10 ALEXANDER CHAYANOV The Theory of Peasant Co-operatives

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conditions and with the state of its own development.

Particular kinds of co-operative work are merely particular manifestations of what is essentially a single social movement. Therefore, in order to ascertain what kind of social apparatus the peasantry relies on to undertake the co-operative functions which it needs, how this apparatus is organized and what are the motivating forces behind it, we have to set about analysing the peasant co­operative movement in its totality. We have to think carefully about the forms in which it has developed, and to see what kinds of organization it is able to create at different stages of its evolution. This kind of comprehensive examination of agricultural co-operation is especially necessary and important in the context of our Soviet economy, where a centralized co-operative apparatus, which forms part of a planned economic system, must necessarily be examined as a single whole.

The first thing that strikes us when we study this subject is the extraordinarily chaotic way in which forms of co-operation developed historically; and the paucity of any conscious design in resolving the problems which faced co-operative organizers in everyday life.

One great historian, Vasilii Klyuchevskii, when describing the epoch of reforms under Peter I, tells us that the reformer did not, in ^effect, have either a plan or a general programme for state action. His specific reforms arose out of particular needs; and were in most cases in the nature of technical improvements made necessary by military or other considerations of the particular moment. Neverthe­less, as he moved with tireless energy from one particular problem to another, Peter unintentionally achieved a system whose coherence should be ascribed not so much to his subjective awareness or creative will, but rather to the objective needs of the country's economic development and of the development of the state.

It is highly likely that all thoroughgoing social and economic reforms have precisely this attribute of a spontaneous and irresistible social current. At all events, this was certainly true of the development of capitalism, which arose without any organizational blueprint, without any inventors and without the master plan of any social architect.

It may at first seem that the development of the co-operative movement was a direct exception to this rule. It is no accident that all co-operative calendars abound in portraits of Robert Owen and Fourier and that the name of Raifeizen is held in unfailing respect. It might be easy on this basis, therefore, to argue that co-operative ideas were conceived by the brilliant minds of social reformers long before the moment when the first co-operative appeared on earth; and that a social system which had been quite consciously conceived

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and worked out a priori became, over the course of time, translated into reality.

And indeed, if one disregards such everyday forms of co-operation as partnerships or the joint tilling of land, one has to admit that the first steps in the co-operative movement, at least here in Russia, were due to the energetic advocacy of major figures of the 1870s, who spread an awareness in the countryside of ready-made co­operative systems; and who implemented them with the steadfastness and consistency of an enlightened absolutism.

However, these initial efforts in themselves were not accompanied by the necessary objective preconditions for their implementation; and they therefore failed for a long time to bring any genuine co­operative movement to life. But when, owing to the development of a commodity economy in our countryside, the necessary precondi­tions were fulfilled and when co-operatives had gained a practical mastery of the experience of co-operatives in the West and had learned from the first pioneer enthusiasts, the situation began sharply to change.

The practice of co-operation - as it spontaneously developed in breadth and depth and came to include more and more areas of work - began to come up against organizational problems of a kind which required immediate solutions but which had not been envisaged by any of the existing co-operative theories. The practical need to solve the given problem was so great, and the problem itself was usually so sharply brought into relief by a particular situation, that the solution was sought, without any subtle philosophizing, by ordinary co-operative practitioners who possessed no outstanding capacity for abstract thought. They did nevertheless have a practical grasp of the matter as well as an organizational hunch.

There then came a period when co-operative theory came to follow in the wake of co-operative practice and developed, not in an a priori manner, as in the past, but in the manner of an a posteriori theory.

It was precisely in this way that the entire unified structure of co­operatives in our country, as well as the whole of the co-operative marketing system and most of the system of co-operative production, were created. The general outlines of this edifice have for the most part already been completed; and the need has naturally arisen to unify its individual parts and to select the best organizational forms from among the mass of forms which arose in a semi-spontaneous way. It is therefore only now that we are beginning to become aware of the nature of the co-operative organization and to formulate the theoretical foundations underlying the forms which have evolved in practice.

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It can easily be understood that in the light of this a posteriori analysis, we find a good many regularities which, like Columbus's egg, would not have been hard to foresee earlier on.

First of all, we have already noted more than once that from the point of view of its work as a middleman, the structure of the co­operative apparatus with regard to technical organization and with regard to the relationships between primary co-operatives and the various levels of associations, largely corresponds to the structure of the commercial apparatus which co-operatives were intended to replace.

Earlier on, when discussing the organization of marketing co­operatives, we showed how the co-operative movement, as it proceeds step by step to capture the market for a particular commodity, will replace the cattle-dealer by a local co-operative, will replace the local trader by a co-operative alliance of an intermediate kind and will replace an export bureau by an all-union centre. At the same time, the practice of co-operatives is, of course, guided not by the wish to imitate its adversaries, but by economic necessity. So far as the commodity circulation is concerned, co-operatives are confronted with the same national economic problems as those which confront commercial capital. It is, therefore, natural that they should solve these problems in ways which are identical, since they are objectively the most effective.

The age-old experience of commercial capital led it to subdivide the process of commodity circulation into a number of primary processes; and, in relation to each of these processes, or category of closely interconnected processes, to create its own special apparatus of the appropriate size and capacity. These same primary processes in the commodity circulation continue to operate after the market has been brought within the co-operative system; and therefore, in the majority of cases, objective considerations of profitability require that the processes should continue to be subdivided into the same groups, with a special apparatus for each of them, similar to those used by commercial capital but based of course on co-operative principles.

