman with pleasant manners who is obviously helping the member to make a profitable sale or a good purchase will increase the business and the reputation of his society. The arrival of such men in a society quickly pulls it up and their departure pulls it down. Many more of them are needed, especially in countries where the co-operative movement is still young and growing. CHAPTER V PLANT AND PREMISES The first need of a co-operative is staff to run it, but almost equally important is a place in which the staff can work. The law of most countries requires that every co-operative have a registered address. This may in the very early stages be the house of a member, but unless the work of the co-operative is very simple indeed and does not involve the handling of any kind of materials, this will not do for long. Premises of some kind will have to be hired, bought or built. All co-operatives also need some kind of equipment. Even the credit society operated from a private house needs a safe or strong-box in which to keep cash. The simplest collecting point for produce needs a weighing machine. Great importance should be attached to the choice of premises and equipment as regards both their suitability for the work to be done and their cost in relation to the resources of the co-operative. A mistake here may be as damaging as a mistake in the choice of a manager, and much more difficult to correct. 4 CHOICE OF SITE The first question is where the co-operative premises should be established. Sometimes the question contains its own answer, as when a consumers' co-operative, established by the workers in a particular factory or office with the approval of the management, has accommodation offered by the firm. This arrangement allows the members to shop as they leave work, and there is no reason why the offer should not be accepted, provided of course that the whole scheme is genuinely co-operative and not a concealed form of truck. But this is an exceptional case, and as a rule there is more choice and a greater number of factors to consider when choosing. A co-operative which its members have to visit frequently—to buy farm or household requirements, deliver produce or borrow money— should obviously be easy to reach. If possible it should be near the middle of the district where the members live, and accessible by road. Factories for the processing of agricultural produce should be in an area PLANT AND PREMISES 53 where the crop is grown; otherwise the produce may either deteriorate on the road, or members may be reluctant to go to the trouble of delivering it at all. An agricultural marketing society, on the other hand, may have to establish itself in a traditional market town where buyers congregate, rather than in a village where the members live. There have been two opinions as to whether certain kinds of co-operative should or should not be in a conspicuous location. In one view the co-operative should be in the principal business street where most trade is carried on. It should show itself to the world, and so attract fresh members. In the other view, members who are new to business may prefer not to be too much in evidence and borrowers in particular may prefer to think they are slipping unnoticed into their co-operative bank. On the whole this latter view may be regarded as a throwback to the early days of co-operation, and not as a good principle for long-term planning. Much more important are considerations of transport. If heavy loads of supplies or produce are going out from or coming into the co-operative, its premises should be on the best road available. If there is a railway, they should be near the station or at a point where a siding can be built. If transport is by boat they should, if possible, be near a wharf or dock. Needless unloading and reloading, even a few hundred yards of additional road transport for goods arriving by water or by rail, are all costly and time-wasting, besides creating opportunities for damage and pilfering. Sometimes, of course, the advantage of economical transport has still to be weighed against the advantage of a site convenient to members. This is particularly necessary in the case of consumers' societies, the members of which may not want to do their shopping at the docks or in a railway siding, whatever the advantages from the point of view of transport. It may also be necessary to consider how employees are to get to work if the premises are too far from their homes. A co-operative will require other facilities, e.g. a ready water supply; electricity if possible; perhaps some other kind of publicly supphed fuel ; a telephone if trade is on any scale ; and probably a means of disposing of waste. This last may indeed be important. The waste products of agricultural processing establishments—slaughterhouses and dairies, for example—can cause dangerous pollution if not dealt with in the proper way. In the law of some countries certain processes, including some frequently undertaken by co-operatives, are classified as obnoxious and cannot be carried on within a certain distance of dwelling houses. This may limit the choice of a site for a co-operative in such a line of business. Some sites may themselves be dangerous, for example where 54 CO-OPERATIVE MANAGEMENT AND ADMINISTRATION there is a flood hazard. In a number of towns, also, there are municipal regulations which delimit shopping, business, industrial and residential areas, and these again may restrict the choice of sites. When it has been decided what will constitute a desirable location for the co-operative, it is necessary to find an actual site or building. In many—perhaps in most—cases, co-operatives begin with a rented building, but they usually plan to build as soon as they can afford it. This immediately brings in the question of cost. The best sites are usually the most expensive to buy or lease, and carry high rates. Will it be wiser for the co-operative to risk tying up a good deal of capital in a costly site, or to take responsibility for a high rent and rates in years to come, if this will save transport costs or give access to power ? The answer depends on a good deal of careful calculation of gains and losses over a period of years; on various assumptions as to the maximum and minimum amount of trade which the co-operative is likely to do ; on the possibility of selling the land or transferring the lease if a change becomes necessary; and on the availability of other sites and the calculations which can be made about them. Is it better, for instance, to choose the expensive site on a railway or the cheap site which will make it necessary to procure a lorry, pay a driver and buy petrol ? Would the answer be the same if two lorries and two drivers were required instead of one ? In any case, has the co-operative the necessary capital to purchase either site, put up a building and still have resources enough to pay staff and purchase the goods with which to start trading ? Can it obtain a long-term development loan from government or other sources and, if so, at what cost ? DESIGN OF BUILDINGS Some co-operatives are able at the outset to build premises adapted to their own purposes. This is desirable on many grounds, but it is not always possible. There may not be enough capital available. It may be difficult or impossible to estimate how much business the co-operative will be handling in a few years' time. It may even be that experience is lacking as to the best type of building for a particular kind of trade in a particular country or climate. For any or all of these reasons the cooperative may have to start in an old building, and either adapt it or be prepared to replace it at a fairly early date. In buying (though not quite so much in renting) a site or building, it is always necessary to look to the future and make a reasonably optimistic allowance for expansion. Many co-operatives have been handicapped by a cramped site or unsuitable buildings, though a few have suffered from too much optimism PLANT AND PREMISES 55 and from sinking capital in buildings too big for the scale of operations they could hope to achieve. In buying a building it is desirable to have advice as to whether the structure is in good condition and how much will have to be spent on repairs, alterations and redecoration before the co-operative can move in. The minimum requirements are that it should be structurally sound for its purpose; healthy and, as far as possible, convenient for the staff to work in; reasonably fireproof and sufficiently well protected against rats and burglars, if goods are to be stored in it. In some countries a co-operative union or federation may employ an architect full time to give advice on such matters to member societies. This is a valuable service. Such an architect can provide plans for new buildings or alterations to old ones, advise on the plans and estimates submitted by local firms or building co-operatives, and supervise the work actually carried out. In the developing countries the government sometimes makes available the services of architects and engineers in estimating the value of buildings co-operatives propose to purchase or in preparing plans and estimates for new buildings they wish to construct. The advice of agricultural, veterinary and similar departments may also be made available. Without such help, co-operative committees will have to fall back on their own judgment in highly technical matters which the contractor understands much better than they do. One of the ways of safeguarding the co-operative, or indeed any non-expert person who employs a builder, is to call for tenders from several firms, which can be compared with one another. This may provide a check on extravagant estimates, but the builders may also be in a ring. Hence the value of an architect's advice, especially one who is actually employed by a co-operative organisation. It may sometimes be possible for members themselves to take an active part in building or repairing the simpler types of premises. They may be willing to make and lay bricks, lend carts and oxen, help with plastering and painting. Expenses will be saved and enthusiasm for the co-operative will find a satisfying outlet. Some expert direction will, however, be required. There are also cases where the staff have volunteered for this kind of work. The first building which a co-operative puts up will probably have to be designed rather sternly and with utility as its primary objective, but there is no reason why it should be needlessly ugly, badly proportioned or badly finished. A good building, however simple, catches the eye and helps to give a good impression of co-operation. Once the building is up, it costs little to plant a few trees or shrubs, and the improvement is well worth the trouble. In time the trees may serve a 56 CO-OPERATIVE MANAGEMENT AND ADMINISTRATION useful purpose in providing shade for members and their draught animals when they visit the co-operative. The great majority of co-operative premises are planned for two main purposes—office work and storage; some, however, are required as showrooms and quite a number also house production machinery and the power unit which drives it. The design must take into account three main considerations: it must provide adequately for the safety and comfort—and hence efficiency—of employees ; ensure that sufficient and suitable storage space is available ; and make for maximum facility in the movement of materials within the plant. Safety and Comfort of Employees A number of points—e.g. the fencing of dangerous machinery, the provision of drinking water and washrooms, and standards of ventilation—will probably be laid down by law and controlled by factory inspectors. It is, however, important to remember not only that cooperatives should set an example of social progress, but that good conditions mean contented and efficient employees. It is of no advantage to a co-operative that its employees should be working in a bad light, in ill-ventilated, dusty or over-humid rooms, or carrying heavy weights up awkward stairs, even if these things are not contrary to the law. At the same time, it will not be possible to advance too far ahead of the general standards of the country if costs are to be kept within bounds. It should not be forgotten, incidentally, that some part of the cooperative premises will be used not only by staff but by members. The member who comes to pay his account, receive a loan or learn how his produce has been graded should be received in a clean and attractive office, with a counter separating him from the desk space for clerks. He should enjoy a reasonable amount of privacy and have somewhere to sit if he has to await his turn. Some co-operatives whose members have to travel many hours to deliver produce go further and provide a canteen where members can get a meal before returning home or even a room where they can sleep. A quiet, well-arranged boardroom helps committeemen to take their work seriously and raises the importance of the co-operative in their eyes.1 Storage Capacity The co-operative has to make an estimate of what kind of commodities it will want to store, in what quantities and for how long. This entire question is further discussed in Chapters VI and VIII. PLANT AND PREMISES 57 One of the problems of agriculture is that much of the work is seasonal. Agricultural co-operatives may (for reasons discussed in Chapter VII) be doing their members a great service if they can take the whole of their crop off their hands immediately after the harvest. But since the co-operative will probably sell the produce gradually in the course of the next six months, this may well mean that a large warehouse will have to be put up which will be full for three months, half empty for the next three and quite empty for the remaining six. This is an extravagant way of using an expensive building. It may be possible for the same co-operative to handle one or more additional crops, but this depends on whether or not they ripen at different seasons and whether any or all of them require specialised forms of storage. For example, in all modern installations grain is stored in bins, which it would be impossible to use for, say, potatoes. The possibility of multiple use of the same space is probably rather limited, and becomes more limited as storage methods are modernised and specialised. There are other things to consider. Bulk storage of heavy commodities requires a strong building, especially if goods are to be stored on more than one floor. In some countries members refuse to have their produce bulked, and a type of storage must be used which will allow each man's deliveries to retain their identity and perhaps be periodically examined by him. Again, it is necessary to check how supplies are moving and, particularly in the case of goods sold to members, to know at any moment whether there are sufficient stocks in hand or if more must be ordered. This means orderly storage and ready access to goods in store. Some commodities are subject to heating, infestation and other forms of deterioration in the course of storage. It must be possible to inspect them at intervals, to shift and perhaps treat them. Other goods will only keep subject to certain conditions. Cold storage is the extreme example, but ventilation and humidity may also have to be controlled. It is necessary, finally, to make sure that warehouses are as safe as they can reasonably be made from fire, flood, storms, burglary from without and pilferage from within, as well as from common pests such as rats and termites. Movement of Materials A very large part of the cost of any enterprise arises from the movement of materials into and out of storage, e.g. from lorry to weighing machine, from weighing machine to grader, processor and packer, and back to another lorry, perhaps after a period in storage. Even office papers move from desk to desk and room to room. The cost of all 58 CO-OPERATIVE MANAGEMENT AND ADMINISTRATION this movement is heavier than most people imagine, but it can be very considerably reduced if the layout of the building and its approaches are carefully considered and, in some cases, if a certain amount of machinery is installed. If lorries or carts, or both, are arriving and departing in any number, it is necessary for the co-operative to have a yard of its own, shut off from the public thoroughfare. It may be desirable to have part of the yard roofed and to provide facilities such as a petrol pump and a cattle trough. The yard should preferably have a separate entrance and exit. Two lorries meeting in a narrow entry may cause an accident and will certainly give rise to bad temper and to waste of petrol in backing and turning. Time and labour are saved if there are loading and unloading platforms of the right height. This may be different for lorries and carts. Inside the building the routes by which materials will have to travel to the various points at which they are handled or processed should be carefully planned to avoid unnecessary lifting and loading. Where large quantities are handled it may be necessary to install mechanical devices by which bulk products, like grain, are pumped or sucked to their destination, while other products or packing materials travel by moving belts or along overhead rails. A number of small mechanised trucks have also been designed for use on the warehouse floor, which cut down fatigue as well as time. INSTALLATION OF MACHINERY The question of installing machinery in a co-operative calls for very careful thought. There are some processes—such as cotton-ginning and butter-making—which it is almost unthinkable to carry out by hand. There are a number of others, like the transport of goods in warehouses, described above, or the keeping of office accounts, discussed in the next chapter, which may or may not be mechanised. Before deciding on mechanisation in any of these optional cases, it is necessary for committees and managers to ask themselves what purpose it is going to serve. It will certainly save labour, but if labour is abundant this may not be an advantage. It may be cheaper, but this can only be decided after calculating the cost of wages saved against the cost of buying and operating the machine. It may do a better job—fewer eggs broken, or fewer mistakes in the accounts—and it will almost certainly be quicker, a factor which in certain operations, such as getting perishable produce out to market, may make the difference between profit and loss. On the other hand, if a non-perishable seasonal commodity is being handled, it may be a positive advantage to spread processing over a PLANT AND PREMISES 59 longer period and thus keep staff and premises fully occupied. If it is decided that mechanisation is desirable on general grounds, or if some activity is to be taken up which only a machine can do, there are further questions to be considered. Is the machine made in the country where it is wanted ? From what country will it have to be purchased, and will foreign currency be available ? How is it powered ? If by electricity, is electric power available on the co-operative premises, and is it the right current and voltage ? If solid or liquid fuels—e.g. coal or oil— are needed, are they produced in the country ? If not, can they be imported, and what sort of furnace will have to be installed ? Has the machine already been tried out under local climatic conditions and with the particular type of fibre, husk or other raw material processed by the co-operative ? Another set of questions concerns the availability of skilled labour and specialists. The machine, unless it is something quite simple, like an office computer, will have to be installed by or at least under the instructions of a trained man, who will also have to teach the future operatives their job. If the firm supplying the machine has a factory or even an agent in the country, they can probably supply such a man. If he has to be sent from overseas, his services will cost a good deal, but the loss from machinery incorrectly set up and ignorantly handled may be heavier still. If the machine is one commonly used by co-operatives in the country, the central co-operative union or federation may itself employ a fully qualified engineer, who will obviously be the best adviser for member co-operatives. Ability to handle machinery is not a matter of intelligence alone. It depends a good deal on general mechanical experience, which in industrial countries has developed over generations. People new to machines may learn quickly how to use them, but they often use them carelessly. They do not " feel " when something is going wrong, and they are poor at cleaning and servicing. Hence, an unusual number of breakdowns and stoppages. This also must be considered before the machine is bought. How much will inexperienced handling add to the cost ? Will there be anyone on the spot skilled enough to do minor repairs ? How far away will the machine have to be sent, or from where will a skilled engineer have to be fetched if there is a major breakdown ? Where can spare parts be obtained ? How much time is likely to be wasted owing to import formalities, currency restrictions or simple transport delays ? If the process involved is by its nature a continuous one (such as the pasteurisation and bottling of milk for immediate consumption), is it safe to depend on one machine or must there be some alternative in case of a breakdown ? s 60 CO-OPERATIVE MANAGEMENT AND ADMINISTRATION When all these things have been considered there still remains one question: can the co-operative afford the machine ? Has it enough capital to cover the cost not only of an expensive piece of equipment, but of power, lubricants, spare parts and all that is required to keep it running, until returns begin to come in ? Will the co-operative be left with sufficient working capital to buy the raw materials which the machine is to process and to pay the wages of the workers ? If the factory has been financed by a loan, will the society be able both to pay interest and to repay the principal by instalments ? It a co-operative has been founded to carry on some factory process, e.g. the spinning of silk or the milling of flour, it must be supposed that such a fundamental question will have been considered before the co-operative was even registered. It is more likely to be overlooked when an established cooperative decides to mechanise some process hitherto carried on by hand, or to take on some new activity which can only be done by machine. It must also be remembered that if the machine only works for a few weeks or months in the year, the capital tied up in it will be unproductive for the remaining months. It is possible that if it were invested in some other way—in buying or selling unprocessed goods, for instance—it might be turned over several times in the same period and earn a higher income for the society and its members. UPKEEP, DEPRECIATION AND REPLACEMENT All machinery wears out sooner or later, and in time must be replaced. Towards the end of its life it may break down more frequently, require more replacements and generally become so costly to run that it may have to be replaced even if it is not actually unusable. Provision must be made for the time when this becomes necessary. This is usually done by " depreciation ", i.e. by making an annual deduction from the value of the machine as it stands in the books of the co-operative, and creating a replacement fund or reserve ready to meet the cost of the new machine. There are various ways of deciding what deduction to make each year, but they are all based on the expected " life " of the machine, less its scrap value at the end of that period. There are several variables. The machine's life may depend on how much it is used and how carefully it is handled. The cost of replacement will depend on whether prices for machinery are rising or falling. This is a subject on which the co-operative's auditors, the makers of the machine, and the co-operative engineering consultant, where there is one, should all be consulted. Not only machinery, but buildings, vehicles, furniture and office equipment all have to be depreciated. The furniture, equipment and PLANT AND PREMISES 61 vehicles will in time wear out and have to be replaced. The buildings will have to be repaired and redecorated at regular intervals, depending on climate, the use to which they are put and the materials of which they are made. They may at some future time have to be pulled down and completely rebuilt on a large scale. A special building fund may be created for these purposes. Many co-operatives and other businesses go further and use the device of depreciation for the creation of " hidden reserves ". The book value of a building is depreciated 5 per cent. every year, and in 20 years a building which is still quite sound and may even have grown in value will be standing in the society's books at next to nothing. In countries where co-operatives pay income tax this practice is very popular, as no tax is charged on profits retained for depreciation (although a limit is placed on the amount which can be treated in this way). A prudent policy on depreciation is also desirable in any co-operative where the members are too eager to see all the surplus distributed to themselves as bonuses on business done and unwilling to vote money to reserve. Of course, such a policy implies that the building or machine must earn enough to pay for its own depreciation before any surplus can be made available for distribution. As well as being depreciated to provide for normal wear and tear and obsolescence, buildings, machinery and vehicles must be insured against exceptional disasters—obviously against fire, and possibly also against floods and storm damage. Valuable stocks in a warehouse may also have to be included. Movable property and cash may have to be insured against burglary. All this may entail appreciable expense, but it would be reckless to leave a co-operative and its members exposed to the loss which would result, say, from the burning down of a warehouse full of members' produce. In many countries there are already national or regional co-operative insurance societies prepared to cover risks of this kind on the best terms available. Such insurance societies usually reinsure at least a part of their risks, sometimes with a national co-operative insurance society in another country. Though all plant and premises must wear out in time, much can be done to delay the process for as long as possible. It cannot be repeated too often that all co-operative premises should be properly and continuously maintained in good condition; wood and iron work painted; plaster whitewashed, roofs regularly inspected for faults, floors swept and scraped, machinery serviced at frequent intervals and minor repairs immediately and correctly carried out. If all this is done systematically, buildings and plant will last for many years and will present a pleasing appearance which will attract business and put the staff in the right frame of mind for efficient service. 62 CO-OPERATIVE MANAGEMENT AND ADMINISTRATION LAYING OUT A CO-OPERATIVE ESTATE So far the subject of plant and premises has been treated as though a single co-operative were planning (and from time to time replanning and reconstructing) its own establishment, possibly with the help of architectural and engineering consultants made available by a national co-operative federation, possibly after visits by the manager or committee to other co-operatives having already solved similar problems with success. A rather different idea is perhaps worth considering. It is that co-operatives with the same general objects but with many different functions should group themselves in a single estate, perhaps on the outskirts of the town in or near which their members live. Several consumers' co-operative wholesale societies have grouped their offices and factories in this way. Elsewhere all the agricultural co-operatives of a district have been grouped on one large site—the cotton ginnery, tobacco warehouse, fruit cannery, fertiliser store, the depot for agricultural machinery, the transport pool and repair depot. There will probably be a central office block housing the co-operative bank, with meeting rooms for committees and training courses and perhaps also with a library. There may be houses for some of the co-operative employees, a canteen for workers or members, a dispensary or small hospital, and perhaps a church or a temple. The estate may be the property of a federation of the societies which occupy it as tenants, or perhaps a single society such as a regional bank may be the owner and may lease sites or buildings to the others. This plan may not be applicable everywhere, but it has its attractions, both as a business convenience (cutting out journeys, allowing for pooled services, making possible easy consultations between, for example, marketing and banking societies) and as a demonstration of the co-operative idea. CHAPTER VI OFFICE ORGANISATION AND METHODS Eveiy co-operative, no matter how small, no matter what its purpose, has an office. It may be no more than a room with a safe, a list of members, a rule book, a minute book and a cash book, a chair, a table and a man sitting at it. It may, on the other hand, include several floors of a large building, with hundreds of clerks, each carrying out a special duty, with specially designed books, forms and files, using specially adapted office furniture, elaborate machinery for recording, reproducing and calculating, and working to routines and procedures which are the result of years of experience and high-level managerial thinking. IMPORTANCE OF OFFICE WORK In either case the office is essential to the existence of the co-operative, for it is the brain and nerve system of the whole organisation. Every business transaction, whether with the co-operative's own members or with private business firms, contractors, federal co-operatives or public authorities passes at some stage—and probably at several—through the office, where it is checked, sanctioned and recorded. The same applies to communications between different departments of the co-operative itself. The chief accountant may comment on the marketing department's estimates for a new processing plant, or the cleaner may apply for a new broom from the storekeeper, but they both do it through the office. The office also handles all cash, a vital and responsible duty, and records all money transactions, thus providing the figures on which the accountants and afterwards the auditors can work. All the documents recording quantities and qualities, instructions, administrative action, receipts and payments are preserved as long as they have any connection with the current work of the organisation, and this means that the office becomes a kind of human brain, much more capacious and accurate than that of any individual. If it is properly managed, it can at any time give a report on how a transaction or a complaint began, what were the levels of stocks or prices a year ago, which member can be trusted with a loan, how long it is since the lorry was overhauled, or which employee is due for a rise in wages. It is on the 64 CO-OPERATIVE MANAGEMENT AND ADMINISTRATION basis of the facts and figures recorded by the office that plans for future work are drawn up, and when the plan goes into action it is the information which is being continuously collected and sorted in the office which enables the manager and committee to judge whether the planned quantity of goods is in fact being made or sold, whether the cost of raw materials is higher than expected, whether staff are overworked or idle, whether, in short, the plan is going well or running into difficulties. Certain kinds of co-operatives—credit societies, banks and insurance societies—may be said to be all office, since they do not handle actual goods, but only money and records. Their job is to receive and record share payments, deposits, premiums, payments of interest and repayments of loans; to check applications for loans or claims for insurance; and to sanction and make payments. Any idle money in their hands they invest in a way that will be safe and profitable both to the members and to the co-operative, and will still leave it with the liquid resources to meet unexpected demands. If such co-operatives have any employees who are not office workers, they will be valuers or assessors, whose business it is to see that the land, offered as security for a loan is of the value stated, or that the well for which the loan has been asked will in fact improve it; that the fire has really burned the insured premises to the ground (and was not started by the owner) and that the insured animal is really dead. Apart from these activities, all is office work, and on this the whole success of the co-opeiative depends. For such societies it is clearly of the first importance to have a system of office organisation and management which is efficient, economical, adapted to the particular functions carried out and yet flexible enough to meet new demands. In co-operatives mainly engaged in trade, marketing or production, where all the vital work may seem to be carried on in mills, shops or factories by manual workers and technical managers, the office may be looked on chiefly as the servant of the other departments, and the importance of devoting careful study and the best brains available to the way in which it is run may not always be recognised. There may even be a feeling among the technical men that the office should be kept in its place, and the servant never be allowed to become master. This is a short-sighted and mistaken attitude which should never be adopted by a committee or a general manager. There are plenty of examples of how poor office work can wreck a co-operative, even if it has a highly competent technical manager. Serious thought should therefore be given—and given early—to the organisation and working of the office before a less than efficient system has grown up and becomes someone's vested interest. OFFICE ORGANISATION AND METHODS 65 CHOICE OF AN OFFICE SYSTEM Co-operative office administration is probably in most cases based on the system used in commercial offices in the same country. This may not be wholly suited to co-operative requirements, to the type of worker employed, the special relations with committees and members, or the kind of business carried on. In such cases there will have to be adjustments, but these should be the outcome of experience and careful thought. Changes and relaxations which creep in unnoticed may distort the system rather than improve it. In some countries the link between co-operatives and the government is very close. Co-operatives may have been sponsored by a government department or used to carry out government policies, such as food control or the development of national resources. They are subject to government audit and supervision. As a result, though they may engage in some commercial practices, e.g. in handling money or stocks, their general office system is fairly closely modelled on that of a government department, with the emphasis on order and security perhaps more than on commercial flexibility. Before deciding on a system of office administration, it is necessary to consider what exactly the office will have to do. All office work is primarily a matter of communication and record. The simplest form of communication is by word of mouth. It is still very much in use, even in modern business, where simple instructions to subordinates are given verbally and much more complex negotiations take place in personal interviews or over the telephone. But matters of any importance, matters involving money or matters which may afterwards give rise to disputes must always be recorded as soon as possible in writing, a copy sent to whoever was the other party to the conversation, and the record preserved. This process is standard co-operative practice. The decisions of the committee are minuted. The member receives a certificate or a passbook in exchange for the shares he subscribes, a receipt for the produce he delivers, probably with a note of weight and grade, an invoice and later a bill for the supplies he purchases, or a cash receipt if he.buys them over the counter. The use of written communications internally may not perhaps be so familiar to co-operative members, but the charge hand mixing a compound feed in the mill will expect a written list of ingredients and quantities. The warehouseman will not issue goods to the customer or lorry driver without a written order, and the lorry driver will expect a delivery list telling him what to deliver and where. If his lorry breaks down, he will expect the garage to give him a written statement of exactly what repairs were necessary and the cost. This may not 66 CO-OPERATIVE MANAGEMENT AND ADMINISTRATION be true where many illiterates are employed, but this state of affairs is passing, quickly or less quickly, and co-operatives must assess their needs and determine their practices with an eye to the future. EXTERNAL COMMUNICATIONS All such internal messages and records, whether sent out by the office or eventually finding their way to it, are part of a system which the co-operative has devised in order to keep control of its own activities. But it will also be transmitting and receiving communications to and from the outside world. If it is a trading co-operative it will receive orders by post or telephone as well as over the counter, and they will later be followed by payments. It will itself order supplies of raw materials or finished goods, probably after first asking for quotations, and later pay for them. It may have to seek purchasers for its members' produce, agree on a price and arrange transport, perhaps to another country. It may receive communications—such as complaints from members—which raise unforeseen problems rather than advance the work of the co-operative. It will certainly receive communications from government or other official bodies, forms to be filled in and returns to be made. Some communications call for simple, immediate action of a routine character. The order for goods goes, with the necessary authorisation, to the warehouse or dispatch room, and the goods, accompanied by the proper papers, leave by the first lorry. In other cases a decision is called for. Should the builder's estimate be accepted ? Is the member's complaint justified, and should the careless employee be reprimanded or even dismissed ? Someone in authority will have to be consulted. He will probably call for information on the past history of the affair, and when he decides to take action it will, in one way or another, be once again through the office. A great many communications, as already noted, are concerned with money transactions. Some contain money (including cheques) coming in or going out. Some are agreements to pay money, some are receipts for money already paid. All these must be carefully recorded, and in due course the records passed to accountants. Where money is actually handled, there must be safeguards against loss or misappropriation. DIVISION OF FUNCTIONS It will be obvious from the foregoing that the work of an office includes a large number of different activities and calls for employees at different levels of intelligence and responsibility. In planning an office OFFICE ORGANISATION AND METHODS 67 and assigning duties, it is necessary to consider first how much work of a responsible character will have to be done, and how much that is mechanical and repetitive; and also how many hours of work a day or week each function is likely to entail. This will give a rough indication of the number of office staff required in different grades—senior clerks, secretaries and cashiers, junior clerks and typists. The object must be to keep the business of the co-operative as a whole moving at a steady pace, and it is the concern of whoever is in charge of the office to see that the work of other departments is never held up by the inability of the office to cope with the paper work. It must be remembered, however, that much co-operative work is seasonal and that if the office is to deal efficiently with all the work just after harvest or just before audit, there will have to be careful spreading of some of the work which does not have to be done according to a rigid time schedule. Otherwise slack periods will have to be expected and the cost faced. When a staff of the right size, and as far as possible with the right kind of skills, has been appointed, it will be necessary to decide who is to do what, and in particular how the work can be split up in a way which will allow it to be carried out smoothly and accurately. Sometimes, in a large society a group of workers under a sectional head may be engaged solely on one operation—dealing with orders, for example, sending out accounts, or recording the level of stocks. In a small society one senior clerk may deal with two or more operations, though he may have juniors under him who are dealing with the mechanical side of only one. The details of the way in which work is divided depend on the nature of the business and to some extent on the staff available. But the division of responsibility must be clear. There will be other individuals or groups who are not concerned solely with one particular phase of the business but are serving the office as a whole. One such service is the handling of all incoming mail, opening, sorting and passing it on to the appropriate sections or departments. This should be completed early in the day, or time will be wasted. Another, or probably the same individual or section, will deal with outgoing mail, seeing that letters and enclosures are put into envelopes, properly stamped and dispatched. This sometimes means keeping mail clerks working late, but those who send out letters should be trained to complete them well before the office closes. The method of dealing with internal communications varies with the size of the organisation. It may be one of the office boy's jobs, or there may be a special messenger service. The aim is to keep papers moving, to see that they go where they are wanted as soon as possible and stay there no longer than they are needed. 68 CO-OPERATIVE MANAGEMENT AND ADMINISTRATION Typing and duplicating may well be a service at the disposal of the office as a whole, though the clerks in the invoicing and accounts sections will probably have their own typewriters, which may be machines specially designed for these purposes. The general manager in any large organisation will have his private secretary, and so will departmental managers in organisations like co-operative wholesale societies. A very important activity which serves the whole organisation is the fihng of papers. This is not a job for a junior or a person of limited intelligence. The filing system is the means by which the memory of the co-operative works. It must be designed so that every document of value is not only preserved but is so placed that it can be found again without fail when wanted. This is partly a matter of equipment—e.g. filing cases and cabinets—but even more of a logical system of classification, clearly laid down and easy to understand and use. When a really good system is devised, half the battle is won; but the other half depends very much on the clerk who has to decide where each document is to be placed. This calls for accuracy but also, in the many doubtful cases, for considerable intelligence. In addition, control must be exercised over the issue of files to people who have a right to consult them and over their safe return; and particularly close check must be kept on the removal of single documents from thefilesto which they belong. Without such control, documents are lost or misplaced and cannot be found when they are urgently needed. HANDLING MONEY Handling money or documents dealing with money calls for a high degree of accuracy, because it is a vital part not only of the co-operative business but of the business of individual members and of outside firms who will be quick to detect and resent a mistake. It must also be faced that money transactions offer temptation to the staff which some—the young and the low-paid, those with family problems, those who have got into difficulties through gambling or extravagance—may not be able to resist. This is a problem which faces other businesses besides co-operatives, and there is no one answer to it, but some points should be borne in mind which have a bearing on office organisation. Any employee receiving money, whether it is paid to him by a member in cash for goods received or is taken out of an envelope in the form of a cheque 1 from a wholesale firm, must see that it is immediately recorded. 1 The use of crossed cheques and postal orders by all those with whom the cooperative does business should be encouraged, but it may be a long time before this becomes a common practice among members. OFFICE ORGANISATION AND METHODS 69 Any money which goes out must be recorded in the same way. In shops cash registers are used to record money received and change given. Receipts and payments made through an office are more likely to be recorded in books. All money received should be banked as soon as possible, preferably on the day it is received. In village societies in some countries this may be difficult, as there may be no bank, or it may open only on certain days, when a travelling cashier is on duty. In that case, a safe must be used, to which only a senior employee, probably the manager, has the key. It should be an absolute rule that all money required for payment to members, for wages, for giving change or for any other purpose should be drawn from the bank. It should not be taken from unbanked money which the co-operative has received, since this only too easily leads to confusion, uncertainty and losses, which may be quite unjustly attributed to dishonesty among the staff. It must be admitted, however, that where co-operatives are established in remote districts with no local banking facilities, it is difficult to avoid this regrettable practice, especially if the alternative is to keep dangerously large quantitites of cash on the premises for long periods. In the second place, accounts must be kept in such a form that they can be checked both internally and against statements from the bank, and this checking should take place at frequent intervals—daily in large co-operatives, weekly or at least monthly in small societies without frequent access to a bank. An error or discrepancy which is only a week old can usually be traced without much trouble. An error which has remained undetected for months may take many people many days to discover. If it is no more than an error, this will be an expensive waste of time. If dishonesty is revealed, then it is only too likely to have grown and spread ever since the first lapse went undetected. Money and money matters should never be handled by one employee alone. Two clerks working together should open the letters which may contain cheques, and note the contents. Two senior officials should sign the cheques: the cashier and the manager or the manager and the chairman. It is the same with account books, which can sometimes be falsified to the accountant's advantage. If two work together these things cannot happen unless they are in collusion. It should perhaps be noted that what has been said about money also applies to stamps, and therefore to those working in the mailing section. These safeguards protect the co-operative against possible dishonesty on the part of the staff. They also protect the staff against unjust suspicions. If an envelope said to contain a postal order in fact arrives empty, two witnesses are better than one. 70 CO-OPERATIVE MANAGEMENT AND ADMINISTRATION WAGES AND STAFF RECORDS A special section of the financial service is that dealing with the wages of the staff. In a small co-operative, this function may be combined with some other responsibility, but in a large organisation, especially one with many manual workers, such as packers and graders, the calculation and payment of wages may occupy quite a large staff doing nothing else. In some countries all wages are paid monthly; in others it is usual to pay junior or manual workers weekly, and senior staff monthly. The weekly wage may be a fixed amount based on a week's work, or it may be a piece rate depending on the number of baskets made or yards of cloth woven, in which case the data will be recorded in the workshop and the record sent to the wages department. Some cooperatives may pay overtime compensation, probably at a higher rate than the standard wage. Some make deductions for injustified absence from work. Many co-operatives have pension or provident fund schemes, of which the co-operative bears half the cost, the other half being deducted from the employee's regular pay. In some countries there are national health or pension schemes, the employee's contribution to which is deducted from his pay. In such countries the senior employees at least will be liable to income tax, which may again have to be deducted from their pay. All this means that the calculation of the sum of money which each individual is to receive on pay day is quite a complicated matter, in which accuracy is essential. It also means that each pay packet has to be made up individually, for even when two men have been engaged at the same basic rate, the number of their dependants, the amount of overtime they have worked and the taxes they have to pay may all be different. In addition to keeping records of the wages paid to the staff, cooperatives in most countries keep other records concerning their employees—date of appointment, promotions, holidays, illnesses and accidents, training courses attended, number of dependants, and perhaps other things. These records are confidential: they should be kept under lock and key and seen by as few people as possible. PLANNING AND COSTING Much that has been said in earlier chapters about the principles of management, personnel administration and premises applies equally to office administration and need not be repeated here. Office work needs to be planned like any other business operation; standards of OFFICE ORGANISATION AND METHODS 71 work must be set, output norms must be laid down in the case of repetitive operations (the number of invoices which should be made out in an hour, for instance, can be estimated) and performance must be checked against the plan. If there are shortcomings, the cause must be traced. Has too much been demanded ? Are two sections out of step with one another ? Is someone slack on the job, or has an instruction been misunderstood ? The cost of all office work must be carefully watched. There is often a cheaper and a more expensive way of doing the same thing. The more expensive way (probably by machine) may be quicker, but does speed save the co-operative a larger sum of money than the machine costs ? Use of good quality stationery may add prestige but will the members not prefer a higher bonus ? Even after a decision about the machine and the stationery has been made, office costs can get out of hand if they are not carefully watched. It is for this reason that it is advisable to prepare a budget of office expenditure for some time ahead, and if it is exceeded check very carefully as to whether there was any good reason for the excess expenditure. A watch must also be kept for waste, especially of stationery, and for spoilage of stationery carelessly stored. In tropical countries special care may be necessary. If any machinery is used, that too must be properly cared for, or it will quickly become unserviceable and have to be replaced. Apart from these essential checks on the way work is being done, it is necessary to consider from time to time, and not too infrequently, whether it should be done at all. Offices are very apt to settle into routines and to go on performing functions or collecting data which no longer have any meaning and could be dropped without detriment to the work of the organisation as a whole. Someone may have been told to send the manager a daily list of the price of potatoes in six different markets, and he may go on doing it for years after the co-operative has decided to sell all its potatoes by auction on its own premises. Even a new activity which was expected to be useful may turn out in practice not to be worth the time spent on it. A sharp lookout should be kept for such pointless jobs ; they should be cut out firmly and the workers transferred to something more useful. In some countries the only person to take a fairly detached view of the working of a co-operative office may be an official of the government co-operative department. He should be able to observe and point out when the accepted system is being inefficiently carried out. It is desirable that he should also consider continuously how far the system itself is meeting changing needs, but this he may not always be qualified to do. The general principles of personnel management are the same for 72 CO-OPERATIVE MANAGEMENT AND ADMINISTRATION offices as for factories and warehouses. The staff should work in healthy and comfortable conditions; their work should be explained to them; they should be selected for the jobs which they are likely to do best, and there should be reasonable chances of promotion. The most distinctive feature of personnel management in offices is perhaps the nature of the responsibilities entrusted to those who are handling, on the one hand, money and, on the other, confidential documents referring to the private affairs either of members of the co-operative or of the staff. In making appointments it will be necessary to look for the type of mind and character best fitted to assume these responsibilities. Some office staff will also be more often in personal contact with members than are, for instance, packers or boilermen, and this again calls for a special kind of personality, courteous and tactful, and for a mind which can grasp the broad principles of co-operation and bear them in mind in all dealings with members. It is perhaps worth noting that, in countries where women have up till now played only a minor part in business, it