A brief history of the co-operative movement

By Jasmina Karan Pančić
Cooperative Union of Serbia

The first co-operative associations appeared in Europe in the mid-19th century, initially amongst artisans, and then spread to the farming community. There are several sets of principles governing how co-operatives work, but three key models have had the greatest impact on co-operative arrangements in Serbia:

* The Rochdale Principles, developed in England following a weavers’ strike in 1843. These entail voluntary and open membership; equal voting rights regardless of shareholding (one member, one vote); distribution of surplus in proportion to trade; payment in cash; political neutrality; and limited interest on capital.

* The Raiffeisen model, which appeared in Germany during the starvation winter of 1848, and initially aimed at ensuring food supply for the poor. The first credit union that followed these principles was set up as early as 1854. The Raiffeisen approach seeks to promote mutual assistance across a limited geographical area, allows members to join co-operatives without having to acquire shares, permits joint and unlimited liability, requires surplus to be paid into an indivisible co-operative contingency fund, allows members to only do business with other members, and envisages no remuneration for co-operative officers.

* The Schulze-Delitzsch model, which also developed in Germany. In 1849, Franz Hermann Schulze-Delitzsch, a member of the Prussian Parliament, set up the first mutual funeral and health insurance institutions, as well as shoemakers’ and carpenters’ co-operatives that aimed to centralise procurement, followed in 1850 by the first credit union. This approach called for a large number of co-operative members, complete exclusion of state aid, a divisible contingency fund, rewards to attract capital, joint and limited liability, and sectoral specialisation.

Iz istorije zadrugarstva

The Serbian co-operative movement is rich in history and tradition, with farming co-operatives playing a particularly important role in the development of the country.

Serbia’s first farmers’ credit co-operative was set up in 1894 in the village of Vranovo, close to Smederevo, a town on the Danube some 30 miles from Belgrade. The following year saw the creation of the Central Alliance of Serbian Farming Co-operatives, and the first piece of legislation governing co-operative associations, the Law on Artisans’ and Farmers’ Co-operatives, was enacted in 1898. By 1900, there were more than 650 co-operatives in Serbia. The movement spread like wildfire at the turn of the century, with rural populations embracing co-operatives as a bulwark against loan sharks and impoverishment.

What where the causes for this rapid expansion of co-operative ideas and associations?

The answer to that question should be sought in the prevailing economic conditions of the late 19th century, not just in Serbia but further afield, particularly in Europe.

By the 1870s, the economic importance of extended family households was in marked decline across Serbia, with strict patriarchal standards disappearing; the guild system that regulated artisans was also being abandoned. A money-based economy was growing quickly and this motivated farmers to move away from subsistence agriculture and extensive farming and embrace cash crops. Rural communities were kept in poverty by rising taxes and other government dues, fragmented landholdings, primitive agricultural technology, extensive livestock farming, poor yields, and bad harvests. In addition, frequent wars would devastate entire regions, leaving behind uncultivated fields and abandoned livestock.

The shortage of cash forced farmers to borrow from loan sharks, who were usually large local landlords or merchants. Yet, it was at this time, from the mid-19th century onwards, that a series of public figures appeared who championed co-operative farming as a means for rural communities to take control of their development. Chief amongst these was Svetozar Marković, whilst others included Dragiša Lapčević, and Adam Bogosavljević. Particularly notable was Mihailo Avramović, who founded the first co-operative in 1894 and was central to the growth of the co-operative movement in Serbia on principles that have remained relevant to this day. Co-operatives increased in number and capacity up until World War I: on the eve of this global conflict, upwards of 800 co-operatives flourished in the country.

The war exacted a heavy toll on co-operative farmers, and recovery was slow and gruelling work. The country had been devastated in the fighting, the land had been left uncultivated, and the livestock population had declined greatly; it took until the 1930s for the co-operative movement to find a firm social and economic footing. In 1937, the Kingdom of Yugoslavia enacted the Commercial Co-operatives Law to regulate their status across the country that had been created in 1918, when Serbia joined Slovenian, Croatian, and other territories to form the new Yugoslav nation. The Serbian co-operative movement contributed its experience, original traditions, indigenous rules, and relationship with the government to the newly created national alliance. At this time, in the run-up to World War II, Yugoslavia boasted more than 3,500 active co-operatives. Such broad appeal of the co-operative movement can be attributed to a number of factors. Firstly, the global stock market crash of 1929 badly affected the national economy, with agriculture (including co-operative farming) hit particularly hard. The Yugoslav government intervened in 1931 to bail out many co-operatives by cancelling some of their debts and extending credit on favourable terms, which also promoted the creation of new co-operative associations. By doing so the Kingdom of Yugoslavia was not able to materially improve the state of its traditionally underdeveloped agriculture sector, but it did manage to contain the fallout from the Great Depression by allowing rural populations to use co-operatives to weather the storm and even better their lot to some extent.

Iz istorije zadrugarstva

A second worldwide conflict again devastated Serbia’s cities and villages. Nevertheless, the co-operative movement rose from the ashes re-invigorated in the post-war period. Only four years after the war ended, socialist Yugoslavia adopted the Basic Law on Farming Co-operatives, which defined these entities as ‘economic organisations in which labouring peasants join together to improve agricultural production, enhance their living standards, and construct socialism in the rural environment’. The Law envisaged two forms of associations: general farming co-operatives and peasants’ labour co-operatives, which were patterned after Soviet kolkhozes and were simple associations of farms. This period was often criticised after the country returned to a free market economy, when peasants’ labour co-operatives were seen as ineffective, inappropriate, and a product of the planned economy. Agrarian theory views these entities as having stifled the growth of farming co-operatives, which ultimately proved true.