The special features of co-operative work will often make it possible, and sometimes make it necessary, to change the structure of such a working apparatus, either by expansion or curtailment. But in their general outlines, owing to the identical national economic conditions by which they are governed, the organizational patterns of the co-operative and the commercial apparatus remain very similar. But it is a different matter with regard to the development of co­operative structures which were not created to replace a previously existing capitalist apparatus but were created from scratch, thus

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bringing new and previously unknown economic processes into the life of the countryside. This group of co-operative undertakings includes credit co-operatives which, even though they do not mean the first appearance in the countryside of credit as such, do represent the introduction into the countryside for the first time of organized credit. This group also includes co-operatives for cattle insurance, societies of stockbreeders, machinery users' associations, melioration associations, and so on.

However, the same overriding economic principles prevail. The work of co-operatives is subdivided into a number of categories of operations which form part of a technical whole; and for each such category a working apparatus is chosen of the kind which can carry out these operations cheaply and efficiently.

Thus, for example, all the essential operations of a co-operative credit system naturally break down into three groups; and they are respectively performed by three kinds of organization:

1. The verification of the solvency of peasant homesteads, the granting of loans, the supervision of the way they are spent and the recovery of loans, as well as the business of persuading the peasant population to deposit its money with co-operatives - all these operations require an apparatus which works in the closest possible proximity to the peasant, which constantly monitors his economic activity and which can sensitively adapt to it. This type of work can, of course, only be carried out by a small-scale district co-operative.

2. However, the apparatus of a small-scale local co-operative does not have the capacity for successful financial management of the kind undertaken by banks. The maintenance of stable credit balances requires a much greater volume of credit turnover and a more highly skilled staff than small-scale co-operatives can afford. Therefore this kind of operation - as well as operations for the granting of credit to co-operatives which do not themselves grant credit and which work in marketing, reprocessing, and so on -necessitates the organization of a co-operative apparatus with a wider area of activity and a large economic turnover. This constitutes the basis for the formation of co-operative associations of the second, i.e. provincial [gubernskii], level, to whom the operations just mentioned are assigned. These associations are usually made responsible for providing local co-operatives with the services of a specialized staff for the purpose of introducing, and giving guidance on, co-operative methods. They do so through the setting up of a special institute of instructors.

3. But the apparatuses of provincial associations - no matter how

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large their turnovers may be - will never carry sufficient weight on the international capital market; and in order to consolidate their influence in the latter area, co-operatives have to set up special central apparatuses for the purpose of establishing links with the world money market and also in order to achieve the necessary guidance of co-operative financial affairs on a national scale.

The working apparatus of the co-operative credit system can therefore be subdivided into three components: the local co­operative, the co-operative association and the national co-operative centre. The distribution of work between them is determined on the basis of a more detailed analysis of the nature of each co-operative operation.

When we subdivide the process of the commodity circulation on the market into their individual components, we can - by the same methods as we used in an earlier chapter to determine the optimal areas of activity for trading apparatuses and the optimal siting of equipment for reprocessing - make use of this organizational analysis in order to elaborate a very detailed model of a co-operative apparatus functioning at two, three or four levels, which can easily undertake the organization of co-operative marketing or purchasing.

The same kind of logically elaborated models can easily be designed for all sectors of co-operative work; and it is possible, on paper, to create the most detailed design for the co-operative apparatus in the USSR as a whole, consisting of tens of thousands of co-operatives, associations and centres, each of them specialized and ideally suited in theory for the work they perform.

However, the logical elaboration of an organizational idea is not the same thing as its implementation. The crux of the matter concerns the methods of realizing it, and not the methods of its logical elaboration. One relevant example, which can also cast light on practically all the basic questions of co-operative development, is the history of our marketing co-operatives, whose real-life existence began only between 1913 and 1915.

The idea of the co-operative marketing of goods produced by peasant labour could not, of course, be described as a new idea. Already from the eighties of the last century, Russian social thinkers had recognized that it was necessary and desirable to bring the marketing operations of the peasant economy into a co-operative system. But only in the most recent times has this logically simple idea been implemented. For there was something which hindered the realization of an apparently simple theoretical notion. A mere belief in an idea or even the fervent preaching of the idea were not enough to

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get the idea implemented in practice - until concrete organizational methods were found for implementing the idea within the existing economic and social environment.

The art of politics is, first and foremost, the art of implementation. Even the most exalted social ideas and even the most ambitious plans, no matter how carefully and thoroughly worked out, possess a real value equal to zero from the point of view of economic policy, in the absence of an appropriate social environment and of methods of implementation. The organizer's most important art is to correlate the goals which have been set with the available forces and resources; and it is this which is most often forgotten by various people who draw up ambitious projects. The mere recognition of the need for co-operative marketing, or even the drawing up of a schematic plan for its organization, will not by themselves give birth to co-operative marketing; although any co-operative movement can, indeed, tackle the problem of marketing, once it has achieved the necessary maturity and organizational strength.

When we turn over the pages of old reports, we can see that the pioneers of co-operative marketing - for example, in relation to flax -gave first priority to goals which even the powerful co-operative organizations of today recognize as being beyond their capacity and which they regard as nothing more than a very remote ideal.

Members of Russian co-operatives, having acquired a certain organizational experience from working in credit, consumer and butter manufacturing co-operatives, approached the organization of marketing on co-operative lines by seeking to transpose their organizational skills to this field. It was assumed that it would be possible to start work by organizing small-scale local co-operative units, which would unite the peasants for the purpose of the joint reprocessing and marketing of products of good quality. The work of these primary units, so it was thought, could make organizers familiar with the organizational and technical aspects of marketing, give them an opportunity to gain the necessary experience and inculcate an awareness of co-operatives among the masses. It was further assumed that these primary units could, when they had grown stronger, combine into associations, first at the district level, and later in the form of an All-Russian Association, provided that marketing co-operatives were able to win the necessary mass support and achieve the necessary economic strength.

A local flax-processing partnership, an association for the collection of eggs, a group of bee-keepers or poultry-breeders or an association for the marketing of corn - these were to be the first steps in the development of marketing co-operatives, as envisaged by members of co-operative societies in the 1900s. Such was the

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logical way of forming marketing co-operatives. But historically, they developed along a different path - by organizing co-operative marketing not through specialist co-operatives but through a general system of agricultural credit co-operatives, built from above, not from below.