is in the office that they are hkely to make their first appearance. Girl clerks in a co-operative office have often played a pioneering role in this way. LAYOUT, MACHINERY AND EQUIPMENT It might not be necessary to add much to what has already been said in the last chapter concerning plant and premises, were it not that many people who would readily admit that the layout of a factory is an engineering problem may look upon office arrangement as little more than a matter of furnishing a room. This is an erroneous view. Much depends on lighting and ventilation, on the proper siting of desks and machines, on so arranging matters that work flows steadily in the same direction, and that papers do not have to travel back and forth from one room or desk to another. People working on the same job must be near enough to talk to each other without having to move about; people who have to make a noise, either with machines or by calling numbers aloud, must be separated from those who need silence to think or calculate. The office itself must be clean and orderly, and if it can be pleasantly decorated, so much the better. The question of office machinery can only be answered in terms of the needs of each organisation, and the questions to ask are much the same as for any other machine. Why is it wanted ? Could the work be done as well and as cheaply by hand ? How much will the machine be used ? How far can people be trained to operate and service it ? How easily can it be repaired if it goes wrong ? At a fairly early stage most co-operative offices begin to use typewriters and cash registers; OFFICE ORGANISATION AND METHODS 73 these may be followed by chequewriters, tabulators, the simpler types of calculating machines, and by duplicators if the co-operative frequently needs to reproduce documents in large numbers. Beyond that many co-operatives will never need to go. Some large ones do in fact equip themselves for fully mechanised accountancy and with machines which can rapidly provide the statistical answers needed for planning policies and taking decisions. How many farmer members with less than 50 acres of land have more than the minimum shareholding in the society ? Which months showed the highest sickness rate among employees over the last ten years ? In some cases it may be very useful to know these things, but it might take a clerk a long time to produce the answers. With a punch card system and the right kind of machine, the answer required might be on the manager's desk in half an hour. But such machines are costly, and the kind of questions they answer may not be asked very often. A co-operative which is in doubt as to the wisdom of mechanising its office would do well to seek out another, probably larger co-operative in the same country, doing the same kind of business —perhaps a wholesale or marketing federation which has already used such machinery for some time—and benefit from its experience. In some cases, of course, a national co-operative organisation may have made a study of the whole subject and may be able to offer advice. Such a study might well be made in advance of any widespread demand for information, since the mechanisation of office work is spreading to the co-operatives of Latin America, Asia and Africa more rapidly than is always realised. One other type of office equipment should be considered, namely the books, forms, index cards and other stationery used. Co-operative federations have often designed model books and forms suitable for use by their affiliated societies. Elsewhere these have been designed by government departments, and co-operative manuals illustrating all the most commonly used forms and accounts used by co-operatives are usually revised periodically. Care should in all cases be taken to see that models of this kind do not become out of date, and criticisms from societies that use them should always receive attention. A co-operative breaking new ground, e.g. by taking up some new activity not previously carried out in the country, may well have to design its own records and perhaps later alter them in the light of experience. POOLING SERVICES In countries where most co-operatives are small and many have difficulty in finding office staff with even the minimum qualifications, a 74 CO-OPERATIVE MANAGEMENT AND ADMINISTRATION good deal of consideration has been given to the possibility of pooled office services, especially in the field of accountancy. There are obvious difficulties. At least the basic cash entries must be made in the society itself, and it is here that errors often creep in. It may be difficult to get these basic records delivered regularly to the larger organisation which centralises the accounts. In any case, local responsibility is apt to be weakened. The possibility is still worth considering in certain circumstances. A quite diiferent development of the same idea is the proposal, now being discussed in some countries where there are large co-operatives with offices fully equipped according to the usual standards, that several societies should combine to install a federally owned electronic computor, to which all their accountancy could be transferred. Such machines are very costly and have an enormous capacity for work, so that it is only by some such federal arrangement that their acquisition could be made to pay. This lies a long way ahead for most countries, but the idea itself is typically co-operative. At any rate, the need for a continuous study of office methods and procedures by some central cooperative authority, which can make its conclusions available to local societies, has already been made sufficiently clear. CHAPTER VII MARKETING The object of co-operative marketing is to sell, to the advantage of the producer, products surplus to his own needs and those of his immediate neighbours. The great majority of marketing co-operatives deal with agricultural produce, though some handle fish (which raises very similar problems) or the output of cottage industries. The reason for setting up a marketing co-operative may be that the farmers (or fishermen) who wish to become members have hitherto produced only for themselves and their own village, but that with improved methods they could produce more if they had any means of getting their crop to market and selling it at a profit; it may be that they are already selling, but to middlemen who exploit them by giving false weight, paying low prices, or advancing money at high rates of interest; or it may be that the existing marketing system, though it may not exploit the producer, is still out of date, involves re-handling by too many middlemen and fails to give the producer the best return possible. It follows from this that, in almost every case, the marketing cooperative has not only to provide an alternative to the merchant, who is already in business, but has to provide a service which is noticeably more efficient. If it is only about as efficient as the merchant, it may be possible to divide the profits of exploitation among the members, but such profits may not be as large as the members expect. If it is less efficient, there may be nothing to divide at all. KNOWLEDGE OF COMMODITIES In setting up a marketing co-operative the first need is a knowledge of the commodity to be handled. This may be anything within a very wide range of produce—grain, dairy produce in all its forms, livestock or meat, eggs and poultry, fruit and vegetables (either fresh or dried), fibres like cotton, silk or wool, coffee, cocoa, wine, sugar, tobacco, oilseeds and other items of less importance. Before these can be handled successfully, someone must be found who knows how to judge the qualities of rice, tobacco or wool, and grade deliveries as they come in ; 6 76 CO-OPERATIVE MANAGEMENT AND ADMINISTRATION who also knows what the usual grades are likely to be in the district, what quantities are likely to be available and at what times of the year; whether the product is perishable and under what conditions it can be stored; what the existing system of marketing is; whether producers are paid in advance or after sale, before or after grading; what happens to the produce when it leaves the district; whether it is processed, and if so, when and where ; who are the final consumers, and what are their tastes. On the basis of knowledge of this kind it is possible to plan a cooperative enterprise able to handle one or more stages in the marketing process. How much should be attempted will depend partly on the commodity and partly on the resources—especially the financial resources—which the co-operative can command. The simplest form of marketing calls for little equipment besides a building with a good floor and roof, a weighing machine and some containers—sacks, boxes or baskets—in which the crop can be shipped on to the consumer. It may be worth while to have a lorry either to collect produce or to take it to the railway, or both. The staff may consist of a manager-grader, a secretary-accountant, a driver and one or two porters. MARKETING FINANCE The scheme just described sounds not only simple but cheap, but it leaves out of account a very important question of finance which is sometimes forgotten by co-operative beginners. Farmers who sell their produce almost always expect to be paid immediately. Some may be prepared to accept, say, two-thirds of the price and wait for the remainder till the crop has found its final purchaser. Many more, on the other hand, expect to receive an advance, perhaps when the seed is barely in the ground and the fruit unformed on the tree. The cooperative, however, will have to wait for its money. It may not be able to sell immediately and the crop will have to be stored. It may be selling in a distant market and there will be transport costs. It may undertake processing and there will be fuel and labour costs. It may sell to retailers who are slow payers. Capital to cover this waiting period and the costs that may go with it is one of the most serious needs of the marketing co-operative. It may be met in various ways. If the members are fairly prosperous men, they may subscribe substantial share capital. In time the co-operative will accumulate reserves, and it will be in a position to go to an ordinary bank and ask for an overdraft for a few months. It may obtain this more easily from a co- MARKETING 77 operative bank or, in some countries, from government funds available for promoting agricultural business. Alternatively, there may be a co-operative credit society in the village, of which the farmers belonging to the marketing society are also members. In such a case the cooperative itself may not make any payment on delivery but may give the member a receipt for the produce received. He will take this receipt to the credit society, which will make him a loan secured on the receipt, the latter being deposited at the credit society's office. There is, however, the further problem that in many countries farmers not only want to be paid in advance but need to borrow for cultivation expenses. Such loans can be obtained from money-lenders, generally on condition that the crop is delivered to the lender for sale. Arrangements of this kind mean that little produce reaches the marketing co-operative. The co-operative can itself make cultivation loans to members, but if it operates, as is often the case, over a fairly wide area, it will find difficulty in supervising the expenditure of the loan as well as in securing deliveries at harvest time. An alternative plan is to link credit with marketing by coming to an arrangement with local cooperative credit societies, under which they become members of the marketing society and make loans to farmers on condition that the crops raised with the loan are delivered for sale to the marketing society, which is then authorised to repay the loan to the credit society from the proceeds. CONTRACTS TO DELIVER It is very much to the advantage of the co-operative that it should be able to count on receiving the whole of each member's output, apart, of course, from such produce as he and his family consume at home. If the co-operative knows what deliveries to expect and can count on them for a number of years ahead, it can plan its premises, processing plant and staff accordingly, and count on full use being made of them. For this reason there are many countries in which the member, on joining the co-operative, is either bound by the rules to dehver all his produce to the latter or signs a special contract pledging himself todo so. There is much to be said for this arrangement which, among other things, makes it easier for the co-operative to borrow for capital equipment. There are also arguments on the other side. In some countries the law does not allow for the enforcement of perpetual contracts of this kind, though it would enforce a contract over a few years. Even if the contract is enforceable, it would be impossible for the co-operative to prosecute any considerable number of its own members who might be tempted to break away by offers of higher prices from private merchants. Finally, 78 CO-OPERATIVE MANAGEMENT AND ADMINISTRATION it has been argued that an assurance of continual deliveries for which no effort has to be made may lead to the society itself becoming slack and offering less than a fully " competitive " service. A rather different method is adopted in some Asian countries. The local credit society selects one of its own committeemen as marketing officer, with the task of supervising the use to which loans are put and seeing that the crops produced are delivered to the marketing society. He is regarded as the agent of the marketing society and receives a small commission on the produce delivered. This arrangement has been found useful in places where even members of a marketing cooperative and a local credit society are unwilling to abandon the trader to whom they and their forebears have always delivered produce, or where they are in debt to him, or where they are simply careless or selfwilled. Arrangements will have to be made for the physical process of delivering produce. Much of it no doubt will be brought in by members themselves, especially in the case of seasonal crops. Where, however, perishable produce has to be delivered daily, often by a certain hour (as in the case of milk or soft fruit) or weekly (eggs), it may be more economical for the co-operative to arrange for collection by lorry. The lorry can cover a good deal of ground in a day, picking up small quantities from a large number of members, and so keep up a steady flow of supplies. It should do away with late and irregular deliveries, which can be almost as troublesome as no deliveries at all. The lorry may not be able to go to every village, still less to every farm, as many will not be on hard roads. Cans of milk and cases of eggs or vegetables can, however, be brought to collecting points at the roadside, at which simple platforms can be built to make the work of lifting them onto the lorry quicker and easier. WEIGHING AND GRADING It goes without saying that all produce must be weighed on arrival. In some countries local weights and measures are unstandardised, and even if government regulations exist they are often evaded. A cooperative does its members an important service simply by using weighing machines and standard weights. In most cases produce must also be graded. Sometimes this is a matter of precise semi-scientific testing as for example, in the determination of fat content or purity of milk; in other cases—e.g. determination of the weight and freshness of the individual egg—simpler tests will suffice. Sometimes grading operations are mechanised, as in the weight grading of citrus fruit. In other cases MARKETING 79 expert graders, trained by long experience, use their eyes, their fingers and sometimes their nose. If the quantities delivered are large, they base their judgments on samples. Cereals are judged largely by shape and colour, fibres by length, colour, lustre and strength, livestock by formation of the body and evidences of health and age. Division by grades is not wholly a matter of good and bad. Sometimes different grades serve different purposes. There is feed barley and malting barley; fine wool goes to the weavers and coarse wool to the carpet makers. Much of the art of marketing lies in recognising the best uses to which a given sample can be put, and knowing the markets in which it can be sold. A few kinds of produce—soft fruit, for instance— are too delicate to bear being handled twice and must therefore be packed before they leave the grower's holding. In such cases members have to be trained to do their own grading and to understand that in the long run they will not do themselves any good by putting the best fruit on the top of the basket. In all other cases it is very much to the advantage both of the cooperative and of the farmer-member that his produce be not only graded, but pooled, by the society. Selling large quantities of produce of a uniform grade to manufacturers or retailers is much more profitable than selling small lots, each perhaps including produce of different qualities, to wholesalers who will themselves grade, pool and take the profit on the operation. MOVEMENT AND STORAGE OF PRODUCE Almost all produce moves in containers of some kind—sacks, boxes or baskets (although in highly mechanised countries grain sometimes moves all the way from farm to mill in bulk). Containers will almost certainly have to be supplied by the co-operative, if not to members on their farms, then at least for the movement of produce from the cooperative to mill or market. Sometimes the co-operative can make its own containers, and the making of boxes or baskets from local materials may give some welcome employment to local people. In most cases, however, they will have to be bought. They may be either " returnable " or " non-returnable ". A strong box or sack may make several journeys before it falls to pieces, and its life may be lengthened by mending. This looks like an economical system. There is, however, a good deal of trouble involved in seeing that empty containers really are returned. Some are lost or pilfered, and in any case transport costs have to be paid. The tendency now is, wherever possible, to use " nonreturnable " containers—strong paper sacks, cardboard boxes, rough 80 CO-OPERATIVE MANAGEMENT AND ADMINISTRATION nets woven of local materials—and to use them once only. In deciding what kind of containers or packing to use it must, of course, be remembered that some products are liable to be damaged by temperature during transport, to be frozen or overheated, and should be treated accordingly. Produce, unless it is perishable, will not always be sent to market as soon as it is received. It may indeed be one of the main purposes of the co-operative to store produce immediately after the harvest and only release it gradually, thus preventing a glut and a consequent heavy fall in prices. It is necessary to have some idea of how long a given commodity can safely be held before deterioration sets in. The type of store required, the desirable temperature and degree of humidity, the facilities for inspecting stocks as well as for receiving and dispatching will vary with the commodity and, to some extent, with the climate. No general rules can be laid down and the best advice available must be taken. It must be faced that some commodities lose moisture in storage, and therefore the weight will be less after some months than it was when the member delivered his crop and received payment for it (although in some cases payment is made later and takes account of shrinkage). Some crops have to be cleaned, and this also may reduce weight and cause an apparent loss. Highly perishable commodities—dairy products, fish, meat or fruit— cannot be kept for more than a few days except in cold storage. This is a very expensive method, and before it is adopted there should be a full review of all its implications as regards capital cost, availability of power, maintenance and degree of utilisation, as advocated in Chapter V in connection with any investment in machinery. Products which have been cold-stored may have to travel to market in refrigerated vans, and this again is expensive, though the capital cost of vans will be borne by the railway. Deterioration of produce due to transport delays on the way to market is a frequent cause of loss, and refrigeration is not always a possible answer to the problem. There are other methods of preserving produce. Some fruit can be stored in gas chambers; eggs can be pickled. A considerable range of produce can be canned more or less in its natural state, and canning equipment is not necessarily large or costly. It must be realised, however, that it is often used for only a few weeks in the year, and that canning should not be regarded as a method for using up surplus secondgrade or not quite fresh produce. Only the best materials can be used and the method can only be employed to relieve a glut if there is a clearly understood plan to allocate a certain quota of deliveries to the canning plant every day. MARKETING 81 PROCESSING The line between preserving and processing is difficult to draw. It might be said that processing begins when the raw product is turned into something recognisably different. This happens when milk is made into butter or grapes into wine, though, as a matter of history, a process like cheese-making must have been originally a method of preserving milk. Many agricultural products lend themselves to processing, sometimes into more than one article. There may be a series of processes : the grapes are pressed for wine, what is left after pressing is distilled into pure alcohol, the pips are crushed to extract oil for soap-making, and the final residues are dried and used for fertiliser. Or there may be alternatives: milk may be converted into butter or cheese, or it may be condensed or dried. Skim milk may be dried and used as calf-feed, or it may be made into casein and end up as a button or an umbrella handle. Or, as in the case of the palm tree, different parts of the same plant may be put to a great many uses, either all at once or as alternatives. It is part of the skill of a marketing co-operative to understand and have the equipment to undertake as many as possible of these processes. In the first place, it is important to see that nothing is wasted.1 In the second, market demands fluctuate. They may at some point be good for butter and bad for condensed milk, good for canned fruit and bad for jam. It is the business of the manager of a marketing co-operative to watch these changes, to try to forecast what the position will be in three months, six months or a year's time, and to decide accordingly whether to sell fresh or to process and, if to process, then into what article. Processing does not always increase the value of the product. It may only be undertaken as a way of preserving that part of a perishable product for which there is no local or no immediate market. If only a small quantity is handled by the co-operative, the cost of processing or of transport may be too high to allow of a profit. In that case, it might be better to sell the surplus raw product to a commercial processer working on a large scale. The whole question of whether a co-operative should go in for processing as well as simple marketing is tied up with calculations of this kind, which involve planning not months but years ahead. Such decisions are also influenced by the fact that the mere marketing of a raw material on its first removal from the farm gives the producer only a little more control over his own produce than if he had sold it at the 1 Very valuable pharmaceutical products, for instance, can be recovered from the inedible wastes of slaughterhouses. 82 CO-OPERATIVE MANAGEMENT AND ADMINISTRATION farm gate. He will still be dependent on cotton ginners, sugar refiners and the proprietors of slaughterhouses and condensarles, who will continue to dictate prices. The desire to extend the member's control over his product further along the road to the consumer is at least as strong a motive for taking up processing as is the need to offer different forms of the product in different markets. Both must be taken into account before a decision is reached, as must all the questions of capital investment, siting and design of buildings, availability of power, maintenance and use of machinery which have already been discussed. SELLING When a product, either raw or processed, is ready for sale, there are several alternative ways of disposing of it. For raw produce the cooperative may operate a retail shop, or it may hold an auction on its own premises with an auctioneer appointed by the society. The latter method is frequently used in European and North American countries for the sale of livestock, fresh fruit and vegetables, sometimes eggs or wool. The produce of each member is offered for sale separately and sold to the highest bidder, who is responsible for removing his purchases and paying on the same day. The system places minimum financial responsibility on the co-operative or its members, but success depends on attracting a large number of buyers to the auction and on the skill of the auctioneer in preventing the formation of buyers' rings. If only local buyers are present, the ring may seem unbreakable, but an enterprising society should be able to bring in buyers from other areas, so that competition is restored and prices once more begin to move freely. On the other hand, the buyers may try to boycott the cooperative auction altogether. In such a case an alternative arrangement such as a direct sale to exporters may have to be devised, if only as a temporary measure to bring buyers to reason. In some countries it is customary to allow credit for a week or two to traders who buy at auctions. In such cases the co-operative retains custody of thé produce till the debt is discharged. The position is further safeguarded by allowing credit only to " approved customers " selected by the committee of the society, which also fixes the limits within which credit may be given to each. In addition, buyers have to deposit 25 per cent, of their proposed bid before taking part in the auction. A variation in the auction system is purchase by tenders. Auctioning is less often used for the sale of non-perishable products, and it is not the only way even for perishables. Fresh milk, for instance, goes to retailers (generally after pasteurisation and probably bottling) MARKETING 83 and is distributed by them direct to the consumer. Fresh fruit and vegetables often move in the same way, but generally pass first through the hands of a wholesaler or wholesale agent, to whom they are sold by " private treaty " or bargaining which takes place at an interview, by correspondence or over the telephone. Alternatively, or in addition, the society may open its own wholesale or retail depots either at its headquarters or in perhaps quite distant centres of consumption. This method has been used both for agricultural products and for the output of cottage industries. Such a society may purchase the goods outright from its member societies, but it may do all or part of its business on commission so as to avoid being caught on a falling market with large stocks in its warehouses. The marketing of products which cannot be consumed in their natural state is often complicated. The co-operative which does the processing itself may sell its butter or cheese, its wine or canned tomatoes direct to wholesalers or retailers, including consumers' co-operatives. It may, on the other hand, carry on only the first of several processes : it may gin cotton but not spin or weave, mill flour but not bake bread. In that case, it must sell the half-finished product to a manufacturer who will complete its transformation. Most manufacturers specialise and are only interested in certain grades of products. It is a large part of the business of marketing to know all the different buyers, to establish good relations with them and understand their special requirements. Consumer taste varies as between different countries, and even between different parts of the same country : the north may like fat meat and the south lean. Certain foods are only eaten in hot weather or on certain feast days. Some are luxuries which cannot be sold except to hotels or in districts where the standard of living is high. MARKETS AND PRICES Prices, unless they are subject to close government control, vary greatly from one market to another, and in the same market at different times of the year, or even from day to day. They depend largely, but not wholly, on the quantity of the commodity which either is being offered for sale or is known to be likely to be offered in the near future. They may depend on the volume of imports as well as of home-grown produce. Buyers will not pay a high price for scarce home-grown fruit if they know that a ship bringing quantities of the same fruit at much lower prices has just docked and the fruit will be in the market tomorrow. Prices, the way in which they are influenced by supplies, their normal ups and downs during the year and the kind of forecasts which can be made 84 CO-OPERATIVE MANAGEMENT AND ADMINISTRATION about them have long been the subject of expert study. Special information services, public or private, as well as sections of commercial and financial journals are devoted to various forms of market intelligence. The manager of a marketing co-operative will have as far as possible to seek out information of this kind relating to his own commodity, and that, together with the local experience which he will gradually gain, will help him to decide what to sell, where, when, to whom and at what price. It will be seen that the business of marketing is not a simple one. It calls for the services of skilled men with a flair for business, as well as complete honesty, and such men are neither easy to find nor cheap to employ. The complications of marketing and the demands on managerial skill are increased when the buyer—manufacturer, wholesaler, retailer or consumer—lives in a different country, perhaps in a different continent from the one in which the commodity is produced. This raises questions of transport, shipping space, export and import licences, customs, currency regulations and exchanges rates. Correspondence and other business contacts may have to be carried on in one or more foreign languages. Personal visits may have to be made in order to see the exact type of product which customers require, and for which they are prepared to pay the highest price. FEDERAL MARKETING CO-OPERATIVES All this is likely to be beyond the resources and the experience of local co-operative marketing societies, though some of these do attempt to sell direct to neighbouring countries. Few, however, are likely to have the necessary expert knowledge of markets or the volume of trade necessary to secure the best prices or the best transport rates. Besides, if a number of local societies were all attempting to sell in the same foreign (or indeed national) market, they would compete with one another and the only gainers would be the buyers, who would play off one co-operative against another. The answer to this problem is the co-operative marketing federation, of which all local co-operatives handling a particular commodity become members. In some large countries, especially those with difficult communications, there are state, regional or provincial federations which in turn unite to form a national organisation. The system then is that each local or primary co-operative is free to sell locally as much of its output as can be consumed locally, either by individuals, retailers or factories. Anything which cannot be sold locally is transferred to, or at any rate put at the disposal of, the regional federation. The latter in turn sells whatever can be absorbed by the MARKETING 85 region, which may include industrial areas or important population centres. The rest—and this may easily be the greater part of the producers' output—is for the national federation to handle, often by way of export, and sometimes through sales inside the country in regions where the commodity is not produced in sufficient quantities to meet local demand. The national federation is in a much better position to do this than any primary or regional co-operative. It can specialise and become expert in a single commodity. It commands a larger volume of produce which, if the primary societies have done their job, should be uniformly graded and properly packed. It has offices and probably warehouses, perhaps cold storage facilities, in the principal trading city, probably a port, which deals with that commodity. It is in touch with banks, whether co-operative, private or governmental, and should be in a position to negotiate temporary loans, so that primary societies and their members can be paid while the federation waits for distant buyers to settle their accounts. It has the resources to employ well paid, well qualified staff with experience of markets, prices, foreign buyers and government regulations. The principle of federation may go further still and the co-operative marketing federations of more than one country may join together to establish an office in some centre of world trade like London or New York, where they can jointly sell their produce. They will be able to employ and share expert services; they will avoid competing with one another, and if the product is a seasonal one they may, if they have different harvest seasons, be able to keep up a continuous supply all the year round, thus avoiding slack periods during which they would lose touch with customers and well paid staff remain expensively idle. MARKETING BOARDS AND GOVERNMENT CONTROLS So far this chapter has been written as though, apart from co-operative activities, marketing took place under conditions of completely free private enterprise. Anyone with even limited experience will know that this is not so. Apart from international customs and currency restrictions already mentioned, there are a large number of internal controls covering quality, hygiene, methods of handling, and quantities which may be placed on the market at any one time. With these the manager of a marketing co-operative must make himself familiar. They affect his plans for disposing of his crop and a breach of them leads to penalties. In the case of certain commodities on which heavy taxes are paid, especially alcohol and tobacco, the control is particularly strict, both for revenue and social reasons, and in some countries the 86 CO-OPERATIVE MANAGEMENT AND ADMINISTRATION only buyer is a state monopoly to which co-operatives must sell their whole output. A rather different development is that of the marketing board or export board which controls either all sales or all exports of a given commodity or group of commodities. Some of these boards are government institutions, though representatives of producers, wholesalers and exporters are usually invited to sit on them, at least in an advisory capacity. In other cases the boards are elected by the producers themselves, generally after a preliminary poll in which the latter decide that they wish a board to be set up. To this extent a marketing board bears some resemblance to a marketing co-operative. Unlike the ordinary kind of co-operative, however, a marketing board once established is vested with statutory powers by which all producers, whether they voted for the establishment of the board or not, are compelled to sell their produce as and when the board directs. The board itself may or may not act as a merchant or hold auction sales. Very occasionally powers of this kind have been given to a co-operative—generally when the co-operative already had the support of the great majority of producers, with only a minority threatening to break prices or lower quality by ignoring established grades. The relations between co-operatives and marketing boards vary from one country to another, or even within a given country depending upon the type of commodity handled. In some countries co-operatives have welcomed the setting up of a national board as providing the best possible guarantee of stability for the industry concerned, while the board on its side has made the fullest use of existing co-operatives as its local agents and has promoted the formation of new co-operatives in regions where they did not exist. Elsewhere marketing boards have ignored or even superseded existing co-operatives and have preferred to use private traders or set up collecting and processing centres of their own. Others, again, have taken a strictly neutral attitude. It is important, in any country where marketing boards have been or are being set up, for the co-operatives and their advisers to study very carefully what their own position is or will be in relation to the boards. If possible, those who run the board should be persuaded that without local cooperative organisation they can never run a national marketing scheme to the advantage of the producer, or even in the most economical and efficient manner. At the very least there should be an assurance that co-operatives will be given room to grow, and that producers will enjoy some freedom to send their crop to a co-operative rather than to a private buyer, or, if necessary to form a new co-operative for themselves. In some countries co-operatives are or have been used as agents for MARKETING 87 government purchase of staple crops. Whether or not this helps the co-operative depends on whether purchases are made at current market rates or either above or below these rates. In the first two cases, purchase on behalf of the government may well stimulate interest in cooperation (though purchases at a subsidised price will hardly stimulate its own efficiency). In the third case the co-operative will lose in the end by becoming unpopular with its own members, who will look upon it as a kind of disguised tax collector. PRODUCERS' AND CONSUMERS' CO-OPERATIVES A word may be said in conclusion about the relations between producers' co-operatives and consumers' co-operatives. It may well be that in the economy of a given country one-third or even more of the retail trade in some commodity, for example milk or bread, may take place through consumers' co-operatives, while perhaps an even larger proportion of the national output of milk or wheat is co-operatively marketed. The same may even be true in the international market. It would seem obvious that in such cases the commodity should be sold directly by producers' co-operative to consumers' co-operative, or at least by national federation to national wholesale society. This does indeed take place in a number of cases, especially, of course, when there is near monopoly on one side or another. There are also instances of joint federal organisations of producers' and consumers' organisations, local, national or international, engaged in this kind of direct trade. By no means all co-operative trade is, however, handled in this way. For one thing, the producers' co-operatives generally have a larger quantity of produce for sale than the consumers' co-operatives can absorb. They sometimes handle commodities which consumers' cooperatives do not want (e.g. industrial oils or luxury articles). Sometimes the consumers have been first in the field and have built up their own purchasing organisation. Beyond this, it must be recognised that the interests of producers and consumers, even when both are organised on co-operative lines, are not the same. The producer wants to earn as much as possible for his produce, the consumer to save as much as possible on his purchases. It may not always be best that these differences should be fought out within a single organisation, or even by direct negotiation between two similarly organised bodies. The first experiment may well lead to disaster. It may be better, at least it is often thought better, that both should buy and sell on the open market, dealing now with one another, now with private suppliers or customers, each seeking the terms most advantageous to their own members. CHAPTER VIII MERCHANDISING I : CONSUMER GOODS The term " merchandising " is used to cover a group of rather different activities carried on by different types of co-operatives. What all these types have in common is that their ultimate purpose is the sale of goods direct to the consumer. They include consumers' co-operatives providing their members with food, clothing and other domestic needs; marketing co-operatives which run retail shops; agricultural co-operatives which, either as their sole activity or in combination with something else, supply their members with farm requirements, e.g. seed, fertilisers, animal feeding stuffs, implements or fuel; and craftsmen's or other traders' co-operatives, which supply their members with raw materials and stock-in-trade. Sometimes the sale of domestic necessities and farm implements or supplies is carried on by the same society. SOME PROBLEMS OF CONSUMERS' CO-OPERATION Consumers' co-operation was the first form of co-operation developed. Over the years it has built up organisations of great size, strength and complexity, enjoying all the prestige of successful pioneering. It does, however, raise difficult practical problems, and there have probably been at least as many failures as successes. There are even cases where the entire consumers' movement of a country has collapsed while the agricultural credit or marketing movement has continued to make progress. There are a number of reasons for this. In the first place, the business itself is complicated. The kinds of articles sold by even the simplest village consumers' society may run into hundreds, while a large urban society will sell many thousands. All these must be chosen with an eye to local tastes. They must, moreover, be purchased in the right quantities so that they can be sold within a reasonable time, and at least before they begin to deteriorate. Some, especially foodstuffs, deteriorate very quickly. They have to be either displayed in a hygienic and attractive way or safely stored. Apart from spoilage, allowance must be made for " leakage " in weighing out. All goods have to be paid for, which means a considerable capital outlay. They MERCHANDISING i : CONSUMER GOODS 89 have to be sold and payments received and recorded. Stocks have to be replenished before they have run out. A quite complicated system of accountancy has to be adopted and kept up to date. All this is much more difficult than, for instance, the marketing of a single agricultural crop. Apart from operational difficulties, which it shares with private traders, a consumers' store offers certain temptations to conduct contrary to co-operative ethics. Members may fail to pay cash, to settle their accounts promptly, or sometimes even to settle them at all. There may be pilfering, either by members or by the staff. It is not that the members and staff of consumers' societies are more dishonest than those of other co-operatives, but simply that neckties or sweet biscuits are more attractive and less easily traced than fertilisers or baled cotton. Another difficulty is that consumers' co-operatives face intense competition from other traders. Even if the latter do not engage in a price war, they can still be very formidable competitors, especially when they have no paid staff, run their businesses with the help of their families and thus, unlike the co-operative, may not be bound by regulations on hours and conditions of work. A consumers' co-operative in its early stages may also be dependent on private wholesalers for its supplies, and though such wholesalers should have no motive for trying to put the co-operative out of business, they may well drive a very hard bargain. In spite of all these difficulties, consumers' co-operation has been a success, and not only in highly industrialised, fully literate countries. The rules for achieving success may become clearer if the different business problems are examined separately. MEMBERSHIP AND CAPITAL In the first place a calculation will have to be made as to the minimum number of members for whom it would be worth while to open a shop. This depends in turn on what their weekly or yearly purchases are likely to be. Unless the difference between the wholesale and retail price of the goods sold every week is enough to pay the wages of the shopman and any other staff employed as well as the rent of the store (or depreciation if it belongs to the co-operative) and leave something over, it will be necessary, if not to abandon the idea altogether, at least to wait until more members come forward. How much the " something over " will have to be depends partly on what other regular expenses there will be (heating and lighting the shop, for instance), partly on the credit habits of the members, partly on the need to build up reserves. The cooperative should start with enough capital to buy a shop (or pay the 90 CO-OPERATIVE MANAGEMENT AND ADMINISTRATION first quarter's rent on it) and stock it with goods. It may be necessary to delay formation of the society until enough capital has been collected, perhaps carrying on a buying club in the meantime. If all the members pay cash over the counter, the co-operative is in a position to pay for a fresh consignment of goods as stocks begin to run out. If members expect several months' or weeks' credit, the co-operative may well find itself with no resources from which to pay for further supplies. It will either see its shelves and bins emptying, or it will itself become indebted to its suppliers. Even if members pay regularly once a fortnight, on the day they receive their wages (a not unreasonable arrangement, and one in which employers will sometimes collaborate), the co-operative will still have to keep in hand a sum equal to something hke l/26th of its annual sales, in order to cover the gap between selling and repayment. It is easy to see why the Rochdale Pioneers insisted on cash payments and why it was so essential to their success. The financial difficulties of consumers' co-operatives are likely to come at the beginning, since most of the members will probably be wage earners who are only able to put by small sums for investment in shares. On the other hand, membership can be extended to include anyone who lives within walking distance of the store and is therefore likely to be larger than that of an agricultural or craftsman's society, in which all members must follow one occupation. Later on, if the society is prudently managed, it should be able to accumulate resources. For one thing, stocks should be turned over fairly rapidly, and there should not be time for any great fluctuations in price such as those which, in marketing for instance, can mean that a crop sold six months after harvest fetches less than the price paid to the producer when he brought it in. 1 If the margins between what the co-operative pays for its stocks and what it charges to its members are fairly steady, the co-operative can and should allow for a steady annual contribution to reserves. In addition, it will pay a dividend on purchase to members, many of whom can be persuaded to add it to their share account. In countries where share capital is transferable but not withdrawable, it is one of the most stable forms of financing. It is often the basis on which loans can be obtained from a co-operative bank. If, as in other countries, it is freely withdrawable, it must not be wholly tied up in buildings or even stocks, since sooner or later members will want to withdraw it, possibly not at the most convenient moment for the co-operative. The proportion of " overheads " (e.g. wages, taxes, postage, light 1 Normally, of course, the price rises; but co-operatives have been ruined in the past by a catastrophic drop in world market prices. MERCHANDISING i: CONSUMER GOODS 91 and heat) to turnover, will tend to grow less as sales grow larger. The co-operative will therefore try to increase the number of its customers. This raises one or two interesting points. Should members all be heads of households, or should husbands and wives, grown up sons and daughters living at home all be invited to become members ? There is much to be said for such an arrangement. The additional members will all bring in more share capital, and they may be more interested in buying from a society of which they are actually members. The question of trade with non-members is more doubtful. For a co-operative to remain a small group of members making profits by trading with non-members would certainly be against the aims and principles of co-operation; in some countries it is even illegal. There is, however, something to be said for a fairly flexible approach, e.g. letting non-members make a few purchases in the society before pressing them to become members, setting aside the dividend which would fall due to such purchasers, and later inviting them to convert it into share capital. CHOICE OF SITE It is important to choose a good location for a co-operative store. Many of the early stores were in back streets or on the outskirts of villages. This may have been because these sites were the cheapest or the only ones available, or because the first members lived or worked in such areas. It may still be necessary, for the same reasons, for new societies to begin on sites of this kind but it must be recognised that a bad site is likely to hamper the society in its subsequent growth, and that a move may at some point become necessary. The pioneers may put up with inconvenient buildings and unattractive surroundings in order to support their society, but other people, and in particular the second generation, will look for an attractive shop in an established shopping area not too far from their homes. CHOICE OF STOCKS The question of what goods to stock requires careful thought. The easiest and least risky commercially are basic non-perishable—or not too perishable—foodstuffs, such as flour, rice, tea, sugar, salt, and other basic household items such as kerosene, matches and soap. These things people buy week by week, so that stocks can be kept moving regularly. Some packaged and canned foods will probably be added. These do not deteriorate quickly, but they tend to be minor luxuries for which the demand is irregular; moreover, people often have marked 7 92 CO-OPERATIVE MANAGEMENT AND ADMINISTRATION brand preferences. As a result, tins may sit for a long time on the shelves of the co-operative, taking up space and tying up capital. This will have to be faced if the society is to supply all its members' wants, but the committee and manager will have to recognise that the turnover for some kinds of goods will always be slower than for others, and that it will require more capital to cover them. A constant watch must be kept against goods staying too long on the shelves, and means must be found to dispose of them before they get too old. The sale of perishable foodstuffs—milk, butter, meat, fish, fruit and vegetables—does not tie up capital, as members have to buy them daily, or at least several times a week, but the losses on unsold goods which go bad and have to be thrown away can be very heavy. Some of this can be avoided if the co-operative installs a refrigerator or cold storage room. The sale of all " dry goods ", i.e. clothing, footwear, hardware and household furnishings generally, involves the problem of a slow turnover. They are things which people buy infrequently, perhaps only once in a year, perhaps (as in the case of furniture) only once in a lifetime. They are expensive and take up a good deal of storage space. Clothing in particular is affected by changes in fashion. It is safe to say that if a co-operative wants to make a success of a clothing or furnishing department, it will need a very much larger membership than would be necessary to make a success of a food store. It is also true, however, that people will travel much further in order to buy a suit of clothes or a bedstead than they will to buy tea or sugar. Many co-operatives, as they begin to feel more confident, will open several branch food stores in suburbs or villages where their members live and one clothing and furniture store at a central point. The same result is achieved if the dry-goods store is managed by a regional wholesale. This is not to say that a few items like working clothes and boots, which do not go out of fashion and for which there is a regular demand, may not sometimes be sold in a village store. LAYOUT OF SHOPS The way in which shops are set out depends on the kind of goods sold and on general shopkeeping standards within the country. Co-operatives should be at least up to the best standard for the same kind of shop in the same or comparable districts, and should as soon as possible try to improve on this level. Even the simplest co-operative store should set a standard of cleanliness and order; the goods in bins and on shelves well set out and visible to the customers; the walls and ceilings white or colour-washed, thefloorwashed and swept; no loose packing materials lying about; no dead flies in the window or live ones on the food; the MERCHANDISING I: CONSUMER GOODS 93 ground outside the shop swept and sprinkled to keep down the dust. All this should be a matter of regular routine. Employees too, should be neat and cleanly in their persons and habits, as well as courteous to the customer. Equipment should be kept in good order. Every shop will require a weighing machine if it is to deal in bulk foodstuffs and, as soon as possible, a cash register if there is not to be chronic confusion in the accounts. A safe is required unless money can be banked as soon as the shop closes each day, and this is only possible if the bank is near and has a night safe. In a small village store the whole stock-in-trade may have to be sold in one room, but this should not go on for too long. In some countries it is illegal to sell dairy produce, which is easily contaminated, in the same shop as strong-smelling groceries or kerosene. People do not really enjoy buying clothes in the middle of a food shop, and in any case they usually take a long time making their choice, and so hold up busy housewives who want to buy a