Saturday, March 31, 2007

Van Ornum, Co-operation, X

Twentieth Century, July 19, 1894, 8-10.

CO-OPERATION.—EUROPEAN CREDIT BANKS.—X.

BY W. H. VAN ORNUM.

In Italy, co-operative banking has developed another of its possibilities; that is, the issuing of bills of credit, or current money. The People’s Bank of Milan was the first, started by Signor Luzzati, in 1866. Within a few days after it opened its doors it was confronted by a war. The government had levied a forced loan; and a financial panic was the result. The People’s Bank promptly came to the rescue and offered to issue small bills of five, three and two lire, against security. Any person could obtain the bills by depositing approved security. The printing press was started at once, and with the most admirable success. From that moment the success of the bank was assured. At the beginning, it had but £28 capital, exactly the same as that possessed at the start by the Rochdale Pioneers; and all work was performed gratuitous. According to the last reports which are accessible, it now employs over 100 paid employees and 240 unpaid officers. It had 16,392 members; a capital of £336,752; and a reserve of £168,376, doing an annual business of £71,841,788; and distributing in dividends £46,080.

It must be remembered, however, that the Italian banks started out on a radically different plan from those of Germany. They began upon the principle that borrowing means dependence upon others; so they discarded it as the prime purpose; and largely confined their transactions to bills of exchange, discarding the principle of unlimited liability. In this, and in their share capital, their dividends and other capitalistic features they are less co-operative than their neighbors in Germany and Austria. Their method of borrowing is this: suppose A is considered good for £40; B for £30; and C for £60; on the strength of their joint signatures any one of them is entitled to a loan of £130, provided no other paper is out signed or backed by A, B and C. Then again, a tradesman, having money owing him from a customer, needs but to have the customer’s acknowledgement of the debt, when he can get it discounted. This system has been found to work well and safely. Under it banks have paid all the way from six per cent to twenty per cent dividends. Year by year Signor Luzzatti has insisted upon stopping that, but without avail. “Limit dividends,” he said, “cast away every inducement to greed.” The only lesson of value in this type of bank is, that co-operative banks can just as safely and properly issue circulating bills of credit based upon proper security as any other agency in the world. Beyond this, the banks of Signor Luzzatti do not differ widely, in the extent of their co-operation, from the banks of Schulze-Delitzsch. They are not for the very poor. They fail to reach those who are in greatest need of their help.

Realizing this fact, Dr. Wollemborg started a new type of credit bank, in Lombardy, in June, 1883, with only thirty.two members, and patterned very nearly after the Raiffeisen banks of Germany. A few peasants became borrowers. When their first quarter came around they were surprised to receive notice that they owed 1 1/2 per cent on their loans. They could not understand it. They had been used to from 30 per cent to 100 per cent; and sometimes much higher. They brought in their notices to see if some mistake had not been made. Being assured that the notices were correct they at once proclaimed the good news. The subsequent history has been a repetition of that of the Raiffeisen banks in Germany. In fact, they have followed closely the Raiffeisen lines, except in some cases carrying his principles still further. They have thoroughly met the wants of the very poor, and have produced the same moral effects among them. As to personal character, they are strict as no other. A man may be as poor as a church mouse; but it is no bar to membership. Not a penny has to be paid down for shares; but the applicant must be honest, sober, thrifty, well conducted and thoroughly trusted by his neighbors. He must also have a rudimentary knowledge of reading and writing. It is said that under these influences illiteracy, which was as prevalent as in any portion of Ireland, is rapidly disappearing. The stimulus of personal interest has proved more powerful, in habits of temperance, than all the eloquence of priests and the arguments of temperance lecturers. Just as in Germany, unlimited liability has been found to be devoid of any element of danger. Not a farthing has been lost to anybody. Even where members have left the country they have sent in their payments with regularity. The poor become self- reliant and business like; cultivation has been improved; paupers are transformed into self-supporting citizens; and the usurer finds his occupation gone. The hovels are transformed into neat and tasty houses; and thrift and order take the place of carelessness and disorder.

The credit unions of Belgium are formed on a still different plan. An indefinite number of members join, each taking one share, of say 200 francs. On this they pay 20 francs, and in some cases only 10; but the share entitles them to a credit of 200 francs on paper, to which the union affixes its signature, and becomes responsible; a modification of the issue of currency bills of credit. At first this seems extremely hazardous; but with care in accepting members this has been found to work well. The first one established proved its soundness by living through a crisis of almost unparalleled severity.