In order to grasp the reason why history diverged from 'logic' in the development of these co-operatives, one has only to make a thorough investigation of the goals of the flax co-operatives, of the economic conditions in which they were set up and of the organizational resources which they had at their disposal.

The economic goal of the organizers of flax co-operatives in the years 1913-15 was to drive commercial middlemen out of the market and to ensure that flax fibre passed directly from the producer to the consumer. Having eliminated commercial capital from the market, co-operatives must themselves undertake the national economic functions, which this capital performs: that is, they must collect from among the peasants the flax fibre which is scattered in small quantities among individual households, they must gather this fibre into large stocks, sort it according to quality into various grades and send it to spinning mills for processing.

If, from the national point of view, co-operatives perform this work better than commercial capital, then co-operatives will capture the market as well as the considerable middlemen's profit which accrues to the commercial apparatus and which is handed back to the peasantry once the market is organized on co-operative lines.

It must be noted that this capture of the market has to come about not by virtue of any privileges or government directives placing the flax trade under the monopolistic control of the co-operative system but by virtue of the intrinsic superiority of the co-operative apparatus over that of commercial capital. Real and lasting victory can be achieved only through organizational superiority and the better performance of one and the same economic task.

It is hardly necessary for us to show that the co-operative system has all the formal prerequisites for winning such a victory. As an association of raw material producers, the co-operative system can curtail the profits of middlemen. It is thus able, when selling the goods which it has assembled, to reduce wholesale prices almost down to the level of prices in the bazaar - thereby wiping out any competition by commercial capital. By taking a crop from the peasant when it is still virtually growing on the root, the co-operative system can guarantee the absence of adulteration as well as proper sorting of a kind which is flexible and responsive to market requirements. As a result, a co-operative commodity will necessarily enjoy a reputation for good quality.

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Such are the theoretical advantages which can enable the co-operative system to win the victory which it seeks. It should be recognized, however, that the economic and social environment in our countryside considerably undermines these advantages. The mass of peasants who are not very cultured and are far from being aware of their own interests will often find themselves dependent on local traders; they will be exceedingly resistant to co-operative propaganda; and they will take their flax to a co-operative only when, in so doing, they see an immediate material advantage by comparison with a sale in the bazaar.

But it is by no means always possible to offer the peasant, from the very first year, a price which is appreciably higher than that of the bazaar. The reason is that, owing to the small turnovers of co­operative primary units and the high overhead costs incurred by inexperienced organizers, owing to the refusal to cheat over weights or to lower standards when grading the flax or allow its adulteration, the cost of co-operative flax is higher than the cost of the flax assembled by the commercial apparatus. This cost can be covered only if the market recognizes the intrinsic quality of co-operative flax and values it more highly than commercial flax of the same grade.

It is, however, impossible to expect this higher valuation so long as particular consignments of sub-standard co-operative flax appear on the market. A good and lasting reputation can be built up only as a result of the appearance on the market of co-operative goods on a mass scale, which are distinguished by having constant grades and a constant superiority. This is possible only when there exists a powerful and highly developed co-operative organization which has an impressive quantity of the commodity at its disposal. There arises therefore a kind of vicious circle. A co-operative system can develop only when it offers undoubted advantages to the peasantry. But it can offer such advantages only when it has developed and become sufficiently strong.

We already had occasion, in the chapter which dealt with questions of the organization of co-operative marketing, to make a detailed analysis of the questions which we are now expounding and of ideas for resolving them. What we are now saying is to a large extent a repetition of what we said there. However, this set of ideas is absolutely crucial to us at this point - because we have encountered this vicious circle twice in the course of our argument; and it is extremely important for our entire movement that the vicious circle should be broken and that it should, from an organizational point of view, be eliminated.

The only way out of this vicious circle is for co-operative marketing to be developed not through the creation of new, small­

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scale units which are inevitably doomed to perish, but through placing the organization of this matter in the hands of powerful co­operative economic apparatuses which already exist. Co-operative exports can be successfully organized only through the entry into the market of special, national organizations which have a large quantity of a product at their disposal and which represent a substantial factor on the international market. Unless this condition is satisfied, a co­operative organization, which as a rule has a limited grasp of commercial technique, will get lost in the markets; and the market will fail to appreciate the inherent advantages of co-operatives, namely the absence of adulteration and the careful grading.

But the lack of awareness among the masses involved in the co­operative system makes it necessary for co-operative marketing to provide the population with an immediate tangible benefit from the very first year. A commodity of high quality costs more to produce; and when offered small consignments, the market will not respond to this quality by offering higher prices. Consequently, it is impossible to pay the peasant a high price for what he has produced.

It might seem attractive to build up, let us say, a co-operative export organization, by adopting a gradualist approach - beginning with the creation of special co-operatives at the first level and afterwards, as they develop and grow stronger, combining them into local associations and finally setting up an all-union centre. But for the reasons just given, this approach has to be rejected. Co­operative centres have to be set up simultaneously at the start of the operation; although local work can initially, pending the setting up of specialist associations, be assigned to general co-operative territorial associations.

By making use of already existing multi-purpose local agricultural associations, we can immediately start setting up the vast apparatus which will be in a position to tackle the truly enormous national economic task of achieving the mass transfer of a product from the producer directly on to the world market. The fact that our co­operative marketing system was created in precisely this way in the years 1913-15 and 1923-24 indicates that this is the only correct path.

However, when a large number of previously independent organizations are joined together for working purposes, we have to remember that the success of an export operation is possible only when the activities of these organizations are made subject to a single plan and a single organizing authority.

In commerce, the will of the individual entrepreneur who acts promptly, often on the basis of intuition, has an overriding advantage over the collective will of co-operative organizations, which, as well

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as competing in the market, are also obliged to justify every step that they take before their fellow members. This has the effect of weakening the co-operative system; and the effect itself needs to be mitigated through the granting of special powers to central co­operative bodies.