pound of rice and get back to their kitchens. A set of small specialised shops next door to one another is an initial answer to this problem. In towns and places where modern ideas on retail trade are beginning to spread, co-operatives may have to consider much greater departures from traditional methods. Many co-operatives are now organised for " self-service ", i.e. all the goods are done up in packages of different weights, the weight, contents and price clearly marked, and the packages arranged on shelves or tables in such a way that the members can choose for themselves. They leave their own shopping baskets at the entrance and are lent a basket while they collect their purchases. The shop is so arranged that they cannot leave without passing the cash desk, at which their purchases are checked, paid for and transferred from the borrowed basket to their own. This has certain advantages. It is quick, because customers select and fetch the goods themselves and do not have to wait while this is done by an assistant. Furthermore, there is no waiting while goods are weighed and wrapped, as all this has already been done in the store room. Packaging also makes for cleanliness, since goods are neither handled nor exposed to dust and flies. It often increases sales because, in walking about, customers are attracted by things which they might not have thought of buying. The main disadvantage is that it makes the pilfering of small articles easier than it would otherwise be. It also depends for success on the literacy of customers, who must be able to read the labels on the packages. It is of course a question how much all this wrapping and labelling adds to costs, and this again depends on how much can be economised by saving time and labour. If shop assistants in a town store are difficult to get and their wages 94 CO-OPERATIVE MANAGEMENT AND ADMINISTRATION high, it may be cheaper to have even an expensive packaging machine run by one operator than three or four shopmen engaged in weighing and wrapping, who might only be occupied part of the time. In a village shop, on the other hand, purchase of such a machine would almost certainly be absurd. Self-service is not really suitable for the sale of " dry goods ", except, perhaps, small hardware items. If clothes and furniture are sold at the central premises of a fairly large society, or by a regional wholesale, the layout will probably be that of a department store. The idea is no different from that of the row of two or three small special shops which any large village co-operative might set up, but the scale is larger and the different goods—furniture, hardware, shoes, men's, women's and children's clothing—may well be sold on different floors of one large building. As co-operative shopkeeping becomes more complicated and specialised, shop assistants have to be more carefully trained, both as a team and as individuals. They must have a real knowledge of the commodities they are handling, as well as of display and sales techniques. Many co-operative schools and colleges have model shops for different branches of trade, in which students can practice alternative ways of setting out and handling goods. COMPETITION BETWEEN CO-OPERATIVES It has been assumed that successful co-operatives are likely to grow and establish branches. This is a healthy development, but it may happen that as societies expand they begin to compete for members with societies in neighbouring villages or other parts of the same city. This raises difficult problems. Co-operatives aim at doing away with competition. In some countries the boundaries of a society's area of operations must be strictly defined in by-laws before it can open a shop. Yet, if a society giving good service is to be blocked in its development by established rules or by an agreement with another society which is badly managed or unenterprising, the movement as a whole will suffer. The situation in each country must be carefully considered, but on the whole rigid boundary agreements are probably a mistake. A good deal can, on the other hand, be done by a federal co-operative, using tact and authority, to prevent unseemly clashes. PRICES AND QUALITIES The question of price is an interesting one. The aim of a consumers' co-operative is not to make profits but to supply its members at the MERCHANDISING I: CONSUMER GOODS 95 lowest possible price. This might suggest that the proper policy is to disregard the prices charged by other traders and sell to members at cost price plus something to cover the actual overheads. This has been tried, but in fact it is very risky. For one thing, it is impossible to know until the accounts have been audited at the end of the year exactly what were the running costs of the society, and a mistaken guess may by that time have led to heavy losses. For another, it will be regarded by private traders as a form of aggressive price-cutting, and a price war may result which the co-operative may not be strong enough to win. It is therefore the usual co-operative practice to sell at market price and then return any surplus at the end of the year to members by way of a dividend on purchases. This is not quite as simple as it sounds. In the absence of an effective official price-fixing scheme, there is generally no such thing as an established " market price ". Should a co-operative charge the lowest price and perhaps leave only a small margin from which to pay the dividend and make a contribution to reserves ? Or should it charge a rather higher price and pay a higher dividend at the end of the year ? Cooperatives in some countries deliberately choose the latter alternative as a sort of automatic thrift scheme for members. Such a system may also be justified, and acceptable to the membership, when the co-operative offers better and purer goods at more reliable weights and measurements than private traders. The disadvantage is that it may exclude the lower-paid workers from membership, since they cannot afford anything but the minimum prices and cannot wait a year for their dividend. Nor does it enable the co-operative to help bring about a general lowering of prices, which might benefit not only its own members but people who deal with private shops. In countries where laws against adulteration and false weights and measures are strictly enforced, the co-operative has less to offer apart from lower prices. On the whole it would seem better for the co-operative to sell at the lowest market price for the quality of goods which it offers. If it is efficiently operated, it will still have surplus enough to pay a dividend and reserve something for future development. The quality of goods is also a matter for consideration. The luxury ranges will no doubt have to be excluded, but it was one of the principles of the co-operative pioneers that their shops should only sell pure and unadulterated goods. Today many countries have laws against adulteration of foodstuffs, but the co-operatives still have much to do in making sure that everything they sell is of the best quality obtainable for the money, and that nothing is other than it pretends to be. They can, in addition, do valuable work in educating the consumer in food 96 CO-OPERATIVE MANAGEMENT AND ADMINISTRATION values and in knowledge of materials—e.g., soaps, fabrics or cooking utensils—and in demonstrating why some are more expensive, but also more lasting, than others. They can, moreover, do a good deal to educate taste, especially in clothes and house furnishings. Not all co-operatives have done as much as they could in these directions, and the field is open to a new generation of pioneers. It should also be remembered that, broadly speaking, standards of living are rising and that working people all over the world expect better goods than they bought 20 years ago. BOOKKEEPING AND STOCK CONTROL A consumers' co-operative needs at all times to keep strict control of its money and its stocks. This is not easy because of the large number of small transactions and small items involved. A cash register is a great help in recording sales, but it must be backed by a sound system of bookkeeping under which accounts can be kept strictly up to date. A clear record of the movement of money, however, is only half the battle. It does not tell the committee much about the state of the society unless they also know the state of stocks. The fact that the cash account balances is not really satisfactory if the shelves are empty and there is no money with which to re-stock them. Nor is a balance sheet to be trusted which shows, under assets, goods still at the purchase value at which they were bought a year ago. Inventory in many small co-operatives is only taken once a year, often by members of the committee who have little expert knowledge and are not good at judging either the quantities of the condition of stocks, much less their future saleability. Often they rely on the manager or shopman, and he may well have made mistakes, either in buying or in failing to buy, which he is not anxious to see come to light. Any co-operative which wants to be efficient should adopt a system of continuous stock control under which a record is kept of the quantities of each article received, daily or weekly withdrawals from stock, and replacements. Advanced systems of stock control have been worked out which can be used in businesses of any character and any size, and these should be studied and applied as appropriate. The simplest form is the locked warehouse and the stock register showing goods received and goods issued (usually once a week) to the managers of retail branches. Issues are only made when stocks in the branches are below a given level and a satisfactory record of sales can be produced. It will soon become apparent—and for a new society the experience of other societies or of a regional union should be made available—how quickly each type of MERCHANDISING i: CONSUMER GOODS 97 article can be expected to sell and, consequently, how quickly each consignment of stocks will be exhausted. It should also be known how long it takes for a repeat order to reach the wholesaler and for the goods to be delivered. This will show within how many days or weeks before stocks become exhausted it is necessary to send off the fresh order. Some goods, especially basic foodstuffs, will of course sell so steadily that the co-operative can place a standing order for so many sacks or cases to be delivered every week. Even so, there may be seasonal variations. Some workers may migrate in certain months of the year, or farmers take their cattle to hill pastures and only old people remain in the village. On the other hand, stock control will also show what goods are failing to sell and should not be ordered again, at least in large quantities, and also what goods have become unsaleable through deterioration or contamination. The value of these must be ruthlessly written off or, if they can still be disposed of at cut rates, written down. All this, of course, applies not only to consumers' co-operatives but to agricultural supply co-operatives, and indeed any which have to hold goods in stock. One point, already mentioned, should not be forgotten when relating stocks to sales, and both to money values. This is the loss which occurs, for instance, through reduction of weight when moisture evaporates, or through the impossibility of weighing out a hundred separate pounds of potatoes from a hundred-pound sack. The rules for estimating such losses in the case of different commodities are well known, and no co-operative accountant or auditor should have difficulty in getting the information. PURCHASING AND SOURCES OF SUPPLY It remains to be considered from what source the co-operative is to get its supplies. Should purchases, especially of foodstuffs, be made direct from centres of production, and if so, at what season of the year ? Has the co-operative the expert knowledge to judge qualities and make sound purchases ? Should forward contracts be made with merchants, or, better, with producers' co-operatives, or should purchase be made as required through the agency of expert intermediaries ? Broadly speaking, there are three possible sources of supply: a producers' cooperative marketing or processing society or federation; private producers, manufacturers or wholesalers; or a consumers' co-operative wholesale society. In the early days of the movement, private manufacturers or wholesalers were the only source available, but it was soon realised that a number of small societies putting in separate orders to 98 CO-OPERATIVE MANAGEMENT AND ADMINISTRATION private merchants and manufacturers were not getting terms which enabled them to offer very substantial advantages to their members. At an early stage, therefore, they combined to set up their own wholesale buying organisations, either regional or (in most cases) national. The function of these co-operative wholesale societies was to place large orders, using their collective bargaining power to secure the best terms, to arrange for bulk transport at the cheapest rates and, by building warehouses at ports or other central points, to offer samples for inspection to the buyers of local societies, to break bulk, and arrange deliveries to the societies' premises. Before long they were not only buying from manufacturers or wholesalers in their own country but were importing from abroad. In many cases they had themselves become manufacturers, buying raw materials and processing them into finished goods. The running of a large and complicated organisation like a cooperative wholesale society raises a number of administrative and managerial problems. In the first place, the wholesale needs considerable capital resources, and these have to be built up initially by shares contributed by the local societies, which are often themselves short of capital. Where local societies have established savings departments which accept deposits from members (a practice common in countries which have no separate credit co-operatives), the money situation may become easier, as part of these deposits can be re-invested with the wholesale, which may by that time have established a banking department. If there is already in existence a national co-operative bank, it may be in a position to lend the wholesale part at least of its working capital, including the capital needed to buy raw materials, and wait to be repaid until they have been manufactured, sold and paid for. DEMOCRATIC STRUCTURE OF WHOLESALE CO-OPERATIVES A wholesale will require a governing body which must be elected by the member societies either at an annual general meeting or, in some countries, by a postal ballot. The committeemen of a wholesale must be prepared to devote practically the whole of their time to their duties as members of such a body, and it may not be easy to find suitable men from among the committees or staffs of local societies who will be able to spare the time or have the necessary business experience for running so large an undertaking. For this reason it may become necessary at some point to adopt a more indirect form of democratic control. The general meeting of delegates of local societies will elect a fairly large council, meeting several times in the year, to review the progress of the MERCHANDISING I : CONSUMER GOODS 99 wholesale and take broad policy decisions. The council in turn will elect or appoint a small executive committee or board of full-time managing directors, each responsible for the day-to-day running of a department or group of departments in the organisation. A question of some interest is the method of voting by local cooperatives in the general meeting of the wholesale. The principle of " one man, one vote " is fundamental in the co-operative movement. If local societies are all about the same size, this may be translated into " one society, one vote " at the meetings of the wholesale or other federal organisation. But what is to be done when some societies have a few hundred members and others several thousand ? The answer would seem to be—and this is, in fact, the more usual practice—to give each society a voting strength in proportion to the number of its individual members, sometimes even with extra votes depending on the value of goods purchased from the wholesale. MANAGEMENT OF WHOLESALES The management of co-operative wholesale societies is more difficult than that of any primary society, however large, because of the great variety of activities carried on and the manner in which they must be fitted into one another if the organisation is to be run without loss and give the best service to the primary societies. All that has been said about management in general, the logical division of responsibilities, devolution of authority, planning and control applies with even greater force to wholesale societies. So do the principles of office organisation, personnel management and the siting and layout of premises. These are all technical problems, which are essentially the same for co-operatives as for private businesses of comparable size. If this is not recognised, if modern managerial methods are not studied and an attempt is made to run a wholesale society as though it were a village store, the organisation may not be equal to the strain. In the period of food stringency during and after the Second World War, several " co-operative wholesale establishments " were set up by governments with a view to the administration of rationing through the rapid expansion of consumers' co-operation. These are not here considered in detail, partly because the intention was that they should be temporary and eventually give way to co-operative wholesale societies of the usual type, partly because the difficulties they have encountered are rather different from those which would have been faced by a cooperative wholesale built up from the bottom by its own members. The system still exists, however, in a modified form, in several countries. 100 CO-OPERATIVE MANAGEMENT AND ADMINISTRATION RELATIONS BETWEEN WHOLESALE AND RETAIL SOCIETIES There are some problems arising from the special relationship between wholesales and their member societies which do not arise in private business and which deserve to be examined. Co-operative wholesales are often called upon to finance their member societies as no private wholesaler would ever finance his customers. In some countries this is forbidden or discouraged, and strict cash terms are enforced as between wholesale and retail society. Elsewhere wholesales not only give goods on credit, but make advances to retail societies for capital development. If the wholesale has adequate resources, this is a valuable service and a correct use of surplus co-operative funds. Should the wholesale make conditions before lending money for such local cooperative development ? In particular, should it insist that the local co-operative buy all or a large part of its supplies from the wholesale ? Should the primary society contract to do so even if it is not under a financial obligation to the wholesale ? Co-operative principles would seem to suggest that local societies should indeed grant such preference to co-operative wholesales ; or even that " loyalty " is so obviously in the interests both of the local society and of the movement as a whole that the question need not even be asked. In practice the matter is not quite so simple, and the reply depends on the answers to several other questions. Can some hundreds of local co-operatives be expected to have precisely uniform wants and tastes and express these effectively to the wholesale before the process of purchasing or manufacturing begins ? Can the wholesale, without the stimulus of competition, always be relied on to drive the best bargains and make the best-designed products by the most efficient methods ? Should all goods be sold by the wholesale to local societies at the same price, or should those who buy in large quantities (with the resultant savings in office work, packing and transport) be allowed to buy at a lower price ? " Production for use and not for profit " is an old co-operative watchword, and it is often assumed to mean (among other things) that a wholesale society should only produce what its members, expressing themselves through their local societies, actually wish to have. This principle, however, raises many difficulties in practice. The members may live in a remote village and not know of all the things which they would like to have if they could see them. Or they may live in a city and be influenced by advertisements to want things which are either not the co-operative brand or can only be produced economically for a much larger market than the co-operative movement as a whole can provide. What happens in practice is that local co-operatives entrust the stocking MERCHANDISING i : CONSUMER GOODS 101 of their shops either to the committee or to paid buyers on the staff. These have their own tastes and a general idea of the tastes of the members, but they know nothing of and may not agree with the tastes of the buyers from other local societies. The orders which eventually go into the wholesale society do not in practice afford very much guidance as to what should be produced outside the range of simple bulk commodities like flour and sugar. If the wholesale feels itself bound in principle to meet every demand made by a member society, it may find itself engaged in a multitude of small lines, none of them profitable. Again, when local societies become large, they are much less dependent on the services of the wholesale society for bulk buying, storage and bulk breaking. If the wholesale is not prepared to give them more favourable terms for large purchases, they will be tempted to make their own bargains with private manufacturers. The upshot of all this is that, as a co-operative wholesale matures, becomes large and complex, and begins to handle goods which are affected by taste and fashion, it cannot depend wholly on the automatic loyalty of its member societies. It must justify that loyalty by efficiency at least as great as that of its private competitors, and by offering goods of a quality and style and at a price such that member societies would wish to buy them if they did not come from a co-operative source. Before leaving the subject of wholesale societies, it should be noted that in some countries small shopkeepers have set up their own cooperative wholesales. The shops themselves are private and have no special relationship with their customers, but the wholesale is a genuine co-operative, conducted on the same lines and having most of the same problems of management as those of the consumers' societies. Cooperators are not all agreed as to whether or not this sort of organisation forms a legitimate part of. their movement. Some point out that the small trader is in the same position as the farmer or craftsman who buys the raw materials for his business through a co-operative. Others consider that, though traders may combine among themselves, they will continue to exploit the consumer, or that they may form a co-operative merely to avoid taxation. CHAPTER IX MERCHANDISING H: MEANS OF PRODUCTION AIMS OF CO-OPERATIVE SUPPLY Co-operatives which have as their purpose the supply of means of production—including raw materials, implements, machinery and fuel—have some features in common with consumers' co-operatives, but in other respects they are quite different and raise different problems. This form of co-operation has developed mainly in the field of farm production, where it serves a dual purpose: to reduce production costs by meeting the farmers' production needs cheaply (either at prices lower than the usual market price, or at prevailing prices with a dividend at the end of the year); and to ensure that only the best and most reliable materials are supplied. The latter has often been the primary purpose for which co-operative supply societies were founded: at a time when artificial fertilisers and selected seeds were first put on the market, there were many cases of fraud; these could only be detected by chemical and biological tests which the individual farmer was unable to apply. A third aim may be to liberate the farmer from dependence on a merchant to whom he is indebted, and so make it possible for him not only to buy where he likes, but also to sell his produce through a co-operative marketing society if he so desires. In some countries the co-operative distribution of farm implements and supplies has been pushed forward as a way of inducing farmers with a primitive standard of farming to adopt more modern methods, increasing the fertility of their soil, feeding their animals better, or protecting both animals and crops from pests and diseases. SINGLE AND MULTI-PURPOSE CO-OPERATIVES In some countries the co-operative supply of farm production necessities is carried on at the primary, village level by a co-operative already formed for some other purpose. The dairy marketing society, for instance, may put through a wholesale order for cattle food or grassland fertiliser and distribute the product among its members. The wine-making society may order copper sulphate to be sprayed on MERCHANDISING l i : MEANS OF PRODUCTION 103 its members' vines. In neither case does the co-operative take any great commercial risk. It can provide temporary storage space. In due course it will pay members for their milk or their grapes and can deduct from the payment what they owe for supplies. Elsewhere the members of a village credit society which makes a number of small loans about the same time of the year for fertilisers or seeds may realise that if they were to put through a joint order they could get better terms from suppliers and transport companies. In such a transaction the risks of the credit society are again strictly limited. It orders the quantity which members have actually agreed to take, but assumes no responsibility for storage, nor is it liable for any consequences resulting from price fluctuations. Another possibility is that an independent cooperative of a very simple character may be formed in each village with the sole object of putting through orders of this kind. Finally, the village co-operative may be planned on a multi-purpose basis from the start. None of these systems of co-operative supply—except, perhaps, the last—can give more than rather limited service to the farmer. The economies in buying wholesale will not be very large. The farmer probably has to fetch his own fertiliser or seeds from the railway station, perhaps at a time when he should be busy doing something else, and he may still have to go to the merchant for a number of small items—e.g. tools, harness or wire—which the co-operative does not supply. Finally, except in the case of a marketing society handling supplies, there will be some difficulty in finding suitable staff for a society which is merely an agent ordering supplies two or three times a year. A manager with a fairly businesslike approach will be required on these occasions, but at other times there will be little or nothing to do, and he and the members will tend to lose interest. There are two ways out of this situation. One is to link the village supply agencies to one or more regional federations which not only sell wholesale but store, test, manufacture, and take full commercial responsibility for all the materials they handle. The other is to develop the local society to the point where it has a full-time staff, premises of its own and a full range of farm supplies in stock. Most countries have worked out some combination of these two systems, involving both local co-operatives and regional federations. The federations may handle either a single commodity (e.g. fertilisers) or a wide range of goods. They may also perform some other function, such as marketing. To some extent the system adopted will depend on the way farmers live. If they live in a village and do all their business there, they will want their supply co-operative to be in the village too, even if the member- 104 CO-OPERATIVE MANAGEMENT AND ADMINISTRATION ship is too small to justify anything more than an office and a warehouse and if some of the more costly items have to be ordered from a regional federation. In a number of Asian countries the village multi-purpose society handles credit as its primary function, and deals with supply and marketing as secondary functions, on an agency basis. Such societies are federated in a district bank, from which they draw funds, and in a marketing society in the nearest market town, from which they obtain farm supplies and through which they market the produce of their members. These marketing societies may in their turn be affiliated to a district or state marketing federation. The combination of supply and marketing in the local society is reproduced at the federal level, but the federal trading organisations do not provide credit for their affiliated societies, a service which is left to the central co-operative banks. In order to avoid the risks of handling credit and trading in the same organisation at the village level, the multi-purpose society is not itself expected to stock agricultural supplies such as seeds, fertilisers and implements. These are held by the marketing society, for which the multi-purpose societies act as agents. Distribution may take place in any one of three ways. Members needing supplies may be given a delivery order by the village society, on production of which the marketing society releases goods to the member. This is a convenient system when the member has just delivered his produce and has an empty cart which he can load for the return journey. Or the village society may collect orders from its members, fetch the goods from the marketing society and distribute them among its members. Finally, immediately before the sowing season, the village society may estimate the needs of the village, procure seeds from the marketing society, store them for a couple of weeks and distribute them to members. In all these cases distribution will be for cash. If a member needs credit, he will apply for a formal loan from the credit department of the society, and the seeds, fertilisers or implements which he buys will be debited to his loan account. If fanners live scattered on their farms, as they do in many European countries, their business centre will not be the village but the neighbouring town, and they may prefer to build up a larger society, serving a radius of ten to 20 miles in all directions, and with enough capital to carry not only a large and varied stock of goods but also to do at least part of its own processing and manufacturing. Such societies do not as a rule provide credit facilities, though they may arrange for an interlocking of activities with the regional co-operative bank in the same place. They sometimes have subsidiary marketing departments and they often offer their members a number of other services. MERCHANDISING li: MEANS OF PRODUCTION 105 COMMODITIES HANDLED Fertilisers The range of materials handled and their importance depends on the kind of farming carried on. In countries where land cultivation is the main form of agricultural activity, fertilisers are probably the main item of supply which the farmer has to buy from outside. The fertiliser requirements of different crops in different soils and climates is a matter for expert knowledge. If too much or too little or the wrong mixture of the three main chemicals—nitrates, phosphates and potash—is applied, the farmer will have wasted his money and may actually have damaged his crops and his land. A co-operative should therefore be in a position to advise the member on the proper use of fertiliser in his own fields and for each crop he may wish to grow, or should be able to draw upon the services of a government expert for securing such advice. In many countries co-operative supply societies have their own soil testing experts (intelligence and some training rather than great scientific knowledge is required) who will take a sample of the soil from any field on any member's farm and advise him on what it lacks in the way of plant food, how the deficiency can be made good and by what blend of fertiliser. The production of chemical fertilisers other than that of lime and potash, which can be fairly simple, is an elaborate and costly factory process which requires heavy capital investment and can only be profitable on a large scale. Some co-operative federations do, however, exist for this purpose, set up by farmers' societies either alone or in collaboration with consumers' societies. In some countries the production or importation of fertilisers is a national monopoly; in others it is in the hands of big private companies. In the latter case co-operatives must use their bargaining power and buy on the best terms they can obtain. They may have to do so even in the case of a government monopoly, but there are countries in which state fertiliser factories or import agencies deliberately use the co-operative system as their distributive agency. Sales are made at controlled prices either for cash or on credit to local societies, which in turn sell to their members. A service which co-operatives, including local societies, can often usefully perform, is to mix fertilisers according to local requirements or the needs of a particular crop, and put them into sacks (jute or paper) for delivery. In some of the more highly mechanised countries, where labour is scarce and dear, co-operatives may even arrange to spread fertilisers directly on their members' fields. 106 CO-OPERATIVE MANAGEMENT AND ADMINISTRATION Feeding Stuffs Animal feeding stuffs are important, especially in northern countries where livestock are largely kept for milk, meat and eggs. Most of these countries have good natural pastures at some seasons of the year, but in former times large numbers of animals had to be slaughtered for meat when the pasture withered. Today they are kept alive and fully productive on diets of specially prepared feeding stuffs suited to every type of animal at every stage of its life. The ingredients may be local farm products—e.g. barley, oats or dried grass—or the by-products of the processing of agricultural produce—bran and other millers' offals, beet pulp from sugar factories, dried blood from slaughterhouses, dried skim milk from dairies—or imported products such as groundnut or cotton seed cake, copra or dried fish meal. Often the inclusion of small quantities of minerals or of vitamin-rich oils will contribute much to the health and productivity of the animals for whom the feed is intended. The machinery necessary to mix these specialised feeds and turn them out in a form which can be conveniently stored and handled, though fairly costly, is not beyond the resources of a regional wholesale or large primary society, many of which have a small laboratory where the different elements going into each mixture can be tested for their nutritional value. In countries liable to drought the co-operative may provide a special service in building up " fodder banks " of relatively non-perishable feeding stuffs or in handling emergency deliveries of feeding stuffs from areas which the drought has not affected. As a considerable part of these mixed feeds are made up of locally grown crops, especially grain, the co-operative usually buys from its own members. Often a somewhat inferior quality of grain is used for making animal feeds. The best wheat goes for flour, the best barley for beer or vinegar. Members, however, may well expect their co-operative to buy not only the second quality, but the whole crop. In this way agricultural supply co-operatives may add general grain marketing to their activities, though elsewhere this is handled by special grain marketing societies. Any co-operative which wants to sell grain must be prepared to clean it, grade it according to quality and, in some climates, dry it before selling it to the miller or maltster (often a consumers' cooperative wholesale society). The other ingredient in feed which may be bought from the co-operative's own members is grass for drying. Some societies have set up special driers, which receive the fresh cut grass, dry it and either return it to the members or buy it from them in order to include it in one of the society's feed mixtures. MERCHANDISING li: MEANS OF PRODUCTION 107 Seeds Seeds are another main item of supply. Many farmers continue to use their own seeds year after year. This does not, as a rule, produce the highest yields. Others exchange seeds from time to time with their neighbours, but even this does not help much if the local seed is unimproved, unselected and liberally mixed with that of weeds. A cooperative can do much to raise the level of yields in a district by supplying pure seed of a good variety. Sometimes this can be done by buying seed from the best farmers, cleaning it, testing samples to see what proportion can be relied on to germinate, and re-selling to the members as a whole. In some countries a sort of seed bank is operated. Members deposit their seed in a co-operative store at harvest time, withdraw it when sowing time comes round, and replace it at the next harvest plus a 25 per cent. " interest " which goes to meet the cost of running the store. Sometimes, however, it is necessary to bring in new strains of seed, and here the co-operative can do valuable work not only in finding sources of supply at reasonable prices, but also in getting the new seed tried out on a small scale, perhaps in the fields of members, perhaps on land which the co-operative itself owns, in order to make certain that it is suited to local conditions. A co-operative may take over an improved variety of seed from, perhaps, a government farm, arrange for multiplication of the stock on the farms of members, and clean, bag and seal the seeds before selling them to the membership at large. Pesticides, Tools, Machinery and Miscellaneous Supplies The use on the farm of chemicals other than fertilisers varies with the type of farming and local conditions. Such chemicals are mostly intended to protect plants or animals against pests and diseases. Some —sheep dip, vine and potato sprays, for example—have been in common use on small farms for generations. Others are relatively new and costly and are only used by the more up-to-date farmers with substantial resources. Their use is, however, increasing, and is adding steadily to the yield of both crops and livestock. Some co-operatives are prepared to carry out spraying on behalf of the farmer-member, thus saving him the purchase of costly apparatus. Others are prepared to give veterinary advice. The sale of hand tools and animal-drawn farm implements is undertaken by most supply co-operatives, which have often been instrumental in introducing, for example, iron ploughs in regions where wooden 8 108 CO-OPERATIVE MANAGEMENT AND ADMINISTRATION ploughs were formerly traditional. In some cases they have adapted imported models to local needs. When it comes to power-driven machinery—tractors and the machines that go with them—a rather curious situation has arisen. In many Western countries the manufacturers of such machinery are unwilling to sell through co-operatives, and will certainly never do so unless the co-operative has a fully equipped servicing and repair shop and will stock the full range of spare parts. In Asia and other developing areas, manufacturers are much readier to use co-operatives as agents, and less insistent that they should themselves set up a full repair service. In fact, no co-operative should take up this branch of trade unless it can provide a really competent repair service and stock the necessary spare parts. Some co-operatives not only sell machinery to their members but also hire it out, together with the necessary skilled men, to any member who has a job to be done for which machinery is required, but who may not be justified in purchasing a machine for his sole use. Deep-ploughing by heavy tractors, ditching and draining, and well-digging with the use of boring sets are examples of these activities. Co-operatives which sell power-driven machinery should also sell the fuel and lubricants required for its operation and maintenance. If the co-operative builds its own storage tank and filling station, these can also be used by the co-operative's own lorries. There are numerous other items of farm supply about which less need be said. Hardware, work clothing, fencing, drainage and building materials are probably the most important. Some co-operatives will themselves put up farm buildings on contract for their members, as well as dig wells and lay on water supplies. Some agricultural co-operatives sell domestic consumer goods, and this may be a particularly useful service to outlying farms, far from villages and shops. Elsewhere this is left to separate consumers' co-operatives. CASH AND CREDIT A village consumers' co-operative may find it difiicult to insist on cash payment for purchases; an agricultural supply co-operative will usually find it impossible. At the time when the farmer buys his seed or fertiliser, he is unlikely to have the money with which to pay for it. The best solution is an understanding with a co-operative credit society from which the member borrows in order to finance his purchase from the supply society. Failing this, the supply co-operative will have to face the need for capital to cover what will in effect be loans in kind to the farmer, payment for which will only be made after the harvest. MERCHANDISING II: MEANS OF PRODUCTION 109 PLANT, PREMISES AND TRANSPORT The premises of a supply co-operative begin with a warehouse and an office. Later, room will almost certainly have to be found for grinding, seed-cleaning or other machinery, which may require a specially designed building. Some co-operatives add a shop in which members can choose miscellaneous small items. The larger and heavier purchases may either be fetched by the farmer himself or delivered to his farm by the co-operative. The choice depends on the general economy of the region. If the farmer and his horse or bullock are not fully occupied on the farm, and if he does not live too far away, he can with advantage fetch his own supplies. If he lives on an unpaved road, he will almost certainly have to do so. If, however, the farms of members are many miles from the co-operative, and the type of farming is such that they are at all seasons fully occupied on their own land, then it may be cheaper in the end if the co-operative keeps one or more lorries and establishes a regular round of deliveries. In some countries societies also send out representatives to call on farmers and take their orders for the next delivery. The co-operative wholesaling of agricultural supplies has much the same advantages and faces much the same problems as the wholesaling of domestic goods. Agricultural supplies tend, however, to be bulky in proportion to their value and therefore costly to move about. In large countries it would be uneconomic for a national wholesale to deliver goods to its member societies from one central point. It will either have depots, very likely at ports, or it will tend to leave the handling of bulk commodities in the hands of regional wholesales or even of large primary societies. FISHERMEN'S AND CRAFTSMEN'S SUPPLY CO-OPERATIVES Two types of supply co-operatives remain to be considered. The fisherman, as well as the farmer, has to purchase the tools and raw materials of his industry—nets and gear, paint, tar, hooks, anchors, salt and ice. Like the farmer, he is often indebted to merchants who take advantage of him. A number of co-operatives have been set up for the purpose of providing fishing supplies; some of them also market fish. Moreover, as the use of engines in fishing vessels becomes general, many such co-operatives have set up filling stations. They have the same credit problems as agricultural co-operatives but no delivery problems, as their members Uve together at fishing ports. Fishermen's 110 CO-OPERATIVE MANAGEMENT AND ADMINISTRATION co-operative wholesale societies are at present rare, but a beginning has been made. Many co-operatives formed by craftsmen, workers in cottage industries or even small businessmen have as their object the supply of raw materials and sometimes of machinery to their members. This is usually, though not invariably, combined with the marketing of the product. Some craftsmen's wholesale supply co-operatives have begun to manufacture the product they sell to their members. Yarn, for example, may be spun in the society's mill and sold at less than market price to member societies of hand weavers. CHAPTER X PROCESSING AND MANUFACTURE Something has already been said about processing as a stage in the marketing of agricultural produce and about the manufacture of consumer goods or farm supplies by co-operative wholesale societies (or occasionally by large primary societies) for the purpose of offering their members sound goods at reasonable prices. Factories and processing plants of this kind may be quite large and heavily equipped, employing their own technical staff and a large number of workers, both skilled and unskilled. From the point of view of management and workers alike, these undertakings differ little from private firms. It is therefore proposed in the present chapter to discuss some general principles of factory and workshop management which are applicable to any undertaking, whether it is owned by co-operative consumers, co-operative producers, private shareholders or a private individual. It should not be forgotten, however, that there is one not very large group of co-operative factories—even though such factories do play an important part in some countries—where conditions are in some respects different. These belong to workers' productive societies, originally formed by the workers themselves with the object of owning and managing the business in which they work. In such cases, the fact that the workers are also the members of the society and elect the committee, which in turn appoints the manager and other senior staff of the factory, does involve a rather new kind of industrial relationship. THE DECISION TO ESTABLISH A FACTORY It is being assumed that, generally speaking, the decision to set up a co-operative manufacturing or processing plant has been taken, not primarily in order to provide a return on capital nor to create employment, but to serve the interests of the members as producers or consumers. The factory manager (or the factory subcommittee, if there is one) will probably start with a fairly definite idea of the quantities of members' produce which are to be processed in a season, or the number of manufactured articles which consumers' stores may expect to sell every week, 112 CO-OPERATIVE MANAGEMENT AND ADMINISTRATION This will probably determine the initial size of the factory, while developments in recent years may give some clue as to whether and how quickly it will have to be expanded. In some ways this makes it easier for a cooperative than for a private business to make the first decision regarding output and size. It may well be, however, that the proposed output is not an economic one (too small, for instance, to keep the necessary technicians fully occupied) or that the proposed location is too far from markets or from sources of raw materials, skilled labour or power to enable the co-operative to operate at a reasonable cost per unit produced. In that case the project may have to be abandoned or at least postponed until a more economic volume of produce can be handled or until the road network and the power transmission system have been extended. The co-operative will also have to give very careful attention to the capital needed to cover buildings, machinery, power, raw materials and workers' wages until payments for products begin to come in. If adequate capital is again not available, then a choice will have to be made between deferring the project or beginning with an inadequately equipped and therefore probably inefficient and unprofitable factory. If the service it is to perform is urgently needed by members, it may be tempting to take this risk, but it may not always be wise. It is also necessary to consider whether, given the expected costs of raw materials, wages, overheads and transport, and the prices at which the product can be sold, there is a reasonable certainty of a profit margin from which, especially in the first ten years, it will be possible not only to pay interest on capital, but also to pay instalments on loans arid to create reserves. If this can be achieved only by paying low prices to producers or charging high prices to consumers, the co-operative will have failed in the purpose for which it was founded. It will also be likely to find itself deserted by its own members before it has operated very long. Producers' or consumers' co-operatives start with a certain initial advantage in that they have a ready-made source of raw materials or market for their products, as the case may be, provided by their own members. A workers' productive society, on the other hand, has to rely in both cases on private trade or the general public. This introduces one more element of uncertainty which must be taken into account before a workers' productive enterprise is set up. PREMISES AND STAFF Once the decision to manufacture has been taken, it is necessary to design the plant and decide on the type of machinery to be used. As PROCESSING AND MANUFACTURE 113 already noted in the chapter on plant and premises, the building should be suited to its purpose, strong enough to bear the weight of machinery and stores, properly equipped with light, power and water, and conveniently located for receiving and dispatching goods. Machinery of the type required may be manufactured by more than one firm, and the various makes may differ in method of operation, in cost and perhaps in the quality of the product. A choice will have to be made, taking into account the availability of the desired equipment, the capital outlay involved, the need for foreign currency and other factors. The firm supplying the machinery will, especially if the latter is complicated and consists of an interlocking series of machines, be able to advise on how it is to be set up in order to ensure easy working, smooth flow of raw materials, economical use of space and protection of workers against accidents. The manager, if he has already been appointed and has had previous experience of the process, should also have sound views on the subject. One of the national co-operative federations may have an expert adviser, or in some countries a government department may be able and willing to help. Before engaging staff it will be necessary to estimate the number of persons required, the kind of skills they will need, and then either find men and women who already have the necessary skills or arrange for personnel to be trained. This may cause difficulty at the outset, particularly if the co-operative is pioneering in an industry not previously carried on in the district. It should become easier once the factory has been running for some time. Staff will undoubtedly come and go for a variety of reasons. It will be necessary to be constantly vigilant lest numbers be reduced below the necessary working minimum and particularly lest key workers drop out and cannot be replaced before their absence has disturbed the smooth working of the plant. But in a wellmanaged factory there should, before long, be a constant nucleus of tried and trained workers who can pass on their training to newcomers, while every worker will have at least one deputy who can, if necessary, carry on in his or her absence. THE PRODUCTION PLAN As the machinery is set up and the staff assembled, it becomes necessary to draw up a plan of production either to ensure a steady output (so many tons of flour to be milled every week all the year round) or to complete an order by a given delivery date (so many umbrellas ready for dispatch to the shops a week before the rainy season begins). In either case the aim must be to make the fullest use of all the facilities 114 CO-OPERATIVE MANAGEMENT AND ADMINISTRATION in which the co-operative has invested its members' money—workshop and storage space, materials handled, machinery used to process or move them about, time and skill of the workers—taking into account the rate at which the product can be absorbed by the markets, the extent to which it will keep and the space and capital available for storage. The essential element in planning is time. The entire production process, from the moment raw materials arrive at the plant until they leave it transformed into finished goods, must be looked upon as a series of separate actions—unloading, moving into store, unpacking, inspecting, moving to a machine, passing through the machine, moving away from the machine, inspecting, packing, moving back to the store, moving out of store, and loading. The process will probably, in fact, be a good deal more complicated than this. There may be several kinds of machines, and several kinds of materials may have to be moved up to them. There may be more inspections, and goods may have to be labelled as well as packed. All of these operations will have to be fitted in with one another. Materials to be combined must arrive at the same place at the same time; the labeller's work must be synchronised with that of the packer. All this means that the works manager must know exactly how long each process takes. To people who are not greatly interested in time and do not carry watches (and this includes most country people in most countries) the idea of timing, say, the wrapping of a pound of butter or the trundling of a crate of oranges across the packing shed floor, appears unnatural, even inhuman, as though it were part of a sinister slave-driving scheme. In fact, most factory processes are in practice standardised repeat jobs, whether the workers are aware of it or not. The time scale is there already. This is true also of much simpler, more traditional actions. The peasant farmer drilling his seed times his movements by singing a song. Seamen raising an anchor or hauling on a sail co-ordinate their efforts by the same means. All that is new is that