History of cooperatives

Born from an idea

The success story of the German cooperatives is inextricably linked with two personalities: Friedrich Wilhelm Raiffeisen (1818–1888) and Hermann Schulze-Delitzsch (1808–1883). The idea to found the first organisations of cooperative character was literally born out of misery. Over the course of the industrial revolution in the mid-19th century, many farmers and small craft businesses found themselves in financially desperate straits. This development was closely linked to the negative effects of the liberation of the serfs and the introduction of free trade. During the reform, new structures came about which were supposed to make the division of property more favourable to the ‘small’ people. The reality, however, was that the situation of farmers got noticeably worse. They were burdened by having to pay off their former lords and were inexperienced in the independent management of a business. Failed harvests and famines in the years 1846/47 further worsened the situation. However, the craft businesses also suffered from the restructuring, as they had no access to bank services and were reliant upon private moneylenders. They got into deeper and deeper debt and often lost their livelihood. In 1847, Friedrich Wilhelm Raiffeisen created the first aid association in Weyerbusch (Westerwald) to support the poverty-stricken rural population. Finally, in 1864 he founded the “Heddesdorfer Darlehnskassenverein” (Heddesdorf Loan Society), which is now seen as the first cooperative of the Raiffeisen tradition.
At the same time, but independently of Raiffeisen, Hermann Schulze began a campaign of aid whose goal it was to come to the assistance of financially struggling craftsmen. In Schultze-Delitzsch’s view, it was only possible to achieve a sustainable improvement of economic conditions through bringing together weak individual traders and abandoning heteronomy. According to the principles of self-help, self-administration and self-responsibility, he founded the first “raw materials association” for carpenters and shoemakers in 1847 and the first “thrift and loan association” – the forerunner of today’s Volksbank – in 1850.

Rapid development

In the decades that followed, the cooperative idea spread throughout Germany and Europe. Numerous households and businesses joined forces according to the principles of Raiffeisen and Schulze-Delitzsch. In order to provide greater support for their members, the local primary cooperatives founded regional and national centres. These gave rise to today’s regional centres, national centres and special institutes. As early as the 1870s the cooperatives organised themselves into federations in order to offer the individual local cooperative more professional advice and assistance. In the year 1889, the Cooperative Law came into effect, which set out all regulations for the legal forms. From this point on, the cooperative bodies, their rights and obligations, minimum requirements of the statutes of the cooperative, financial and accounting rules and the cooperative duty to audit were among the elements now bound by law. This special feature of cooperative legal form serves to protect the cooperative’s members from financial losses and to stabilise the cooperative organisation. On top of the duty to audit, membership for cooperatives in auditing associations, and with this the carrying out of audits by these associations, became compulsory in the early 1930’s. The reason for this was to prevent economically weak cooperatives avoiding sanctions due to the frequent change of auditors. The obligation to audit and compulsory membership have supported the positive economic development of cooperatives since then.

After World War II and while Germany was divided, cooperative systems were compelled to adapt to prevailing political conditions. The kind of cooperation that the cooperatives in the GDR represented was not of the Raiffeisen and Schulze-Delitzsch tradition. They were not based on principles of self-responsibility and self-administration but were integrated into the system of planned economy.

Three-level cooperative organisation

The German cooperative organisations merged in 1972. Cooperative banks, rural commodity and service cooperatives and small-scale industry cooperatives operate on the primary, i.e. local level. The primary level cooperatives established a number of central organisations at regional level such as apex banks, and commodity and service centres. The work of the central organisations and primary cooperatives is additionally complemented at regional level by special institutes. These include cooperative data-processing centres which supply the primary cooperatives with the latest computer technology.
At national level there are a number of national centres and special institutes, such as the DZ Bank (Deutsche Zentral-Genossenschaftsbank – German Central Cooperative Bank), the Bausparkasse Schwäbisch Hall (Schwäbisch Hall Building Society) and R+V Versicherung (R+V Insurance). These still include the cooperative mortgage banks, leasing and investment societies and agricultural and small-scale industry centres.
The cooperative organisation is not structured like a centralized group but rather from the bottom upwards. Work is divided according to the subsidiarity principle. The superordinate central cooperatives are only engaged when it doesn’t seem possible or sensible to act at local level.

Facing the challenge of permanent change

Since the mid-20th century the cooperative organisation has undergone a profound change in structure. In the course of the general concentration process, the primary level cooperatives formed larger units in order to be able to support their members and, at the same time, remain competitive themselves. The number of primary cooperatives was reduced from 26,000 (in 1950) to 5,436 today. (Over the same period, the number of cooperative banks decreased by mergers from 12,000 to 1,138 while maintaining the branch network and the number of rural commodity and service cooperatives from 21,000 to 2,604). This rationalization improved services for members while considerably lowering costs. In this way, the cooperatives were able to further build upon their position as an effective economic factor supporting their members. As one might expect, not only the effectiveness of the cooperatives increased in the course of the structural change, but also their economic importance and responsibilities. The number of members thus rose from 4.4 million to 18.1 million today.

Cooperatives thriving in the current climate

The significance of self and co-determination and of individual initiative is constantly growing, while state welfare and heteronomy is diminishing. This trend is raising the level of interest in the founding of new cooperatives. In the last three years, more then 500 new cooperatives have been founded under the DGRV umbrella. It is evident that traditional purchasing and sales functions are increasingly being outsourced by the members and users.

In return, work in areas of considerable scope, such as business administration consulting, IT business, accounting, laboratory business, quality assurance, training and human resource development and activities in the fields of waste disposal, recycling and environmental protection, has emerged. Moreover, cooperatives are no longer being founded only in traditional sectors. Today, cooperatives are also present in growth sectors such as the services industry, in data processing and new media industries and in the education and health sectors. This shows not only that cooperatives are in tune with current developments in society but also that their core concept can be flexibly applied to the most diverse industry structures.

Experts agree that, in the process of globalisation, flexible link-up groups like cooperations are better positioned than the large centrally controlled corporate groups. Significant factors for success in this process of structural change are flexibility, quick decision-making, fast reactions and unbureaucratic structure. Globalisation could thus lead to an intensification of the range of services on offer and member networking in cooperatives.