At the same time, this managerial and executive authority - with regard to the fixing of prices, the technical conditions in which grading is carried out, the packing and dispatching of goods and the making of agreements and financial settlements - must be exercised in such a way that local associations can, after giving full executive power to the centre, still exercise a controlling influence on the running of the associations' affairs.

From a logical point of view, we envisage these centres as organizations with a narrow specialization, created separately for each association. However, from a chronological point of view, the functions of such a managerial centre, when work is just beginning, can and will be temporarily undertaken by a general co-operative centre which is already in existence.

Thus, for example, when the marketing of flax, eggs, hemp, etc. was being organized on co-operative lines, the functions of a national association were at first performed, in 1913-15 by the Moscow People's Bank [Narodnyi Bank], and in 1921-22 by the Rural Co­operative Alliance [Sel'skosoyuz]. Only when the work had got into its stride were the separate specialist centres set up to meet the practical requirements. Moreover, this process of splitting off proved successful only when the time for it was ripe, that is, when the volume of work in the particular specialist sector had increased to a sufficiently high level to finance the maintenance of a special apparatus; and when cadres with adequate authority had become available for this purpose.

It can confidently be said that the question as to when the situation is right for splitting off part of a general multi-purpose organization is always complex; and is one of the most difficult questions to resolve from the point of view of co-operative tactics. It is quite obvious that by the time that this spütting-off occurs, the work of the corresponding department of the integrated centre must involve a commodity turnover on a sufficiently large scale to make it possible, given the usual commercial charges on turnovers, to cover the estimated costs of maintaining the trading apparatus. It is also essential that a base should have been created, both at the level of the co-operative association and at lower levels, which can guarantee supplies of the appropriate quantity and quality of goods; and that a commercial clientele should exist so as to provide an assured and stable market for the goods. Only this system of social and economic

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links, and especially of co-operative links, can provide a basis for the future work of the specialized centre. There must be the same care when testing the financial basis for the operation. Lastly, the development of this work requires the formation of a strong, knowledgeable group of leaders, as well as a nucleus of office personnel.

The business of taking all these circumstances into account and ascertaining whether they are in fact operative represents the exceedingly difficult task of developing the co-operative system in a harmonious fashion. The co-ordination of the rate of development of each of the elements, and the work of ensuring that they develop in a dynamic as well as a harmonious way, is the most difficult problem which confronts the leadership of the co-operative movement.

The co-ordination of the expansion of co-operative turnover, of the organizational development of the co-operative apparatus and of the expansion of the financial base of co-operative work - these are the necessary guarantees of success in a co-operative operation, or indeed in any kind of large-scale economic operation. Any disharmony in the parallel development of these elements will inevitably have serious economic consequences. It is precisely for this reason that the growth in the volume of operations or growth in the financial base which underpins them will, at a certain stage of expansion, inevitably require that the apparatus which handles these operations should be converted from a department of an integrated association into a specialized centre. Any attempt to force this process or, conversely, any attempt to hold it back will unavoidably lead to negative economic consequences.

The agricultural co-operative system in the USSR was in fact built up in accordance with the theoretical principles just set out. It is, moreover, characteristic that this process occurred twice over in almost identical forms, since the system of agricultural co-operatives which developed during the period from 1913 to 1920 was then wound up and made into a branch of the national consumer co­operative system. A new co-operative system was developed entirely afresh during the period from 1922 to 1926.

Between 1915 and 1917 the following organizations were detached, one after the other, from the commodity department of the Moscow People's Bank: the Central Association of Flax Growers [Tsentral'noye Tovarishchestvo L'novodov], the Potato Growers' Association [SoyuzkartofeV], the Fruit and Vegetable Growers' Association [Plodovoshch'], the Hemp Association [Pen'kosoyuz], the Egg Co-operative [Koyayitso] and the Grain Co-operative [Kozerno]. Besides that, a Co-operative Insurance Alliance [Koopstrakhsoyuz] was set up; as well as a butter manufacturing co-operative

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organization [maslodeV naya kooperatsiya], which had no centre of its own, but operated through regional associations.

Beginning in 1922, during the Soviet period, the following were detached from what was originally the integrated Rural Co-operative Association controlled by the state [Sei'skosoyuz]: the Flax Growers' Centre [L'notsentr] (which also included hemp), the Potato Growers' Association, the Fruit and Wine Growers' Association [Plodovinsoyuz], the Butter Producers' Centre [Maslotsentr], the Poultry-breeding Association (Ptitsevodsoyuz], the Tobacco Growers' Association [Tabaksoyuz] and the Grain Producers' Association [Khlebosoyuz], The meat producer' centre, as well as the centres which deal with sugar-beet, cotton and bee-keeping are close to being split off. The old Rural Co-operative Alliance is more and more being turned into a purchasing organization of agricultural co-operatives (for machinery, seeds and manure) which combines these functions with those of a centre, pending the creation of separate organizations. The Insurance Alliance and the banking centre, in the form of the All-Union Co-operative Bank [Vsekobank] which has been joined to the Transit Co-operative Bank in Riga and the Moscow Narodnyi Bank Limited in London, complete this system.

The result as of 1926 is that we have the following system of co­operative centres which rely on a common network of local multi­purpose associations as well as on their own special systems (see Figure 13).

No one has ever denied that it is necessary, and may even perhaps be technically inevitable, for separate specialist centres to be set up at a certain stage in the development of the co-operative movement. The idea of specialization was recognized very early on. But this question assumed a rather different significance with regard to local associations and primary co-operatives, since it arose in a totally different context. Specialization by primary co-operatives in the countryside provoked, and to some extent continues to provoke, very fierce argument.

