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had sold the store without taking an inventory. When an inventory was
finally made it was found that some of the stock had not turned over for
a year. On one top shelf two hundred pepper shakers full of pepper
stretched half the length of the room. Full value had been paid for this
dead stock and several hundred dollars to boot for "good will." From the
cooperative standpoint the most dangerous thing was that half the
directors had become disgruntled and, though remaining on the Board,
refused to attend meetings. A quorum could not be obtained and for
months the president and treasurer had run the business without
reference to directors or stockholders. The cooperative society failed
and every cent of the four thousand dollars of the cooperators was lost.

Another cooperative store, this time in the Bronx, was taken over by the
manager within one year. Upon inquiry its directors proudly exhibited
its books. It was a beautiful set costing, they said, nearly
seventy-five dollars. The store had started in November. For November
and the first three days of December everything was kept in good shape.
But during the entire next year not an entry had been made. The
directors had the books, but the manager had the store. The stockholders
lost all their capital.

A thriving business was being done by still another cooperative store in
New York. At the outset the directors had voted to bond the manager. But
the matter was put off and put off. One day the manager disappeared and
with him two thousand dollars belonging to the cooperative. After a few
months the manager was found, but the money was gone. The loss of the
total sum was more than the cooperative could stand, however, and after
struggling along for a few months, it closed its doors.

A clever organizer two years ago started organizing a cooperative store
in New York. On the society's letter heads he had printed a picture of
the world and across the world the word "BIG." He was going to start a
whole chain of stores. In three months the first and only store was put
into the hands of an assignee and the man left the city. An audit of his
accounts showed that he had collected $3,600. One-fourth of this had
gone for promotion expenses, $2,350 for rental, fixtures, etc., leaving
only $350 for operating expenses. Where the Finns spent three-tenths of
one per cent for promotion he had spent twenty-five per cent. This had
forced the association to start with so small an operating capital that
it was soon badly embarrassed for lack of funds and could do nothing but
close its doors.

It would be possible to go on with many other illustrations. Such
failures as these are not really a test of genuine cooperation. Any
ordinary business with such management would also have failed. But it is
significant that most of the recent cooperative failures have been among
grocery stores. In this particular business the margin of profit is so
small that only the most skillful and economical management can bring
success. A recent survey of all the private grocery stores in one city
showed that the average annual profit was only $400 per grocer.

There is no longer any excuse for cooperatives to follow the blind into
the pit. There are many sources of information and advice available to
cooperatives that should be fully utilized before any money is spent in
a cooperative enterprise that promises only failure.




FALSE COOPERATIVES

The impractical cooperative which fails is bad enough, for it
discourages many people from making a second attempt, but the false
cooperative is a greater menace to the cooperative movement. The private
promoter with his selfish interests rigs up a scheme to look like
cooperation, but the actual purpose is to provide a channel whereby
thousands of dollars will flow from the pockets of the working people
into those of the promoter. Inasmuch as New York State has a law which
forbids the use of the word cooperation by any concern which is not
organized under the Cooperative Law, such promoters have to be
uncommonly shrewd.

* * * * *

The Glynn System.

Early in 1920 a group of three or four private business men in Buffalo
established a promoting corporation and then set out to organize a
cooperative wholesale which was to be a separate concern from their
promoting enterprise but was to be controlled by it. The promoters sold
shares in the Buffalo Wholesale to individuals in fifteen or twenty
cities and towns all the way across the central part of the State. They
opened up six or seven stores and handled goods in large quantities
through their wholesale plant.

The capital was solicited chiefly through labor unions. Elaborate
promises were made to prospective shareholders: they were to have a
local store in their neighborhood, dividends were to be paid regularly,
goods could be bought at prices below those prevailing at the chain
stores and the local group was to have local autonomy. As a matter of
fact the ultimate control was always in the hands of the few promoters
in Buffalo.

These men had two large sources of revenue from the many transactions
carried on. They exacted from each member five dollars "for organizing
expenses," and they took a commission on all the business handled
through the wholesale.

By the spring of 1921 some of the members in one or two centers became
suspicious, and began an investigation. They found that stores were in
many cases grossly mismanaged. One manager had absconded with $600.
Organizing or promoting expenses in some places were as high as
thirty-three per cent. The weekly newspaper was discontinued for lack of
funds. Some wholesale merchants finally refused to give further credit
to the Buffalo headquarters and at the end of the first year of
operation one of the office force confided to a friend that there was a
ten thousand dollar deficit. When bankruptcy was finally declared in
midsummer, the promoters were not to be found. The principal organizer,
an ardent friend of labor for many years, had been completely duped by
these promoters and was left penniless and alone to face hundreds of
investors. Cooperation was put in disrepute for thousands of men and
women in dozens of cities and towns throughout the State.

Cooperation cannot be developed downward from a central wholesale
organization with a corps of organizers, nor will it grow when built
upon mercenary motives. In this case organized labor in the state was
partly to blame for not heeding the warning of a few groups of
cooperators who were aware of the nature of the concern early in its
history. But the ultimate blame lies with the individual men and women
who joined the corporation without looking carefully into its
organization.