the time scale is checked by a clock and the record kept. Once the works manager (or, in a big factory, the planning department) knows what processes will be necessary to ensure a given output, and how long each will take, he can begin to put together the pieces of the puzzle: so much of each raw material ordered every week; so many men to unload and inspect it; so much storage space; so many men or so much machinery to move a given quantity, hour by hour or even minute by minute, to so many machines; so many workers to each machine, with so many foremen to look after them; so many maintenance men in case of breakdown; so many boilermen or electricians keeping up a steady supply of power; so many packers with so many machines PROCESSING AND MANUFACTURE 115 and so much packing material on hand. Once the plan is made it is put in writing, and the instructions dealing with each process are communicated to the department and eventually the individual worker concerned, so that each knows what is expected of him and the time (allowing for necessary rest periods and minor delays) in which he will be expected to get it done. The object is not so much to speed up the process (though this may sometimes be desirable) as to see that it works smoothly and harmoniously, and to avoid the kind of situation where workers and machines stand idle because one or more raw materials have not arrived, because the workers are waiting for instructions, or because the machine has broken down and the fitter is too busy somewhere else to repair it; where goods pile up at the packing point because sacks or nails have run out; and where storerooms overflow because too much has been ordered or not enough sold, with excess stocks imperfectly sheltered from the weather or cluttering up workrooms and impeding movement. CONTROLLING THE PLAN It is not enough to draw up the production plan and see that it is understood by all concerned (and even this may take time and patience, especially with illiterate workers) : it is necessary to see that it is being carried out. This is only possible by a process of fairly frequent checks in the form of written or verbal reports from the different departments concerned. A system of stock control (already described in the chapter on merchandising) will show whether raw materials are being processed at the expected rate, and finished goods produced and sold as planned. Reports from the sales department will show what further orders are coming in. Reports from the workshops will show whether and where there have been delays and what has caused them. Inspectors will report on the quality of the product. The engineering department will report on whether machinery is being used to the full and how it is standing up to the strain. The accountancy department will report on whether costs are working out as expected. The first production plan of a co-operative setting up a factory for the first time is likely to be a hit-or-miss affair, however much advice has been received from other co-operatives or from the makers of the machinery installed. All machinery takes time to run in and adjust. It has been said that it takes six weeks to marry a man to a machine. A milk-bottling plant in its first week is likely to be strewn with broken glass. Workers are new to their jobs and to one another. The margin which must be allowed for delay in deliveries or for power failures is 116 CO-OPERATIVE MANAGEMENT AND ADMINISTRATION unknown. Gradually, standards will be established, relations between individuals and departments become closer, and plans grow increasingly realistic. It is worth mentioning at this point that co-operatives manufacturing agricultural products will always be faced by a problem from which most industrial producers are free, namely the fact that their raw materials are produced seasonally and are, as a rule, highly perishable. This means, first, that all plans must also be seasonal and must be based on the supplies with which the factory will have to deal, not on the ideal quantity which it might be most convenient to handle; and, secondly, that however skilfully operations are planned, there will almost inevitably be slack seasons when stores are half empty, machines idle and workers, if they have to be kept in employment, engaged in little more than cleaning and maintenance work. At such times the plant will be running at a loss. It is in some cases possible to lengthen the season by breeding and growing late or early varieties of the crop handled or by manufacturing by-products, but this will not as a rule do away with idle weeks altogether. WORK STUDY It has already been suggested that the main object of making a separate study of each process in a manufacturing operation is to estimate the time required to carry it through. The processes are, however, worth studying in themselves in order to find out whether they are in fact being carried out in the best way, so as to minimise fatigue to the workers, breakages and delays due to jammed machinery. This is especially necessary when the process is new and the best way of doing it has not become firmly established through years of experience. But it may also be worth while to reconsider traditional methods. The study of these problems, usually referred to as " work study ", though also known by other names, such as " methods engineering ", is coming to be looked on as essential not only in factory management but also in planning the work of shops, offices and even farms. The method is to select a particular operation—such as putting the sole on a shoe, closing and securing a chest of tea or candling an egg— analyse and carefully record all the facts about it, including not only every movement of the worker, but the height of tables or chairs, the height of conveyor belts above ground, the kind of tools required, where they are placed when they have been used and before they are picked up again, the intensity of light, whether natural or artificial, and other job conditions. It may well be that different workers doing exactly the same job will do it in different ways, and that one of these ways will PROCESSING AND MANUFACTURE 117 obviously be the best. The worker makes fewer and less strenuous movements, uses both hands instead of one, is less quickly fatigued and therefore stops work less often to rest, is responsible for fewer faults or breakages. It may be that such a worker is naturally quicker or more robust or is of exactly the right height to work without physical strain. By recording all the details of the same operation repeated a number of times by the same and by different workers, and by thinking critically about them, it is often possible to suggest changes both in job conditions (e.g. placing of lights, or height of machines) and in the movements themselves such as will enable the worker to get the work done better, more quickly and with less fatigue. This sort of study is usually entrusted to experts, specially trained for the purpose, and when it is a matter of timing fine movements of the workers' arm or fingers not lasting more than a few seconds, only an expert can be of much help. When it comes to the larger movements and the relation of the worker to the machine or the workshop, intelligent observation by the works manager or the foreman can accomplish a good deal. It is not really difficult to see that a man is working in his own light, that eggs are being inadequately inspected because the conveyor belt moves too fast, that a loom made for workers belonging to a tall Nordic race is too high for shorter people in the south, or that constant journeys are being made to fetch materials which could be stacked close at hand. Once the improvement has been decided on, it has to be accepted by whoever is in charge of the workshop and by the workers themselves. This is not always easy. Most people find it hard to change their habits and become suspicious when they are asked to do so. A good deal of tact and patience will be required at this point, and periodic checks will be needed to ensure that the new methods are being followed and that people have not simply slipped back into their old ways. It may also happen that one change in a factory is not enough. To alter one process, especially if it means changing the pace at which it is carried through, may throw some related process out of gear. This means that when all the sectional processes have been examined and recommendations made for improving them, they will all have to be considered again in relation to one another. In one section production may have been increased by reorganisation, but in the next section, engaged in finishing or packing the same article, working methods may have been as good as they could be, so that if the increased quantity coming forward is to move on without a hitch, another worker or another machine will have to be employed. This may mean taking on a new employee or shifting someone from a section where the work has been lightened by reorganis- 118 CO-OPERATIVE MANAGEMENT AND ADMINISTRATION ation. All such changes have to be introduced carefully, without arousing fear or suspicion. It is sometimes imagined that work study is intended to extract the last ounce of effort out of the worker. It should be clearly understood that, at least in co-operatives, a far more important object is to allow the worker to carry on his job in comfort and to earn more by increasing his output. PROCUREMENT AND MOVEMENT OF MATERIALS So far this chapter has been devoted mainly to the actual process of converting raw materials into finished products, but it will be clear that there are a number of auxiliary operations on the efficiency of which the success of the factory largely depends. One of these is the procurement of raw materials. In the case of an agricultural processing co-operative, the basic raw material will be supplied by the members and the cooperative will have some control over quantity and quality. In the case of goods manufactured by a consumers' society, raw materials will have to be procured from outside sources, and much depends on wise buying, right decisions on quality and price, and deliveries so timed that the factory is never short of material, but that storerooms do not become overcrowded nor stocks begin to deteriorate. Materials handling is a very important part of every manufacturing or trading business and, surprising as this may seem, may account for anything from 30 to 90 per cent, of the cost of producing an article. It is therefore essential that any movement of materials within the plant should be carefully planned so that the shortest distances are travelled with the least expenditure of labour and power, and the least risk of loss or damage. More will be said of this in the next chapter. INSPECTION Inspection is a necessary part of the working of a factory. Raw materials are inspected for quantity and for quality as they come into the plant. The work of quality inspection, or testing, has already been described with respect to agricultural products which the co-operative undertakes to sell for its members; but it is at least as necessary in the case of raw materials bought on the open market for conversion into manufactured goods. If the raw material is not of the quality required, it may in extreme cases be rejected. If it has been produced by members of the co-operative, such rejection must be accompanied by advice on more hygienic handling, pest control, quicker delivery to avoid deterioration or some other measure which will make the quality acceptable in PROCESSING AND MANUFACTURE 119 the future. In some cases the poorer quality may be acceptable at a lower price, or it may be used for processing into a different product or after adjustment of a machine. For example, fruit which is sound but blemished may, perhaps, be made into jam but not canned. Inspection for quality may mean testing every unit that comes in (as in the case of eggs) or taking a sample (as with wool or grain). The latter is resorted to in the case of large quantities of a bulk product, the whole of which could not possibly be inspected, or where the method of testing involves destruction of the product tested. But the result of taking chance samples can be quite misleading, and statisticians have worked out improvements in methods by which samples can be as nearly representative as possible of the whole consignment. Inspection will also have to be made at different points during processing, at any rate in the case of an industrial product of any complexity, in order to ascertain that no faults are developing, and the end product will have to be inspected before it is accepted or rejected for dispatch to customers. In addition, there will probably have to be periodical inspections of packing and containers. All this is costly, but unless it is done the co-operative will risk putting faulty goods into its members' hands or on the outside market and having them returned, with a resulting loss of money and goodwill. DISPATCH In the dispatch of goods, careful and alert handling is imperative. Finished articles must move smoothly out of the plant. They must not accumulate in warehouses, taking up space uselessly; at the same time, customers' orders must be met promptly. The best kind of container or packing material in relation to cost must be discovered and used. It will be necessary to decide whether returnable or non-returnable containers will be more economical, what the cost of returning them will be, and how many journeys they may be expected to survive before they fall to pieces. The whole question of alternative means of transport must be considered; this matter will be discussed further in the next chapter. MAINTENANCE It is impossible to lay too much emphasis on the need for a proper maintenance service. This covers buildings and approaches as well as machinery. It is all too easy for the inexperienced to run a new machine to death. Time must be allowed for machine inspection, lubrication, adjustment and the replacement of parts showing signs of wear. In 120 CO-OPERATIVE MANAGEMENT AND ADMINISTRATION co-operatives where business is of a seasonal nature, there will often be weeks or even months during which no products are coming in and the whole plant can be stripped down, cleaned, tested, repaired if necessary, and made ready for the next season. This is not so easy where the plant runs continuously throughout the year. Some provision must, however, be made for inspection and overhaul. A faulty machine may not only result in losses through breakdown or a faulty product; it may be a source of danger to workers. The maintenance of machinery must be in the hands of someone in the factory who fully understands what he is doing. It is only in the exceptional case of unforeseen defects that the makers of the machine should need to be called in or consulted. Whether or not the co-operative should employ its own skilled workers for routine maintenance work depends largely on the size of the organisation. A fairly large concern may find it worth while to keep a full-time carpenter, plumber or electrician on its staff. A small organisation, which only requires such men occasionally, will do better to call in a local firm or an independent craftsman. COSTS Nothing has been said so far about thefinancial,as distinct from the operational, control of factory operations. This will be considered, together with other financial problems, in Chapter XIII. Suffice it to say at this point that the question of cost must be perpetually in the mind of managements and committees. There must be some accurate system of ascertaining from month to month what the cost of the whole operation is and comparing it with prices received. It must also be possible to establish the cost of the different phases of the operation in order to check waste, extravagant buying, misuse of materials, overstaffing, or the continued use of needlessly costly operating methods. CO-OPERATION AND THE MANAGEMENT APPROACH It may seem to some who are used to co-operative undertakings of a very simple character that little of what has been said above applies in their own conditions, or even that it is an attempt to hustle them into a world of industrial big business values which the co-operative movement should not even seek to enter. To this there are several answers. In the first place the co-operative movement, even in the less industrialised countries, is in fact developing very rapidly and, either on its own impetus or with government aid and stimulation, is embarking on PROCESSING AND MANUFACTURE 121 increasingly large-scale productive ventures, often for the processing of agricultural products. Sugar factories and cotton ginneries serving local co-operative collecting points over a wide area are a good example. Unless such co-operatives are as efficiently run as the best private factories they will not survive or will only drag on with the support of subsidies, loans without interest or uneconomic prices fixed in their interest. This is not a type of organisation of which members can be proud. In the second place, co-operatives have in the past been pioneers of technical and organisational change. The mechanisation of the butter industry was largely an achievement of farmers' co-operatives. Department stores, chain stores, professional—as opposed to owner—management were largely pioneered by consumers' co-operatives. In the third place, efficiency, and especially the efficient use of machinery, makes a special appeal to the young. Workers joining a co-operative staff may feel a vague satisfaction that they are part of a non-profitmaking concern. They are likely to be much more enthusiastic if it is equipped with the latest machinery, running swiftly and smoothly, if attention has been paid to their physical comfort and safety, and if they are so trained in the best working methods that they can add to their earnings by their own efforts. Even in premises where mechanisation is at a minimum, observation and thought will often show where work could be lightened, fatigue and unnecessary movement avoided. Managers and foremen should form the habit of watching for these opportunities. This may sometimes result in important innovations which may put the co-operative well ahead of its rivals in private business. This in itself will stimulate the loyalty of both staff and members. The fact that a co-operative or any other undertaking has reached a point where it is working smoothly and balancing its accounts should never be a ground for complacency. For one thing, the achievement of efficient working methods will almost certainly mean an expansion of business, and this may well throw the existing system out of balance, so that it has to be reconsidered and revised. For another, opportunities for improvement will always occur—a better machine, a fresh source of power, a new market, a suggestion from an observant foreman or even an individual worker. All these things management must take into account and, bearing them in mind, perpetually test, modify and replan. A co-operative which has succeeded in ensuring that its members are not exploited for the gain of others may have achieved its first objective. But inefficiency can also be a form of exploitation, and the next and perhaps even more important step is to provide a system which will not merely operate on the principle of service instead of profit, but 122 CO-OPERATIVE MANAGEMENT AND ADMINISTRATION will do a better job by turning out a better article at lower cost. Cooperative efficiency does not only give rise to a justified feeling of pride. Its highly tangible results are reflected in lower prices to consumer members, higher prices to members supplying raw materials or higher wages to the working members of industrial producers' co-operatives, as well as in a more generous distribution of interest or bonus. CHAPTER XI TRANSPORT ORGANISATION Every co-operative makes use of transport, either for bringing goods into its premises, for moving them about while they are there, or for delivering them to members or markets. Well organised, economical use of transport may contribute a great dealto the success of the co-operative. Carelessness may give rise to delays, inefficiencies and unnecessary costs which may turn profit into loss. The simplest form of transport is the human headload, and many peasants still bring in their produce and carry off their purchases in this way. The next stage is the farmer's cart drawn by horse, bullock or donkey. Neither of these costs the co-operative anything, nor involves its manager in difficult calculations. If roads do not exist or are impassable to motor traffic, there may be no alternative. The main disadvantage of such transport is that it limits the co-operative's area of operations to a radius of a few miles, and so makes it impossible to undertake anything which requires much capital or a large volume of business. A number of small, relatively weak co-operatives tend to be formed. Later, when perhaps transport conditions have improved, it is seen that there are far too many of them, that their overheads are too high and their equipment inadequate. The situation then can only be saved by a process of amalgamation, which most of those concerned will resent. PUBLIC TRANSPORT Even if transport between members and their co-operative is of this kind in the early stages, transport between the co-operative and its markets or sources of supply is likely to be much more modern. The most usual resource is the railway, which is especially suitable for carrying large quantities of bulky goods over long distances. Some co-operatives, indeed, originated in an agreement by a group of farmers to hire and fill a railway wagon. Rail transport is especially convenient where the co-operative is built in or near a railway yard and has a private siding, so that no other form of transport is needed to carry the goods 9 124 CO-OPERATTVE MANAGEMENT AND ADMINISTRATION between the station and the warehouse, and there is no need for unloading and reloading. The successful use of rail transport requires a good deal of knowledge, including information on the types of wagons available for bulk transport, goods in containers or refrigeration; the unloading and storage facilities which exist at the other end of the journey; the charges made if the recipient does not collect immediately, and who has to bear them; freight rates and the possibility of obtaining concessions; the risks and liabilities involved in delay, overheating or freezing, and, again, who bears them; whether or not it is worth while to insure the product in transit. In some countries it may be possible or even necessary to use water transport—by canal, river, lake or, especially in the case of ocean islands, by sea. Small vessels, barges or schooners may be owned or chartered by the co-operative itself or by a co-operative federation, or they may be owned by private individuals or by the government, which may use them for carrying mail. Co-operatives importing or exporting on a large scale may have the problem of finding cargo space in large oceangoing ships. In the last 20 years, however, this task has often been taken over by statutory marketing or export boards, partly or wholly representing the producers, through which all marketing co-operatives export their produce. In some cases it is the consumers' cooperatives in importing countries which buy grain or chilled meat overseas, usually from co-operative producers, and arrange for ships to carry it. Probably few co-operatives make much use of air transport, except for letters, but there are certainly one or two, selling expensive and highly perishable products, such as hothouse flowers, which find it profitable to have them delivered by air. It may well be that air transport will come to be more widely used for goods that are valuable in proportion to their bulk and come from places which it is difficult to reach by other means. It will probably be a long time, however, before co-operatives own and operate their own aircraft, except perhaps for the rather different purpose of dusting members' crops with insecticides. Most of them will rely on public or private air lines. INTERNAL TRANSPORT AND MATERIALS HANDLING The subject of internal transport has been mentioned in a previous chapter. Where the co-operative is small, consisting of a single warehouse, workshop or store, the problem scarcely arises. Goods which have to be moved from lorry to store or store to counter will be moved by hand, or at most by wheelbarrow. Nothing much can be done to TRANSPORT ORGANISATION 125 improve this system except by teaching employees how to lift and carry with the least amount of physical strain. In larger undertakings, and particularly those handling bulk products such as grain, milk or fertilisers, forms of mechanised transport are likely to be introduced at a fairly early stage. The crane raising sacks to an upper floor of mill or warehouse has been in use for centuries. An extension of this idea is the lift, originally worked by hand and a system of counterweights but now usually powered by electricity. Liquids—water, milk or petroleum— as well as substances such as grain, which flow in the same way, can be pumped through pipes, and once they have reached a certain height will descend by gravity, at no further cost. Mills and creameries alike make use of this form of internal transport. Grain, as well as many other things, can be made to travel along a moving belt, and there are a number of devices by which goods in sacks, boxes or other containers are carried along some form of continuous conveyor moving either horizontally, vertically, or at an angle. All such facilities are fixed equipment built into the plant, and they can only be used to move goods along an unchangeable path and usually in one direction. In addition, various forms of mobile transport for internal use have been developed in recent years, all, as it were, developments of the wheelbarrow, but many of them now powered by electricity or by small petrol or diesel engines. Fork-lift trucks, for example, will not only move goods horizontally, but lift them vertically, thus allowing for stacking to much greater heights than could be reached by workers merely raising their arms. The decision to install any form of mechanised internal transport in a co-operative is likely to depend first and foremost on the cost involved. Where human labour is abundant and cheap, there may be no economic advantage in acquiring costly equipment, and the physical damage to workers constantly carrying heavy loads will be at least partly offset by the possibility of providing jobs for persons who otherwise might not find any. In such circumstances it will also be easier to employ labour for a few weeks in the year or a few hours in the day, and pay only for work actually done. Mechanical transport, moreover, calls for power, and this may not always be available. On the other hand, in countries where workers earn more than a bare subsistence wage it is more costly to move goods by human muscle than by mechanical devices. It is much easier to keep up an unbroken flow of material to a machine by mechanical means, in many cases it is less likely to damage the goods being moved, and it is safer since it causes fewer accidents to workers—although it is fair to add that, if an accident with mechanised equipment does occur, it is usually more severe. 126 CO-OPERATIVE MANAGEMENT AND ADMINISTRATION In deciding on the type of equipment to be installed, it will be necessary to think first of what it has got to do, how it can be fitted into the existing building without using up space needed for other purposes, how much it is going to be used, whether it can be used for more than one purpose, and what it will cost, not only to purchase and install, but to run, maintain and eventually replace. Expensive equipment that only serves one purpose and is not required for more than a few weeks or months in the year is going to tie up a lot of capital, and the saving of wages or other expenditure which it makes possible may not be enough to cover running costs and depreciation. Obviously, a pipe through which milk is pumped cannot be used for any other purpose, but it is used day after day throughout the year. A moving belt or roller conveying citrus fruit to the grader will probably be used for this purpose only for a few weeks, although it may conceivably be used for handling some other type of fruit or vegetable during another season. Neither the pipe nor the conveyor belt will carry produce along more than one fixed path. A hand truck with a small motor can carry almost anything in any direction except straight up and down. It may even do this, moving to another floor of the same building by means of a ramp or lift. On the other hand, though it can journey to and fro, making deliveries at more or less frequent intervals, it cannot deliver continuously, as some processes require. It needs open space and a good floor on which to travel, and it may produce noise or fumes which may inconvenience or even endanger workers or, in some cases, contaminate produce. In general, fixed equipment of the conveyor type should be kept for continuous year-round handling of large quantities of one kind, or very similar kinds, of article, moving for short distances in confined spaces. Wheeled transport is better for a variety of operations, none of them lasting very long, for handling small and variable quantities of differing products and for covering longer distances and wider spaces. If more than one type of transport equipment is installed, care will have to be taken to see that all fit together, and that they neither overlap nor interfere physically with one another, nor leave unintended gaps to be filled by hand labour. For a medium-sized co-operative, especially one which is in any degree multi-purpose, equipment should be kept as flexible as possible. Low cost is important, and so is simplicity of operation and maintenance. ROAD TRANSPORT Probably the most important form of transport for co-operatives, however, is the long-distance motor vehicle, usually the lorry, but TRANSPORT ORGANISATION 127 including tankers for petrol, milk and flour, house-to-house delivery vans, passenger buses and personal cars. It is a point of some interest how far all these should be owned and operated by the co-operátive itself. A co-operative which is at a distance from a railway may well employ a public or private road transport service to bring in or take out goods. A co-operative with a strictly seasonal business may find it more economical to hire lorries from one or more contractors while the rush lasts than to have a fleet of its own which would stand idle three-quarters of the year. A society, the business of which is fairly continuous but with seasonal peaks, may have enough transport facilities of its own to cover average daily requirements, but may also hire during the busy season. It is to be assumed that a co-operative which decides to purchase its own vehicles has, after careful consideration of the matter, come to the conclusion that it would be more economical and would also add to the prestige of the society and the goodwill of its members if it owned its own fleet of lorries, rather than to hire from others or depend on members to be responsible for their own transport in farm carts. The " fleet " may, of course, be large or small, but in either case it must be carefully chosen and run according to a system for which some one person, be it the manager in a small concern or the traffic superintendent in a large one, is solely responsible. In deciding on the number and type of vehicles to be purchased, the first operation is to make a close estimate of the quantity and kind of goods to be moved daily. It is necessary to think not only of weight, but also of bulk. No one, for instance, can load five tons of hops into a five-ton lorry. Some articles are awkward in shape (an iron plough, for instance), others are dusty or give off bad smells and cannot be packed close to foodstuffs, and others again are wet. The second point to consider is the distance to be covered daily and the time available for the journey. A lorry picking up milk for a dairy could, by running all day, cover a great deal of country. In actual fact, it will not be able to run before the morning milking is finished on the farms nor after the dairy's deadline for receiving milk for pasteurising or butter making has elapsed. If the climate is hot and the milk liable to sour quickly, this may only leave a few hours' time for the lorry to travel, and two or more may have to be used even if total distances are not great. Again, it may be necessary to send a lorry daily to a port or railhead so far away that the driver cannot return the same evening. This will necessitate two lorries running on alternate days. It is also necessary to reckon time spent in servicing and overhauling, as well as the chances of breakdown and the need to keep vital services running without interruption. 128 CO-OPERATIVE MANAGEMENT AND ADMINISTRATION The third point is the kind of roads over which the lorries will have to travel. Are they paved or not ? Do they deteriorate heavily at times of rain or snow ? Are they narrow, with steep gradients and sharp turns ? Are there bridges which will only take vehicles of limited weight or width ? Are there fords, and how deep are they ? There is also the question of conditions at journey's end. If a lorry succeeds in reaching an outlying village or farmhouse, can it turn around or will it have to back all the way to the road ? It may also be necessary to consider loading and unloading facilities at co-operative premises (although these can perhaps be modified) or elsewhere, e.g. at railheads or wharves at which goods are picked up or delivered. CHOICE OF VEHICLES Once all these questions have been answered, an idea of the type of vehicle required—light and easy to handle, or heavy and powerful— will begin to emerge. It is then time to consider the types actually available and the cost. Here again a good many of the same questions arise as in the case of machinery of any kind. Will the vehicle have to be imported ? Is foreign currency available ? Has the firm an agency in the country ? Are spare parts, repair and servicing facilities available ? If the co-operative has enough capital and if proper servicing and handling can be guaranteed, it is almost certainly good policy to buy a vehicle of the best quality available. It will last longer, stand up to harder wear, and be cheaper in the end. But the capital may not be available, in which case the co-operative may have to be content with something less than the best and hope eventually, thanks to expanding trade and increased resources, to be able to replace it with something better. Many will be tempted or perhaps forced to make do with a second-hand or rebuilt vehicle. Here considerable caution is necessary, and unless the vehicle is bought from a very well known source or examined by an expert, and is used with more than ordinary care, it may well turn out to have been an ill-advised purchase. Since most commercial vehicles run on petrol or fuel oil, it is necessary to make sure that supplies of fuel are available. If there is a choice between the two types of vehicle, not only the relative cost, but the subsequent fuel consumption of each will have to be calculated. In some countries the tax on fuel oil is much lighter, and this may make a diesel engine cheaper to run, though it is likely to be more expensive to buy. Co-operatives using transport on any scale will need their own petrol tanks and pumps. Consumers' co-operatives delivering milk and bread in towns, either to their members' homes or to a large number of TRANSPORT ORGANISATION 129 small shops, may find it economical to use light electric battery vehicles. In addition to the lorry fleet, the manager of a co-operative of any size will almost certainly need a car, and this may be the case with other members of the staff if they have to travel much on business. Some co-operatives own these cars, others allow their staff to buy their own and give them a mileage allowance to cover running costs. Some co-operatives own buses, either hiring them out to their members for excursions or using them as exhibition stands at agricultural shows. TRANSPORT STAFF As the transport fleet comes into being, a staff must be built up to handle it. It is obvious that there must be drivers, and equally necessary that there should be well trained maintenance men under skilled direction. It may not be so obvious that there should also be a clerical staff to do the necessary paper work. This is more complicated than might at first be supposed. The position varies somewhat from country to country, but most road transport is controlled by public regulations, mainly in the interests of road safety and road maintenance. Each vehicle must be licensed and so must each driver. Vehicles and drivers must be insured, for their own protection and that of the co-operative; sometimes this is required under a compulsory national scheme. The principal forms of insurance cover damage to or loss of the vehicle, liability of the co-operative as an employer for accidents suffered by its drivers in the course of their work, and its liability as a vehicle owner for damage to third parties. All licences and insurances must be checked at intervals and renewed when necessary. It is important to keep a complete record of each vehicle, including a description of type and make, the dates at which it was delivered and put into service, the date at which it will have been completely depreciated and will be due for sale on the second-hand market, and the actual date of disposal. To this should be added the initial cost, the cost of painting and lettering with the society's name, and the cost of the first set of tyres and of any additional equipment. In some countries it is compulsory, and in all it is desirable, that drivers should keep a record of their hours of duty each day. It is obviously not possible for all of them to begin and end work at exactly the same hour each day, as in a factory or office, but there is a safety limit to the number of hours which a man can drive in a day, especially along bad roads, and it is for the co-operative to see that the limit is not exceeded. The driver will be handed a list of the goods carried, 130 CO-OPERATIVE MANAGEMENT AND ADMINISTRATION including the address or addresses to which they should be delivered. He should also fill up a daily form recording the number of journeys made, the number of calls (which should correspond with his delivery instructions), the mileage travelled, the total weight carried, and the petrol ar ì lubricant drawn from the co-operative's stocks or purchased elsewhere. The statements for petrol and lubricant drawn can later be compared with the co-operative's records of stocks issued. Records must also be kept of all spare parts issued and of every maintenance and overhaul job carried out either in the society's own workshops or on contract by a local garage. All this may sound complicated, and to carry it out may mean employing extra staff, but the mere fact that drivers work independently and unsupervised for most of the day, and that vehicles are subject to risks and strains which are less easy to estimate than those of stationary machinery, means that records must be kept and checks made if waste, mishandling or even misappropriation are not to go undiscovered until serious losses have occurred. The information is not only a check on work in progress. It can be used by the traffic manager to answer a number of questions which will help him to plan the work of his department, keep it running smoothly and avoid needless cost. A final area in which paper work is required is that of drivers' and mechanics' wages, unless this is handled by the general wages department of the co-operative. MAINTENANCE Nothing is more essential to a transport system than good maintenance and overhaul. The failure of a vehicle in service not only costs the co-operative money, especially when it happens far out in the country; it injures the member or customer to whom delivery was being made or from whom produce was being collected, and as a consequence it injures the society, which loses goodwill. The aim, therefore, should be to avoid breakdowns altogether by making careful checks at regular intervals; these should including a daily check by the driver of fuel, oil, water and tyre pressure, a weekly check of brakes, batteries, steering gear and springs, a monthly check of parts not so easily examined, and perhaps a complete overhaul for every vehicle once a year during the slack season. Drivers can be trained to make the simpler checks themselves; for the remainder, it will be necessary to draw up a schedule showing when each vehicle should be taken to the garage for examination, and ensuring that the schedule is observed. TRANSPORT ORGANISATION 131 A co-operative with a lorry fleet of any size will almost certainly find it worth while to keep its own overhaul and repair garage, with skilled workmen, an inspection pit, welding facilities and a full range of spare parts. Societies with only one or two vehicles may have to use a local garage or possibly the workshop of a federal co-operative of which the local society is a member. Whatever the system adopted, the importance of maintenance cannot be overstressed. It must be considered with special care in countries where machines have only been introduced recently and where people are not mechanically minded by tradition. Such people often make good drivers, but too often they treat a machine as though it were a horse or bullock, needing only to be fed.1 PLANNING ROUTES Another very important aspect of transport organisation is the planning of rounds (i.e. circular tours on which the vehicle calls at a number of places to pick up produce or deliver goods) and journeys (i.e. straight runs from one point to another). The aim in devising a well-planned round is that it should be as direct as possible, and that the vehicle should be loaded for the greatest possible time during its travels. Running empty lorries is wasteful and costly and should be avoided as far as possible. Once a round has been planned, it should always be entrusted to the same driver. He will become used to any difficulties on the route. He will get to know those on whom he calls and will build goodwill. The main difficulty about journeys is that, as they are usually for a single purpose, it may be difficult to arrange backloads. Every effort should be made to find a solution for this problem. Perhaps a marketing and a supply co-operative can use the same lorry going in different directions. But there may be legal difficulties if the lorry is only licensed to carry the goods of one co-operative. Perhaps it may be better to hire a lorry, the owner of which will make his own arrangements for a load in the other direction. As already pointed out, many co-operatives employ both their own transport for average day-to-day needs and hired transport for peak periods. It may be that the hired lorries can be used for one-way journeys. 1 It will in any case pay to keep the same driver on the same vehicle, so far as possible, so that the driver gets to know the " feel " of the vehicle and can run it with the best results. Appreciable savings on maintenance costs can be achieved in this way. 132 CO-OPERATIVE MANAGEMENT AND ADMINISTRATION LOADING AND UNLOADING The co-operative will probably be unable to control the conditions under which goods are delivered or picked up 1 but careful thought should be given to loading and unloading at the co-operative premises. There should be a platform of the right height for easy movement of goods to or from the lorry. It should be under cover both for the comfort of workers and in order to protect goods from the rain, and there should be room for several lorries to back up to it at the same time, though loading and unloading should not, if at all possible, go on together. Lorries waiting are nearly as costly as lorries running empty. The loading itself should be carried out with care. An unbalanced load can be dangerous. Mixed articles in the same load may damage one another. In any case, if there are to be a series of deliveries, the goods to be delivered first should be at the back of the lorry or on top of the pile, where they can easily be reached. DRIVERS AS REPRESENTATIVES It goes without saying that drivers must be trained to run their vehicles. It is not always so clearly realised that they must also be trained to represent their co-operative. Many people, both co-operative members and the general public, see more of the lorry driver than of any other member of the co-operative staff, and it is from him that they get their impressions, good or bad, of co-operation in general and of the particular society. It will usually pay to give drivers careful instruction in road courtesy and to see that their manner when making calls is cheerful, courteous and friendly. This is not all. A driver should have at least a broad idea of what co-operation is about, and what his own society is trying to do. If he has picked up even this much, he is likely to be more interested in his own work, and he will pass on his interest to members with whom he comes into contact. TRANSPORT CO-OPERATIVES One final point should perhaps be made. So far it has been assumed in this chapter that transport is merely one function of a co-operative 1 Although in the case of milk rounds, for example, it may be possible to ask members to build simple wooden platforms which will make it easier and quicker for the driver to load cans onto his lorry. TRANSPORT ORGANISATION 133 having as its main purpose the marketing of produce or the distribution of supplies. There are, however, a rather limited number of cooperatives which exist for the sole purpose of running a transport fleet. The members are usually the drivers of the vehicles, but there are cases where farmers have formed a co-operative transport pool to carry their produce to market, even though they have not attempted to sell it co-operatively. Some of the better-known worker-owned transport co-operatives operate buses, taxicabs, furniture removal vans and general service lorries. One or two run barges or ferry boats. Much of what has been said above would apply equally to a worker-owned transport co-operative or to a transport pool owned by individuals or by a group of co-operatives with interlocking interests. The transport pool has, in fact, been less frequently attempted than might be expected in view of its apparent usefulness, and although worker-owned transport co-operatives can claim some striking successes, a good many have been conspicuous failures. It may be worth examining some of the difficulties which such organisations have to face. In the first place, a good deal of capital is required for the purchase of vehicles, spare parts, garages, fuel supplies and the means of storing them. If the members are working drivers they are unlikely to be able to put up much share capital. They will have to obtain a medium-term loan from a co-operative, or possibly from a government bank, which may take a mortgage on the vehicles and require that they be licensed in the name of the bank. Secondly, the vehicles will in most countries require licences to operate on certain routes and engage in certain types of transport. There will doubtless be established transport firms which will oppose the granting of licences, and the licensing authorities may not always be friendly. Discipline among drivers is by no means easy to enforce. To a large extent, they work independently, and cases of negligence—e.g. failure to service vehicles properly—or outright misconduct—e.g. dishonesty in handling petrol, accounting for fares or giving free lifts to friends— are difficult to discover. Drivers often have little understanding of co-operation, even though as members they elect the committee, which is the only source of authority in the group. If a transport society is to be a success, personal leadership of rather more than average tact and force as well as reliable methods of supervision are called for. Each vehicle should have a log book covering accessories and spare parts, with particulars of renewals, repairs and servicing. In addition a driver's log book should be kept, covering the details of every round or journey, as well as the appointment of inspectors to check the actual operation of vehicles. 134 CO-OPERATIVE MANAGEMENT AND ADMINISTRATION A further danger worth mentioning is that a successful transport society may itself after some years become monopolistic, with the original members owning all the capital and employing non-member drivers. CHAPTER XII CO-OPERATIVE CAPITAL I : CREDIT SOCIETIES AND BANKS It should be clear from the preceding chapters that any co-operative, in order to do the work for which it was founded, needs considerable capital resources. Nothing has been said, however, about the different kinds of capital it will need, nor the sources from which they can be obtained. In this connection, a fundamental distinction must be made between fixed capital and working capital. Fixed capital is money spent on land, buildings and machinery, either by the co-operative itself or by a member to whom it has made a loan. It is fixed because the money cannot be recovered unless the buildings or machinery are sold, which in itself would probably bring the work of the co-operative to an end or ruin the borrower. Capital which is " sunk " or " locked up " in plant or buildings must be money which the co-operative will not have to repay to a lender on short notice. Working or " operating " capital covers short-term advances to members, payments for purchases of goods and raw materials which will be resold at least in the course of the year, and the payment of wages and overhead expenses such as power and light. Capital for such purposes may be needed principally in the first stages of a co-operative's life, or during seasonal peaks of activity. In any case, it is constantly going out and coming in. Never, unless the co-operative has made many unwise loans or finds itself with large stocks of unsaleable goods on hand, is it really sunk, locked up or impossible to realise. For the sake of convenience, the discussion of the subject of financing has been divided into two parts : credit societies and banks are covered by the present chapter, while trading and manufacturing societies are considered in Chapter XIII. FINANCING A CREDIT CO-OPERATIVE Co-operatives engaged in banking, especially village credit societies, require practically no fixed capital but, by comparison, a great deal of operating capital. In principle, this is provided by the members them- 136 CO-OPERATIVE MANAGEMENT AND ADMINISTRATION selves. Such capital is brought into the co-operative in three forms, namely entrance fees, which are non-repayable and can be used to cover the small permanent equipment which the co-operative needs; shares, which are usually transferable but not withdrawable; and deposits, either from members or non-members. The latter may be repayable on demand; on the depositor's giving from three to 12 months' notice; at a fixed date ; after an event such as the death or retirement of the member; of after a fixed amount has been accumulated. Some deposits are made irregularly, whenever the depositor has money to spare ; others are " recurrent " sums paid weekly or monthly, sometimes as deductions from the member's pay if he is a wage earner. A credit co-operative has two other sources of capital. Over the years a well managed society will build up reserves out of the difference between the interest charged to borrowers and that paid to depositors. This margin also covers the running costs of the society and may have to be used to meet bad debts, in which case the process of reservebuilding may be quite slow. In addition, the society may borrow from an outside financial institution, generally a regional co-operative bank, but possibly a governmental or even a private bank. In a primary village co-operative with probably only nominal share capital, all these loans are secured by the unlimited liability of members. Unless the members have resources which can be easily realised, this may not actually constitute very much of a guarantee, but it has a certain moral influence on the members' conduct. It is really suitable, however, only for small societies where members live in the same village. It is not appropriate to large urban societies, the members of which may be quite unknown to one another. In order that societies may not be tempted to go beyond the limits of financial prudence, it is usual in some countries to fix an upper limit to the society's borrowings from all sources, including deposits. This may be expressed either as a multiple of the share capital or (in the case of societies without shares) as a proportion of the members' personal assets, generally the value of their land. LENDING POLICY OF A CO-OPERATIVE The work of a credit society, it should be remembered, is first to encourage thrift by offering a simple form of investment. But such societies have another important function, which is to make loans to their members, primarily in order to provide them with the capital needed to run their own farms, workshops orfishingboats. Loans are generally divided into (a) short-term loans for periods up to one year to cover cultivation and marketing expenses in agriculture, or the cost CAPITAL i: CREDIT SOCIETIES AND BANKS 137 of raw materials and wages in small-scale industry; (b) medium-term loans for periods of one to five years, for the purchase of livestock, implements and machinery or for the repair of machinery or buildings ; and (c) long-term, five to 20-year loans for the purchase or improvement of land or the acquisition of buildings and heavy machinery and also, in some cases, for the consolidation and repayment of old debts. In societies formed by small independent producers, all loans should be for productive purposes and should be used to earn their own repayment, though in practice they are sometimes also granted for expenditure on customary events such as weddings and funerals, for which members would otherwise go to money-lenders. In credit societies of urban wage earners, the purpose of loans may not be " productive " but " provident ", e.g. the purchase of a house, medical care or the education of a child. Loans by primary societies to their members are made in principle on the basis of personal security based on the character of the borrower and the surety of one or more of his neighbours, against whom proceedings can be instituted in case of default. Loans may also be secured on personal property such as crops, raw materials, livestock, share certificates, life insurance policies or other valuables.1 Even though a loan may be adequately secured, the last thing that a co-operative society wishes is to seize a defaulting member's property or to take proceedings against one who has acted as his surety. If this is to be avoided, the member's capacity to repay must be carefully considered before the loan is granted by the committee, which must be satisfied that the crops he proposes to grow or the articles he intends to manufacture will in fact bring in enough to pay off the loan. If the security is agricultural produce, for which prices may easily fall, the loan will not be made for more than 60 to 80 per cent, of its assumed value. For longer-term loans, the borrower may have to prepare a complete budget of income and expenditure showing whether or not a margin for the repayment of interest and instalments on the loan can reasonably be expected over the years to come. The loan may be given as a lump sum, as an order on another co-operative for the supply of raw materials or machinery, or in the form of an overdraft or cash credit on which the borrower can draw as required up to a fixed limit. This last form of credit is only granted after careful inquiry into the character and capacity of the borrower. Loans may be repaid in cash by instalments, or at the end of the term 1 Long-term loans are secured on mortgage of land or buildings, but this is not a form of loan which can be supplied by a local society. See below, pp. 142 ff. 138 CO-OPERATIVE MANAGEMENT AND ADMINISTRATION for which they were made, or they may not be repaid by the borrower himself but by a marketing co-operative through which the bank has arranged for him to sell his products. Care should always be taken to ensure that loans do not exceed the real needs of the borrower. The purpose of a credit co-operative is to promote a sound economy on the farm, not extravagance, even if it is the well-intentioned extravagance of buying a tractor for a holding too small to employ it fully. In some societies the maximum loan to any one member isfixedin the rules or by-laws. Elsewhere the borrower must invest share capital out of his own resources up to a proportion of the sum he means to borrow. It will be clear that even a small village credit society has to face quite intricate problems of financial management if it is to remain solvent and continue to make the best use, in the interests of its members, of the money available to it. This is the responsibility of the committee, but in some countries it is usual to delegate power to a supervisory body, the principal duty of which is to see that loans to members have been used for the purposes for which they were made, and that repayments are made at the required time. If the loan has been misapplied, it may be recalled. If it has not been repaid, the supervisory body must decide whether exceptional circumstances justify an extension or whether the case must go to court. However anxious the committee is to help its members with loans, it should never make the mistake of allowing its resources to become so tied up that depositors cannot withdraw their money nor new loans be made. Deposits, as well as loans from other institutions, are what bankers refer to as short-term money: the credit society may have to return all or part of them within six months or at most a year. They should not, therefore, be used to make long or even medium-term loans to members. A lack of understanding of this point is one of the most frequent causes of failure among credit societies. A point comes when the depositor wants his money back, or a regional bank reminds the society that its loan is due for repayment, or a fresh borrower applies for a loan. It may well be that the co-operative cannot meet any of these demands, not because it is insolvent but because all the money has been lent out and the time for repayment has not yet come. Of course, the situation is even worse if the dates for repayment are past and the members have failed to repay because of a bad harvest or mere personal irresponsibility. In either case, however, the initial mistake has been to use short-term money for long-term loans. There are several solutions to this problem. The society may keep fluid reserves in the form of cash at the bank, credits available on CAPITAL i: CREDIT SOCIETIES AND BANKS 139 demand or securities which can be readily cashed, up to a fixed proportion of its own borrowings. It may limit itself strictly to short-term loans and refer all borrowers who want to incur debts which they obviously cannot pay off in a year to a regional bank. Or again it may insist on transferable rather than withdrawable shares, and it may contribute steadily to reserves even if this means putting off the time when the rate of interest on loans can be reduced. An old society which holds substantial share capital and reserves as well as long-term deposits, and enjoys the full confidence of the village, may know by experience that only a proportion of these deposits are ever withdrawn at any one time and that it may thus be safe to lend some part for longer periods than one year. Even so, the committee will have to weigh the advantages of benefiting one member for three years as against three members for one year each. They will also have to remember that the society must always have a margin of resources to cover bad debts as well as new borrowers. Even in the case of strong local societies, it would probably be wiser if they reinvested their deposits, as well as their reserves, with a regional bank and reborrowed from the bank for all purposes other than short-term loans. REGIONAL AND NATIONAL CO-OPERATIVE BANKS In a mature co-operative credit movement there should be a number of credit societies which have built up larger savings deposits than they can use continuously in loans to their own members. It is unsatisfactory that such money should lie idle, since it would be difficult in that case to pay interest on it. On the other hand, if it were invested in some local co-operative trading or processing society there might be a risk that it would not be available when required. Interest and availability can both be secured by transferring such funds to a federal co-operative bank, which in a large country will probably be regional, but in a small one may be national in scope. At the same time there are always new credit societies which have not yet built up their deposits, as well as societies in districts with a special need to borrow. There may also be seasonal needs, especially to cover the marketing of particular crops. In a large country with a number of different crops, these seasonal needs may not all occur at the same time. A well managed regional bank should be able to keep money circulating so that it is never idle but, at the same time, is never so locked up that depositors are unable to withdraw their savings when they wish. The experience of a bank handling a large number of deposits over years will gradually make it clear what the minimum margin of liquidity ought to be. 10 140 CO-OPERATIVE MANAGEMENT AND ADMINISTRATION The regional bank is in a much better position than the local society to borrow from outside the co-operative movement. In some fortunate countries this is unnecessary, thanks to a strong deposit position. Elsewhere, however, co-operative banking, at least in its early years, has been helped to a considerable extent by borrowed capital. Sometimes this has been provided by private banks, sometimes by the public —either in the form of deposits or through public bond issues—and often out of government funds ; in the latter case, loans are made to the cooperative banks, which in turn distribute them to local credit societies, taking into account the needs of the district, the security which borrowers can offer, and the general stability and competence of the society. The government loan is a well-tried expedient, but it has certain disadvantages. The ordinary member, and even the local committee, is inclined to confuse a government loan with a subsidy, and borrowers may make less strenuous efforts to repay than might have been made if the loan had come from the members' own deposits. In order to safeguard itself against irresponsible lending and slack repayment a regional bank will, as a result, tend to take more and more responsibility from the local society. The traditional co-operative loan, based on the character of the applicant and the local knowledge of the committee, tends to be replaced by a loan based on a formal statement of acres of land, numbers of livestock or value of standing crops owned by the applicant. Such loans take much longer to grant, and an agricultural loan is often needed very quickly. In large countries with regional banks, these are usually federated in their turn to form a national bank. Although many of them are wholly self-supporting and self-governing—some, indeed, are among the most important banking establishments in their respective countries—elsewhere they may be principally important as the point at which government funds find their way into co-operative circulation. Where the government has a substantial financial interest it may also expect to wield a measure of influence, if not control. Some national co-operative banks are themselves institutions of a mixed character, with controlling boards representing both co-operatives and government departments. Elsewhere, the government also holds (or has at one time held) share capital both in national and in regional co-operative banks. This is a departure from the co-operative tradition of self-help and self-government, but may be justified as a temporary measure and provided that a real effort is made to build up members' capital and buy out the shares held by the government. In the meantime, the main problem of management is likely to be that of reconciling the bureaucratic form of administration, emphasising formality, caution and security, with the CAPITAL i: CREDIT SOCIETIES AND BANKS 141 more flexible policy and swifter decisions which make for success in commercial banking. Where the federal bank is autonomous it is governed, like other federal co-operatives, by an annual general meeting which elects a committee for one or more years, with arrangements for retirement and re-election and for the appointment of a subcommittee or executive board similar to those already discussed in Chapter II. In some countries, particularly those where both business knowledge and funds for investment are scarce, some regional banks admit individuals as shareholders; in such cases the rules for general meetings and elections are framed so as to ensure that the rights of individual members are effectively safeguarded and that the latter feel sufficiently assured of their position willingly to contribute their experience as well as their money, although final control in all cases remains with the delegates of local co-operatives. In some countries the elected president of a regional bank exercises a good deal of authority over its day-to-day working, and care is therefore taken to choose a suitably qualified person. As the organisation matures, however, it is usual to transfer more responsibility to a professional manager who is chosen for his technical qualifications and entrusted with full and direct control over his own staff. The members of the committees will then, as in other large co-operatives, confine themselves to matters of broad policy. Local credit societies or other co-operatives usually apply for loans direct to the federal or (in a small country) national co-operative bank, and the bank grants or refuses the loan after considering the soundness of the society's own position. Loans from federal to local societies are made on the security of their general assets or, if they are trading societies, on the value of goods in store or of plant and premises. A device sometimes adopted is that of the " supervising union " formed by representatives of co-operatives which may wish to borrow from the bank. The union is responsible for recommending which loans shall be granted and for what amount, and also for collecting them from the borrowing societies when they fall due. The union employs its own supervisors, each of whom is responsible for 20 to 25 borrowing societies, and whose business it is to see that they are efficiently run on co-operative principles, that their accounts are properly kept, that any loans they have in turn made to their members have been correctly sanctioned and secured and are being regularly repaid. He also acts as a general co-operative and technical adviser to the local societies and their members. In some cases the supervising union is autonomous and resembles the audit unions described in Chapter XV. Elsewhere it is controlled by the federal bank through an executive officer appointed for 142 CO-OPERATIVE MANAGEMENT AND ADMINISTRATION the purpose. This makes for closer control over the granting and recovery of loans, but also for a strict banker's approach to co-operative development. This may be a good thing if it discourages financial recklessness either by the societies themselves or by a government anxious to make co-operation the vehicle for rapid national development. It should not, however, be allowed to become a mechanical and bureaucratic form of restraint. LONG-TERM LOANS AND LAND MORTGAGE BANKS Long-term loans are usually secured by mortgage on land or buildings. This, however, is not a suitable use for the capital of local credit societies, since it has the effect of freezing it for far too long a period. Apart from this, the use of land as security raises a number of problems. It tends to exclude tenants, or any land occupiers who have no clear title to their land, from the benefits of co-operative credit. Alternatively, it means that the loan is made to the landlord, and there is no guarantee that the tenant will get a fair share of the benefit. In countries where all (or nearly all) farmers own their land and have written titles, this is not important. There is, however, the further difficulty that security based on a pledge of land is not nearly as strong as it looks. A ruthless private corporation may be prepared to evict a defaulting borrower from his land, but a village credit society or even a co-operative regional bank will be deeply reluctant to do anything of the kind. Even if it did try to make an example of some persistent defaulter, it is doubtful if purchasers for the land would be found, and in some countries there have been statutory land settlement schemes which would make such forced sales impossible. Nonetheless, for a loan which has as its purpose long-term land improvements—drainage, irrigation or tree planting—or the purchase of land, a mortgage constitutes the only appropriate form of security. Loans of this type, however, should never be attempted by any but the strongest regional banks. They tie up far too much capital for too long a time and benefit too few people. They are best handled by special co-operative land mortgage banks, the capital of which is not liable to withdrawal on short notice. Such banks are usually financed by share issues to other co-operatives, and possibly also to individuals, and by the sale of bonds which do not mature, and will not therefore have to be repaid, for a stated number of years. Such bonds are secured on the lands mortgaged by borrowers and may carry a form of government guarantee, or the bank may receive government loans, also at long term, especially in its initial stages, before it has had time to build up CAPITAL i: CREDIT SOCIETIES AND BANKS 143 funds from other sources. The government may also, in some cases, subscribe for shares in the bank. The solvency of a land mortgage bank depends on the wisdom of its lending policy, including a proper examination of the title to the lands mortgaged to it, their value and their freedom from encumbrances. This information may be obtained through local co-operatives, but land mortgage banks often employ special appraisers. In any case, they limit advances to a figure well below the total estimated value of the property. In order to be sure of having on hand at all times sufficient funds to repay bonds when they fall due, most mortgage banks establish a sinking fund fed by the instalments repaid by borrowers and sometimes administered by a specially appointed trustee acting on behalf of the bank. Mortgage banks also build their own reserves like other cooperative banks, out of the margin between the interest paid on shares, bonds and other sources of capital and that charged to borrowers. BANKING FOR CO-OPERATIVES A special type of co-operative bank which exists in some countries, and is operated in rather the same way as a land mortgage bank, is the regional or national bank established for the purpose of making loans to trading or manufacturing co-operatives, particularly to assist them in their development. As these are long-term loans, they are usually secured on a mortgage of co-operative premises and the bank derives its funds from share capital and the sale of bonds rather than from deposits. Such banks may also make short-term loans to cover, for example, the marketing of a single crop, but in this case the sources of capital will probably also be short-term ones, and the security will be some form of chattel mortgage on the goods in store. In some countries, e.g. the United Kingdom, central co-operative banks are closely allied with, or even form part of, consumers' co-operative wholesale societies. They are able to draw on the accumulated resources of local consumers' co-operatives, invested either at short or long term, as well as on the deposits of individuals and of organisations such as trade unions, friendly societies or even local government authorities. They use these resources both to finance current trade in the co-operative movement and to make capital investments, local and national, which can only be repaid over a long period. The extent to which co-operative banks, and even local credit societies, can give their members, both individuals and other cooperatives, a full banking service, including the provision of current accounts and cheque books, depends partly on their capital strength, 144 CO-OPERATIVE MANAGEMENT AND ADMINISTRATION but also on whether they do enough business to justify the appointment of a staff trained in banking methods and on how far they form part of a national system of co-operative banking, with established procedures and provisions for mutual aid, audit and supervision. CHAPTER XIII CO-OPERATIVE CAPITAL H: PRODUCTION AND TRADING SOCIETIES The capital requirements of co-operatives engaged in trade, industry or services are rather different from those of societies concerned only with banking. In the first place, a much larger proportion of fixed capital is required to cover the cost of buildings, machinery and equipment. In the second, working capital is needed not so much to make advances to members, though this may be necessary, as for a wide range of activities carried on by the co-operative itself, e.g. the purchase of raw materials for manufacture or goods for re-sale, payment of wages, and the operating costs of machinery and vehicles. Many inexperienced co-operatives, in particular, ignore or underestimate the waiting period between the opening of business and the moment when payment for goods begins to come in. They sink all their funds into plant and buildings and find they have too little working capital to see them through until income begins to balance or exceed expenditure. This miscalculation may take place when a new co-operative is set up, but it may also happen when a co-operative tries to expand faster than its capital resources will allow. The distinction between long and short-term capital, discussed in the preceding chapter, does not usually apply in the case of co-operatives other than credit societies. A more significant distinction in this case is that between owned capital and loan capital. Owned capital is the share capital contributed by members, together with that part of any past trading surplus which has not been distributed to members, but has either been formally transferred to reserve or is held as undistributed profit to be used in financing current business. It is in fact the kind of capital which can be used for long-term investment. Loan capital is capital borrowed from members or from other sources which the co-operative is bound to repay, either on demand or at some definite date in the future. Such loans are in most cases short-term ones and must be used as such. 146 CO-OPERATIVE MANAGEMENT AND ADMINISTRATION SHARE CAPITAL In most cases, the owned capital of a co-operative is made up of share capital, with the liability of members limited to the value of the shares subscribed. It is true that there are countries in which successful co-operatives have been built up without share capital, on the basis of loans mutually guaranteed by the members and gradually paid off from accumulated reserves. The success of this method, however, depends on all members being men of some substance, united by close bonds of mutual confidence. It would be impossible among men with little property or personally unknown to one another. The value of a share is fixed by the rules of each society and it is usual to specify a minimum number to which each member must subscribe. This may be the same for all members, or in some agricultural societies it may be in accordance with the number of acres farmed or cows milked. Members may usually subscribe for more than the minimum, but not for an unlimited number of shares. The limit may be a fixed number or it may be a proportion—10 per cent, or 20 per cent.— of total share capital. The purpose of fixing such limits, as noted in Chapter I, is to prevent financial domination of the society by any one member. Shares may or may not be paid up in full when first acquired by the member. The advantage of partial payment to the member is that he need not produce all the money at once. The advantage to the co-operative is that, with the right to call on members for further share payments, it has a readily available source of capital, and the knowledge that this is so will make banks readier to lend to it against subscribed capital. In the meantime, the co-operative is not paying interest on capital it does not need. This system does not afford as wide a margin of safety as unlimited liability, but on the other hand members can only be called upon to accept the consequences of unlimited liability if the society is actually in liquidation, whereas share capital can be called up while the society is in full activity and indeed flourishing. Shares may be withdrawable or transferable. The former is a disadvantage to the co-operative, especially one with a small membership, since it means that share capital has in effect become short-term money which may have to be repaid at any moment. In actual fact, some consumers' movements with a very large membership have survived this disadvantage without any difficulty, even in times of unemployment or strikes, when high withdrawals might have been expected. It is more usual, however, to provide that shares may be transferred, but that the transferee must be either a member of the co-operative or acceptable to the committee for membership. This prevents the possibility of CAPITAL li: PRODUCTION AND TRADING SOCIETIES 147 co-operative shares being bought up by a private trader or passing to someone who would not or could not use its services. It is usual to pay interest on shares, but at a rate which is fixed either absolutely or within narrow limits by the rules. In most countries interest on co-operative shares is a fixed charge and does not rise or fall with the surplus or losses of any one year. Occasionally it is regarded as a charge on the surplus, and though in a profitable year it may not exceed the fixed maximum, in a year of loss little or no interest may be paid. Shares do not themselves rise or fall in value as do those of private companies. New shares are always issued at the same cost to the subscriber. The fact that interest must be paid continuously on all share capital means that it must be kept continuously employed and not allowed to lie idle in the bank. For this reason it is not suitable for covering purely seasonal operations. One aspect of shareholding is not always clearly faced. Members take up shares, grow old, hand over their farms or fishing boats to their sons, leave the district or take up occupations which have nothing to do with the objects of the co-operative society. It may very well happen that, after 30 years, half or more than half the members of a co-operative may be inactive old men who are doing nothing to increase its business. If they have plenty of time on their hands they may dominate its annual general meeting and elect its committees. This may not make for progress or arouse enthusiasm among younger members. It is as well to foresee this situation and have a rule inserted by which the co-operative can, if it wishes, buy back the shares of members who no longer trade with the society. RESERVES Reserves are a most important part of the capital resources of a co-operative, and many have a paragraph in their rules laying down that a fixed proportion of the surplus must be added to reserves every year until the latter equal share capital or reach some other agreed figure. This is a wise provision so long as it is not applied too rigidly. Some types of society have smaller capital requirements than others and members should not be deprived entirely of current benefits from their society. Indeed, it should never be forgotten that the use of surplus to build reserves always means to some extent benefiting future members at the expense of those from whose current business the profit was derived. It is very well to build a strong and lasting institution, but one of the aims of any co-operative society is, after all, to put a little more money into the pockets of its members. Both objects are desirable : the problem is to find the right balance between them. 148 CO-OPERATIVE MANAGEMENT AND ADMINISTRATION Reserves are the cheapest form of capital, since the co-operative pays no interest on them. In some countries, however, profits which a co-operative puts to reserve are severely taxed while those distributed to members are not. Some societies, as a result, prefer to make a more modest contribution to reserves while paying a fairly handsome bonus to members and then inviting them to add it to their share capital instead of withdrawing it. Sometimes, indeed, the bonus is automatically added to paid-up share capital until it equals the full value for which the member has subscribed. Some co-operatives have " allocated " reserves for special purposes —a bad debts reserve, a building fund or an employees' pension fund— which may only be used for the purpose laid down, although employees' pension funds are sometimes available for working capital. Many co-operatives have fairly large sums available as undistributed profit. These can be used in the same way as a reserve, but they can also be used to supplement the members' bonus in a year for which profits have been small, a use to which a reserve could not be put. Many co-operatives create what are called hidden reserves. There is nothing evasive about these and they are perfectly well understood by, for instance, the tax collector. What most frequently happens is that, as explained in Chapter V, co-operative property, especially land and buildings, is depreciated year by year until it stands in the society's balance sheet at a nominal value, while in fact it may be worth as much as (or even more than) it was worth when originally purchased. There are other methods of achieving a similar result, such as financing as much capital development as possible out of income ; the problem in this case is to find a formula which the revenue authorities are prepared to accept. LOAN CAPITAL Deposits Loan capital may come from members or non-members. In some countries members place savings deposits with their co-operatives, especially with co-operative consumers' societies, and these may amount in the end to very large sums and form an important element in co-operative capital. Such deposits are usually reinvested by the primary society with a national co-operative bank or with a co-operative wholesale society having a banking department, as described in the last chapter. In societies which include well-to-do farmers among their members, several of these may be prepared to make comparatively large loans to the co-operative in order to get it started, speed up its develop- CAPITAL li: PRODUCTION AND TRADING SOCIETIES 149 ment, or simply find a convenient local investment for their own savings. Such loans may be useful, but they are also liable to be withdrawn, and they may give the lender an excuse for trying to influence the management of the society. Revolving Funds A rather different device is that of the revolving fund, very popular among co-operatives in North America. It works in one of two ways : either all or part of the bonus on business done which is due to the members is, with their consent, retained by the co-operative; or, alternatively, a small levy is made on every unit of produce marketed. These sums are credited to each member individually as loan capital repayable at the end of, say, ten years from the date on which they were received. The following year, a further levy is made (or some part of bonus due is again held back) and this loan again is repayable in ten years' time. As the scheme matures the co-operative will every year pay back to members the sums which it borrowed from them ten years earlier, while at the same time making new levies on current business. Meanwhile, a moderate interest is paid to members on their money. There is a good deal to be said for the revolving fund. It is a comparatively painless way of obtaining capital from members. It gives the co-operative an assurance that certain funds will be available for a definite number of years (which, of course, need not be ten) and also that a large part of the capital of the society is held by members in proportion to the business they do with it. The disadvantages of the system are that it is difficult to apply where members live near the margin of subsistence, that it is somewhat rigid—since, even though it might be more advantageous for the co-operative to pay back in eleven years or in nine, the date of reimbursement could hardly be altered without shaking the members' confidence—and that it does not provide a suitable basis for really long-term investment in plant and buildings. Bank Loans National and regional co-operative banks are an important source of loan capital, including both long-term investment and short-term working capital, for primary co-operatives. Before lending money for a long-term development plan, however, such a bank will normally want to study and approve the plan. It may suggest modifications which, in its wider experience, seem wise. It will then lend, usually on the security of a mortgage. Short-term or trading loans usually take the form of a bank overdraft given while the co-operative is either 150 CO-OPERATIVE MANAGEMENT AND ADMINISTRATION stocking up for the busy season or is paying out large sums to the members either on delivery of their produce or as an advance before delivery (which in some countries is a function of marketing rather than credit societies). A bank overdraft, preferably from a co-operative bank, is by far the best way of financing these seasonal peaks in the co-operative's credit needs. Unlike share capital, it can be repaid as soon as the peak is past, and interest immediately ceases. Some co-operatives have been able to obtain the same sort of service on almost equally good terms from private banks, which are interested in business and not in ideology, and just as ready to lend to a co-operative as to any other sound concern. GOVERNMENT ADVANCES In some countries, as already noted, an important element in co-operative capital is provided by the government, usually acting through a national bank which may either be engaged exclusively in financing co-operatives and their members or have set up a special department for this purpose. Such government assistance takes sometimes the form of loans, sometimes of state participation in share capital. Government advances of this kind have often been of great value in getting co-operatives into operation on an economic scale, chiefly perhaps (but by no means only) in countries where their members would have had great difficulty in building up sufficient savings for wholly independent financing. The disadvantage is that, when state commitments are high, they are likely to carry a strong element of state control (possibly in the guise of bank control), and this, in the long run, is good neither for a democratic organisation nor for a business enterprise. Self-sufficiency for the co-operative, and the ultimate elimination of any state financial interest should therefore be the constant aim of both parties. TRADING CREDITS One form of loan is not often discussed in co-operative textbooks, but is nevertheless of considerable importance. This is trading credit, i.e. credit extended by a co-operative wholesale society or a private wholesaler to allow a primary society to defer payment for goods received by several weeks or even months. If the society is a large one it may in fact constitute a running credit account equal to quite a large sum. Co-operatives are especially likely to take advantage of such a situation if they themselves have difficulty in securing cash or reasonably prompt CAPITAL l i : PRODUCTION AND TRADING SOCIETIES 151 payments from their own members. In general the system is not a good one. In the first place, money is being used, and someone is undoubtedly paying for its use. If the credit is given by a private merchant it will be the co-operative which pays, e.g. by being charged higher prices, by becoming increasingly tied to those merchants to whom it is indebted and thus losing bargaining power, and perhaps by being forced to accept inferior goods. If the credit is extended by a co-operative wholesale society, the local society may still have to pay for it, though on more favourable terms. If the wholesale, on the other hand, is itself new and not well established, it may be overstraining its own resources and risking its future by trying to help primary societies. Moreover, the fact that a wholesale firm will often go on extending trading credit long after a bank would have refused any further loan may mean that it is unaware of the position into which it is drifting until it is too late to do much about it, except through a major rescue operation carried out by a national co-operative bank or wholesale society. Since the situation occurs most frequently as a result of members failing to pay their debts to their own society, it should not normally arise wherever there is a good system of local co-operative credit societies. Where these exist, trading co-operatives should insist on cash payment and refer members who really cannot pay to their credit society for a loan. Where there are no credit societies, the problem is more difficult and the degree to which a trading co-operative should itself give credit, either as an advance on produce to be marketed or by way of supplies for which payment is deferred, depends on the capital strength of the society itself, the degree of backing which it may expect to receive from a strong central co-operative bank or trading federation and, to some extent, on the general business habits and business morality of the community. If the extension of trading credits is to become a systematic practice, however, the whole question of safety margins as well as of the use to which the credit is being put by the member will have to be studied at least as carefully as it would be by a co-operative bank. It may be necessary, for example, for a farmer who wants long trading credit from his society to produce a budget of his future operations, and for the society to employ an expert adviser who will judge not so much the value of the farmer's existing assets in the way of land, crops and stock as the likelihood that the purchase he proposes to make will really increase production of his farm within the period for which the advance of goods will be made. Only if the chances appear favourable should the society tie up its own capital or itself incur a debt on behalf of one of its members. 152 CO-OPERATIVE MANAGEMENT AND ADMINISTRATION COMPARISON OF CAPITAL STRUCTURE A number of attempts have been made to work out rules for determining the correct proportion of capital requirements which should be met from different sources (i.e. share capital, reserves or loans) or used for different purposes (i.e. investment in buildings, stock-in-trade or payment of daily expenses), but none can be applied indiscriminately in all countries or in every type of co-operative society. The subject is, however, so important that every national co-operative organisation should make a study of the capital position of the different societies, and especially the stronger ones, which make up its membership. This can be done without revealing the secrets of individual enterprises and will permit of illuminating comparisons which, in some instances, may have the value of a warning. From such studies, carried out if necessary over a period of years, standards should gradually emerge as to what constitutes the best capital structure and the minimal position which will still give a society a fair chance of survival. Knowledge of this kind will enable a national organisation to give to societies (and also to banks or wholesales which may be thinking of lending to societies) advice which is not merely disinterested but is based on solid evidence. Such information should be disseminated to individual societies not only as emergency advice when they are in trouble, but as routine guidance. It is of particular value when proposals are being drafted for the annual general meeting, for it is then that decisions are taken regarding distribution of surplus, contributions to reserves and raising of share capital, which may be of critical importance to the future of the society. CHAPTER XIV CO-OPERATIVE ACCOUNTING In order that the manager and committee of even the smallest co-operative can understand whether it is paying its way or not, correct mistakes before they have gone too far and plan the future on the basis of ascertained facts, there must be a sound system of accounting. This means a full record, subject to constant checking, of all receipts and payments, together with periodically revised estimates of the value of stocks and fixed property, of debts owed to the co-operative and of liabilities which it has incurred. These records should be in such a form that a manager or committee can at any time and on short notice obtain a clear picture of the state of the co-operative's affairs. At regular intervals, usually once a year in small societies but more often in large and complicated organisations, these records are condensed and set out in the form of a series of accounts and a balance sheet drawn up and certified by an auditor. It is important that the senior official of a co-operative should not only understand these documents himself, but should be able to explain them clearly to his committee, to whom they will often seem mysterious and somewhat forbidding. The exact way in which accounts are kept and presented will depend on the nature of the society's business. Many national co-operative federations publish bookkeeping manuals and model account books for the use of member societies carrying on different forms of business. Elsewhere government co-operative departments have published manuals which specify the kind of forms which should be used and the manner in which they should be kept. The prescribed account books and registers are then printed by co-operative presses for supply to all societies. Where such standard forms are not available, it may be necessary to borrow a system from private trade or from the co-operative organisations of another country, and if necessary modify it, especially after consultation with those who will be acting as auditors. THE TRADING ACCOUNT A good deal has been said in Chapter XII about the financial management of credit co-operatives. For all co-operatives handling actual 154 CO-OPERATIVE MANAGEMENT AND ADMINISTRATION goods, whether consumers', supply, marketing or producers' societies, the basic accounting document is the " trading account ". This shows the total value (including both purchase and transport costs) of goods coming into the co-operative in the course of the year. The value of stocks on hand at the beginning of the year is added to this total, and the value of stocks held at the end of the year is deducted. Total receipts from sales are recorded on the other side of the account, and the difference between the two totals is the gross profit on the year's work. Many co-operatives in their published accounts only show total figures covering all purchases and all sales. In a small co-operative this may be enough. It would obviously be absurd for a village store handling a few dozen lines of foodstuffs to publish separate trading accounts for flour, tea, sugar and every other commodity handled. But if the society has a dry goods department, separate trading accounts should be prepared for foodstuffs and clothing. Where a co-operative is engaged in both marketing and supply, there should again be separate trading accounts for the two activities. If the co-operative markets more than one product, say eggs and dairy produce, or coffee and hides, they should be accounted for separately. When a large number of similar products are handled (such as different kinds of fruit and vegetables) separate accounts are probably unnecessary, unless there is reason to suspect that losses are occurring on one item and it is felt necessary to have detailed proof of what is happening and why. In addition to the level of gross profit, another interesting item of information will emerge from a trading account. This is the number of times that stock is turned over in the course of the year, which can be calculated quite simply by dividing the total value of sales by the average of the opening and closing value of stocks. This is a useful indication of efficiency, since the aim of every society is to carry as little stock as possible in relation to trade done and so reduce the amount of capital tied up as well as the risks of deterioration of goods in store. Moreover, each time capital is turned over it should yield a profit. Naturally, in making comparisons between the rate of turnover in different co-operatives it is only possible to compare those which are handling the same kind of product. Cheese, which has to be matured, will remain in stock much longer than eggs, which must be sold absolutely fresh. THE MANUFACTURING ACCOUNT When a commodity is processed or manufactured by a co-operative, whether it is thereafter sold to members or to outside buyers, it is CO-OPERATIVE ACCOUNTING 155 important to know not only the cost of the raw material and the price for which the finished article is sold, but also the actual costs of processing; otherwise there will be no means of judging whether or not processing is efficient and economical. In order to get this information, a separate manufacturing account must be prepared. This will show, once again, stocks of raw materials on hand at the beginning of the year, plus purchases during the year, less stocks on hand at the end. The expenses which the manufacturing department has incurred during the year, e.g. the cost of labour, transport, power and depreciation of machinery, will also appear on this side of the account. The other side will show not actual sales, but the value of finished goods transferred to the co-operative selling department at current market prices. The difference between this figure and the total cost of raw materials and production is the profit or loss of the manufacturing department. THE PROFIT AND LOSS ACCOUNT The trading account, as already shown, ends in a figure described as gross profit. This forms the starting point for another accounting document, known as the " profit and loss account ". In this the gross profit is set against all the costs incurred in running the society, with the exception of the costs of manufacture, which have already been shown in the manufacturing account. Some of these costs are straightforward payments, e.g. salaries and wages, which are usually by far the biggest item; rents, rates and insurance; postage and telephones; repairs and renewals ; and transport and travelling expenses. Others are deductions and allocations, e.g. interest on bank and other loans; depreciation of plant and buildings; and reserves for bad or doubtful debts. When all these are set against the gross profit, the difference between the two will be the net profit or the net loss, as the case may be. The society and its auditors have next to decide what they are going to do with the net profit or how they are going to cover the net loss. First, the position existing at the beginning of the year, as set out in the " profit and loss appropriation account " is examined. This account shows the balance of profit carried forward from the previous year, and how, in accordance with the decision of the last annual general meeting, it was used. " Interest on shares ", " allocation to reserves " and " bonus on business done " are the usual headings under which profit is distributed. Some societies also pay a bonus to the staff. Most leave something in the society's account, under the heading " undistributed profit " or " undistributed balance ". If in the next year the society incurs a net loss, this undistributed balance may make 11 156 CO-OPERATIVE MANAGEMENT AND ADMINISTRATION it possible to continue paying interest or even a bonus.1 If there is a profit, this is added to the balance from the previous year (less any provision which has to be made for payment of taxes) and the total is entered in the balance sheet for the current year. In the meantime the committee, with the advice of the auditor, will have worked out a plan, subject to confirmation by the next annual general meeting, for apportioning it among reserves, interest and bonus. THE BALANCE SHEET The balance sheet, unlike the other accounts, does not show the year's operations. It shows the position of the society at a precise moment, viz. the last day of the financial year. The " balance " is between the society's assets and its liabilities. These terms are often confusing to non-accountants, and consequently to the majority of committeemen, who cannot see why share capital, for instance, from which their society greatly benefits, should be a liability. They are usually ashamed to show their ignorance and therefore keep silent, do not ask for any explanations and, in fact, take decisions based on arguments which they have quite failed to understand. Put in the simplest terms, the assets side of the balance sheet shows what the co-operative owns in the way of property or money or claims for money. It covers land, buildings, plant and machinery, office furniture and motor vehicles. It also covers stocks on hand, the society's investments in, say, a co-operative wholesale society, and the good (as distinct from the bad) debts which other people, including members, owe to it. The liabilities side of the account shows, primarily, to whom the money with which the co-operative paid for all these assets is owed. It includes most of the items discussed in the last chapter—share capital, loan capital, bank overdrafts, as well as the obligations of the society to its creditors and to the tax collector. It is quite easy to see that the last two are liabilities : they are debts that the society owes. But in fact, a moment's thought will show that, in certain eventualities, the society is liable to someone or other for nearly all the other items as well. The bank, for instance, is a creditor for overdrafts or loans ; share capital belongs to the members, not the society. The purpose of setting out in two columns what the society owns and what it owes is to see that what it owns really does cover what it owes. If it does not, then a loss will be shown which may have to be 1 It should be noted that some countries discourage the holding of undistributed profit, though they may provide for a dividend equalisation fund. CO-OPERATIVE ACCOUNTING 157 met by a deduction from the profit balance of previous years, or perhaps from the reserve fund. In any case it will be a clear warning that all is not well within the society and that a careful examination is called for not only of the balance sheet itself, but also of the trading and manufacturing accounts, and finally of the whole conduct of the business, to see how and where the loss has crept in. A balance sheet can clearly be of value only if it is absolutely honest and based on accurate information. A distinction may have to be made between good, doubtful and bad debts, and stocks may have to be written down below their purchase value or cost of production. Undue optimism in these matters is of no service to the society. ACCOUNTS AS A MANAGEMENT TOOL It cannot be said too often that accounts are not kept as a formality or a record of the past. They are kept in order to ensure that the business of the society is conducted on proper lines and is a financial success, and to allow those responsible for running it to keep at all times a critical eye on what is happening in the organisation. How high are running costs in different departments ? If they are higher in one than in another, is there a good reason ? Why is the cost of transport so much greater than last year ? Are " overheads " (i.e. the general costs of administering the business, which cannot be allocated to any one department) too high or too low ? Is the society using too much borrowed capital ? Could the same funds be obtained from some other source at a lower rate of interest ? Are the levels of trade credits or trade debts rising or falling ? Are buildings and machinery properly depreciated, and if they had to be repaired or replaced tomorrow, would funds be available for the purpose ? The answers to many of these questions cannot be derived from the balance sheet or the accounts for any one year. At the very least, the manager or committee will want a series of accounts over a number of years so that comparisons can be made. But even this will not provide all the facts. The society will probably have been growing and changing, and the levels of wages, prices and interest rates may well have changed too. It is only by comparing the accounts and balance sheets of not one but many societies doing the same kind of business over a period of years that standards can be worked out and danger signals recognised. This is where the co-operative auditing union or the central co-operative federation which receives annual financial reports from its members is in a strong position to distinguish the patterns of capital structure and allocation of expenditure which make for success and those which all 158 CO-OPERATIVE MANAGEMENT AND ADMINISTRATION too often lead to slow decline or sudden disaster. In underdeveloped countries, where the government has initiated and is helping to develop the co-operative movement, it may be for a government co-operative department to collect and use information of this kind. THE USE OF BUDGETS Those responsible for managing a co-operative of any size and complexity will need to do rather more than study the annual statements, note that one activity was profitable or that another pleased the members but failed to make ends meet, and resolve to modify policy in the new year accordingly. If proper control is to be exercised over expenditure in the coming year, if plans are to be made for expanding sound lines of activity and for the capital expenditure which this will call for, then it will be necessary, some time before the beginning of the financial year, to draw up a budget, or rather two—a revenue budget and a capital budget. These are forecasts of what the co-operative will be doing in the course of the year, what it will have to spend and what it may expect to receive. The Revenue Budget The revenue budget for the society as a whole may well be based on a series of detailed budgets for each branch or department, from which a general statement is then prepared. The revenue budget is concerned solely with expenditure in connection with the business of the coming year, and the way in which it can be covered by the gross trading profit which it is hoped such business will bring in. Some items of expenditure will be well known in advance, e.g. rent and insurance of existing buildings; depreciation of existing buildings and machinery; and heating and lighting (unless a new system is being installed or local charges are rising). Others are more difficult to determine. Wages depend not only on whether the general wage level remains the same or rises, but on whether the co-operative's own employees are moving to higher wage scales through length of service, and still more on whether the numbers and types of employees are likely to be the same in the new year as in the one just past. This in turn depends on an estimate of what work the co-operative will be called upon to do. Does the trend of the last few years show that the volume of business is steadily rising and, if