There are some co-operative activists who think that because of the shortage of co-operative activists in the countryside, and because of the lack of resources and the poverty of the peasant population, we cannot set up specialized co-operative organizations in the countryside along the lines of capitalist enterprises or along the lines of co-operatives in Western Europe. Indeed, we saw in the quite recent past how some local co-operative organizers thought it desirable to do away with the separate existence of consumer and craft co-operatives and to merge them with agricultural co­operatives. They also thought it possible and desirable simply to create uniform general associations in the villages, which would

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undertake all forms of rural co-operative work.

The desire for integration, even if only within the confines of agricultural co-operatives, undoubtedly has some justification. There is no doubt that it is often extremely difficult in our rural areas to find suitable leaders and employees even for one co-operative. There is also no doubt that because of the small scale of co-operative operations, it is immensely difficult to set up and cover the running costs of two or three separate organizations within a single village. There is, lastly, no doubt that specialist associations do not always find it easy to agree on the demarcation of their various functions; and that they have a great many causes for friction and conflict.

However, these problems, which were insuperable during the first years of co-operative activity, will begin to disappear as work proceeds; and there are a number of factors which begin to tell in favour of specialization. In the first place, during the period of transition from reliance on middlemen to co-operative production, it transpires that different kinds of co-operatives engaged in reprocessing have different optimum radiuses for collecting their goods; while the optimum area of one credit and purchasing association has to include two or three areas for potato-grinding and butter manufacturing co­operation and an even larger number of associations dealing with inspection and the handling of machinery.

Secondly, a multi-purpose board of management usually proves to be well able to cope with general operations of a simple kind; whilst specialized operations - if they relate to marketing, or, in particular, to production - require a specialized staff within the board of management, in order to deal exclusively with these operations.

Lastly, a specialized sector which embraces not all, but only some, of the peasants within an area, is usually disinclined, when its affairs are well run, to pay its profits into a common fund.

But as co-operation develops, it is precisely these three factors which usually begin to favour specialization; and which gradually bring it about. Therefore, without going too far, we still have to rely, in this field, on systems of specialized co-operatives.

We have already discussed the factors and conditions which determine the geographical area of activity of co-operatives engaged in the primary reprocessing of agricultural products and the system of interrelationships between them. It would be possible, through a similar analysis, to ascertain what system governs the development of associations for cattle-rearing, melioration, and so on.

It follows that at the base of the co-operative system, at the lowest level, we will have a number of small-scale, specialized co­operatives for reprocessing. These will vary with regard to their optimum radiuses for collecting their goods. We will also have a

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considerable number of inspection, machinery users' and animal-rearing associations, as well as collective farms, etc. It is highly probable that for the purposes of finance and credit, all of these - just like the households included in the co-operative system - will belong to a purchasing, marketing and credit association at district level. This association will itself be sited close to a village with a bazaar, which is the commercial focus of gravitation for the whole area. The optimum area for this association must correspond to the area of natural gravitation for the local bazaar, which constitutes a primary cell of the economic system. Thus, the question of the specialization of the primary unit is, within the limits shown above, theoretically predetermined.

There is, however, no doubt that the way in which primary units develop, as well as the eventual pattern of the local co-operative network, can and will vary in different areas, depending on the local economic situation. It is possible that in our country, as in the Latin countries, the connecting link between all local primary co-operatives will in the course of time be provided not by a credit association but by a non-commercial alliance, something like an agricultural society.

A much more difficult and complex question is that of the stability and specialization of local associations. Let us take, for example, a provincial city on which in former times private capital focused its commercial and credit operations as well as its technical operations for grading and secondary reprocessing. As a rule these operations were all concentrated in one centre for each area. In other words, there was in this particular case no economic necessity for different radiuses for different types of work. Hence the extreme stability of local multi-purpose associations. So great was this stability that in relation to the potato, fruit and vegetable, tobacco, sugar beet and other co-operative systems, there were and are cases where, despite the existence of a specialist centre, the association continued on a multi-purpose basis.

In this case, the only possible argument in favour of specialization is that when the operation has sufficiently expanded, and when the splitting of the association into two involves no increase in overhead costs, there is a certain benefit to be gained from specialization within the managerial board and from a strengthening of ties specifically with the specialized primary unit. The greatest incentive for the separation of specialized operations is undoubtedly the desire of specialist primary co-operatives to keep for themselves the entire profit from their operations and not to pool it in a common fund. However neither of these incentives is always enough to detach a sector from the unified branch to which it belongs. This usually happens only when operations have assumed a wide scope.

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An even more complex question is that of associations of the provincial \gubernskii] and regional [oblastnoi] types. In most cases -since they occupy an intermediate position in between local associations and centres - they have no economic raison d'etre, since an analysis of the market apparatus demonstrates that, as a rule, only three tiers of marketing apparatus are economically necessary. At the same time, questions of organization and, most important of all, questions of representation and of links with state organs in the province \guberniya], make it absolutely imperative for an influential co-operative apparatus with full authority to be based in the provincial town, so that it can, within the framework of our planned economy, maintain contact with the Provincial Executive Committee and with the provincial planning agencies.

The need for this is very keenly felt; and it often makes it necessary to create associations not in the district [uyezd], but -despite a certain loss of contact with the primary units - in the province [guberniya]. From an economic and organizational point of view, however, this method of solving the problem does not always lead to good results. Life has not yet clearly pointed to any other solutions. Representation may, possibly, be delegated to the district associations within a provincial town. It is also possible to set up non­commercial organs in the provinces (such as inter-co-operative councils, councils of agricultural co-operative congresses, and so on) to perform these functions relating to representation and control. Nor can one rule out the possibility - which makes the best sense from the economic point of view - that credit operations will be transferred from the district associations to those of the provinces. The main consideration should be that of practical experience.

