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The North Star Cooperative

John Ilmari Kolehmainen

One of the largest and perhaps best known of the Finnish immigrant cooperatives in the United States was the North Star Cooperative Store (Pohjan Tähti Osuuskauppa) of Fairport, Ohio. The main outlines of its history suggest the familiar theme of humble birth and struggle, prosperity and reckless expansion, the hour of reckoning and insolvency.

The doctrines of consumer cooperation began to take hold among the Finns residing in Fairport about 1908. In March of that year, for example, a group of interested persons met at the Kasvi Temperance Hall to discuss the formation of a cooperative; nothing, however, came of the meeting.1 Three years later the body of followers had been greatly increased and by the fall of 1911 steps were being taken to inaugurate the cooperative movement in the large Finnish settlement. On December 26 of that year, Samuel Kallio, Matti Lahti, Niilo Killinen, Matti Pitkänen, and Nikolai Saari petitioned for articles of incorporation for the North Star Cooperative Store Company.2 The subscription books for the $3000 corporation were opened on January 11, 1912, at Pitkänen's residence in Fairport. Twelve persons took sixty-two shares that evening, including thirty by Victor Lindberg, ten by Isaac Mattson, four by Kustaa Kasari, and two each by Pitkänen, Kallio, Isaac Ringman, Matti Lahti, W. Lahti, N. Saari, N. Killinen, Matti Hietanen, and John O. Koski. By the time of the stockholders' first meeting, held at Kasvi Hall on January 31, the number of shares subscribed had risen to 112 and the number of shareholders to thirty-eight.

In the spring of 1912 the North Star Cooperative embarked upon its course as a small grocery, managed by John Ritari with N. Saari, M. Palo, and N. Killinen on the directing staff. The early history of the cooperative thoroughly tested the mettle of its sponsors. On January 25, 1913, for example, a company of sad faced stockholders seriously considered, in the face of chronic deficits, abandoning the venture. It was decided, however, to postpone final decision until March first; at that time, "if the future ... seemed brighter than today", the cooperators swore to "carry on the business with renewed vigor".3 On March 8 the Finns reconvened; the financial statement prepared for them indicated that the past seven weeks had increased the deficit by nearly $150, or at a rate of $3.44 per day. Confronted by such discouraging statistics, the stockholders decided to forsake their progeny by a vote of sixteen to six. The manager was asked to remain at his work for another two weeks in order to wind up the grocery's affairs. But there were a few resolute cooperators who refused to relinquish the enterprise without a struggle. By assiduous propaganda and appeal, they were successful in reviving the drooping spirits of their colleagues; and at a special meeting on March 10 the defeatist decrees of the previous evening were rescinded. The North Star Cooperative thus passed safely through its first crisis. Sales shortly began to increase and by June, 1913, the treasurer was able to report only a small deficit for the past quarter. In August of the same year the quarter review showed a profit of $327; the cooperative was "going forward".4

After this stumbling start the North Star Cooperative enjoyed a remarkable growth. By January, 1914, business was good enough to warrant the appointment of a committee to make inquiries for a building site; in August, 1916, the cooperators purchased such a site on Eagle and Sixth Streets at a price of $1000. In February, 1917, the capitalization of the rapidly developing institution was raised from $3000 to $25,000; shortly before this, nearly $2500 worth of stock had been distributed among the consumers, leaving but twenty shares unsubscribed of the original capitalization. In the meantime, the cooperators, greatly impressed with the phenomenal growth of their enterprise, had begun to entertain ideas of expanding into other lines of merchandising. The proposal to add a dairy to their activity was thoroughly examined by the shareholders on July 21, 1917; the prevailing point of view was favorable to expansion, one enthusiast asserting, "The broader we make the cooperative movement, the greater will be our benefits."5 A mass meeting of the Finnish residents on December 14 at Kasvi Hall further encouraged the cooperators to proceed with their plans. In March, 1918, the construction of a dairy was begun and before long, cooperative milk was being distributed throughout the community. The new enterprise received excellent support from the public; its gross income for the first year was nearly $17,000.

Having established their grocery and dairy on successful footing, the Fairport cooperators set out on a stupendous program of expansion during the second decade of the century. First of all, a monument to the cooperative movement - in the form of a modern edifice - had to be erected on the Eagle and Sixth Streets site. The board of directors decided on January 26, 1920, although it would necessitate a loan of $15,000, to push the scheme of immediate construction. The stockholders, moreover, were equally determined to have a new home; when a proposal was made at a special meeting on April 14 seeking to delay construction, the majority view was "not to speak a word of postponement but to build, build, build!"6 The Lake County Loan Company furnished the $15,000, at a profitable rate of interest, for meeting the building costs; by the end of November, 1920, the edifice was approaching completion. It was opened to the public, who had been informed of the gala event through advertisements "so large that they could be seen without glasses",7 on December 6. The High Street store, where the North Star Cooperative had been heretofore located, was closed on December 18 and its stock transferred to the new and elaborate quarters.