In Switzerland almost the only form of co-operative bank which has been introduced to any extent has been something like our building and loan associations: co-operation in savings. But these have flourished for more than sixty years. They pay no dividends; carry all surplus to the reserve; and have redeemed every farthing of their share capital. Their management is strictly democratic; and the same attention is given to small as to large business.

In other directions co-operation is well advanced in Switzerland. Co-operative dairy associations, which produce the famous Swiss cheese; co-operative cattle- purchase associations; cooperative Smithies, which have effected important savings; and co-operative insurance associations against hail and cattle plague, and sometimes against fire, have much reduced the cost of insurance below that charged by joint stock companies. In some places co operative butcheries exist. There are thirty-five co-operative cattle-purchase associations in the canton of Thurgan, which supply 22,230 of the population with their needed farm stock. For more than forty years have these associations kept the population in milch cows and heifers, rendering invaluable services, and receiving their money back with interest. But why with interest? If the associations are co-operative: that is, operated strictly in the interest of those who want cattle, then there is n sense in collecting interest or profit from those members; because, whatever profit is made above running expenses it must needs be divided right back to the same people again as dividends. It is something more than a suspicion, that in this particular they are not co-operative; but that capitalists, large or small, find this a means of loaning money on interest to some otherwise co-operative societies, thus reaping a return without work. There is nothing co-operative about any scheme of interest.

The war of 1870, whereby France was overrun by the German armies, swept away the small co-operative banks which had been planted prior to that time In i866 France had no less than 300, following very nearly the Raiffeisen plan, each with from 25 to 50 members, modest and obscure, but doing their work faithfully and meeting the real wants of the people at small cost to anyone. One of the largest, situated in the Fanbourg St. Antoine, in the six years of its existence loaned upwards of 6,000,000 of francs, and only had two small losses to report. The rigor of self-help; the sense of responsibility; and the humility of its work made it a success where the millionaire enterprises of the state and rich capitalists failed. It has been said that French co-operation was born of the revolution; and had for its object, not the reform of trade, but the emancipation of the workmen. The war practically put an end to co-operation in France, until it was again revived about 1887 by Father De Besse, a Capuchin monk. He has, however, deviated considerably from the Raiffeisen plan; and has been obliged to resort to indirect methods to maintain security. Being a churchman also, he has made them largely a church affair; and yet, in their way they are doing a useful work, while falling far short of the Raiffeisen banks of Germany. Members pay five francs entrance fee, and take shares of fifty francs, which bear no interest. They adhere to the principle of unlimited liability; and repayment is made by installments.

The People’s banks in Algiers and throughout French Africa, of which there are about sixty, follow closely the Raiffeisen lines; and are doing a good work in an unpretending but thoroughly useful manner.
In sharp contrast to these institutions for mutual self-help, it will be instructive to glance at a few of those conspicuous failures started on the principle of a help to be conferred upon the people by their rulers. The first Napoleon set up his Société du Crédit Agricole, with a great flourish of trumpets, upon a vast capital mainly furnished by himself. His object was to loan money to farmers with which to improve and cultivate their farms. But the scheme was looked upon with suspicion; and he could get no borrowers. At last he loaned 168,000,000 of francs to the Khedive of Egypt, which brought the bank to an end.

Another attempt (I think by Napoleon III.), was called the Chasse d’ Escompte, with a million of money, one half contributed by himself; but no one could be found to borrow. It ended quite as ingloriously as the first. The Empress Eugenia also had to try her hand. She set up the Société des Prets de l’Enfrance; and with the same result. Gambetta started one on the same principle with a capital of 50,000,000 of francs: 12,000,000 of which was subscribed; and later on, Benjamin Rampal, with 2,000,000 francs, all of which failed. They were unsuited to the wants of the people. They could not attract those whom it was absolutely necessary to reach in order to carry out their benevolent schemes. Whatever improvement in the condition of the people that is ever realized must be achieved by the people themselves. It can never come from their rulers; and that is just as true of the politicians in a republic as it is in a monarchy. The difference between them is only in the name.

There is also in France a type of co-operative supply associations among farmers called syndicates. These, while as yet limited to a small compass of activity, ambitiously aim to do almost everything, just as our granges did at one time. They are not unlikely to fall as far short of their ideal as did the grange. But they are educating the people to look to co-operation for great benefits in the future; and when the time comes that an adequate scheme of co-operation is offered the work done by those syndicates and our granges will be found a most useful preparation. Already those syndicates have rendered valuable service to the farmers of France in the purchase of fertilizers and other supplies for farm use.

Those interested in the study of European credit banks would do well to read carefully “People’s Banks,” by Henry W. Wolff, published by Longmans, Green & Co., New York, from which this and the two previous chapters are largely condensed.

No comments: