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To the American Co-operative Movement: A Timely Warning

John Ilmari Kolehmainen

The future of the co-operative movement in the United States is being viewed by interested followers with decidedly conflicting emotions. The accumulative effect of the depression years has been to confuse assurance and optimism on the one hand with alarm and misgivings on the other. While the advocacy of co-operation by the American Federation of Labor and the depression have fixed the attention of more and more workingmen and women to the advantages of Consumers' Co-operatives, yet the importance of this increased interest is offset, in large part, by the fact that these "lean years" have caused many co-operators to disregard certain fundamental principles of co-operation. Let us take, for example, the principle that reads: "Goods shall be sold only for cash." To meet the exigencies of a situation that rose from continued unemployment and the depleted purses of their members, many co-operators have reverted (temporarily they say) to credit-sales. Lest this alarming retrogression become fixed and permanent, it might be well to reconsider the importance of this principle of cashsales. It has been time-honored strategy to cite the experiences of the Rochdale Pioneers in refuting the credit-sales argument. But there are many today who would pay but little attention to a hundred-year-old rebuttal. It becomes necessary to prove to the Doubting Thomases on the basis of a present-day experience that the importance of selling for cash has not been lessened in any way. This study of how the credit system operated to engulf two co-operatives and threaten a third in Conneaut, Ohio, is timely proof to reaffirm and reassert that it is only on the basis of cash-sales that the co-operative movement can go forward.

The co-operative movement in Conneaut, a town of about 9,000 inhabitants located in the extreme northeast corner of Ohio, has been distinctly a movement among the Finnish immigrants. Although Finns were known to have worked in Conneaut as early as 1890 it was not until the construction of the Pittsburgh and Conneaut ore-unloading docks in 1892 that a permanent settlement was assured. A reliable source of employment became the nucleus around which a Finnish community grew. In 1893 there were only twenty Finnish men, two women and six children in the settlement. By the middle of the next decade the number had increased to about three hundred by immigration from Finland as well as from neighboring towns. The presence of such a homogeneous group led to serious discussion of the advantages to be derived from a Finnish co-operative. "The idea of a co-operative", wrote a resident in 1906, "took on the character of an uncontrollable brush-fire". This enthusiasm resulted in the establishment of the Voima (Strength) Co-operative Grocery in April of that year. The three year existence of the co-operative "between life and death" and its ultimate transfer into private ownership was testimony to the way in which credit-sales affected it. A policy of giving credit had been regarded by the co-operatoes as the sine qua non of getting members into the co-operative movement since it was almost a universal practice to allow credit. The attitude was not long in developing among the members that if one became delinquent, with or without just cause, his neighbor decided that there was no reason why he should pay his account. The malady of nonpayment spread like a panic and conditions soon reached a state that with the co-operative doing a good business there was not enough cash on hand with which to purchase lamp oil twice a week entailing an outlay of twelve dollars. The credit-sales system worked for some three years as an ever-growing cancer. Finally in the spring of 1909 when a wholesale firm threatened to sue for an account receivable unless the co-operative was turned over to private ownership, the co-operators sadly relinquished their first-born. Later, a historian recalled that "the greatest factor that brought the co-operative to its predicament was credit-sales". That there was truth in his estimate is found in the fact that at the very moment when the co-operators were turning over their establishment to private ownership, there was a CLEAR PROFIT OF $1800 "in the books", a sum, which had the co-operators been able to reach, would have saved their store.

In 1913 a Co-operative Bakery was established by virtually the same Finns. While, quite naturally, the credit system could not have become as important a factor in a venture where goods were sold in small quantities, yet credit sales did, along with business inexperience, sabotage and the rising costs of the war years, bring about the failure of the cooperative in 1918. The immediate cause of the failure was again the inability of the co-operators to meet their obligations to a wholesaler. A sheriff’s seal on the establishment's door was ample proof that under a credit system there was no way of raising cash when it was needed. But fortunately, two years earlier (1916) the Toimi Co-operative Grocery was begun under the bakery's charter. When its separate identity was maintained in 1918 in a court of law, the co-operative began a very gradual growth and has developed into an enterprise doing last year a business of over $50,000. The most important factor in its survival and growth has been the substitution of a cash for a credit system. This change was made on August 20, 1928. A glance at the movement of accounts receivable and cash on hand before the change was made and after cash sales went into effect will show clearly how the credit-system threatened to engulf this third co-operative as it had its two predecessors. In 1918 credit sales amounted to $29,037.25 and cash sales only $3,862.66; in 1925, credit sales $72,193.90 and cash sales $8,765.45; in 1927, credit sales $78,256.16 and cash sales $9,505.17. A stranger in the community was always safely recognized by the fact that he paid cash for his purchases. The consequences of such heavy trading on credit were obvious. The accounts receivable grew with each succeeding year and the cash on hand for meeting the operating costs lingered around the zero mark. In 1922 the accounts receivable were $4,119.75 and cash on hand $101.31. By 1925 the accounts receivable had risen to $5,279.19 and the cash on hand had dwindled to the inglorious level of $7.20. In 1927, the year before the change was made, the accounts receivable reached the astounding figure of $7,473.76 with only $162.45 in cash on hand. The direction was unmistakably toward bankruptcy and ruin. But fortunately enough, the more farsighted of the co-operators were able to push through the stock-holders' meeting an amendment prohibiting credit-sales. The subsequent trend of accounts receivable and cash on hand has been such to make the Conneaut co-operators aver that the decision to sell for cash only was the Magna Carta of their co-operative movement. From an enterprise having, as we noted, over $7,000 in accounts receivable and little if any cash on hand, the Toimi Co-operative has grown into a business that has only $1,000 in accounts receivable (contracted before the change was made), a sum that is decreasing regularly each year, and over $4,000 in cash on hand, an amount that is increasing just as regularly each year.

That a timely warning can be drawn from the experience of the Conneaut co-operators is obvious enough. If the co-operative movement in America is to succeed in ameliorating the condition of workingmen and women, it can only do so by firmly and steadfastly adhering to the principle of selling for cash only. That is the road that will lead co-operation ever onward. The other road leads to ruin and disillusionment.

Published in American Federationist 1936, Vol. 43, No. 4, p. 393-395.

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