The most important work relating to the organization of exports and imports, as well as work of an inter-regional nature, has remained in the hands of the centre. These centres represent types of system which are by no means identical and which are determined by the differing natures of the economic processes which they organize. Some of them, especially in those cases where the work of the primary unit involves reprocessing, are not only specialized themselves, but rely on other specialized sectors. Cases in point are the Butter Producers' Centre, the Potato Growers' Association and to some extent, the Fruit and Wine Growers' Association. Figure 14 gives an idea of their structure.

Most of the other associations do not have specialized local branches. They rely on the common network of multi-purpose associations, which use their apparatuses for a whole range of different operations, and place them in specialist hands only at the highest level, where operations are assigned to a specialist centre.

242   The Basic Principles of Organization of Agricultural Co-operatives

In their case, the organizational pattern assumes an entirely different form, as shown in Figure 15.

Lastly, there are some types of co-operative activity, as in the case of sugar beet, for example, where the trade turnover is itself always of a local character and cannot, by its very nature, involve a physical operation by the centre. In this case, all operational activity remains entirely in local hands. The centre retains control of organizational and training work, and also retains control of representation and concludes general agreements with contractors. The organizational structure of this type of co-operative system is shown by Figure 16.

Associations of this type graphically show the distinctive organiza­tional characteristic of the Soviet co-operative system, namely the role of co-operative centres as apparatuses which link the planned economy of the state with the mass of peasant households. As time goes on, it becomes increasingly clear that in the system which we are examining, i.e. one based on co-operative forms of the vertical concentration of agriculture, it is the marketing co-operative systems which wield the greatest organizational power. By uniting the peasantry for the purpose of marketing the commodities which are of the greatest importance for each of them, these co-operatives affect

Figure 16

Specialist centre State procurement agency

A

General contract

o

A □

Multi-purpose associations

Specialist associations

Local multi-purpose agricultural associations

Local specialist associations

The Bask Principles of Organization of Agricultural Co-operatives  243

the most important and most vital parts of the household. The ultimate task of the marketing co-operative system is to protect the peasant's money earnings, that is, figuratively speaking, his wages. It is here that he is most sensitive, it is here that his interests are focused. And it is our very strong belief that in the context of agricultural co-operation, it is only the marketing co-operative systems which need to be built entirely on co-operative lines at all levels.

Centres that deal with purchasing, insurance, transport, technical matters, publishing, electrification and even credit can be built up without regard to the forms and attributes of the co-operative movement. They have no need for meetings of local representatives or councils or collegial boards of management. They can simply act as technical offices, established on a shareholding company basis; and in all probability the co-operative system will only gain from this. The nerve centres of the co-operative movement, the social forces which constitute its component parts, run through the marketing systems. And it is precisely these marketing systems which must also serve as a link with the state agencies responsible for the planning of agriculture.

One can immediately realize that this is so by comparing the kinds of discussion which take place, on the one hand, at meetings of representatives of the Insurance Societies or the All-Union Co­operative Bank [Vsekobank]; and, on the other hand, at a representatives' meeting of, let us say, the Flax Growers' Centre or the Butter Producers' Centre.

In the overwhelming majority of cases, the marketing systems act in the USSR as export organizations which operate on international markets and which - despite the advantage which they derive from our state monopoly of foreign trade - are obliged to wage a hard struggle against the capitalist giants. This fact, as well as the general importance of the marketing systems, obliges us to make a detailed examination of these systems.

We already know that the experience of the Siberian butter manufacturing co-operatives, of the Flax Growers' Centre and of other large-scale co-operative associations gives us every ground for supposing that no significant success in the organization of co­operative exports can be achieved without the entry into the market of specialized nation-wide organizations, which have large quantities of the given product at their disposal and which represent a substantial force on the international market.

It would not be effective to adopt a gradualist approach when setting up these co-operative centres. The centres must be set up all at the same time, from the start of the operation; and pending the

244  The Basic Principles of Organization of Agricultural Co-operatives

setting up of specialist associations, local work may be assigned to general co-operative associations of the territorial type. However, despite the apparently obvious character of these propositions, such centralized management can only be achieved gradually and with great difficulty.

It is recognized that one of the foundations of the co-operative movement is the spontaneous initiative of the population. The local co-operative unit is the primary source of co-operative life. It is here that new plans come into being. It is here that co-operative life is created. And it is also here, so it would seem, that the will of the population which has spontaneously joined the co-operatives is expressed. Local co-operatives are compelled by technical necessity to combine into associations. But these associations only exist in so far as co-operatives exist at the grass-roots and act in accordance with their will. In order, however, to ensure the success of the operations which they undertake, co-operative associations very often have to interfere in the work of local co-operatives, placing them within the constraints of a plan of action and making them subject to directives laid down by the association's management.

The same thing occurs in relations between the central association and the local ones. Thus, for example, central co-operative associations for the marketing of agricultural products make precise rules for local units with regard to the grading and packaging of the product; and they assume the entire responsibility for entering into transactions, and for fixing prices and payments. Local agencies are left with the sole task of implementing these plans.

This state of affairs would seem to deprive the local organization of any power of its own and to turn it into a subsidiary of the central association. However, there is no alternative to this, because the transfer of managerial power to the local association and the conversion of the centre into an agency of the local alliances - into a kind of office which handles commissions - will deprive the co­operative system of the strength and active competitive power which are essential to it.

We are, therefore, faced with an almost insoluble problem: how to uphold the power of the population which has spontaneously joined the co-operatives, while at the same time establishing the power of the central associations, whose unity and independence are alone capable of ensuring the 'commercial' success of the enterprise. It is a complex and painful question, especially when opinions are divided; and the solution will vary for different types of co-operation and in the differing conditions of time and place.

We already noted in one of the early chapters of this book that the principle of the direct responsibility of the organs of a co-operative

The Basic Principles of Organization of Agricultural Co-operatives  245

organization to the members which it serves is a fundamental principle of the co-operative movement. In the absence of this principle, co-operation effectively ceases to be co-operation.