* * * * *

The Cooperative Society of America.

In 1920 The Cooperative Society of America was doing a flourishing
business in Chicago and vicinity. One of the leaders of the enterprise
went to Europe in 1921 and convinced most of the leading cooperators of
those countries that he was the greatest power in the cooperative
movement in the United States. By the summer of 1921, the agents of the
principal promoter of this scheme, Harrison Parker, were operating in
New York City, and scores of salesmen were covering the various boroughs
selling stock. Within two weeks all the agencies interested in
protecting cooperation were organized to fight this fraud. The matter
was placed in the hands of the Attorney General and a special deputy
appointed to prosecute. The leading newspapers ran an expose of its
operations. At this juncture, the Chicago headquarters suddenly went
into the hands of a receiver and the New York office closed its doors.

Late in the year federal action was instituted against Harrison Parker
in Chicago. The entire business of the so-called cooperative was
disclosed to the courts. It was found that 81,000 people had invested
fifteen millions in this gigantic fraud. Here in New York there were
many hundreds, if not several thousands, of men and women who lost large
sums of money in the ensuing bankruptcy. These people were taken in by
the dramatic appeal to their selfish interests. The Chicago organization
showed them photographs of the "massive buildings" in Chicago in which
it was doing business, spoke glibly of its banking and insurance
departments, and then promised them a share in the spoils if they would
pay $75 for their certificates which were worth only $25 or $50 at their
face value.

That so many people could be duped by these "get-rich-quick" methods is
an indication of the amazing lack of cooperative understanding which
prevails in the United States. It is a part of the purpose of this
Bulletin to correct the misunderstanding which prevails because of the
fraudulent use of the word cooperation. In the case of a suspected false
cooperative, test it by the Rochdale principles. If it fails to measure
up to them take the matter up directly with the State authorities or the
Cooperative League of America.




HOW TO START A COOPERATIVE ENTERPRISE IN NEW YORK STATE

In starting a cooperative enterprise two things must be considered:
first, the kind of business to go into and, second, the method of
organization. Any group desiring to engage in a cooperative venture
should first of all, through a committee and by consultation with
experts, determine what type of enterprise will serve them most
effectively. Where competition is unusually keen and profit margins are
low, cooperation is less likely to be of service than where the opposite
is the case. Whatever enterprise is started men experienced in that
business should be consulted as to the location of the business, the
stock and equipment needed, the operating capital necessary, etc.

Preliminary organization should likewise be handled by a committee which
might estimate the number of persons who would become members, the
service each could contribute to the society, etc. Meetings should be
held to educate the group in both cooperation and the special need of
the undertaking. For this purpose many educational bulletins may be
obtained from the Cooperative League of America and other reliable
sources.

Actual organization of the society consists of incorporation, election
of officers, the adoption of by-laws, and the immediate adoption of a
sound system of bookkeeping. No action undertaken before incorporation
has any legal effect on an incorporated body, so early incorporation is
desirable. The New York State law requires that all firms using the word
"cooperation" incorporate under one of the three state cooperative laws.
Outside of farmers' cooperatives practically all cooperative societies
are incorporated under the Stock Law known as Article III. Copies of
these laws may be obtained from the State Department of Farms and
Markets. The Department has prepared simple forms for incorporation
under this law. When these are filled out and sworn to and the papers
filed with the Secretary of State and the County Clerk, the society may
legally begin business. The fee of the Secretary of State is $30. A
board of directors is named in the incorporation papers and this board,
through a paid manager, will transact the society's business. Model
by-laws, upon which the by-laws controlling the organization may be
based, may be obtained from the State Department of Farms and Markets or
from the Cooperative League of America.




THE PRESENT TREND OF COOPERATION

There have been significant developments in the cooperative enterprise
in New York in the last two years. In the first place while a number of
small groceries closed their doors, the larger cooperatives have grown
larger and more prosperous. At last there appear to have developed
cooperatives which have passed that critical stage connected with the
life of a newly-organized business. One of these larger cooperatives,
which did over $200,000 worth of business in 1921, has turned its
surplus into its business ever since it started and is now buying more
land to erect a second business block in order to take care of expansion
which is forced upon it by the growing trade. Another cooperative has
established two prosperous branches and is now doing a business of a
quarter of a million dollars a year. A third, following a profitable
year in which its business amounted to $205,000, is likewise building a
new plant. The balance sheets of each of these associations would be the
envy of most business undertakings.

A second development is the appearance of a new type of management. A
group of younger men and women with a broad background, an intense
interest in cooperation and a capacity of growing up with the business
is working now to make these cooperatives even more successful. The
cooperative movement is likely to grow in pretty close proportion to the
ability of these leaders and the men and women they can attach to
themselves. Heretofore the greatest handicap of the cooperative movement
in this country has been the lack of trained and able leaders.

A third significant development is the adoption by cooperatives of the
best methods of management and accounting. Until this had been done the
cooperatives had small chance of succeeding. It is probable that
cooperatives which lack some of the incentives of the ordinary
commercial business will be compelled constantly to adopt the most
efficient and advanced type of machinery. In setting this up as a
definite standard they will escape the inertia and conservatism that
ordinarily characterize large groups, a condition which at the present
time is retarding the British cooperative movement. Two years ago
accurate accounting was an unusual thing among cooperatives. At the
present time practically all the cooperatives in the State have their
books gone over periodically by trained public accountants.

A still further trend in the cooperative development is the extension of
the movement into new lines of business. To this extent the failure of
cooperative grocery stores has had a beneficial effect since it has
forced groups to undertake different kinds of cooperative business. In
New York City at the present time cooperatives are engaged in such
diverse business as that of restaurants, cafeterias, bakeries, coal
associations, pool rooms, printing establishments, meat stores and
laundries. This means that the cooperatives are not following tradition
but are thinking for themselves and are selecting that enterprise which
will serve them most effectively. In going into these businesses where
profits are greatest they are not only prospering themselves but they
are performing one of their most legitimate functions, that of
protecting the consumer from extortionate profits.




BIBLIOGRAPHY

Books

Bubnoff, J.V. The Cooperative Movement in Russia. 162 p. Manchester,
1917.

Faber, Harold. Cooperation in Danish Agriculture. 176 p. London, 1918.

Gebhard, Hannes. Cooperation in Finland. 190 p. London, 1916.

[A] Gide, Charles. Consumers' Cooperative Societies (trans. from the
French). 251 p. Manchester, 1921.

[A] Harris, Emerson P. Cooperation, The Hope of the Consumer. 328 p.
New York, Macmillan Company, 1918.

Howe, Frederick C. Denmark, A Cooperative Commonwealth. 203 p. New
York, Harcourt, Brace and Company, 1921.

Johns Hopkins University Studies, Vol. VI. History of Cooperation in
the United States. 540 p. Baltimore, 1888.

Nicholson, Isa. Our Story. 80 p. Manchester, 1918.

Powell, G. Harold. Cooperation in Agriculture. 327 p. New York,
Macmillan Company, 1913.

Redfern, Percy. The Story of the Cooperative Wholesale Society. 439 p.
Manchester, 1913.

Redfern, Percy. The Consumer's Place in Society. 107 p. Manchester,
1920.

Smith-Gordon and Staples. Rural Reconstruction in Ireland. 279 p.
London, 1917.

[A] Sonnischsen, Albert. Consumers' Cooperation. 223 p. New York,
Macmillan Company, 1919.

[A] Webb, Catherine. Industrial Cooperation. 278 p. Manchester, 1917.

[A] Webb, Beatrice and Sidney. The Consumers' Cooperative Movement.
504 p. London, 1921.

[A] Woolf, Leonard. Cooperation and the Future of Industry. 141 p.
London, 1918.

Woolf, Leonard. Socialism and Cooperation. 129 p. London, 1921.

Transactions of American Cooperative Convention. New York,
Cooperative League of America, 1918 and 1921.

People's Year Book, Annual of the English and Scottish Wholesale
Societies. London, 1921.

[Footnote A: Best books on the subject.]


Magazines

Cooperation. The Cooperative League of America, New York, N.Y.

The Canadian Cooperator. Brantford, Ontario, Canada.

The International Cooperative Bulletin. 14 Great Smith Street,
Westminster, London, England.


Pamphlets

Historical

Consumers' Cooperation in New York City. Bulletin of the Division of
Foods and Markets for May, 1920. Prepared in cooperation with The
Consumers' League of New York City.

An Idea That Grew. Genevieve M. Fox. National Board, Young Women's
Christian Association, 600 Lexington Avenue, New York City.


The following are pamphlets of the Cooperative League of America:

Story of Cooperation.

British Cooperative Movement.

A Baker and What He Baked.

The Control of Industry by the People through the Cooperative Movement.

Cooperative Consumers' Movement in the United States.

Cooperative Movement (Yiddish).


Technical.

Credit Union and Cooperative Store. Arthur Ham. The Russell Sage
Foundation, 130 East 22nd Street, New York City.


The following are pamphlets of the Department of Farms and Markets:

Cooperative Housing.

Article 3, Stock Cooperative Law.

By-laws for Cooperative Associations organized under Article 3, Stock
Cooperative Law.

Article 21, Membership Cooperative Law.

By-laws for Cooperative Associations organized under Article 21,
Membership Cooperative Law.

Article 13 A, Farmers' Cooperative Law.

By-laws for Cooperative Associations organized under Article 13 A,
Farmers' Cooperative Law.


The following are pamphlets of the Cooperative League of America:

How to Start and Run a Rochdale Cooperative Store.

System of Store Records and Accounts.

A Model Constitution and By-Laws for a Cooperative Society.

Cooperative Education. Duties of Educational Committee Defined.

How to Start a Cooperative Wholesale.

Why Cooperative Stores Fail.

Cooperative Housebuilding.

Cooperative Housing for Europe's Homeless.








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Online LibraryThe Consumers' League of New YorkConsumers' Cooperative Societies in New York State → online text (page 2 of 2)