so, by what amount each year ? Has a point been reached when more workers will have to be taken on, and will they be comparatively low-paid packers and porters, or will provision have to be made for a comparatively highly paid branch manager, engineer or analyst ? Rather similar CO-OPERATIVE ACCOUNTING 159 calculations will have to be made about transport and manufacturing costs and about the cost of borrowing money for long or short periods. Whatever the anticipated cost of running the business, it will all have to be met out of trading profits, i.e. the difference between the price paid for raw materials and other goods and the price at which they are sold. This is by no means a simple calculation to make. Just how much material will the co-operative handle ? In an agricultural society, for instance, this will not depend solely on the skill of the management and the loyalty of the members. It will depend also on the harvest. If crops are light, there will not only be less to market, but less money in members' pockets to spend on agricultural or household supplies. On the other hand, prices may be higher, and the co-operative may or may not make the same gross profit on a smaller turnover. The value of the revenue budget is that, after allowing for all the elements of guesswork which necessarily enter into it, it does provide a standard against which the manager can measure, month by month or week by week, the actual income and expenditure of the co-operative. If the budget and the reality are fairly close, he will know that he has made a sensible plan and is likely to be able to carry it through. If they diverge, this will be a warning that he has either made a miscalculation or that something is getting out of control in the running of the society; or it may be that some calamity which he has not foreseen, e.g. a crop failure or a sudden fall in prices, has struck the whole country. In any case, thanks to his budget he will have received due warning, and he should still have time to take corrective measures before the damage has gone too deep. The Capital Budget The revenue budget is not enough by itself. It must be accompanied by a capital budget. Capital, as shown in the last chapter, is needed for investment in fixed assets such as plant and buildings, and also for current expenditure on such items as stock-in-trade, which will only be recovered after a period of weeks or months. The capital budget looks forward to the needs of the society for both these purposes during the year to come. It is an instrument for planning the use of such capital as the co-operative already commands in a balanced, systematic way. It also provides a means of estimating what new demands for capital are likely to arise in the course of the year—larger quantities of goods to be handled, a new machine or a new lorry—and deciding from what source this capital can be raised. Will members be prepared to increase their share capital ? Or to forego some bonus in order to build up 160 CO-OPERATIVE MANAGEMENT AND ADMINISTRATION reserves ? Will a bank be prepared to lend ? If there is unfortunately no chance of raising new capital, what part of the development plan will have to be postponed ? The capital budget will depend largely on the answer to questions such as these. COST ACCOUNTING So far this chapter has dealt with straightforward financial accounting procedures, and the uses to which they can be put in planning and controlling the work of the co-operative. Such accounting probably involves as much work with figures as any small co-operative can reasonably be expected to undertake. On the other hand, large organisations such as wholesale societies, marketing federations and others may well find it worth while to carry knowledge of their own business to a higher point of accuracy, especially when this knowledge has to be used as a basis for forecasts and estimates. It is for such purposes that the method known as cost accounting has been devised. This consists of preparing a series of financial statements showing the income and expenditure, and the resulting profit or loss, on particular sections of a business rather than on the business as a whole. In other words, it is a study of the cost of carrying out a particular function, e.g. the running of a transport department, or the manufacture and sale of condensed milk in a dairy which also sells liquid milk and butter. It involves first of all determining, through analysis of all direct expenditure on wages, raw materials, power and other pertinent items, just how much was spent on transport or condensed milk production and nothing else. To this figure there should be added a reasonable proportion of those items of expenditure which cannot be identified directly with work on any one process or commodity, but which are incurred in running the business as a whole. Such expenditure includes, for instance, rents, postage and stationery costs, and the manager's salary. The accuracy of a cost account cannot be guaranteed in the same way as that of an ordinary financial account (which can be checked, for example, against a bank statement), owing precisely to the difficulty of apportioning overheads among the various departments or processes. What separate rent or depreciation should be charged for the garage ? How much of the dairy manager's time is spent on condensed, and how much on liquid milk ? The answers will necessarily depend on certain assumptions. However, where such assumptions are based on long experience they should, when added to the ascertainable costs, yield data on each section of the society's business which can form a basis for secure judgment and sound policy decisions. It is not only that cost accounting CO-OPERATIVE ACCOUNTING 161 will reveal whether a particular activity did or did not make a profit. Profit may sometimes be due to outside circumstances, such as price fluctuations, and not be the direct result of good or bad management. What is more important is that the analysis, if properly carried out, will show exactly how and where costs have been incurred, whether these have varied as compared with past years,, and the relation between costs and receipts on a particular item, none of which would appear on an ordinary trading account. Costs may even be calculated for a part of the work of a department and reduced to a unit figure; thus it is possible to estimate the exact cost of testing and grading 100 eggs, of spreading lime on an acre of a member's land, or of transporting a ton of grain for a mile. The cost analysis of operations during a previous year will often disclose a need for changes in the organisation of a department, or in purchasing or stock control methods. On the basis of the facts revealed, it may be possible to cut out wasteful processes or uneconomic branches of business. If such branches are continued because they give a service of which the co-operative does not wish to deprive its members, then at least they are continued with the full knowledge of what they are costing the society. Cost accounts are of particular value in budgeting, enabling an accurate forecast to be made of the cost of future operations and providing a firm basis for fixing prices, allocating scarce resources and choosing between alternative plans for development. They may, among many other things, make it possible to fix " standard " costs with which actual costs can be compared. It has already been said that cost accounting is of use mainly in regional or national co-operatives. It can be of particular value in multi-purpose societies, where there is always the danger that unrecognised losses in one department may have disastrous effects on the co-operative as a whole, and in industrial production societies, where it can be used to ascertain the comparative costs of producing different types of article and their power to compete in the market. It must be understood, however, that cost accounting can only be undertaken by specially trained personnel ; that the results may be misleading unless the system is applied to the whole business of the co-operative, and not only to selected items which it is especially desired to investigate; and that full value can be derived from it only after it has been in operation for some time, when the peculiarities of each individual society's business have become thoroughly familiar to the cost accountant and a series of annual statements are available for purposes of comparison. Success also depends on the ability and willingness of other employees, including millhands and lorry drivers, to keep the accurate records which the cost 162 CO-OPERATIVE MANAGEMENT AND ADMINISTRATION accountant needs and on the ability of the latter to give them a clear description of what he wants and why. Cost accounting is a fairly laborious and consequently expensive business. It is necessary, therefore, that the expense involved should be justified by the value of the information provided. This depends not only on the usefulness of the facts and the ability of the cost accountant to present them clearly and accurately, but on the ability of the manager and his committee to draw intelligent conclusions from the facts when they receive them. USE OF STATISTICS The process of forming judgments from recorded facts is carried a little further by the use of statistics. Effective management is only possible when those responsible have before them all, or as many as possible, of the facts about the way in which their business is actually conducted. Not all of these facts are financial. Many are concerned not with money, but with time, quantities or frequencies. How many eggs can a girl grade in an hour, and how many will she break ? If she tries to grade faster, how many more eggs will she break ? How much higher over the years has the price for scarce early or late fruit been than the price of fruit sold during the period of peak production ? Facts and measurements may be obtained through various methods— financial or cost accounting, work study or quality tests. It is essential, however, that all such data be both accurate and objective. It is all too easy to select, almost unconsciously, the kind of information which the inquirer or his chief would like to receive. Often such a large number of elements enter into a business decision that the facts become too many to be easily handled and understood unless they are presented in some way which will bring out their relationship and real significance at a glance. The art of statistics has been built up, largely over the last 30 years, as a method of expressing facts in numerical terms so that they can be quickly and clearly understood. In particular, statistics are an effective way of measuring the contribution which different causes make to the same effect. The co-operative is marketing twice as many eggs as in the previous year but the cost of handling has gone up. Is this because wages have risen ? Or because a newly purchased machine is not running to capacity ? Or because the additional eggs are being picked up in very small lots, from distant farms on bad roads ? Only a study and comparison of the relevant statistics will give the answers. In preparing statistics, factual truth and accuracy are of the first importance. A statistical conclusion is only as good as the figures on CO-OPERATIVE ACCOUNTING 163 which it is based. But this does not necessarily mean minute detail, refined calculation to many decimal points, nor coverage of what statisticians call very large " populations " (i.e. numbers of persons or things having common characteristics). Equally good results may be obtained by using round numbers or studying samples, provided that the samples are really typical. Most marketing co-operatives, for example, are familiar with the technique of sampling seeds or fibres. The preparation of more elaborate statistics may well cost more than it is worth from the point of view of business management. Indeed, before deciding to collect statistics at all, it is always necessary to ask exactly what is the final object. Is it really important ? Can it be attained by using figures which are already available ? If not, what is the easiest and cheapest way of collecting any new figures which are really indispensable ? Equally as important as the collection of statistics is their presentation. Management or policy-making officers in co-operatives of any size should be familiar with the different kinds of tables, graphs and charts commonly used in presenting statistical information. It is well also to remember that statistics can be misleading, particularly when used by untrained persons—and this may include many co-operative committees. The form of presentation may in such cases be faulty and may convey a different meaning from that intended, or the facts, while true in themselves, may have been presented in a way calculated to produce a false impression, often one that is too optimistic. Some knowledge of common " statistical traps " is therefore useful. One of the principal uses of statistics in business is to illustrate trends over a period of time. Everyone is familiar with the devices used for this purpose—the column of figures, the rising line on a graph, or the picture of a farmer getting bigger and bigger by which the progress of co-operative membership over the years is symbolised. The same thing can be done with turnover, share capital or any other aspect of the society's affairs. A co-operative may find it very helpful to use, though not itself to compile, statistics dealing with economic trends at the national or international level, regarding in particular such matters as prices, yield of crops, volume of exports or of trade in general. One way of expressing statistical data is to construct index numbers: the figure 100 is used to represent, for example, the cost of living, the level of retail prices, or the volume of national production of some commodity during a given period, and subsequent changes are shown as a rise or fall of so many points above or below that figure. Among the internal uses to which statistical analysis can be put in different types of co-operatives are the interpretation of commodity sampling results, used in many agricultural societies handling bulk 164 CO-OPERATIVE MANAGEMENT AND ADMINISTRATION commodities ; the interpretation of consumer research data collected by consumers' co-operatives with a view to determining, for instance, their members' preferences as between salt and fresh butter, or between soap and detergents; the measurement of rates of production in a co-operative carrying on processing or manufacturing; thè calculation of operating ratios (such as the number of bad eggs in every hundred) or of efficiency ratios, as revealed, for example, by the number of complaints per 100 purchases ; of the number of miles per gallon of fuel which a lorry will travel, or the number of hours for which a particular machine can be run without maintenance; of the monthly number of man-hours lost through breakdown of machines; or of the amount of overdue accounts as compared with accounts in general. How much of the information provided by cost accounting and statistical analysis is necessary or can be put to good use will obviously depend on the size and complexity of the business. But even if it is found that the answers to some questions would cost more than the information is actually worth, it is important that those responsible for co-operative management should at least be aware that such questions exist and that private business men in competition with the co-operative are eagerly seeking the answers to them, often at considerable expense. If a co-operative persists in leaving management decisions to guesswork, to recollections of what was done last year or even to a bold desire to grow quickly at any cost, it may well find that it has made some grave and perhaps fatal error, has not succeeded in giving its members the services which it purports to provide or, at the very least, has failed to use its limited resources to the best advantage. CHAPTER XV PUBLIC CONTROL The pioneer co-operatives were formed by local people to meet local needs. Success or failure depended partly on whether or not their objectives had been well chosen, but perhaps even more on the determination and business ability of committees and staffs. Inevitably there were a number of failures, most of which could have been avoided if timely advice had been available and accepted. In many, though not quite all countries, the first attempt to exercise some control over the methods by which co-operative societies conducted their affairs came with the passing of a co-operative law. The primary intention was to improve the performance of the co-operatives themselves and so safeguard the interests of their members, who were assumed to be people of less business experience than those who would normally engage in trading or financial ventures. To a lesser degree, it was intended to safeguard the public, and in particular outside persons who had business dealings with the co-operatives. In either case, a guarantee that the affairs of a co-operative were conducted with a certain degree of order and prudence was looked on as something which should be given in return for the privilege of incorporation and public recognition. CHARACTER AND PURPOSE OF AUDIT The principal form of control was, and is, the audit. This is not a particularly co-operative device. It is common commercial prudence that the money transactions of any organisation should be checked at intervals by competent outsiders who have no personal interest in them. Commercial codes and corporation laws normally insist that bodies registered under them should make proper provision for audit, though the amount of information about its affairs which an enterprise is obliged to disclose in publicly available reports is usually less in the case of a private business than of a co-operative. 166 CO-OPERATIVE MANAGEMENT AND ADMINISTRATION THE FINANCIAL AUDIT The basic form of co-operative audit is financial. The co-operative is visited by one or more specially qualified men who proceed to check, item by item, every entry and calculation in the society's books, verifying each entry by reference to receipts, wage records, bank statements and other documents. Having satisfied himself that the books are correct and complete, the auditor will go on to check the value of stocks on hand at the beginning and end of the year and, after making standard allowances for deterioration and waste in handling, will see that they tally with the record of goods bought and sold, processed or manufactured during the year. He will also check cash on hand and at the bank. If the auditor is satisfied that all these records have been correctly kept and give a true picture of the business which the society has carried on during the year, he will go on to draw up the balance sheet, as described in the preceding chapter. He will check the value of the society's assets, making sure that land, buildings and, above all, machinery and vehicles have been properly depreciated; that any investments which the society may have in government stocks or in secondary co-operatives are recorded at their true value; that bad debts are written off; and that stocks are valued at a prudent figure, taking into account possible deterioration or changes in price. If the auditor has received all the records and explanations he requires and has succeeded in drawing up a statement which satisfies him as a full, clear and truthful record of the year's operations and the present position of the society, he will then make a short declaration to that effect and sign his name. If the statement, though clear and accurate, reveals an unsatisfactory position, he may point this out and even indicate the principal source of the trouble, e.g. too much credit to members or too much unsold produce on hand. It is more likely, however, that he will reserve such comments for an interview with the manager and chief accountant, or perhaps with the committee. If, however, he is not satisfied that every part of the statement is securely based on facts and represents the true position of the society, he is in duty bound to put his doubts on record. He has not, he may say, been able to verify the value of stocks; the record of members' debts to the society are incomplete ; or the value of premises has not been written down since they were built ten years ago. He signs the balance sheet but warns the committee and the members that there are matters on which he is not satisfied and with respect to which he expects to find some improvement when the time for audit comes next year. In extreme PUBLIC CONTROL 167 cases he may decide that the accounts have been so badly kept or are so misleading that he cannot conscientiously sign them. In that case he refuses to sign, and such a refusal usually leads to an inquiry into the affairs of the co-operative. All co-operatives and their officials should understand from the beginning that auditors, whether they deal with finance or other aspects of the business, are their friends—not enemies, meddlers or hostile critics. The secretary of a small co-operative in liquidation who said, many years ago, " I didn't care for what the auditors said, so I told them to go to the devil. But they didn't go; it was the society that went " was giving a perfect example of the wrong attitude—and of its consequences. All good auditors take an almost maternal interest in the societies whose operations they audit. All delight in being able to prepare clear, unambiguous accounts, with a comfortable balance on the right side. Moreover, the mere fact that they work intimately with a large number of different co-operatives year after year means that they become profoundly knowledgeable as to what state of affairs represents stability or progress or, on the other hand, insecurity or positive danger. They know what constitutes a safe ratio between owned and borrowed capital, between capital and business done, or between turnover and running costs. Their advice is based on a wider experience than that of any single manager or committee, and it should always be received with the most serious respect and in the friendly spirit in which it is offered. THE METHODS AUDIT A financial audit, though the most important, is not the only means by which a co-operative can be helped to keep its affairs in order. A newly formed society, or one that has special difficulties—e.g. a largely illiterate membership, or a new and unfamiliar kind of business—may be visited at frequent intervals by an " organiser ", " supervisor " or " inspector ", who may or may not himself have taken an active part in forming the society. He will attend all annual general meetings, and very likely all meetings of the committee. He will see to it that proper minutes are kept of the business discussed and the decisions taken. He will also look through the society's account books, not perhaps making such a complete check as an auditor, but at least ascertaining that all money transactions are clearly recorded under a system which provides for proper internal checks, and that totals are being correctly added up. He will also observe and comment on the general conduct of the business. Is there enough staff to do the work, but 168 CO-OPERATIVE MANAGEMENT AND ADMINISTRATION without idle hangers-on ? Are the buildings being kept in good order ? Is the shop or office clean and attractive ? Are stocks of the goods properly protected and the quantities easy to check ? Are vehicles and machines in proper running order ? As co-operatives find their feet and learn to avoid the more obvious mistakes, this sort of inspection may gradually be transformed into what, in modern business language, is called a methods audit. This means that some competent and impartial person asks himself, and tries to find satisfactory answers to, a number of questions—many of them already discussed in the course of this book. Has the co-operative the right kind of premises—suitably located, not too large or too small, and properly maintained ? Are the senior members of the staff up to their jobs ? Is the work well organised ? Is anything done which is not really necessary or could be done more easily and cheaply in some other way ? Is there enough machinery and is the best use being made of it ? The report of the methods auditor is intended primarily for the secretary or manager of the society. If it is tactfully worded and the manager is a reasonable man, he will probably do his best to make any necessary changes. If he does not, the report must go to the committee and perhaps even to the members' meeting. AUDITING AND SUPERVISORY AGENCIES It remains to consider by whom financial audits and other advisory control functions are carried out. In some cases the law merely lays down that co-operatives shall be audited by a properly qualified professional accountant other than one of their own employees. In other cases audit is entrusted to a central co-operative body. Finally, in some countries the law provides that the auditor shall be a government official or that government-appointed auditors must be employed unless and until the co-operatives can satisfy the government that they have been able to set up an auditing system of their own employing professional accountants of the necessary status and qualifications. The result is that there are, broadly speaking, three systems with a certain amount of overlapping among them. Private Agencies One method is for the co-operative to employ a private professional auditor who may specialise in co-operative work but probably also audits other businesses. The disadvantage of this system is that the auditor may not be particularly interested in co-operation, and though PUBLIC CONTROL 169 his experience of co-operatives in his own district may be considerable, he will not have the still wider experience which a national co-operative auditing union or department would posess. On the other hand, the experience he has gained from auditing private businesses will be at the disposal of his co-operative clients, and in the case of the larger cooperatives with complicated business interests and activities this may be quite valuable. In some countries, where the smaller primary societies are regularly audited by a government department, the larger federal trading organisations are advised to employ outside professional auditors largely for this reason. Central Co-operative Bodies The second system is for auditing to be in the hands of a central co-operative body. It was in order to avoid audit by government officials that the German co-operatives, at the end of the last century, set up their own auditing unions. These were federations of primary societies formed with the sole purpose of providing themselves with an auditing service. This system has been adopted in many other countries. The audit is basically financial, but it generally includes a measure of " methods audit " and allows for advice on rather wider aspects of the society's business than the professional financial auditor would be likely to give. Central co-operative auditing is not always carried out by a special auditing union. It may be the function of an auditing section of a general co-operative union, a national co-operative bank or a wholesale society. In the latter two cases an interesting point arises. The relations between an auditor and the business he audits, whether it be a private firm or a co-operative, are generally regarded as essentially confidential, much in the same way as those between a lawyer and his client or a doctor and his patient. But it is quite obvious that a cooperative wholesale society which does business with a primary society or a bank which lends money to it has a very direct interest in the financial position of the society, and once in possession of this information is particularly able to bring influence or even pressure to bear on the society to alter its methods or modify its future policy. The question which arises, therefore, is how far the auditor should be allowed to communicate information obtained in the course of the audit to the trading or banking department of the central co-operative. Opinion on this matter differs in different countries. Some regard a confidential relationship between auditor and society as essential. Others argue that the auditing, banking and trading departments are. all working to 170 CO-OPERATIVE MANAGEMENT AND ADMINISTRATION the same end, which is the prosperity and expansion of the local society, and that all information which can help the latter to adopt and pursue a wise policy should be freely available to any of them. Government Departments The third method is audit by a government department. In the countries of north-western Europe, where co-operation first grew up, the movement was spontaneous and governments intervened merely to see that spurious co-operatives did not receive the benefits of incorporation and that those which were legitimately incorporated conducted their affairs in an orderly manner. Professional auditors were available and could easily be employed. Moreover, if societies wished to form their own national or other secondary organisations either for auditing or for any other purpose, they had the necessary experience and the freedom to do so. The position has been the same in America, both North and South. The achievements of the co-operative movement in Europe impressed the governments in a number of Asian and African countries, where the traditional economy was changing and even disintegrating while at the same time peasant farmers—in particular—were hardly equipped to cope with the conditions of a modern market economy. The first step was to introduce a co-operative law modelled on those of Europe. This happened both in countries enjoying full sovereignty, such as Japan, and in others which were not at the time self-governing, such as India. It was soon found, however, that co-operation as a modern economic technique did not grow spontaneously from the village life of these countries, nor could it be expected to be fully self-regulating. The standards of business experience were not sufficiently advanced, and available reserves, not only of cash but of organising ability, were generally too low to make possible any early development of secondary co-operatives on a voluntary basis. As a result, the government departments responsible for co-operative societies very soon found themselves assuming much broader responsibilities than that of merely deciding whether co-operatives were, or continued to be, deserving of incorporation. In particular, they gradually developed systems of audit, inspection and sometimes also supervision carried out by officers specially trained for the purpose. These three functions are distinct from one another. Audit is periodical; it is done regularly, usually once a year. Inspection is occasional; it takes place when something goes wrong in a society, or when its creditors or its members ask for it, or prior to replacing the committee or liquidating the society. Supervision is a continuous, year-round process carried PUBLIC CONTROL 171 out by agencies which visit the societies frequently, check their accounts, look into their business methods, rectify defects, suggest improvements and develop activities. While audit and inspection are statutory duties of the government department concerned, supervision is a non-statutory function. In some cases audit is not actually carried out by the staff of the department, but responsibility is delegated to audit unions formed by the co-operatives themselves for this purpose. Supervision is sometimes exercised by the department, though not as a statutory duty. More often, it is the responsibility of voluntary supervising unions and regional federations or co-operatives or, in the case of primary credit societies, the co-operative bank. Supervision of secondary and tertiary organisations remains with the department. The justification for giving the department ultimate responsibility for audit lies in the fact that the co-operative movement has usually been introduced and is still in many ways supported by the government, which must be regularly informed of its progress and shortcomings. It is immaterial, from the legal point of view, whether the actual work is done by departmental staff, professional auditors or the staff of authorised co-operative federations. Large secondary co-operatives, such as banks and wholesale stores, are often allowed to choose their own auditors from a panel approved by the department, but no action can be taken on audit reports until they have been officially accepted. The drawback of this system is not, as critics have sometimes suggested, that it hampers the freedom of the co-operative movement. Officials of co-operative departments in most cases are only too pleased to find that a society can stand on its own feet and requires little or no attention. It is, rather, that the existence of an elaborate system of government assistance tends to encourage the formation of a large number of co-operatives by people who may not fully understand what they are doing and would probably be incapable of running a society unaided. It is not surprising that a number of co-operatives formed in this way never manage to become fully self-sufficient and self-governing. On the other hand, many do successfully make the transition to independence and even those which do not have probably done something to relieve poverty and arouse interest among people who could not have been helped in any other way. In recent times there has been pressure in some countries to transfer responsibility for audit from the co-operative department to other agencies such as co-operative unions, professional auditing firms or even some other government department set up for the purpose. The co-operative auditing union has much to recommend it, provided always that the co-operative movement in the country concerned is sufficiently 12 172 CO-OPERATIVE MANAGEMENT AND ADMINISTRATION mature, but the other expedients could all too easily dissociate control from any real knowledge of co-operative organisations and their needs. LOAN CONDITIONS Audit and inspection are not the only means by which co-operatives can be controlled and their development influenced. Another method is the giving or withholding of loan capital. Primary societies are often dependent for either investment or working capital (sometimes for both) on some outside source. If this is a private bank, the banker is unlikely to do more than satisfy himself that the business of the co-operative is sound and that it has sufficient assets to cover the value of the loan. In other words, he will be safeguarding the interests of his bank rather than be concerned with the welfare of the society as such. If, however, the loan comes from a co-operative bank or wholesale society, or possibly from a government bank formed to promote co-operative development, the attitude will be rather different. A co-operative lender will, of course, wish to be assured that the borrowing society runs a sound business and has sufficient assets. It will be likely also to want assurances on other points. Is the society well managed ? If not, could changes be made which would ensure efficient management in the future ? This may well be the condition for granting a loan. In some cases where the loan is not so much for new development as to help the borrowing co-operative out of past difficulties, the co-operative bank may require that one of its representatives be allowed temporarily to sit on the committee. In the case of development loans, the co-operative bank or wholesale may also want some proof that the development plan is a sound one. Are there enough members or potential members in the neighbourhood to make it certain that the new store or warehouse will be fully used ? Do the advantages of processing rather than simply marketing members' produce really outweigh the risks ? The rigour of this scrutiny will depend to some extent on the resources at the bank's disposal. A cooperative bank relying on its own funds alone, i.e. on the shares and deposits of its members, together with its reserves, is likely to look carefully at any request for a loan in order to make sure that it will not lead to unsound development and possible loss. It may also be obliged to make a choice between different plans of development put forward by different primary and sometimes secondary co-operatives. The question will then be not only whether the particular plan considered is a sound one, but how many development loans have gone to this district or this type of society before, and whether it would not lead to more PUBLIC CONTROL 173 balanced development if others were helped to reach the same point, rather than that a few successful co-operatives should be encouraged to go ahead still further. If the lender is a government bank, its resources may be greater and this sort of choice may not be necessary. Indeed, it sometimes happens that the government is so anxious to promote a particular phase of economic development in the general interest of the country that it will actually consider setting up new co-operatives and lending them money to get the project launched. The establishment of a network of large grain warehouses in France or of sugar factories in India are instances of this sort of thing. In some cases the offer of a loan on reasonable terms is all that is needed to stimulate local responsibility and call forth local talent quite adequate to managing the newly formed enterprise. Elsewhere, the response will be more hesitating and local business experience less dependable. In such cases it may be a condition of government investment in a project (which may take the form of share ownership as well as or instead of a loan) that the co-operative accept a certain number of government representatives on its committee. CONTROL OF STAFF AND APPOINTMENTS Another matter with regard to which a central body can exercise control over local co-operatives is the appointment of senior staff. It is very desirable that the general standard of co-operative management should reach a high level in any country. Co-operative training schemes are designed for this purpose, and many co-operative colleges award diplomas which guarantee that the holder has the necessary qualifications to act as a co-operative manager, secretary or accountant. As a rule, this guarantee is highly appreciated by local societies making new appointments. At the same time, most societies cling firmly to their right to make an independent choice and to appoint the man whom the committee prefers without outside interference. There are countries, however, in which national co-operative organisations exercise a much stronger influence over local choice. This is done mainly by keeping a central register of all senior co-operative employees, with particulars concerning their qualifications, experience and readiness to change their jobs. A society with a vacancy is expected to select candidates for interview from this list. The advantage of the system is that fewer bad appointments are made and that the co-operative movement offers much wider advancement opportunities than would be available if avenues of promotion were limited to individual societies. This in turn may be expected to attract abler men. The disadvantage is that the 174 CO-OPERATIVE MANAGEMENT AND ADMINISTRATION method involves considerable interference with local responsibility, and may cause resentment both in the society which is forced to accept an able man from the outside—when it would have preferred to promote someone already on the staff—and in the society which has been obliged to give up a capable and popular manager for the sake of better career opportunities in a larger organisation. A variation of this system is practised in regional federations, especially in North America. These federations are usually built up from one co-operative which has flourished, grown and taken on wholesaling and manufacturing functions, acting in combination with a number of small village societies which have never got beyond buying and selling goods in relatively small quantities. On entering the federation, these village societies act as agencies or even branches of the large federal society, but they retain their own capital structure and their own committees. The federal society may well find that it is doing business through a considerable number of local co-operative agencies with varying levels of efficiency, and this is unsatisfactory from many points of view. The solution may be to invite the local committee to enter into a contract with the federal organisation for the management of the local society. Thereafter the manager and, indeed, all the staff will be federal employees, and if they do not give satisfaction the local committee cannot control them directly but must take the matter up with the federal organisation. Such a system may seem far removed from ideal co-operative democracy, but it may still be more democratic than a large regional society working through branches with no committees of their own. CHAPTER XVI LEGAL RESPONSIBILITIES OF COOPERATIVES The administration and management of a co-operative are affected in a number of ways by the laws of the country in which it carries on business. In the first place, a co-operative is obliged to do—or forbidden from doing—a number of things by the law under which it is incorporated. In a few countries no such law exists, and co-operatives are unincorporated groups of individuals; but this is exceptional. In some countries co-operatives are incorporated under a section of the commercial code. In the great majority, however, there is a special co-operative law. These laws differ from one another mostly in the degree of detail with which they define the character and behaviour of a co-operative and in the measure of government interest in and assistance to co-operation which they provide for. Some laws are framed in broad general terms but are supplemented by detailed regulations and model rules which co-operatives are expected to follow. Others leave the rules to be drawn up by national co-operative unions which afterwards submit them for official approval. RULES AND BY-LAWS A group of people wishing to form a co-operative must first adopt rules (or by-laws) for which official approval, if not already obtained, must be sought. These rules, or the law itself, will bind the co-operative to act or not to act in certain ways. In the first place, the objects and powers of the society will have to be defined, and the latter may not thereafter do anything which has not been included among its objects and powers. It is for this reason that a co-operative which intends at the outset—and probably for many years—simply to accept deposits and make loans to its members may nevertheless also include among its objects trading in agricultural supplies and agricultural produce and claim the right to own land and buildings and to raise loans on mortgage. This makes it unnecessary to change the rules at a later date when the co-operative is ready to expand. 176 CO-OPERATIVE MANAGEMENT AND ADMINISTRATION ADMISSION OF MEMBERS The law in most countries has a good deal to say as to the conditions under which members may enter or leave a co-operative and their responsibilities towards it. There must, in the first place, be a minimum number of members (seven in some countries, as many as 20 in others) before the society can be registered at all. Most laws lay down that membership shall be open, except that members must usually be over a certain age (in most cases 18) and it may sometimes be laid down that they must live in the same village or follow the same occupation. Also, it is reasonable to limit the number of members of a housing society where the building site itself is limited, or of a society formed to make joint use of a threshing machine or a fishing boat. It may also be necessary to restrict the membership of a credit society with unlimited liability to a group of people who are really prepared to trust one another. As a rule, the law provides that the capital of a society shall be variable —that is, fresh shares will always be issued if new members seek admission. If members are free to enter a co-operative, are they free to stay out of it and are they also free to leave ? As a rule the answer, in both cases, is in the affirmative, although members must sometimes give notice of their intention to resign and may be liable for the possible losses of the co-operative for a fixed period—one or two years—after their membership ceases. There are a few cases in which members are obliged to join and cannot withdraw. This is the case in some countries where landowners or tenants are formed into co-operatives for the joint use of land. It may also happen in co-operatives which exercise the sort of powers normally conferred on marketing boards, or in co-operatives for irrigation and drainage, where an essential service can only be carried on if all landholders participate. In such a case membership in the co-operative goes with the ownership or tenancy of land, and the decision to form a co-operative, once it has been made by a majority of those concerned, becomes binding on all. INTERNAL CONTROL The law usually specifies how a co-operative is to be governed, though this is sometimes left for the rules of each society to determine. In most countries it is laid down in the law that the highest authority shall be the annual general meeting, which must be called once a year and at which each member shall have not more than one vote. Occasionally LEGAL RESPONSIBILITIES OF CO-OPERATIVES 177 additional votes are allowed, based on the amount of business which the member does with his society. This is unusual; but when one society is a member of a larger organisation, such as a federation or wholesale, it is usual to allot votes in proportion to the number of members of the primary society. Some laws allow and some forbid voting by proxy and voting by mail. Some laws include detailed regulations as to the way in which general meetings are to be conducted; whether or not large societies should hold instead a delegate meeting, elected on a district basis, and how this should be carried out; how committees should be elected; how long they should hold office, and whether their members should be eligible for re-election; and whether there should be a supervisory as well as a management committee. Some countries include in the law and others in the rules procedures by which the rules can be amended, or the cooperative voluntarily dissolved or amalgamated with some other cooperative, or converted from a co-operative into some other kind of corporate body. SHARE, LOAN AND RESERVE CAPITAL The law settles how the co-operative is to be financed. There are usually two alternatives. The co-operative may have no share capital, the members being jointly and severally liable, without limitation, for any debts or losses it may contract. Alternatively, members subscribe shares either fully or partly paid up, and their liability is limited to the value of the shares or perhaps to a figure twice or three times the share value. Unlimited liability is generally the older system and is considered especially suitable to thrift and credit co-operatives of small farmers and others who may have difficulty in putting up share capital. In some countries where co-operative members are in the main small peasant farmers, unlimited liability is obligatory under the law in the case of agricultural credit societies. The security offered is real when the landholders have a clear title to their lands but may not be of great value when they have no property from which losses can be met. It is widely believed, however, that the collective moral obligation imposed on all the members of a society by unlimited liability will promote a greater sense of responsibility. However, unlimited liability is now tending in some countries to be replaced by limited liability, especially where the principle of open membership is considered more important than a high level of mutual trust, and special steps are taken to meet the difficulty of raising share capital in the initial stages. 