Upon completion of the structure, the directors turned their attention to other avenues of expansion. On December 20, 1921, the board voted to propose to the stockholders that a clothing and shoe department be added to the cooperative's program; the stockholders, convening on the following January 14, resolved without a dissenting voice to put the proposal into effect.8 A short term loan of $2000, needed to buy the necessary stock, was negotiated. By April, 1922, the department reported a daily average sale of $50 worth of mail order suits and shoes. At the January 14 meeting of the cooperators the matter of entering the coal business was also discussed. The board informed the shareholders that it had already bought a site from which coal might be retailed. Shortly afterward, the North Star Cooperative became a provider of warmth as well as of subsistence and clothing.9

After a breathing spell of three years the directors resumed their expansion program. In July, 1925, the board leased the grocery of J. Myllykoski for a term of ten years, undertaking to pay a monthly rental of fifty dollars as well as to buy the stock outright; the latter item, involving over $2500, was carried at six per cent interest charges after a cash payment of $600 had been made. This grocery was known as store No. 2. Less than five months later, in November, the directors voted to lease a second store, located in the "välikylä" section of Painesville, promising to meet a monthly rental of thirty dollars. In June, 1926, however, the board borrowed $5000 for the construction of its own building in Painesville; this branch became known as store No. 3. The stockholders sanctioned at every turn the actions of their directors.10

The aggrandizement of the cooperative movement was not yet at an end. In August, 1926, the familiar cooperative institution, the bakery, was added to the North Star organization. To be sure, the question of a bakery had been discussed long before. As early as December, 1919, the directors studied the feasibility of buying the local Suonio Bakery and appointed a committee to bring the matter to the attention of the stockholders. While the latter voted twenty-four to sixteen in favor of purchase, the directors shortly decided to postpone the matter inasmuch as their interest now became centered upon the erection of a new building.11 A little more than a year later, the new manager declared that over $20,000 worth of baked goods could be sold annually in Fairport and vicinity; the directors, having already that evening voted to initiate a clothing department, promised to introduce the matter at the forthcoming annual meeting of the stockholders. The question of the bakery was reviewed from all angles at the meetings of January 14 and 22; at both sessions an energetic minority opposed the establishment or purchase of a bakery, arguing that it would be better to retire the present heavy debt structure than to add to it. While the cooperators nevertheless voted thirty-nine to nine in favor of entering the baking goods field, nothing materialized at this time.12 The proposal was reintroduced at the semi-annual meeting on July 29, 1925; sixteen voted to continue the drive for a bakery while fifteen asserted that the matter ought to be tabled indefinitely. The expansionist forces derived new strength when it was learned that the large Tuuri Bakery was for sale; at a meeting on August 21, 1926, the cooperators voted fifty-five to seven to buy the establishment for $25,000. A mortgage for $8500 was immediately secured on the building and in September of the following year a further sum of $10,000 was borrowed, this time offering as security the central edifice, to finance the North Star's many undertakings.13

The last step in the spread of the North Star Cooperative was taken in 1931. In the summer of that year the cooperators, in desperation, established their branch store No. 4 which was to sell goods for cash only and at as low prices as possible.14 By this means they hoped to realize enough cash with which to carry the organization through the deflation crisis.

An examination of the North Star Cooperative's financial condition as of December 31, 1929, reveals its vulnerability. In the first place, the program of expansion had been financed through borrowings and anticipated earnings rather than through actual income. As a result, there was $25,750 in mortgages at the close of 1929 and an additional sum of $9546 in promissory notes. The carrying charges, to say nothing of amortization, of this debt structure required a goodly share of each year's gross income. The turnover in 1929, for example, reached $465,259; yet, partly due to this indebtedness, the year ended with a net loss of $171.15 A second and heavy drain upon the cooperative's funds was in the redemption of capital stock. Although not obliged to buy back its stocks, the organization had for a great part of its history redeemed stock, giving cash or merchandise in return. The flow of stock back into and the flow of money out of the corporation was heavy; eighty-six shares, for example, were presented for redemption at a single meeting. The funds used for this purpose could have been more wisely applied, as one auditor suggested, to the reduction of contracted liabilities. Untimely distribution of paper profits, moreover, impoverished the cooperative. On one occasion, in February, 1929, the board of directors borrowed $5000 in order that the consumers might enjoy the blessings of the "cooperative's profits".16 Trading had been done, despite the oft-repeated warnings of the more farsighted cooperators, on credit; of the 1929 turnover in goods, for example, over $322,000 had been in credit sales. To be sure, selling for credit was not in itself a fatal practice if a special reserve had been set up for bad accounts and if rigorous limits had been imposed on the amount of credit which each individual might enjoy. Unfortunately the Fairport cooperators had not been wise in either respect; there was no special reserve and some of the accounts receivable had been permitted to rise as high as $500.17 In 1929 there were over $28,000 of such accounts; they were not, of course, all bad accounts, but good or bad, they were extremely hard to transform into cash if and when, as after 1929, a need for funds presented itself. On the other hand, the accounts payable increased annually; by 1929 the North Star Cooperative owed over $27,000 in accounts payable to wholesalers and merchandisers. One year later the total sum of accounts payable exceeded the assets of the corporation by $11,140, this in spite of the fact that its constitution clearly stated: "This cooperative society shall not assume liabilities in excess of its assets."18