One extremely interesting example from this point of view is that of the old Central Association [tovarishchestvo] of Flax Growers, created in 1915 by four major local associations, which already had considerable experience of co-operative work, including work for the marketing of flax. During its first year of existence it was in a weaker state than its individual members - with regard to its moral authority and, still more, its financial position.

Hence the original rules of management, adopted at the founders' meeting. These rules had provided that the Central Association could undertake sales only subject to the gradings and valuations laid down by the local associations. Some local members even tried to establish the principle that every transaction entered into by the Central Association must be ratified by all local ones.

However, already by the end of the first year of operations, the disadvantages of this system had become obvious. Furthermore, the centre had, after a year of successful work, gained the necessary experience and authority in the eyes of local associations. Indeed, the Central Association's expansion and the recruitment of scores of new members significantly reduced the relative influence of each individual member. In short, the Central Association became the symbol of the entire flax co-operative system; and it acquired real strength, considerably greater than the strength of each local association. Following the second year's work, the rules on internal relations were revised yet again; and the fundamentally important principle was laid down of the organizational unity of the flax co­operative system. This principle was also the working foundation of the new Flax Growers' Centre [L'notsentr] created in 1922.

Just as the Central Association of Consumer Societies [Tsentrosoyuz], the AU-Union Co-operative Bank [Vsekobank] and certain other co-operative organizations constitute federations of independent local associations which have relations, which are freely entered into on each occasion, with the centre which they have created, so in the same way the Flax Growers' Centre constitutes a single organization, merged with local associations. It is engaged in the marketing of flax and subject to a single management, which has freedom to take decisions with regard to the processing, grading, pricing, sale and transportation of the commodity.

This idea was particularly clearly expressed in the 'Rules for the co-operative marketing of fibre', which were confirmed by the Council of the Flax Growers' Centre on 31 October 1924.

246  The Bask Principles of Organization of Agricultural Co-operatives

Under section 8: The associations are to undertake seasonal operations for the co-operative marketing of fibres in accordance with the present rules on the basis of applications and plans which they have presented to the Board of management of the Flax Growers' Centre and which the latter has confirmed.

Under section 17: The maximum valuation of fibres is laid down by the Flax Growers' Centre. It is communicated to the associations when procurement begins and it may be altered by the Flax Growers' Centre at any time. Throughout the entire time when the fibre is being collected, the associations must make regular weekly reports to the Flax Growers' Centre as to what its acceptance prices actually are; and it must immediately inform the Flax Growers' Centre by telegraph of any rise or fall in prices. If the Flax Growers' Centre decides that for commercial reasons it cannot agree to the prices reported to it, it then has the right, after a certain period, to discontinue the further collection of the fibre, having at the same time informed the association of the prices which the Flax Growers' Centre can guarantee. Any association is, however, entitled to accept at its own risk the amount of money by which the acceptance prices exceed the guaranteed prices. It may, therefore, after informing the Flax Growers' Centre, continue its collection - but with the proviso that the amounts of money paid out by the Flax Growers' Centre are to be fixed by reference to the value of the fibre at the guaranteed prices. Consignments of fibre which have been procured on these conditions may not - for a period of 50 days after the Flax Growers' Centre has paid for them - be offered for sale by the Flax Growers' Centre at prices which fail to cover the association's actual expenses together with the deductions due to the Flax Growers' Centre.

Under section 20: Fibre which has been accepted from a producer by an association, which operates according to the rules of co­operative marketing, is deemed to have been irrevocably transferred at the moment when it is handed over by a co-operative organization.

Under section 21: From the moment when information is conveyed to the Flax Growers' Centre concerning fibre which has been accepted by a co-operative organization, the Flax Growers' Centre becomes liable for any loss of the fibre through natural disaster or accident. The association continues to store the fibre and is liable for losses caused by carelessness or improper handling during storage.

Under section 22: The association undertakes to store the fibre in its own warehouses until it receives an order from the Board of Management of the Flax Growers' Centre. The association dispatches the goods as directed.

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Under section 23: The right to dispose of fibre accepted by associations for marketing is, under the present rules, vested solely in the Flax Growers' Centre. It exercises this monopoly for the purpose of marketing the fibre in the way most advantageous to the producer. For these purposes, the Flax Growers' Centre has the right in its own name to sell the fibre, to mortgage it, to give receipts for it, to move it from one place to another, to have it reprocessed, and so forth.

Under section 24: When delivered by the producer, the fibre is valued at its local market price and, on being accepted, is provisionally paid for at a price no higher than this valuation. The final payment for the fibre is made when it has been sold by Flax Growers' Centre in the manner indicated below.

Under section 25: Final payment for the fibre is made at the end of the season. It covers all consignments, including consignments of non-co-operative goods which have been sold by the Flax Growers' Centre up to 1 July (sections 5 and 7). These are treated as a single quantity of goods.

Without in any way encroaching on the autonomy of local associations and co-operatives in other areas of their work, the centralization of work for the collection of flax fibre by means of these rules has been successful in meeting the need for a unified apparatus and for freedom of manoeuvre in managerial decision-making.

The principles evolved in the flax trade have also been adopted by other branches of co-operative marketing.

It is obvious that their implementation can be described as 'co­operative' only if two conditions are satisfied. First, the centralized management examined above should be undertaken by an elective body, which has the complete trust of the mass of co-operators and whose actions fully reflect their wishes. Secondly, in cases where the wide-ranging powers of this body extend to executive functions, then its goals, as well as the planning of its activity should be approved by a body closely related to the co-operative rank and file. In other words, the greater the powers vested in the boards of management of associations and centres, which represent the characteristics of the co-operative system as an enterprise, the greater must be the role of councils and meetings of representatives, which embody co-operation as a social movement. This raises a crucial problem: the problem of combining the commercial flexibility of our organization with its co-operative character.