178 CO-OPERATIVE MANAGEMENT AND ADMINISTRATION Where a society is financed by issuing shares, the rules must state the value of the shares and the minimum and maximum number which members may hold. Usually the minimum is the same for all members, but in some agricultural societies it goes with the acreage of the farm or the number of cows milked. The purpose of laying down a maximum is to prevent any one man having too large an interest in the society and dominating itfinancially,even though he may have only one vote. The maximum may be either an absolute figure or (more often) a proportion, say one-fifth, of the total share capital. Under some laws shares may be withdrawn at any time on due notice. Under others, they may only be transferred to other members with the consent of the committee and provided that they do not raise the total share holdings of the transferee above the legal maximum. Some laws allow, but others restrict the right of a co-operative to repay shares compulsorily. This may be desirable if the member has ceased to do business with the co-operative, or (occasionally) when the co-operative has more share capital than it needs. There is at least one type of co-operative in which there is no share capital even though liability is not unlimited. In the non-stock cooperative associations of the United States, the member pays an entrance fee on admission and pledges himself to do all his business with his society. Provided this business is the marketing of a staple commodity, the society can borrow its initial capital on the security of this contract and thereafter build up capital through contributions to reserve, the formation of revolving funds, as described in Chapter XII, the use of chattel mortgages, and sometimes the sale of bonds or preferred stock to the public. Either the law or, in some cases, the rules provide for the formation of reserves, usually by laying down that afixedproportion of the surplus at the end of each year shall be carried to reserve, either as long as the society is in existence or until the reserve is equal to, or a multiple of, the share capital. The law generally states that the reserves are indivisible, even on dissolution of a society, and that in such an event they shall be applied to some purpose of common utility in the district, including the formation of a new co-operative. This is to ensure that members will not be tempted to dissolve a society merely in order to share substantial reserves among themselves. Nearly all co-operative laws insist that the rate of interest on share capital be fixed at a moderate figure. Some do and some do not lay down in detail how the surplus on the year's trading shall be distributed after provision has been made for reserves and interest. Considering that payment of a dividend or bonus on business done is a fundamental LEGAL RESPONSIBILITIES OF CO-OPERATIVES 179 co-operative principle, it is perhaps surprising that there should be so many countries in which this rule is not legally enforceable. The other widely practised methods of allocating surplus—bonus to employees, grants for education or general welfare—are usually permitted but not enforced by law. TRADE WITH NON-MEMBERS The law varies from one country to another on two other important points—whether a co-operative must do business only with members and whether members must do business only with their co-operative. The argument in favour of restricting business to members is that it prevents the co-operative from degenerating into a small closed corporation making money out of trade with non-members. This purpose, however, may be served just as well by insisting on open membership and variable capital. The arguments against restricting business to members are that prospective joiners may want to sample the services offered before committing themselves to membership, and that every trading co-operative is both a buyer and a seller, buying goods from manufacturers and wholesalers to sell to members, or selling members' produce to the general public. The first argument may well call for someflexibilityin the rule requiring business to be done with members; as for the second, it can be met quite simply by applying this rule only to the purpose for which the society was set up, but not to other aspects of its business which serve that purpose. It is obvious that a consumers' co-operative must buy goods from suppliers who are not its members and that a marketing society must sell to wholesale firms or to the public, while a credit co-operative may well accept loans or deposits from outsiders. The argument in favour of obliging members to trade only with their co-operative is probably strongest in the case of agricultural processing and marketing societies. If a co-operative has invested in plant and buildings to handle a given volume of milk or cotton or sugar cane, it is necessary, if the plant is to be run economically, that supplies should never fall below that level for any extended period. In some cases, also, the co-operative is in effect a price bargaining agency and its bargaining power will be weakened if some members are prepared to break the price by selling to private buyers. The obligation to deal only with the co-operative may be embodied in the rules or in a separate contract, and provision may be made for what are called " liquidated damages ", safeguarding the right of the society to claim an agreed sum from the member in compensation for the injury caused 180 CO-OPERATIVE MANAGEMENT AND ADMINISTRATION by the breach of his contract to supply. In other countries, however, the law is on principle hostile to binding contracts and does nothing to encourage co-operative members to enter into them, or co-operatives to enforce them. DUTIES AND PRIVILEGES OF CO-OPERATIVES Most co-operative laws make provision for voluntary or compulsory arbitration in cases of dispute between members or between members and committees, usually specifying the procedure. Some do and some do not insist upon political and religious neutrality. Most specify what records a co-operative must keep and who shall have access to them. Most insist that a co-operative should have a fixed address and a common seal. As noted in the last chapter, the majority provide for periodical audits, and usually for annual reports to be submitted to some government department. Some accord very considerable privileges to co-operatives registered under the law—exemption from income and other taxes and from stamp duty; the right to borrow from state funds or on state guarantee; the right to exclusive use of the designation " co-operative ". Others allow no privileges at all. It is for the secretary of a co-operative to familiarise himself both with the rules of his own society and with the co-operative law of his country, for it is his responsibility to see that the rules are carried out and that the law is not broken. He must make sure that the members are all of full age and that none of them has more than the maximum shareholding; that the annual general meeting has been properly summoned, and that any change in the rules has been carried by the prescribed majority; that the accounts are audited at the proper intervals and the reports forwarded to the proper authorities; that taxes are paid; and that the co-operative does not engage in business which is not specified among its objects, nor allocate surplus to purposes not permitted by the law. CO-OPERATIVES AND THE COMMON LAW The secretary or manager of a society of any size is likely to find himself confronted with a number of responsibilities and restrictions arising from the common law in countries which have taken their legal system from Great Britain or, elsewhere, from civil, commercial or criminal codes or from special laws and regulations. In all these cases the co-operative is in the same position as any other corporate body. If it becomes involved in a lawsuit, or if there is doubt as to its legal right on any matter on which a decision must be taken, a professional LEGAL RESPONSIBILITIES OF CO-OPERATIVES 181 lawyer will have to be consulted. For this reason many national co-operative organisations have their own legal departments, which are prepared to give advice to member societies. Secretaries and managers should, however, be aware of those aspects of the daily activities of a co-operative which are regulated by law and of the kind of action, either by the society itself or by its employees, which may bring the society into difficulties. It is not possible to enter into this subject in any detail in a work of this size, especially one which is intended for reading in countries with differing legal systems. A few indications may, however, show how broad the field is. Co-operative societies, by the nature of their activities, come under one or probably more than one specific law. Consumers' co-operatives, for example, come under the laws which regulate the opening and closing time of shops, the minimum age of employees and the handling of perishable or easily contamined foodstuffs. If they sell tobacco or alcoholic drinks they will require a licence for that purpose. Co-operatives with factories or processing plants will come under factory laws providing for the fencing of dangerous machinery, adequate light and ventilation (especially when the process causes dust or dangerous fumes), maximum hours of work and limitations on the employment of women and young persons. Co-operatives engaged in the marketing of agricultural products will in many countries be subject to marketing laws which may lay down where, when and at what price the commodity may be sold, and may prescribe standard grades and qualities. Any co-operative engaged in banking business will be subject to the law on banks. Co-operatives using their own transport will be subject to the laws regarding insurance and licensing of vehicles and drivers, and will of course be responsible for their drivers' observance of traffic and parking regulations. Co-operatives supplying their members with farm supplies or domestic goods will have to observe the laws against adulteration or false description. Co-operatives selling poisonous substances—e.g. drugs or pesticides—will have to observe the relevant legal provisions. Any co-operative engaged in foreign trade will have to comply with import and export regulations, including customs duties, quotas, restrictions on the movement of materials capable of carrying plant and animal diseases, and currency and exchange controls. CO-OPERATIVE CONTRACTS Co-operatives will also be affected by some of the more general provisions of the common law or the civil code. Like all businesses, 182 CO-OPERATIVE MANAGEMENT AND ADMINISTRATION they frequently enter into contracts for many different purposes : agreements to purchase or lease land and buildings; contracts with building and engineering firms to build premises or install machinery; agreements to purchase either capital goods or stock-in-trade; undertakings as to the price of resale of certain commodities; hire-purchase agreements with members; undertakings to deliver by a certain day; bank overdrafts guaranteed by members of the committee; contracts for the hire of transport from private haulage firms or contracts to undertake work for members with machinery owned by the co-operative; contracts with employees fixing their conditions of employment, salaries, holidays, whether they are to receive sick pay, and in what circumstances they can be dismissed. Some of these contracts will be in writing, especially where long-term arrangements or large sums of money are involved. The lease of a building, the contract for the supply and installation of machinery, usually by a fixed date, the employment contract of the senior official of a large society will all be written documents which should be carefully drawn up and carefully scrutinised before they are signed. Some commercial contracts are so skilfully worded and contain so many escape clauses that they may prove more difficult to enforce than would appear at first sight. On the other hand, the co-operative will have to be careful not to bind itself so tightly that the contract may become damaging to its interests some time in the future. A contract with a cooperative manager which made it impossible for the society to dismiss him unless he did something actually criminal would be an example. If the matter is important, it is usually cheaper in the end to consult a lawyer. Many agreements are not in writing, e.g. contracts for engagement of junior staff, undertakings to buy members' produce, purchases made over the telephone (though these will generally be confirmed in writing), lorries left at the garages of private repair firms with instructions for an overhaul or for whatever repairs may be necessary. Such verbal contracts are none the less binding on both parties and should be made by responsible people who have considered the full implications of the pledges made on behalf of the society. It is also necessary to be quite clear as to who is entitled to make what kind of a contract on behalf of the co-operative. For some important contracts it may be the committee, but for others it will be the secretary or manager, while for small matters it may well be a quite junior employee. A great deal of litigation takes place over broken contracts and the interpretation of contracts. This is expensive and should if possible be avoided by exercising due care in making contracts and in the choice LEGAL RESPONSIBILITIES OF CO-OPERATIVES 183 of the firms or individuals with whom such dealings take place. Mistakes may, however, be made, or there may be cases in which circumstances rather than any kind of sharp practice have led to the breach of contract. It then becomes necessary to fix the responsibility and decide whether compensation shall be paid to the injured party and, if so, how much. A building firm has, for instance, contracted to build and equip a ginnery by the beginning of the next cotton season, and has failed to do so either because of a quite exceptional flood or because of a strike among its own employees. The ginnery is not completed until nearly the end of the season, and nearly a whole year's trade has been lost. It will be vitally important to the co-operative to know whether it is or is not entitled to compensation. This may have to be settled by arbitration or by an appeal to the courts. On the other hand, the co-operative itself may fail to meet some condition on a contract. The committee may believe that circumstances over which they have no control, an " act of God "—such as the flood mentioned above—or something in the conduct of the other party to the contract have justified their action (or failure to act), but the other party may hold a different view, and again there may have to be arbitration or court proceedings. CO-OPERATIVES AND PROPERTY LAWS All co-operatives deal in property, whether in the form of real estate such as land and buildings, vehicles and stock-in-trade, or in the form of documents entitling the holder to money, such as cheques, bills of exchange and share certificates. Property laws deal with many matters, not all of which are of concern to co-operatives. From the point of view of a co-operative, perhaps two of the most important points to consider arise when property changes hands, either by sale or gift, or on the death of the owner. First, is the owner in fact entitled to transfer the property ? Secondly, has he made his intention to do so perfectly clear ? A co-operative which buys and pays for produce from one of two brothers farming together may find itself in difficulties if the other brother claims that half the money should have been paid to him. A much more serious problem may arise when a co-operative buys land, e.g. for the purpose of building its headquarters, from a man who has not what lawyers call clear title to it, and another claimant comes along, or the land turns out in fact to be common land which no one has a right to sell. If the land is a gift, a similar problem arises. The gift may be withdrawn, perhaps after the donor's death, unless the transfer of property is plainly recorded in a written statement. If the donor is a prominent local man, perhaps the chairman of the society, the com- 184 CO-OPERATIVE MANAGEMENT AND ADMINISTRATION mittee may sometimes feel embarrassed if it has to press for such a statement. A rather different but equally awkward situation will occur if there are conditions attached to the use of the land, for example that private houses may be built on it but not business premises. Apart from the rather unusual case of a gift to the co-operative, other problems are likely to arise on the death of a member. He may have considerable interests in the society—share capital, deposits, unpaid bonus, perhaps credit for produce delivered for which the co-operative has not yet paid. The co-operative will have to know to whom such interests are to be transferred. If the man has one son who is carrying on the farm, the decision will probably be simple. If he has none, or if he has several and the land is to be divided between them, it may be more difficult. Another problem which a co-operative may well have to face is that of assigning responsibility for loss or damage in the case of goods belonging to one person but in the care of another, e.g. a co-operative tractor temporarily kept on a member's farm where it is working, or perhaps livestock belonging to a member and entrusted to the co-operative for a few hours before being put up for sale at auction. The problem, however, arises most frequently in the case of goods in transit or in store at a dock or railway station. If they are damaged and the railway or shipping company denies responsibility, the co-operative may be faced with a heavy loss. Often the legal position is governed by a contract which the co-operative has already signed. If this does not give adequate protection against loss, it may in some cases—though certainly not in all—be worthwhile to take out an insurance. While on the subject of property, it may be worth mentioning that some forms of property are neither goods nor money nor title to money, e.g. trade marks, trade names, patents and designs. A new co-operative must choose a name which cannot easily be confused with that of any other co-operative or company. Once the name has been registered, the co-operative will enjoy protection against others who may wish to use a similar name. Co-operatives engaged in manufacture often also register a trade mark for their product, in order to make it attractivesounding, as well as distinctive and easily remembered by the consumer. The name may have nothing to do with the name of the co-operative but must not too much resemble the name of any similar product, and it must be distinctive, not something that describes anyone else's product equally well. " Adam's Peak Tea " might pass, but " Mountain Tea " would not. It may not be very often that a co-operative wants to register a patent or a design, but it has happened that co-operatives have LEGAL RESPONSIBILITIES OF CO-OPERATIVES 185 invented or greatly improved a piece of machinery, and have found it worth protecting their invention from copying by other manufacturers. LIABILITY FOR INJURIES It may be that a co-operative is unfortunate enough to have its premises broken into by burglars, or that it may be obliged to prosecute an employee for defalcation. This is a fairly straightforward case, even if the accusations may not always be easy to prove. There is, however, a large class of injuries, not criminal but civil, which may be caused or suffered by the co-operative. These include injuries caused by negligence to members, employees or the general public. Ladders may slip, chimneys blow down, machinery break owing to a hidden flaw, vehicles become involved in accidents. In every case responsibility must be established, if only because the injured person will certainly make a claim. Has someone failed to take proper care ? And if so, who ? If he was an employee of the co-operative, was he carrying out his duties in accordance with instructions, or doing something which he had been expressly told must never be done ? The injured person will try if possible to prove that the co-operative was responsible for the acts of its employees, since the co-operative will be more capable of paying compensation for the injury than would a lorry driver or a machine hand. The same will apply if the injury was caused to one employee by the action of another. There are other injuries which are not the result of accidents in the usual sense. The waste products of a creamery may pollute a river. A tall mill building may obstruct the windows of an existing house or office. Co-operative lorries may trespass by taking short cuts across private land. A co-operative may accidentally sell a wrongly labelled commodity, so that a member receives spring wheat instead of winter wheat, and suffers loss through a poor crop. The chairman of a co-operative may denounce the methods of a rival trader and find himself sued for slander, or the rival trader may write an abusive letter about the co-operative to the local paper and the co-operative may take action for libel. It has been said that half the work of a good lawyer lies in saving his clients from going to law. A good co-operative secretary or manager should also work steadily to keep his co-operative out of the courts by seeing that laws and regulations are observed, contracts examined and thereafter strictly carried out, and that every one who acts in the name of the society behaves with as much prudence and common sense as can be expected. The secretary is not a lawyer and should never attempt 186 CO-OPERATIVE MANAGEMENT AND ADMINISTRATION to conduct a case or give an opinion on a strictly legal issue, but he should know where occasions for trouble may lie. In some countries books have been prepared by national co-operative organisations giving this sort of background information. Failing this, a book written for business people in general will be better than nothing, especially if there is a co-operative legal adviser who can be consulted in an emergency. Trained lawyers are often appointed to the staffs of national co-operative organisations or even some of the larger regional or specialised societies. They may be full-time salaried employees or they may be professional men in private practice to whom the co-operative pays a retaining fee so that their help may be available when a legal point of some substance arises. CHAPTER XVII RELATIONS WITH MEMBERS AND THE PUBLIC MEMBERSHIP IN N E W SOCIETIES In the first few years after a co-operative has been formed, membership relations do not as a rule present any particular problem. The cooperative will doubtless want to attract new members, if only to ensure that it will do enough business to keep the staff and premises fully employed. The campaign for support which began before the society was registered will be carried on for some time after it has begun work. It will also be necessary to see that members are doing all or as much as possible of their business with their own society. In the first few months novelty, curiosity and hopes of advantages to come all make for a lively interest in the co-operative. After that, it is largely a matter of showing results: better prices, better quality, fair weights, and a surplus at the end of the year. Members will attend the first annual general meeting with eagerness, both to hear what has happened and as a new experience. The first committee to be elected may be inexperienced, but it will probably be keen. The exception to this state of affairs is when, as sometimes happens in underdeveloped countries, the prospective members of a co-operative are so illiterate and conservative that it would never have occurred to them to form a co-operative if a government department had not stepped in and organised them into one. If they are farmers and have nowhere else to go for credit or fertilisers, they may go to the new organisation for these purposes, if without much enthusiasm. Many, however, will prefer to continue selling their produce to the merchant whom they already know. If the principal object of a new society is marketing, it may well be that the most crucial phase in membership relations will come even before the society is registered, when the organisers are trying to build up interest and to make sure of sufficient deliveries to give the society a sound economic basis. Even after the society is in action, it may be necessary to link it very closely with the co-operative which supplies credit and so confers a well understood benefit on the members. 13 188 CO-OPERATTVE MANAGEMENT AND ADMINISTRATION A co-operative, as it becomes established, should attract loyalty and a measure of gratitude. If it has been able to save members from a situation in which they felt they were being exploited, gratitude may predominate. If it has been set up by reasonably prosperous men in order to carry out some new venture or establish some new industry, pride of achievement may be the prevailing feeling. Loyalty will inevitably be weaker if the co-operative is not showing results. Few people take really long views, and many admit failure much too quickly. If the co-operative is to be rescued at this stage, it will probably be by a determined minority who are prepared to give of their time, make sacrifices and bring a great deal of personal influence to bear on their fellow members. MEMBERSHIP AND THE MATURE SOCIETY The problems of membership relations, with which this chapter deals, belong to a rather later stage in co-operative development, though one which has now been reached by co-operatives in a very large number of countries. A co-operative may have been running for 20 or 30 years. It is carrying on much the same business from year to year, gradually expanding, no doubt, and perhaps setting up new branches or developing new sidelines, but not doing anything to cause wonder or excitement. The membership by this time has probably become too large and too scattered for many of the members to know one another personally —much too large, at any rate, for all to take part in an annual general meeting unless it is held out of doors. In fact, the capacity of the meeting hall may never be put to the test, for by this time only a small minority take the trouble to come at all. The rest are not dissatisfied. They may be very well satisfied, but they feel that their attendance at the meeting will be a waste of time and that the management of the society is no business of theirs. Something has been said of this attitude in Chapter II, in connection with the problem of democratic control. The same situa^ tion may develop even in a small society, which, instead of taking a good deal of local initiative, is content to link itself to a regional organisation in which all the interesting developments are concentrated. It is important to remember that by the time this stage is reached many of the original members—those who went through the struggles and enjoyed the triumphs of the pioneering days—will have died or retired. Co-operatives, especially agricultural ones, are not as a rule founded by very young men. The membership of a mature co-operative will consist partly of the sons of the founders and partly of newcomers who have joined because they like the service or simply because the RELATIONS WITH MEMBERS AND THE PUBLIC 189 co-operative is the nearest business of its kind to their homes or farms. They may know little of co-operative principles. They may not even be aware that they are dealing with a co-operative, or that a co-operative belongs to its members and ought to be controlled by them. To the new generation it is often just another local facility, like the post office. All this, though far from being uncommon, is unsatisfactory from several points of view. The problem of democratic control has already been discussed. Without an active membership, there is no check on the action of committees and management, who may become bureaucratic and inert or perhaps more interested in running a successful business than in meeting the full needs of the members. Committees tend to become self-perpetuating. The annual general meeting is robbed even of the mild excitement of a contested election. No men with a liking for public responsibilities put themselves forward, and the committee members become older and older. The difficulty goes rather deeper, however, because an indifferent membership means the loss of one great advantage which a co-operative should enjoy over private undertakings. It should be able to count not only on the energy and devotion of committee, management and staff (which a good private business will also enjoy) but on the willing and active collaboration of all the members. A co-operative whose members use its services consistently and to the full, invest in its capital, abide by standards of quality in produce delivered and work done, and who themselves contribute new ideas and constructive criticism, has used this advantage to the maximum. Finally, if the membership is inert, the social value of co-operation as a training ground for democratic responsibility and business practice, or as a means towards achieving a more friendly and mutually helpful spirit among neighbours, is largely lost. Co-operation may not be the only way to bring about these desirable results, but it exerts a sufficiently strong influence in the right direction for its absence to be felt. ATTENDANCE AT MEETINGS The depressing situation outlined above is not in any way inevitable. In most advanced co-operative movements a great deal of thought and experimentation has been devoted to membership relations in the mature or second-generation co-operative. One obvious point of attack is the annual general meeting. In a large scattered society the difficulty is both physical and psychological. Members have work to do on their farms; attendance at the meeting may involve a long ride on a bicycle; the bus service does not fit in and it is raining; when the member gets 190 CO-OPERATIVE MANAGEMENT AND ADMINISTRATION to the meeting be will probably find no one that he knows and feel out of place; though the secretary may explain the balance sheet, he is afraid he will not understand the explanations. Some of the ways of overcoming these difficulties have already been discussed in Chapter II —district meetings and delegate meetings; social and educational activities; contested elections; a really good and easily understood description of the year's work, with an explanation of the trading account and balance sheet; or even convenient transport arrangements. The general meeting, however, need not be the only point of contact between the ordinary member and those responsible for running his society. It is becoming usual in large co-operatives to hold informal district meetings, not in order that decisions may be taken, but to give an opportunity to the chairman, members of the committee or senior staff to meet the members. This enables the officers to explain what the society is doing, give an account of any new developments, and then invite questions or criticisms. The aim is to arouse the interest of members while giving the leaders a chance to know what members really think and want. Meetings may also be arranged which are not primarily concerned with the society's own work. The main feature may be an educational film or even a concert, but members are brought together and something is added to the prestige of the society. CLASSES, VISITS AND EXHIBITIONS Some co-operatives, perhaps especially consumers' societies, spend considerable sums on the education of members through evening classes, short conferences and week-end schools. These may be limited to co-operative subjects or include elementary economics, citizenship and general cultural subjects. The success of such efforts depends on how eager members are to be educated and what other opportunities are open to them. The system of member education devised in India and adopted in other Asian countries falls into three parts, meeting respectively the needs of rank-and-file members, members of committees, and co-operative office-bearers. The ordinary members take part in three-day schools—the maximum period for which they are likely to be able to leave home; the committee members are given instruction at a rather higher level, lasting a week; and the office-bearers, who may be full-time or part-time workers, attend courses lasting six weeks. These are usually conducted by the government co-operative department at a centre accessible to a group of societies, or at the headquarters of a single large society. This work can equally well be carried out by a non-government co-operative union or federation. As all the students RELATIONS WITH MEMBERS AND THE PUBLIC 191 are adults who already have some practical experience, the method is to mix formal lectures with discussion groups and work syndicates, so leading the students to take an active part in their own training. Members may be more impressed by what they see than by what they hear in a classroom. Those who belong to consumers' societies are familiar enough with their own shops, but societies, whether agricultural or industrial, which have factories or processing plants may set aside a day or several days on which organised parties of members are received and taken through the works, accompanied by a guide who can give the necessary explanations. Sometimes members of the committee are there to act as hosts, especially to members coming from their own districts. Some societies, in particular national co-operative wholesales or federations, arrange exhibitions or take a stand in a general industrial exhibition or a local agricultural show. Even if the exhibit is a modest one, the stand is a rallying point for the society's members visiting the show and does something to bring its existence to the notice of the general public. Some co-operatives take pains to build up subsidiary members' organisations, such as shop or branch committees, which have no power to control the society but are there to keep a watch on local interests, bring in new members and stimulate the interest of any existing members who may not be using the facilities provided to the full. Such committees may be selected and appointed by the management committee of the society, or they may be elected at a district meeting. There may also be quite separate, self-governing organisations, such as the well-known women's co-operative guilds, the prime object of which is to support co-operation but which may pursue other objects as well, such as education, social welfare or the relaxation and amusement of their members. WOMEN AND CO-OPERATION The question of the place of women in the co-operative movement has often been discussed. It is probable that in countries where women do all or most of the shopping, they will be the main support of the consumers' movement, whether or not they are shareholding members. On the question of women's membership, practice differs. In countries which allow only one member for each household, the member is often the breadwinner, whether or not he ever enters the shop, and women members tend to be widows or spinsters. Elsewhere, husband and wife may both be members, and often the wife is the more interested and active of the two. Most credit societies admit women members, 192 CO-OPERATIVE MANAGEMENT AND ADMINISTRATION though in some countries social custom insists that women should form separate societies of their own. Workers' productive societies often have both men and women as members if the industry is one which employs both sexes. In agricultural societies it is usual to have an almost exclusively male membership, except in the comparatively rare case of a widow running a farm for her infant son. Recently, however, co-operative committees have begun to realise the value of trying to arouse the interest of women even in agricultural societies. In countries where farm bookkeeping is usual, it is often the farmer's wife or daughter who keeps the books and renews the orders for feed or fertiliser. She may have more time than the farmer to read papers and advertisements. She may have some part of the farm, e.g. the poultry or the dairy cattle, under her own care. A farm wife may also take a dislike to co-operation if she is left alone when her husband goes to a general meeting or to visit a co-operative plant. For all of these reasons it is worth while to have the farmers' wives and daughters on the side of the co-operative, to invite them to inspections and demonstrations or to take part in competitions—aimed at selecting, for instance, the best bird reared on co-operative feeding stuffs—or to ask their help in preparing the social meal which will wind up the annual meeting. Women's social committees, women's auxiliary organisations and special educational campaigns are other means which have been used to develop interest among women. APPROACH TO THE YOUNG Approaches to the young have a slightly different purpose and are concerned particularly with the future. They are aimed at making sure that the present members are replaced by their sons or daughters and that the incumbent committee, in particular, gives place to keen and well informed successors. Some consumer movements and a few agricultural co-operatives run youth movements of their own. In agriculture, the more usual method is to approach existing organisations of young farmers and farmers' sons or students in agricultural schools and colleges. The co-operative arranges for a talk, probably accompanied by a film, illustrating the purpose and achievements of the co-operative movement. In some countries prizes are offered for essays or speeches on co-operation, and the prize may take the form of attendance at a national conference or of a short tour of co-operative premises—perhaps, to increase the interest, in a neighbouring country. The device of a shadow committee of young farmers has already been described in Chapter II. In some countries school co-operatives, formed and RELATIONS WITH MEMBERS AND THE PUBLIC 193 managed by the pupils, either for purposes of thrift or for the supply of pencils, stationery or other needs, are of considerable importance. Their ulterior aim is to develop an adult interest in co-operation. In the meantime, they save astonishing sums of money. VISITS BY CO-OPERATIVE REPRESENTATIVES The importance of personal visits to members' houses as a means of keeping their interest in the co-operative alive varies from country to country. Sometimes committee members take it as a duty to visit a certain number of members every year, or perhaps visit persons who are not members but may be persuaded to join. Elsewhere, members receive regular visits from co-operative employees. In some countries certain goods for domestic consumption, especially bread and milk, are delivered to the member's house, and the delivery man can do a great deal either to improve or to mar membership relations. Co-operative insurance agents collecting weekly or monthly payments on life insurance policies often do much to keep the co-operative family together; they hear a good deal of spontaneous comment, receive many inquiries, and are thus in a position to understand how co-operation is regarded by the ordinary member. Some of these comments, if intelligently reported, may help to shape future co-operative policy. In some countries where farms are scattered, it is usual for a representative of any co-operative selling farm supplies to call at regular intervals to see what the farmer needs and probably collect payment for what he bought the month before. Much of the co-operative's success may depend on good relations between the representative and the farmer he visits. USE OF REPORTS AND JOURNALS In countries where many co-operative members are illiterate, membership relations will have to be maintained through personal contact, speeches, conversations and perhaps films. Elsewhere, more use can be made of the written word. Something has already been said about the need to explain clearly the annual report and balance sheet. In fully literate countries, these are usually printed and copies circulated to all members. The manner of presentation and the amount of information disclosed varies not only from one country but from one society to another. Some do no more than reproduce the balance sheet and indicate total sales during the year, all printed in small type, with no explanations or attempts to point out what is interesting and significant. Other co-operatives print not only the balance sheet, but the trading 194 CO-OPERATIVE MANAGEMENT AND ADMINISTRATION and profit and loss accounts, showing also, for purposes of comparison, the figures for the previous year. Some give statistics of membership, capital and turnover for every year since the society was founded, or perhaps for every fifth year if the society has been in existence for a long time. A good annual report will also contain a letter from the chairman or manager pointing out the main feature of the year's business, explaining any setbacks which may have occurred and drawing attention to new developments and capital investments. The names of committee members and the districts which they represent are generally listed. So are the society's branch and production departments, which may also be shown on a map. In the more publicity-minded societies, the whole is enclosed in a decorative cover, with a photograph of the new mill or dairy on the front page. A report like this goes into the home of every member and, even if all do not study it as closely as trained accountants might do, it at least gives them a sense of belonging to a worthwhile organisation. Some societies go further and distribute free to members a monthly or quarterly magazine. In large consumers' movements this may be produced nationally, and will consist of national co-operative news and views, with stories and feature articles, many intended to appeal to women. Before distributing the magazine, however, the local society may add a front and back page of its own, giving local co-operative news and announcements. Some large societies, such as regional agricultural federations, produce their own house journals. If the aim is to interest farmers, these usually contain articles on new technical and scientific developments in agriculture, as well as news of the co-operative and personal items about well-known farmers or co-operative officials. In all of these cases, the common objective is to arouse interest and stimulate co-operative family feeling. USE OF FILMS Films are undoubtedly good publicity and can be shown to members and to outside bodies such as farmers' clubs, schools and agricultural youth organisations. They are particularly useful for introducing the co-operative idea to illiterates, although great care should go into their making if this purpose is to be achieved successfully. Films are at all events very costly to make, and if the subject is a rapidly advancing movement, they go out of date fairly quickly. A number of national co-operative organisations have made films. Some are regional in scope or deal with a single type of co-operative, and one or two are international. The idea of showing films of successful co-operative RELATIONS WITH MEMBERS AND THE PUBLIC 195 organisations in one country to members of co-operatives at an earlier stage of development in another is an attractive one, giving those who have no opportunity to travel an impressive idea of the possibilities before them. The difficulties, apart from the often considerable cost of importing even educational films, is that natural conditions and standards of living in the country filmed may be so different from those in the country where the film is shown as to make it almost unintelligible to untravelled people. Another point which has to be considered in making a co-operative film is how far it should be strictly documentary and rely on its general interest and on the excellence of its photography for its appeal, and how far it will gain interest if it is built around an imaginary story. The answer depends a good deal on the audience for w hich it is intended. A successful use of films for co-operative education in Asia has been made possible by international gifts of projectors and films to co-operative training centres, with a view to the production of co-operative films with a specifically Asian background. Some co-operative organisations in Africa and the Caribbean have also developed audio-visual programmes thanks to international gifts of equipment. ADVERTISING AND THE PRESS The use of advertisements to popularise co-operative products or the co-operative movement in general is a matter of some controversy. Early co-operators, especially those in the consumers' movement, would undoubtedly have condemned advertising as an expensive and wasteful activity, adding nothing to the value of the product sold and of use only to competing traders trying to get the better of one another. But since the co-operative movement is itself engaged in commercial competition, it can hardly afford to dispense with a technique which has such a powerful impact on consumer mentality, and by which simple, barely literate people, are affected just as much as are those who have been exposed to it all their lives. Once people have been made " brand-conscious " by successful advertising, their belief that X's margarine or Y's bicycles are best may be strong enough to make them refuse equally good margarine or bicycles offered them under another name by their own co-operative store. If the co-operative wholesale society has a margarine factory of its own, or cannot get an agency for Y's bicycles, this may be serious. Even if it is decided that the co-operative should reply with its own advertisements, it is not always easy to decide what form such advertising should take. National advertising campaigns are very costly, and to announce that " Rainbow Brand is Best " but that it can 196 CO-OPERATIVE MANAGEMENT AND ADMINISTRATION only be bought in co-operative stores does not necessarily mean that people will flock to buy it. Even those who are attracted by the name or picture of the product may not want to go to a co-operative to get it ; others may not have a co-operative within shopping distance. Another difficulty is that a large-scale advertising campaign will involve setting a fixed retail price for each article, and many consumers' co-operative movements tend to frown on enforcing such prices on local societies. Consumers' and supply co-operatives which go in for advertising usually avoid these difficulties by advertising co-operation in general. Marketing societies may be in a better position to establish and advertise their own brands, and some have already done so. Advertising, unless it is confined to co-operative newspapers, is not addressed only to co-operative members. As an activity, it is on the borderline between membership relations and public relations. It may be well, as this point, to consider just what the purpose of co-operative public relations should be. A co-operative which is trying to extend its membership obviously aims at arousing interest and sympathy among those whom it would like to enrol. There is, however, a further and rather different point to consider. How far should co-operatives aim at becoming an integral part of the life of the community, accepted and respected by other organisations, both public and private, as well as by individuals who may never become members ? In the early pioneering days most co-operatives regarded themselves as living more or less in a world of their own, surrounded by hostile forces. They were more interested in building up a strictly co-operative community Ufe than in playing a part in the community at large. They generally avoided any but the most formal contacts with business organisations run on principles other than their own. Success and the sheer weight and importance of the co-operative movement have rather changed this attitude. More co-operatives are now concerned with creating a favourable impression and exercising an influence on the community in general, on official and semi-official institutions, and even on professional or business organisations, such as chambers of commerce. The approach is, of course, partly personal. A co-operative chairman who is also a member of a municipal council or a hospital board can, by making himself personally liked and respected, attract liking and respect for the co-operative which he is known to represent. The co-operative itself may find some opportunity of becoming a local benefactor, perhaps by giving land for a children's playground, or by building and hiring out a meeting hall. Apart from such action, which is generally carried out at a purely local level, the co-operative movement may have to consider how far it RELATIONS WITH MEMBERS AND THE PUBLIC 197 is being helped or hindered by the great media of mass communication —the press, radio, television, and perhaps also schools and colleges. In some countries, where the promotion of co-operation is established government policy, radio time is put freely at the disposal of co-operative speakers, and the problem is largely to develop effective programmes. Elsewhere, there are commercial radio and television systems from which time can be bought, though usually at a price which only the stronger national organisations can afford to pay. Elsewhere, again, the broadcasting authorities maintain an impartial attitude as between co-operative and other enterprise, and co-operation programmes can only be introduced as news or as a feature of general interest, but not as propaganda. The attitude of the press towards co-operation depends partly on the general policy of each newspaper, partly on its relations with advertisers. Private firms may withdraw advertisements from a paper which gives too much space to co-operation. On the other hand, a few co-operative advertisements in a local newspaper may make it certain that the annual general meeting or the opening of a fruit packing plant will receive full narrative and pictorial coverage. The question of co-operative teaching in schools and colleges is a matter of national policy. Some co-operators attach great importance to it. Others are inclined to doubt that much of an impression can be made on young children by a few lessons from teachers who may not themselves be very well informed or enthusiastic. The introduction of co-operation into suitable university courses, especially those having to do with agriculture, may well be more fruitful, especially if post-graduate students are encouraged to do co-operative research when studying for advanced degrees. CO-OPERATION AND THE NATIONAL AUTHORITIES Finally, it is important for the co-operative movement to have satisfactory relations with the government itself. In some countries the promotion of co-operation is already established national policy, and the only concern of the movement is to ensure that it is not being asked to accept tasks which are beyond its strength or which call for too great a sacrifice of voluntary and democratic principles. Elsewhere, however, the government may treat co-operatives and private enterprise on a strictly equal footing, or even be slightly biased against co-operation. In such countries the movement will have to look after its own interests and those of its member societies. It must keep a constant watch on new legislation as well as on administrative decisions which may affect 198 CO-OPERATIVE MANAGEMENT AND ADMINISTRATION its position. It will have to establish contacts with government departments and by way of memoranda, interviews with officials, and wellbriefed delegations to ministers make sure that the co-operative case does not go unheard and that the part which co-operation can play in carrying out national policies is not overlooked. A co-operative movement may also try to arouse the interest and enlist the support of elected representatives in the national parliament. In so doing, it should generally make its appeal to the widest possible circle, taking the long-term view and thinking of itself not as a minority group or a movement of protest, but as a permanent and expanding feature of national life, intent on surviving any succession of governments and on securing from each the best conditions for its own development. CHAPTER XVIII RESEARCH AND ADVISORY SERVICES It has been repeatedly stressed in the foregoing chapters that a cooperative, in order to be of service to its members, should be at least up to the standards of technical and administrative efficiency achieved by other undertakings, and if possible ahead of them. It should also be in a position to help its members to operate their farms and workshops, and even to keep their houses* in accordance with the most up-to-date methods. This means that, at key points within the movement in each country, there must be men and women with the time and qualifications either to carry out original research or to become thoroughly familiar with the research carried out by others, while at the same time possessing sufficient knowledge of the movement and its members to understand how far these results can be applied to individual societies with or without modification, depending on local conditions. For clarity's sake, the different fields of research will be considered one by one, giving examples of how such topics are or should be studied and the results used to improve co-operative practice. RESEARCH INTO CO-OPERATIVE BUSINESS METHODS Research into the structure and working of co-operatives may be concerned, first, with the practical working of the principle of democratic control. What are in fact the relations between members and committees and between committees and management ? What is the real centre of power and initiative, and is the actual situation in this respect the same as that contemplated by the rules ? How does the staff carry out the business of the co-operative ? How are duties and responsibilities allotted, and who gives orders to whom ? Does the scheme work well, or does it cause delays and friction ? Another type of question has to do with financial matters. What are, and what should be, the sources of co-operative capital ? What should be the balance between fixed and liquid or between owned and borrowed capital ? What constitutes a sound ratio between capital and turnover, or between profits and contributions to reserve ? What should be the proportion 200 CO-OPERATIVE MANAGEMENT AND ADMINISTRATION of running costs to turnover in co-operatives with different kinds of activities ? How far do trading co-operatives finance not only themselves but their members, and how far is it safe for them to do so ? These and many other questions can be asked not only about primary societies, but about secondary, federal or national organisations. Inquiry into the position of a single co-operative is not likely to prove very fruitful, however, unless there is something with which to compare the information obtained. For certain forms of business investigation the comparison may be with private firms or with the co-operative's experience in earlier years. But in order to decide, for example, whether it is better for a co-operative to own half of its capital or two-thirds it is usually necessary to study the balance sheets of a very large number of comparable co-operatives, preferably over a period of years, noting not only the average capital position, but how many societies are in fact anywhere near the average, how many depart widely from it, what is the position in the strikingly successful and the strikingly unsuccessful ones, and what have been the trends in their general and capital trading position over the years. It would also be possible to compare the fortunes of societies which have appointed a single head with those of organisations in which the secretary and manager have equal status, or of those in which the committee makes all the staff appointments, from manager to gatekeeper, with those in which a less direct method of control is applied. The most useful comparisons are those which lead to the formulation of general principles which can be used as a guide for practical action. These are usually derived from surveys covering a single type of cooperative in a country where wage, price and interest levels, legal provisions and educational standards are fairly uniform. It is, however, often illuminating to make comparisons between co-operatives performing the same functions in different countries. Indeed, an institution such as a national co-operative wholesale society can be compared only with a similar institution in another country. There are other cases in which the co-operative situation can be studied only from the national point of view; co-operative law, taxation, relations with the State and methods of staff training are good examples. If it is agreed that research of this kind is useful and that it provides the only sound working basis for the advisory and even the auditing services of national co-operative organisations, how and by whom is it to be carried on ? The answer varies greatly from country to country. Large co-operatives which constantly study their own operations through budgetary control, work study, cost accounting and other methods already described are in fact carrying out important research programmes, RESEARCH AND ADVISORY SERVICES 201 though the conclusions may too often be available only to a small part of the society's staff. Co-operative auditing unions and similar bodies undoubtedly accumulate great stores of experience, at least in financial matters, which they use to advantage in the course of their work but do not usually put on paper and publish. Some do, however, publish case studies or hold periodical inquiries of a general nature. In some countries research work of this kind is carried on by a government department, perhaps that entrusted with co-operative development, or a section of the ministry of agriculture, and the results are generally published, taking care not to disclose the affairs of any individual society. Elsewhere the same service may be carried out by a national bank which has as its purpose, or among its purposes, the financing of co-operatives, and therefore has a practical interest in deciding what in general are and are not good co-operative practices—although it is true that the primary object of such studies will usually be to find out whether money spent on a particular scheme is yielding sufficient return to justify spending more, whether it is being recovered by the banks in time to allow continued lending, and whether co-operative members as a body are receiving appreciable benefits. In underdeveloped countries more elaborate surveys are often carried out by the government, covering either the co-operative movement throughout the country or one of its regional or functional sections. The reports prepared on this basis often contain invaluable descriptions of how co-operation works, not in theory but in daily practice, together with penetrating criticisms and recommendations aimed at specific reforms as well as expansion of the movement as a whole. Without such periodical reassessments of co-operation in relation to current economic problems, carried through by the government and afterwards translated into practical advice and action, the progress of co-operation in the less developed countries would be very much slower and more hesitant than it is. In countries where the government takes a more neutral attitude towards co-operation, it is less likely to promote these inquiries. Research may be carried on in universities—perhaps in special co-operative research institutes—supported by contributions from leading co-operative organisations. This may be a fruitful partnership, since it subjects cooperative problems to scrutiny by impartial minds of a certain intellectual standing, though it may sometimes make it more difficult to ensure that a question will be considered from a strictly practical point of view. Finally, a national co-operative movement may set up its own