In such financial state, the North Star Cooperative could not weather the storms of the depression period. Successive annual net losses of $7076 in 1931; $8805 in 1932; $9390 in 1933; and $10,393 in 1934 smashed the cooperative.19 In the meantime, the branch stores were dropped one by one. In March, 1933, the clothing store was ordered to be sold "at whatever price". In June of the same year the coal business was discontinued; stores No. 2 and 3 followed shortly. In 1934 the bakery and the dairy passed out of the hands of the North Star Cooperative, leaving only a grocery store on Eagle Street in its possession. Despite a last minute change to cash sales, the frantic stockholders could not save the enterprise. On September 19, 1935, the North Star Cooperative, once the toast of the American Finnish cooperators, passed into the hands of a receiver.

There were, to be sure, a few zealous fighters who refused to believe that the North Star Cooperative was beyond resuscitation. At their instigation, several mass meetings were held at Kasvi Hall in December, 1935, and during the first three months of 1936; at each of these sessions the Finns were exhorted to reunite under the banner of cooperation. The name of the reorganized institution was to be, appropriately enough, the New Star. But the fall of the North Star was too vividly fixed in the minds of the public; the New Star never appeared on the cooperative horizon.

1 Proceedings of the Fairport Kasvi Temperance Society, March 15, 1908, MSS.

2 Proceedings of the North Star Stockholders, January 31, 1912, MSS. The cooperative features of the organization's constitution and bylaws (4th rvd. ed.) were: "No person shall be eligible to hold more than 60 shares in this organization and no stockholder shall be entitled to more than one vote regardless of the number of shares owned by him"; "This cooperative society will pay an annual dividend of 6 % on capital stock. The net profits shall be divided among the consumers in accordance to their purchases after 30 % has been placed in the reserve fund and 10 % in the advisory fund."

3 Proceedings of the Stockholders, January 25, 1913.

4 Ibid., August 23, 1913.

5 Ibid., July 21, December 14, 28, 1917.

6 Ibid., April 14, 1920.

7 Proceedings of the Directors, November 14, 1920.

8 Proceedings of the Stockholders, January 14, 1922.

9 Ibid. See also January, 27, 1923.

10 Proceedings of the Directors, July 13, November 25, 1925; February 22, 1926.

11 Ibid., December 2, 22, 1919; January 26, 1920. Proceedings of the Stockholders, January 17, 1920

12 Proceedings of the Stockholders, January 14, 22, 1922. Proceedings of the Directors, December 20, 1921.

13 Proceedings of the Stockholders, July 29, 1925; January 30, 1926; August 21, 1926. Proceedings of the Directors, September 27, 1926; September 30, 1927.

14 Proceedings of the Stockholders, August 15, 1931. This branch, along with the dairy, was the only store to show a net profit, for example, during the year 1933: Store No. 1: net loss of $5245; Bakery: net loss of $1403. Store No. 2: net loss of $2066; Dairy: net profit of $2093. Store No. 3: net loss of $1822; Dry Goods: net loss of $395. Store No. 4: net profit of $14; Coal Yard: net loss of $564.

15 Ibid., February 8, 1930. Financial Statement as of December 31, 1929

16 Proceedings of the Directors, February 14, 1929. An executive of the cooperative roughly computed that the North Star had returned some $92,000 of its profits to consumers during the years 1912-35.

17 Fourteen out of twenty-seven large accounts receivable considered at a directors' meeting on August 9, 1926, were over $100 each. Indeed, two of the accounts were for $1739.19 and $2643.00 respectively.

18 This clause was added to the by-laws in March, 1922.

19 Proceedings of the Stockholders, passim. Profit and Loss Statements for 1931-34.

Published in the American Federationist, Vol. 45, 1938, p. 160-165.

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