The basic organizational principles for the building of agricultural co-operation, which have just been examined, can therefore be set out as the following basic propositions:

248  The Bask Principles of Organization of Agricultural Co-operatives

1. The organizational forms of agricultural co-operation are basically determined by the economic and technical nature of the national-economic process or processes which are to be organized on co­operative lines. The vertical concentration which co-operation seeks to achieve requires the creation of a whole system of commercial and industrial organizations which perform differing functions and which are built to optimal scales which vary for each different function. In their overall system, these organizations are fairly similar to the capitalist organizations which have historically evolved in the same area of operations.

2. None of these organizations should have any economic purpose of their own. They consist of bodies set up by the peasant farms for their own benefit. They must be managed in accordance with the basic co-operative principle, i.e. that the managerial bodies of every organization are directly responsible to the members whom they serve. In order to enforce this responsibility, special bodies must be set up in the form of general meetings, meetings of representatives, councils and auditing commissions which, taken together, define the aims and methods of work.

3. It follows from the two principles just explained that it is logically possible to devise at the very beginning a theoretically ideal system of co-operative organizations, specializing in every kind of co-operative activity and mutually linked within a system. However, in an actual historical context, the immediate fulfilment of a logically elaborated plan will prove impossible. The various forms of co-operation have to be built up with a degree of gradualism, commensurate with the historically growing power of co-operatives as a social movement. It is, as a rule, necessary to begin new types of work by utilizing the resources and organizations which already exist. Only gradually, after the scale of operations has expanded, can this work be handed over to a specialized apparatus, should it prove technically necessary. At the same time, however, there are some marketing operations which have to be conducted on a large scale from the very beginning.

4. When particular sectors of co-operative work are detached and made into specialized organizational systems, then - depending on the nature of the nation-wide economic processes which are being brought into the co-operative system - these sectors have to be built either on the principle of a single centralized organization or alternatively they have to be built as a federation, where the work of local organizations is entirely independent of the centres and where the associations serve the local organizations in accordance with the latter's requirements.

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It can easily be understood that the co-ordination of the work of a centralized marketing co-operative system, and the maintenance of unity within an organization which includes scores of associations and co-operatives, is possible only on the basis of internal discipline and co-operative solidarity amongst those who belong to the organization.

The main basis for this solidarity is, of course, the sense of co­operative awareness. It has become customary for all the textbooks to say this. But we have no doubt that this awareness needs to be reinforced by economic sanctions - in the form of real economic pressure exercised by the centres and the associations on their membership.

This discipline can be based on three factors, namely:

1. The complete ban on selling a product otherwise than through the centre.

2. The actual profitability of selling through the centre.

3. The possibility of disciplinary measures by the centre against the local associations.

The first two factors usually result from the very nature of the market and the position which the central co-operative organization occupies in the market. The third factor operates because the granting of credit for co-operative marketing operations has been entirely handed over to the centre. Given the financial weakness of local associations, this has proved to be a very impressive and effective disciplinary weapon.

Such are the emergency powers which the co-operative movement has conferred on its centres, for use if the need arises. Economic necessity would have obliged us to surrender these powers; and we do not dispute the expediency of doing so. But we must recognize that these powers - like emergency powers and states of emergency of whatever kind - are fraught with exceedingly grave dangers.

Co-operative centres that possess such powers could easily be deflected on to the path of pure entrepreneurship; and the concern with enterprise could stifle co-operation as a social movement and thus undermine its sources of inspiration. Therefore, when we endow our centres with emergency powers we must take adequate steps to ensure that no one within our ranks ever forgets that co­operation is not merely a co-operative enterprise: it is also co­operative movement.

Unfortunately, we, the practitioners of the co-operative movement, preoccupied with building up our competitive strength in the struggle against international commercial capital, and engaged in the work of perfecting our central organization, have devoted too little attention

250  The Basic Principles of Organization of Agricultural Co-operatives

to the co-operative grass-roots, where the social forces evolve which provide the driving force for our work. And the need to remember our character as a mass movement is, particularly at the present time, utterly imperative.

During the critical moments of our revolution, and also of the great French revolution, when the state was in danger and the state apparatus came under the blows of its enemies, the people's leaders more than once proclaimed the slogan 'To the masses!', and they hurled into the struggle the spontaneous forces of the popular movement which saved the situation.

As we work to perfect our entrepreneurial apparatuses, we must clearly remember that critical periods may arise in the development of our economic life, when the only salvation will lie in the conscious, or perhaps the spontaneous, capacity for resistance among the masses involved in the co-operative system.

At that moment, when all entrepreneurial methods prove powerless, when economic crisis as well as the blows of the adversary organized from abroad, wipe out our elaborate organiza­tions, there is only one reliable path of salvation open to us - a path which is unknown to capitalist organizations and is beyond their reach. This is the path which involves deflecting the weight of the blow on to those submerged foundations upon which the whole of our work depends: on to the peasant economy, with its tens of milliards of roubles of capital, its labour force, its capacity for resistance and its awareness.

And in order that the peasants should not shun this burden, they have to feel, know and become accustomed to the fact that the cause of agricultural co-operation is their own cause, the cause of the peasants! And this cause must itself become a genuinely powerful social movement - and not a mere enterprise!

There has to be a co-operative peasant public opinion in the countryside and a mass involvement of the peasant masses in our work. Otherwise, co-operation will always be in danger and in a state of unstable equilibrium.

The thoroughgoing involvement of the masses in the co-operative system of the vertical concentration of agriculture is all the more important for us, who are striving to introduce an element of planning into the structure of the national economy, because this involvement is the only effective means of linking the spontaneous activity of the many millions of peasants with the structure of a planned state economy. This involvement of the peasant masses in co-operation is the only method which can, through prolonged work, turn our diffuse individualistic agriculture into a powerful economic system which, when combined with state industry, is alone capable

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of becoming the starting point for the building of the economic foundations of a future socialist society.

Petrovsko-Razumovskoye, 14 November 1926