research department or research institute. Several such institutions exist and do useful work. It is perhaps a pity that few, if any, seem to be linked 202 CO-OPERATIVE MANAGEMENT AND ADMINISTRATION with co-operative education systems and, particularly with co-operative colleges or staff training institutions. In the world of general higher education, it is now recognised that teaching should be combined with research. Teaching will become stale and fall behind the times if it is not combined with original study (as well as wide reading), and the kind of mind which can thoroughly grasp a subject in order to teach it should be capable of further research into its living realities. There is also no quicker way of getting the results of research well known and widely adopted in the co-operative movement than to teach them to students who will soon be taking up responsible positions in the movement. In practice, too many teachers in co-operative schools and colleges have so heavy a load of teaching, often including holiday courses, that they have no time or energy for research, nor are funds put at their disposal to meet its expenses. It is sometimes difficult to distinguish research into problems of cooperative structure and administration from research into the commercial and technical operations of co-operatives. When carrying out the latter—or even research into questions of co-operative finance—comparisons with the practice of private business may not be without value. When it comes to many of the subjects discussed in this book—e.g. transport organisation, use of mechanised accounting, work study, or the layout of plant—it is obvious that there is very little difference between the operations of co-operatives and those of private firms. It may well be that the necessary research into these subjects has already been done, in which case those responsible for national co-operative development, or even for the progress of individual large societies, should make themselves familiar with the results. If no work has been done on the particular problem which is causing concern, or the results of research have remained private, then it may be necessary for the co-operative movement to move on its own. It must be remembered that research of this kind calls for a technical background very different from that of the co-operative auditor or teacher, and the services of trained research workers from outside the movement will most likely be needed. In some countries such activities may be co-ordinated by a government department. Elsewhere they may centre around the business school of a university. There are also private firms of business consultants whose services may be hired. A co-operative movement which is prepared to submit to expert investigation may learn much that will be of practical value in adapting its own business to modern conditions. It may also break new ground for others. Many co-operatives—probably a majority—are engaged in buying or selling on the market. In many cases, especially when agricultural RESEARCH AND ADVISORY SERVICES 203 produce is handled, this is a world market. The managers of all such co-operatives, unless they are small village societies engaged merely in passing produce on to a marketing federation, must know how supplies and prices are moving, what quantities, qualities and grades are in demand in different markets, what is, in any given season, the relative advantage of processing or selling raw materials, what are the conditions of transport, the import duties and restrictions imposed by different governments, the value and availability of foreign currencies and the changes in taste or standards of living which are likely to affect consumer demand in the future. Some of these (import duties, for example) are matters of exact information for which known sources exist, but others call for research and evaluation of data which may be neither complete nor totally reliable. All are subject to constant change, so that information must not only be as full and accurate as possible, but must be up to date. Some changes are of a short-term character, such as a rise in prices following a bad harvest; others are long-term trends unlikely to be reversed, such as a rise in the standard of living accompanied by changes in consumer tastes. A good deal of research is already being carried on into all of these subjects, and some of the results are published, for instance, in trade journals devoted to particular commodities, sometimes in books (though these may rapidly become out of date) and sometimes in consular and other reports. Co-operatives which are interested in markets, either as buyers or sellers, should make full use of all this material. Much of the research work is carried on by privatefirmsfor their own use, but the results are not, as a rule, published. It will be for national co-operative federations to decide whether they need a market research department of their own for such purposes as collecting and analysing reports on prices in leading markets, or testing consumer preferences for different grades of produce or different forms of presentation and packing. TECHNICAL RESEARCH Most of the activities described above come under the heading of economic research, but the technical staff of a co-operative will also have to be well informed on materials and processes. The small laboratories which many co-operatives have installed for the testing of food products and feeding stuffs as well as for soil tests (with a view to giving advice on fertilisers) have already been mentioned. The testing of seed for germination and purity is also a laboratory task for which many co-operatives are now equipped. Some go further and have their own experimental farms. The extent to which co-operatives test fibres or 14 204 CO-OPERATIVE MANAGEMENT AND ADMINISTRATION metals, experiment with the effects of refrigeration at different temperatures, or adjust and modify the machinery they use is not so well known, but it is to be supposed that technical managers keep abreast of published research results and of any new developments as regards processes or machines. Their responsibility in this matter may be a heavy one, as they may have to advise committees composed entirely of laymen on whether to continue an old system of production, processing or handling, or scrap it and install a new system, perhaps at heavy cost. They will have to understand the technical as well as the economic arguments for and against alternative ways of processing the same raw material, and have a full knowledge of the various end products into which it can be transformed. Some knowledge of progress in alternative commodities may also be necessary if such products compete with the article the co-operative is trying to sell, as man-made fibres compete with silk and cotton, or detergents with soap. Agricultural Research All of these lines of research make for efficiency and progress in the co-operative itself, and this must be the immediate objective of both the committee and the management. But the aim of co-operatives is to improve the living conditions of their members, and this often calls for something more than an efficient system of marketing, distribution or credit. The most modern and splendidly engineered milk pasteurising plant will not bring real prosperity to dairy farmers whose cattle are riddled with disease and bred, fed and housed on lines which have not changed for a thousand years. The same problem arises in fisheries and in some other traditional industries, but it is most conspicuous in agriculture, if only because so large a part of the population of the world is made up of farmers using traditional methods, and so much of the world's food supply depends on their efforts. Many governments today are greatly concerned with the gap between the rapid rise in human population and the much more gradual rise in farm productivity. The approach to the agricultural problem falls into two parts. In the first place it is necessary to ascertain beyond doubt what measures would in fact increase production in a given country. This means that a great deal of fundamental research must be carried out on the spot. Soils, climate, the prevalence of different pests and diseases vary so much from country to country, or even between different parts of the same country, that often only the basic scientific principles are valid everywhere ; the detailed application must constantly be worked out afresh. RESEARCH AND ADVISORY SERVICES 205 Modernisation of farming techniques is not necessarily synonymous with mechanisation. Machines may sometimes do a particular job better than men or animals—a tractor, for example, can plough deeper than a bullock if deep ploughing is needed—but their main value is to save labour and time. This may be important in underpopulated countries or where sudden changes of weather mean that speed in cultivation or harvesting is essential. Elsewhere, however, there is often more to be gained by applying other methods. Water is the key to higher productivity in many countries; in such cases irrigation and drainage become matters of the first importance. Often, too, the biological and chemical sciences will have the most to offer to the farmer if circumstances are ripe for their application. Domestic animals can be selected and bred for higher production of milk or meat or wool. They must be scientifically fed if the results of good breeding are not to be wasted. They must be properly housed and cared for, protected as far as possible from pests and diseases, and treated for accidents and sickness. Plants, too, can be greatly improved by breeding so as to yield a higher crop and become more resistant to disease and storm. They also have to be fed with soil nutrients, the proper composition of which can only be discovered by scientific tests. Finally, they must be protected from pests and weeds. Knowledge as to how the principles of agricultural science can be applied in different countries is becoming steadily more advanced, but the second half of the problem remains—how to get the new techniques adopted by the traditional peasant farmer. The chief obstacles are ignorance, suspicion, lack of capital and the fact that necessary materials and appliances are simply not available where the farmer lives. It is here that the co-operative movement can play its part to the full, both by educating individual members and by providing them with efficient supply, marketing and credit facilities. The two functions are, in fact, often combined. Co-operative authorities always insist, for example, that credit must be both " productive " and " educative ", i.e. that it must be spent in such a way as to improve the farm, not merely keep it going at the same low level. The committees of small local societies may not always have the necessary expert knowledge to determine whether expenditure on a given typa of fertiliser or the introduction of a breed of cow new to the district is likely to be a good investment or not. A regional bank, to which applications for loans covering the larger development plans of farmers are likely to be referred, should be better able to judge how far such plans are suited to the district, how much they will increase production on the farm and, incidentally, whether the increase will enable the loan to be repaid. This sort of 206 CO-OPERATIVE MANAGEMENT AND ADMINISTRATION judgment can only be made by advisers with the necessary technical knowledge, working in contact with the official advisory services of the department of agriculture and with any agricultural colleges or experimental stations in the district. The foregoing assumes that the idea of farm development has first occurred to the farmer himself. This may well be the case; very often however, the farmer will know too little and be too frightened of making a mistake to have ideas at all. In such cases, the co-operative from which he normally draws his supplies can arouse his interest in fertilisers and pesticides, tested seeds, improved implements or veterinary preparations and, with the backing of the credit society, show him that the cost of improved methods need not be prohibitive. Once a few pioneers have made the venture and shown good results, others will follow. Examples could be quoted of supply co-operatives which have, within a few years, succeeded in improving the quality of seed sown in an entire district. Marketing societies sometimes exercise an even stronger influence by insisting on high quality in the produce delivered, paying a lower price for any deliveries falling below standard and devoting considerable time and patience to teaching members how they can avoid such failures in future. Some co-operatives employ technical advisers for this purpose. Others build up subsidiary organisations, such as herd testing associations aimed at detecting and eliminating poor milking cows or stockbreeding associations aimed at improving the type of animal. Some run experimental and model farms, which all members are free to inspect, while others operate agricultural schools for farmers' sons. All this means that at least the senior staff of the co-operative should have direct knowledge of agricultural science and technology and keep fully abreast of modern research—not, perhaps, of every experiment undertaken, but of any significant result achieved, and of new processes or products as they are made ready for general use. In some countries the initiative may not come from the co-operatives themselves. In a country like India, for instance, much has been achieved in the field of improved farming methods by government research stations and farms. The problem, however, is to get the new methods accepted by the mass of peasant farmers. As it is easier to approach groups than individuals, co-operatives have been widely used as a means of transmitting this knowledge to the cultivator. A land colonisation co-operative, for example, will have attached to it an agricultural demonstrator who may himself work a demonstration holding forming part of the colony. There have also been agricultural demonstration co-operatives, the purpose of which has been to acquire RESEARCH AND ADVISORY SERVICES 207 and run a demonstration farm for the instruction of members, the latter being established farmers in an area. Co-operatives have pioneered the introduction of the Japanese method of rice cultivation. Milk marketing societies have worked with the veterinary department of the government for the improved breeding, feeding and stabling of dairy cattle, the provision of veterinary care, and milk recording. In all cases the society willing to promote better farming is substantially helped with state funds and free advisory services. Co-operation is also linked with technical advisory services in a more organised and elaborate form wherever the " community development " system has been adopted. It should be added that research and experiment do not always move in one direction. New ideas have come in the past from working farmers, some of whom have been members of co-operatives. It is, however, not easy for a farmer to put such ideas—e.g. for a new implement or machine—into practice if any amount of capital or engineering resources are required. There are instances of co-operatives taking members' ideas of this kind, providing money, putting the engineering staff to work and eventually placing a new type of machine on the market. Non-Agricultural Research The contribution which co-operation has made to raising standards of agricultural production has a counterpart in fisheries, where the motorisation of inshore fishing fleets, with other improvements in methods of catching fish, have in a number of countries been made possible by co-operative loans and co-operative supplies. Something similar has been achieved in cottage industries, wherever it has been possible to supplement or transform an uneconomic hand process by the introduction of machinery or modern techniques in dyeing or tanning at crucial points in the process. This again may call for a good deal of aid from government departments—the loan of technical experts and designers, for example, and the financing of new processes. Co-operatives may be used not only for the preservation and improvement of traditional crafts, but for the introduction of new light industries, such as the manufacture of parts for cars and cycles, sewing machines, radios, building materials and electrical appliances. As for consumers' co-operatives, it might seem that they should have less of a part to play in raising their members' standard of living. It is true that they are not concerned with their members as producers, and that many of the latter are in any case industrial wage earners whose scope for independent action is limited. But standards of living also 208 CO-OPERATIVE MANAGEMENT AND ADMINISTRATION depend on wise consumption, and consumers' co-operatives have an opportunity, which they do not always exploit as fully as they might, of educating their members in balanced spending, and especially in judging the quality of goods. Such instruction must be based on considerable knowledge of materials and manufacturing methods. Where work of this kind is done, it usually takes the form of lectures to women's groups. Such lectures may be varied by classes in the use of co-operative materials in cooking, cleaning or house decoration. Co-operatives which set out to improve production methods, whether in farming, fishing or household management, do so to a considerable extent because it is good business for the co-operative itself. Some, it is true—better farming societies or artificial insemination stations, for instance—have been formed primarily to improve their members' output, but they are fewer in numbers and their field of influence is generally narrower. The immediate aim is usually more butter fat in the milk when it comes to the creamery, plumper poultry, fewer blemished apples, or larger sales of fertilisers and balanced feeding stuffs. In pursuing such aims, whether the co-operative manager and his committee are aware of it or not, their action does recognise the fundamental truth that co-operative enterprise, whether in the field of buying, selling or transferring of money, cannot in itself bring prosperity to an industry which is not economically sound or cannot be made so by changing its methods and using to the full the discoveries of modern science and technology. CONCLUSIONS In the foregoing chapters an attempt has been made to survey the whole range of co-operative activities, not from the point of view of the economist or social philosopher, nor precisely from that of the ordinary member, but from that of the responsible man or woman who in the committee room, the office or the warehouse is concerned with the practical daily running of the organisation. This does not mean that the book is not for the ordinary member to read. It is hoped that many ordinary members will in fact read it, and that it will help them to choose committees, understand balance sheets and appreciate the difficulties with which a member of the co-operative staff may have to deal, whether he is the manager confronted with a broken contract or the lorry driver stuck in a muddy lane. While the book is intended mainly for those engaged in the business of co-operation, it is far from being a complete manual of co-operative business practice. It is, rather, an introduction to a number of techniques, some of which, such as cost accounting, can only be mastered after a serious course of study. In many countries such specialised courses are already available, carried on either by correspondence or through classroom teaching. For the benefit of those who have no opportunity to follow such courses, a list of books which may be used for private study is given in an appendix. It is now generally accepted that a co-operative is both an association and an enterprise, combining an ethical content with a business structure and business activities. The ethical content removes some divergences of interest which are inherent in other forms of business and makes it possible to expect both from members and from the staff certain forms of loyalty and some readiness to put the general interest before personal considerations. It must not be supposed, however, that any co-operative can operate successfully without technical knowledge backed by clear thinking, good judgment and ability to take decisions and bear responsibilities. It may, in addition, have inherent problems of its own, distinct from those of a private business. THE CHARACTER OF CO-OPERATION AND ITS PROBLEMS The range of co-operation is very wide. Co-operative societies are found in nearly all countries, from the most highly developed industrially 210 CO-OPERATIVE MANAGEMENT AND ADMINISTRATION to those which are only just emerging from the simplest form of pastoral existence. They perform a great variety of economic functions. Many of them are now quite old—a good deal older than most private firms. In many cases, the more recently created societies have quite naturally been modelled on these old institutions, and this may not always be a good thing, particularly in new countries or under changed conditions. In the world of private business there is small mercy for the inefficient, and the firm which cannot keep pace with its competitors goes bankrupt or seeks amalgamation with a rival. In the co-operative world there is a sympathetic attitude to the stumbling newcomer, and the co-operative wholesales, unions, banks or government departments are there to nurse it to self-support. This is as it should be, but the protecting shield may be extended to older societies and may sometimes result in the preservation of methods or institutions which would have not survived on their economic merits alone. Such co-operatives are giving less than full service to their members and may well be a drag on the whole movement within their country. The problem is to convince people, first, that the ethical and social values of co-operation can be combined with modern business practices and technical efficiency—and indeed that this is the price of success— and, secondly, that co-operation has a unique opportunity of extending the benefits of modern techniques to large numbers of people who would never have access to them otherwise. The peculiarities of the co-operative structure, and more especially the system of democratic control and the fact that the customers and owners of the business are the same persons, may be a source of weakness as well as strength. A democratic movement with an ethical content tends to bring good men to the top, but not necessarily able men, nor men with a flair for business. Moreover, leaders and policy makers in a democratic organisation tend to tire and become indifferent, especially when the business with which they have to deal is at the same time unexciting and difficult to understand. Ways in which co-operative democracy can be made to yield its best results have been discussed in the initial chapters, as have the problems posed by amateur management and stale or unrepresentative committees. Conditions favouring the direct participation of members in the affairs of large mature co-operatives, the approach to women and the securing of continuity through timely appeals to the young have been considered in an earlier chapter. All these problems will be familiar to those who have worked in the larger and older societies. It is not only for them, however, that the dangers have been pointed out and the experience of successful and farseeing co-operatives described. New movements and small societies CONCLUSIONS 211 also have to face problems of ignorance, timidity and lethargy, and they too must look ahead and try to anticipate situations which have not yet arisen, and perhaps need not arise if the structure of co-operative democracy and the means of communication with members and between members are re-thought and revised to keep pace with the growth of the society. MANAGEMENT STUDIES AND THEIR VALUE The central chapters of this work have been devoted to what are essentially management problems. These problems should be studied in much greater detail than can be attempted in a book of this size by those actually carrying, or preparing themselves to carry, managerial responsibilities. Committee members should also have at least a general knowledge of these problems, for it is important that they too should understand the work of the staif, appreciate their difficulties and give them intelligent support in carrying out the policy to which they, as committeemen, have given their approval. Such knowledge should also be part of the equipment of a candidate for election to a committee. Now will it be wasted on the junior or technical employee who wants to understand where his own work fits into the general scheme of organisation. As an introduction to the subject, a chapter has been devoted to the nature of management itself. From this three main points emerge. In any organisation, small or large, there must be a clear-cut managerial structure. There must be an orderly delegation of authority and everyone must know for what and for whom, as well as to whom, he is responsible. Moreover, the administrative structure should reflect the realities of the work carried on and the mutual dependence of the people who do it. It should be sufficiently flexible to allow of continuous modification as new activities are introduced and new people are appointed to the staff; at the same time it should be realised that if modifications are made piecemeal, without careful thought, they risk throwing the whole structure gradually out of balance and destroying the clearness and logic of the original idea. In the second place, the work itself must be planned, and planned as a rule at least a year in advance. The objects of a co-operative are stated in its rules or by-laws, but these only give a very general indication of what the co-operative, as a business, should actually do in the first, second, twentieth or thirtieth year of its existence. The plan of operations must take into account a wide range of circumstances, technical, financial, economic and human, and the advance towards the objects may be either fast or slow, direct or indirect, com- 212 CO-OPERATIVE MANAGEMENT AND ADMINISTRATION prehensive or selective. In the third place, once the structure has been set up and the plan adopted, there must be some form of continuous control, not only to see that the structure is being maintained and the plan carried out, but to make sure that the results are what were intended and, if they are not, to find out what has gone wrong. These general principles apply to all branches of management, whether they are specifically concerned with human beings, with machinery and equipment, with buying and selling, with the movement and storage of goods or withfinancialoperations. Each does, however, raise problems of its own, and experience has gradually accumulated from which particular principles have been drawn relating to particular activities. The fact that co-operatives start small and in an atmosphere of optimism and goodwill has meant that often little thought has been given in the early years to personnel relations and management. This may not matter while the co-operative remains small—and even here it sometimes matters more than is generally supposed—but once the staff is of any size such an attitude is fair neither to the co-operative nor to its employees. A system of personnel management must be concerned both with the welfare of the worker as an individual and with the efficiency of the co-operative. Its effectiveness will depend partly on formal arrangements, e.g. the kind of machinery set up for appointments, promotions and dismissals, a reasonable wage and pensions system, proper working conditions and good relations with trade unions; but a good deal will also depend on more subtle psychological factors—an imaginative grasp of the other man's point of view and the power to appeal to whatever there is in him which can be called on to be of service to the co-operative. Here the co-operative often has an advantage over other businesses, for it should, on the one hand, be in natural sympathy with its employees and, on the other, be able to appeal beyond their self-interest to their enthusiasm for unselfish collective achievement. In the more material department of plant and premises, the co-operative may well be at a disadvantage as compared with other enterprises. It will often be short of money in relation to the services which its members demand. It may be obliged to carry on business in places and under conditions which suit their convenience but are not those which a well informed private businessman would have selected if a choice had been open to him. But even with these limitations, co-operative managers and committees can avoid haphazard decisions on the siting and design of business premises and on their equipment. They can learn to take all the factors into consideration before reaching decisions which, if mistaken, may cripple co-operative development for years to CONCLUSIONS 213 come. This kind of careful consideration, based on the widest information and experience available, is not only necessary when completely new plant is being built for the co-operative's specific needs. It is just as important when, as so often happens, the co-operative has to get the most out of makeshift premises and equipment. Some aspects of co-operative activity tend to be taken for granted, and little critical thought is given to them. These include office work, the central importance of which is not always fully understood. It is not so much an activity in itself as the vital link between the work of the several departments and between past actions and decisions and those which are still taking place. The information which passes through the office is one of the principal means by which the work of the co-operative as a whole can be planned and the plan afterwards kept under control. Furthermore, office work, like that of the production departments, must be planned, and because it is so much concerned with the two matters— people and money—which have to be handled with the greatest prudence and responsibility, it calls for special qualities in those who are to carry ihe plans into effect. CO-OPERATION AND TECHNICAL PROBLEMS A marketing co-operative starts off with a major " given " factor in its operations, namely the quantity and quality of certain products which its members wish to sell. A merchant might come to the conclusion that he could do better with a larger quantity, a higher quality or a different area of operations. The co-operative cannot. In all other ways the manager of a marketing co-operative has the same problems and opportunities as the private merchant. In the first place, he should know not only how to judge and grade the commodity he is dealing in, but also how it should be stored, treated and processed. In the second place, he must know his markets at home and abroad, for the raw product as well as for the processed article. He must know how to reach these markets, what is the customer's taste in each, how prices are moving and what rival commodities compete with his own. He must know how to secure a place for co-operation in the marketing system of the country, whether it is wholly private or partly controlled, as is often the case with agricultural commodities, by statutory marketing boards. Consumers' co-operation is the oldest form of co-operative activity in the modern sense and, in the older industrialised countries, often the most widespread and successful. In other countries, where business experience is less widespread, it has frequently proved the most difficult to establish. Where the consumers' movement has existed for a long 214 CO-OPERATIVE MANAGEMENT AND ADMINISTRATION time, the problem is one of adapting to modern conditions, and especially to a rising standard of living among members, a system which reached a high point of maturity and success many years ago. In the developing countries, the need is to work out a system which will stand up to forms of competition from which the movement in more mature economies is protected in one way or another. Such a consumers' movement must at the same time look forward to the gradual adoption of more complex and sophisticated forms of shopkeeping to meet the developing tastes and resources of its members. Another field in which there is need for skilful and well informed management is the establishment and operation of co-operative wholesale societies, including their relations with the primary societies they supply. Co-operatives supplying tools and raw materials to their members —whether farmers, fishermen or craftsmen—are also engaged in merchandising and have a number of technical problems in common with the consumers' society. They tend, however, to work to a different time scale and according to a different financial system. Instead of supplying consumers, they are engaged essentially in a business partnership with their members. There are technical differences, too—bulk sales of heavy articles, the problems of transport between co-operative and member, the combination of supply with marketing. Processing and manufacturing may be undertaken by co-operatives, large or small, formed for a number of different purposes and including consumers', marketing and supply societies; these may cater for urban workers, farmers or fishermen and cover a great range of commodities. It would have been impossible in a book of this size to deal in detail with the types of machinery, the layout of factories or the organisation of work in such a great diversity of undertakings. All that can be done is to distinguish the principles which must underlie all planning of factories and factory work. Most of these concern the proper use of time and space, synchronisation of the actions of workers with the movement of materials, and the most effective use of what are often limited resources. These are elements which enter into other co-operative activities, such as office work and shopkeeping, but their importance is perhaps greatest, and certainly most obvious, in factory and workshop management. To some who are used to the informal atmosphere of the small co-operative processing plant where little or nothing has been consciously planned, this approach may seem chillingly impersonal, perhaps out of keeping with what is assumed to be the true co-operative spirit or with the traditional outlook of lands which are still only slightly industrialised. It is a fact, however, that industrialisation is being pursued in one way or another by the governments of all these countries, and that their CONCLUSIONS 215 people will either have to accept it passively or themselves take the lead in promoting it. The best way of introducing new methods is with the consent and understanding of those who have to carry them out. The co-operative movement is eminently well qualified to attempt this, since it has every opportunity, perhaps through new forms of teamwork and delegated responsibility, to play a pioneering role in improving industrial efficiency while giving full consideration to the needs of workers. Innovation so introduced might give co-operative enterprise itself a flying start in a burgeoning twentieth-century economy. Many of the general principles set out in earlier chapters may be usefully applied to a limited technical problem such as the organisation of transport. This applies both to the use of public long-distance transport, which co-operative officials may profitably study but cannot expect to control, and to those forms of transport, either internal or local, over which they have full authority and which they can plan to the best advantage of their own organisation. This is a subject of special importance to agricultural co-operatives of all kinds, since they deal in heavy and bulky articles collected from or distributed to a membership which is often widely scattered. For such societies the choice of vehicles, maintenance, the control of routes and loads and the training of drivers are all matters of considerable importance to the success of the whole undertaking. FINANCIAL MANAGEMENT AND CONTROL Several chapters have been devoted to problems of finance. Capital resources, whether in the form of money or credit, are a requirement of any enterprise, either co-operative or private, which has to carry on its affairs, acquire buildings and machines, set people to work or transfer ownership of products and supplies. Capital may come from a variety of sources—shares, loans, trading credits, reserves and undistributed surplus. In each case the conditions and the cost may be different. Capital is used for a variety of purposes, which include long-term investment in land and buildings, purchase of stocks of goods, payment of wages and other current expenses and, finally—as in the great co-operative credit organisations which have been the foundation of the movement in so many countries—financing the business not of the co-operative but of its members. A sound financial policy requires that capital for each purpose be drawn from the appropriate source. Short-term borrowings should not be used to finance fixed investments in land and buildings nor be lent as long-term loans to members for similar purposes. Nor, on the other hand, should more or less permanent capital, such as 216 CO-OPERATIVE MANAGEMENT AND ADMINISTRATION members' shares, be used in such a way that it is only earning interest for a few months in the year. Since control of capital means, directly or indirectly, control over the institution which uses it, there is a minimum level of financial self-sufficiency below which a co-operative should not be allowed to fall, however attractive the opportunity to expand quickly on the basis of government loans or other credit facilities offered by private firms. Financial needs and opportunities differ from one country and one type of co-operative to another. The principles of sound financing are much the same everywhere, but the rules for their detailed application must be worked out nationally for each type of undertaking. Wherever there is a national co-operative bank or research institute, one of its duties should be to develop standards and plot danger points by which to guide the financial policy of individual co-operative institutions. Modern accounting systems have grown out of the need to safeguard the use of money. However, what may have begun as a check on misappropriation is now acknowledged as the most effective method of measuring the progress of an enterprise, making sure that it is steadily paying its way, that it has sufficient liquid resources to meet an emergency, and that it is in fact fulfilling the expectations of its directors. Accounts, to be of value, must be understood by those whom they concern, and this means not only senior staff but committees, which are ultimately responsible for policy making. In recent years the use of figures to explain the position of an enterprise or to set out and clarify the different elements in a policy decision has been carried further by the use of cost accounting and statistics. These call for trained and responsible workers and are neither possible nor appropriate in the small village co-operative; they are, however, useful tools in the large regional or national organisation with complex functions. The periodical review of accounts known as an audit is the most effective and widely practised system of ensuring that a large number of independent co-operatives conform to recognised methods and standards. It is the best safeguard available for the inexperienced committee and the inexperienced manager or secretary. It may be carried on by private firms of authorised accountants, by government officials, by the staffs of auditing unions set up by the co-operatives themselves, or by co-operative banks or wholesale societies. The audit may be reinforced by visits of inspectors or advisers whose scope of inquiry is much more general, in which case it may take the form of what has come to be known as a methods audit. Wherever co-operatives owe an important part of their resources to a co-operative bank or some other national institution, this is likely to involve a certain measure of control. The form of control CONCLUSIONS 217 may vary from a requirement that the borrower should give an account of the way in which money has been spent to the presence of a representative of the financing institution on its board. National co-operatives, moreover, may exercise an indirect form of control by looking into the qualifications of candidates for senior appointments in local societies. CO-OPERATION, THE LAW AND THE STATE Ultimate and comprehensive control is, of course, exercised by the State under the relevant legal provisions. In nearly all countries co-operative societies are registered either under a special law or under a section of the commercial code containing more or less detailed provisions regarding their form and method of operation and defining their rights and privileges. But they are also governed by other statutory provisions. As employers, they must comply with the labour laws. As shopkeepers, factory owners and transport operators, they must obey the laws regulating these activities. They are also subject to more general provisions governing contracts, civil injuries, property rights and the transfer of property. The co-operative secretary should know broadly when and where the law will affect the running of his society, and national co-operative institutions be in a position to provide expert legal advice in case of dispute or difficulty. The law in most countries changes from time to time, sometimes at frequent intervals. These changes may affect co-operative societies favourably or unfavourably. It is agreed in most (though not quite all) countries that co-operatives should not engage in party politics. It is important, however, that national co-operative institutions should be in regular contact with government departments and with legislators of all parties, so that they are aware of proposals for legal or administrative changes which may affect the co-operative movement. If the effects are likely to be unfavourable, they must be in a position to show that a socially useful institution will be injured and to press for modification in the proposed measures. At such times it will be an advantage if the co-operative movement is well regarded by the general public. Indeed, public relations should find a place after, but not very far after, relations with members. CO-OPERATIVE MANAGEMENT IN A PLANNED ECONOMY In some countries the link between co-operation, government departments and government policy is closer and more organic. A distinction has sometimes been made between co-operative movements 218 CO-OPERATIVE MANAGEMENT AND ADMINISTRATION which have developed spontaneously and work in complete freedom, themselves bearing sole responsibility for their own success or failure, and those which have been initiated, aided and, to some extent, directed by the government. The modern concept of the Welfare State has led some governments to go even further and use the co-operative movement as an instrument of economic welfare and social justice. The extent to which it has been used for this purpose varies from one country to another, as does the degree in which its original character has been modified in the process. It is, from one point of view, a striking tribute to the co-operative movement that it has been so used; but it is only prudent to recognise that the adoption of the co-operative system as an instrument of state policy carries with it certain risks, in the first place to the autonomy of the movement, which has always been its strength, and, in the second, to its efficiency as a business enterprise. The first risk is fairly obvious, since self-help and wide acceptance of responsibility have always been regarded as the distinguishing marks of the co-operative undertaking and the conditions of its success. The second is not always so apparent. A moment's thought will show, however, that it does exist. For instance, once a quantitative target for co-operative development has been set under a national development plan, and the staff of the co-operative department instructed that the target must be reached in a given time, the quality of co-operative societies may all too easily be sacrificed. Or a credit policy devised, say, in the interests of increased food production may involve lending on a basis of want rather than of capacity to repay, and this may mean that co-operatives become agencies for the distribution of government resources rather than solvent economic enterprises. Similarly, industries may be preserved or initiated primarily in order to give employment, and though their form may be co-operative they will in fact be in the nature of relief works if the test of economic viability is not applied. Co-operatives for the joint use of land may be established on social, ideological or other grounds, but if they do not in fact increase productivity, pay off investment and operational credits, and offer their members an economic return for their labour and capital, they may be interesting experiments but still not qualify as efficient business enterprises in their own right. An official programme of co-operative development not based on a realistic appraisal of human and material resources locally available may itself be hampered by a passive attitude on the part of those organised, lack of enterprise, and undue dependence on outside resources. Or those who promote this sort of co-operation may, in the absence of strict management standards, make miscalculations regarding the best CONCLUSIONS 219 use of existing resources, the cumulative effect of which can be disastrous. Such miscalculations can only be avoided if each co-operative project, small or large, is studied before it is put into operation with at least the attention any modern business manager—co-operative or private— would give to a new undertaking. This method may slow down development for a time, but it will cut out many failures and near failures and lead to much more rapid expansion in the end. CO-OPERATION AND THE TECHNICAL ADVANCEMENT OF CO-OPERATIVE MEMBERS Behind the problem of making each co-operative managerially, financially and technically efficient, lies the much wider problem of making co-operative members efficient in their own jobs. This is especially true in agriculture. The most skilfully conducted system of co-operative credit, marketing or processing cannot bring real prosperity to farmers whose crops and animals are disease-ridden and unproductive, whose tools are inadequate and whose labour is illemployed. Many plans for the increase of agricultural productivity have been put forward. Frequently they have been concerned with increased scale and mechanisation more than with the intensive approach to productivity. Many involve a change in social relationships which may well be greater than the change in methods. It should be remembered that those countries which have in modern times achieved the highest yields in agriculture, and in which farmers are most prosperous, have made this advance not through changes in the scale or ownership of farms, but through a close alliance between scientific (especially biological) research and a rural business structure in which co-operation played the leading part, the one constantly taking advantage of the facilities offered by the other. In many countries, it is by bringing the benefits of scientific and technical advance to the individual farmer that co-operation can not only render the highest service to its own members, but make its greatest contribution to the national welfare. MODERN MANAGEMENT AND THE FUTURE OF CO-OPERATION The main purpose of this book has been to urge on persons responsible for co-operative management a more considered and scientific approach to all the activities under their control. The question which arises is how far, in adopting such an approach, they should merely take advantage of the experience of private industry and the research which it has sponsored, or how far the co-operative movement should 220 CO-OPERATIVE MANAGEMENT AND ADMINISTRATION carry on research of its own and perhaps discover methods and techniques in advance of anything so far developed by its competitors. Some pioneering work has already been done by national co-operative institutions, especially in the field of statistical appraisal. Much more could be done in the newer fields of work study, materials handling, shop and factory layout, costing and budgetary control. There is no reason why co-operative societies as well as private firms should not have a contribution to make towards improving machines and processes. The peculiarly co-operative problem of democratic control of industrial and commercial enterprises awaits careful analysis in present-day terms. The consumers' co-operatives in the past have pioneered many developments in such fields as retail trade, department and multiple stores, and self-service. Are they still leading in the distribution field ? Are the agricultural societies developing new methods and new services of their own or merely passing on the results of other peoples' research to their members ? A number of co-operative training colleges exist and do good work, but teaching is not often linked with research nor always in touch with the truly creative technical and managerial minds on the business side of the movement. An opportunity may well be missed both for the best use of trained minds, familiar with the co-operative background, and for the immediate communication of the results to the more promising elements among the coming generation of co-operators. The co-operative movement has always appealed to persons with a sense of social responsibility, but even in its initial stages its success will depend on its ability to attract that type of mind and personality which is characterised by technical skill and managerial judgment. This becomes even more necessary as the movement gains in strength and complexity and the satisfaction of contributing to a worthwhile social objective is reinforced by that of participating in the conduct of an enterprise which is a leader in its own field. APPENDIX SUGGESTED READING LIST BAKKEN, H. H., and SCHARRS, M. A. The Economics of Co-operative Marketing. New York, McGraw-Hill, 1937. BRITISH INSTITUTE OF MANAGEMENT. Revised edition. — The Management of the Smaller Office. London, 1956. Outline of Work Study. London, 1956. BROWN, J. A. C. The Social Psychology of Industry. Middlesex, Penguin Books Ltd., 1954. BURMA, CO-OPERATIVE SOCIETIES DEPARTMENT. Co-operation in Burma. Harmondsworth, The Law and Principles of Rangoon, 1950. CAMPBELL, W. K. H. Practical Co-operation in Asia and Africa. Heffer, 1951. CEYLON, CO-OPERATIVE DEPARTMENT. The Ceylon Cambridge, Co-operative Manual. Colombo, 1952. CROPPER, L. C , ORRIS, F. D . , and FISON, A. K. Nineteenth edition. Book-keeping and Accounts. London, Macdonald and Evans, 1949. DIGBY, M., and GRETTON, R. H. Co-operative Marketing for Agricultural Producers. Rome, United Nations Food and Agriculture Organisation, 1955. EASON, W. Co-operative Branch Organisation. chester, Co-operative Union, 1956. EATON, R. J. Transport for Co-operatives. Revised edition. Man- Oxford, Blackwell, 1960. FAUQUET, G. The Co-operative Sector. Translated by L. Purcell Weaver. Manchester, Co-operative Union, 1951. FAYOL, H . General and Industrial Management. Storrs. London, Pitman and Sons, 1949. Translated by Constance FIELDHOUSE, A. The Student's Complete Commercial Book-keeping. third Edition. London, Simkin, Marshall, 1955. FOOD AND AGRICULTURE ORGANISATION OF THE UNITED NATIONS. Sixty- Co-opera- tive Thrift, Credit and Marketing in Economically Underdeveloped Countries. Rome, 1953. INTERNATIONAL Manual. LABOUR OFFICE. Co-operation: A Workers' Geneva, 1956. — An Introduction to Co-operative Practice. — Introduction to Work Study. Geneva, 1952. Geneva, 1957. Education 222 CO-OPERATIVE MANAGEMENT AND ADMINISTRATION JACQUES, J., and D AVŒS, H . Co-operative Book-keeping. Three volumes. Manchester, Co-operative Union, 1943. JENKINS, D . Law for Co-operatives. Oxford, Blackwell, 1958. KULKARNI, K. R. Agricultural Marketing in India, with Special Reference to the Co-operative Marketing of Agricultural Produce in India. Second edition. Bombay, Co-operators' Book Depot, 1956-57. LOCKE, H . W. Fundamentals of Personnel Management. of Personnel Management, 1943. London, Institute LOWRY, S. M., MAYNARD, H. B., and STEGMERTEN, G. J. Study. Third edition. Time and Motion New York, McGraw-Hill, 1940. MADRAS, OFFICE OF THE REGISTRAR OF CO-OPERATIVE SOCIETIES. Co-operative 1951-52. Manual. MENG, S. T., and ALLEY, R. Three volumes. The Madras Madras, Government Co-operative Management. Press, Bombay, Industrial Co-operative Library, 1948. MORONEY, M. J. Facts from Figures. Second edition. Middlesex, Penguin Books Ltd., 1956. NORTHCOTT, C. H. Personnel Management. Pitman and Sons, 1955. PIGORS, P., and MYERS, C. A. Third Harmondsworth, edition. Personnel Administration. London, Third edition. New York, McGraw-Hill, 1956. RENALD, Sir Charles. The Nature of Management. of Management, 1949. London, British Institute RIDDALL, C. C. Handbook for Committees and Secretaries of Co-operative Societies. Dublin, Irish Agricultural Organisation Society, 1952. SHAW, Anne. An Introduction to the Theory and Application of Motion Study. Revised edition. Manchester, Harlequin Press, 1953. SURRIDGE, B. J., and DIGBY, M. Second edition (revised). A Manual of Co-operative Law and Practice. Cambridge, Heffer, 1959. TANGANYIKA, DEPARTMENT OF CO-OPERATIVE DEVELOPMENT. Primary Produce-Marketing Co-operative Agents for the Colonies, 1952. UNITED NATIONS, Societies. DEPARTMENT OF ECONOMIC AFFAIRS. A Guide for London, Rural Crown Progress through Co-operatives : The Place of Co-operatives in Agricultural Development. New York, 1954. VICKERY, B. G. Principles and Practice of Book-keeping and Accounts. Fourteenth edition. St. Albans, Dennington Press, and London, Gregg Publishing Co., 1951.