General farming co-operatives gained in importance starting in 1957. These entities played a wide variety of roles that contributed to the overall development of rural communities: they performed economic, cultural, and social functions and helped introduce many farming innovations, which significantly improved rural living standards. However, a wide-ranging economic reform that began in 1965 decimated co-operatives as it allowed individual farmers to enter into arrangements with other businesses. The country’s new economic system, which was to be based on the pooling of labour, sidelined co-operatives that possessed huge fleets of farming machinery and large workforces. Smaller and less successful co-operatives merged with larger ones or with other entities, losing their co-operative identities in the process, whilst managers and professionals moved to local administrative centres, taking with them everything they could and leaving former rural co-operative units as nothing more than empty shells. This was one of the most damaging times in the history of Serbia’s co-operative farming. To this day, courts are still hearing cases that involve the assets of former co-operatives. Co-operative alliances fared little better: the 1962 Law on Central Chambers of Commerce stripped co-operative alliances of their independence and turned them into co-operatives divisions of chambers of commerce – giving chambers full ownership of the extensive and very valuable assets of these alliances.

The new Constitution of 1974 allowed the enactment of the new Farming Co-operatives Law. Under this piece of legislation, co-operative alliances were in 1976 again allowed to operate as independent entities – but their former assets remained out of reach.

The treatment of co-operative alliances mirrored that of farming co-operatives. Legislation enacted in the mid-1960s as part of economic reforms forced them to join farming conglomerates, many of which were actually built on foundations placed by co-operatives – bringing their assets into these large-scale production and processing complexes. Yet, when they were allowed to regain their status as co-operatives, they still could not recover their former property.

As Yugoslavia moved away from state planning, the 1990 Co-operatives Law called for a reinstatement of co-operatives’ assets removed without compensation or for other reasons. Even though this requirement was re-affirmed in the 1996 iteration of the law, courts throughout Serbia are still hearing thousands of cases involving this property, whilst very few co-operatives and their alliances have actually been able to recover their assets. In Vojvodina alone, nationalisation took away close to 700,000 hectares of arable land, with owners claiming it would take the government at least 800 million euros to compensate them for the loss.

Transition and accelerated privatisation have caused a number of fresh issues with co-operatively owned property that have affected the co-operative movement. The 1996 Co-operatives Law clearly requires the reinstatement of assets once held by co-operatives that were subsequently transferred to other non-co-operative entities without charge due to organisational and status changes. Where such co-operatives have since ceased to exist, the assets are to be returned to a co-operative operating in the same sector in the geographical area served by the defunct co-operative. Courts hearing these asset cases have generally insisted on the finding of facts as to whether the initial co-operative actually held title to the property or was merely allowed its use, which effectively means the reinstatement will be denied, as between 1953 and 1988 all legal persons (co-operatives included) were only treated as ‘users socially-owned means of production’.

In yet another adverse development, a piece of legislation enacted in 1992 that governed registration of state- and socially-owned agricultural land made no mention of co-operatively owned property. This law contravenes the Serbian Constitution, which recognises three types of property – public (state-owned), private, and co-operatively owned. Co-operatives continue to be treated unfairly even though property can no longer be owned ‘socially’ and in spite of having provided timely proof of having purchased or otherwise acquired the assets. It remains unclear why courts continue to rule against co-operatives, allowing the authorities to register assets as owned by the state, or keep protracting these proceedings with no clear end in sight.

This short overview makes it apparent that the Serbian co-operative movement has faced far more periods of decline than of expansion. Changes to economic policy have always disproportionately impacted farmers and the organisations they created to enhance their living standards and improve productivity – which are necessary preconditions for prosperity and rural development.

The modern-day co-operative movement must be based upon original co-operative principles as re-affirmed and brought up to date at the ICA’s Centennial Congress and Assembly held in Manchester, UK, in 1995. This is the only true path for farmers to join together into farming co-operatives, organisations without which rural communities will find it difficult to survive.

The decline in agricultural production must be halted to save the co-operative movement from further deterioration and ensure co-operatives can perform their functions and improve their performance, which can be achieved by efficiently pursuing agrarian policies developed in collaboration with co-operatives, as they are the sole independent farmers’ organisations in Serbia. Development and security objectives must also be taken into consideration, which means that the government’s agricultural development subsidies must be made available to their true intended users: the co-operative farmers themselves.

At the same time, the informal economy, which has had such a detrimental impact on transition, must be brought under control, and this can be achieved only if the government collects greater VAT revenue. Small-scale farmers must benefit from appropriate policies that protect the security of both their inputs and their ability to sell their produce.

Last, but most definitely not the least, a critical mass of knowledge must be created in rural communities to ensure a body of experts is available that will introduce new technologies and improve the marketing of agricultural products. If co-operatives are to lead rural development, as they have done throughout Serbia’s history, they can be set up everywhere that farmers have an interest in doing so and where a cadre of professional managers can be found to lead them. This will ensure that co-operatives can finally leave the margins to which they have always be consigned and re-enter the limelight as drivers of growth.

In the 1930s, when the co-operative farmers of the Southern Serbian village of Sićevo built a new assembly hall, they chose for it a motto for it that has remained relevant to this day:

‘Co-operation is the principle that all progress is founded upon’.

All the more reason for us to return to our original co-operative principles.

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