“He would rather put his money into a crate…”

About the ethical cooperation banking association’s responsibility

by Georg Koch

Should cooperation banking associations give in to the artificially produced merger pressure? What were the concerns and ideas of the founders Friedrich Wilhelm Raiffeisen and Hermann Schulze-Delitzsch?

The merger wave among the Raiffeisen banks in Germany, Austria and Switzerland does not come to an end. While in 1986 there were still 1229 independent Raiffeisen banks, the number has diminished over the years to only 292 autonomous cooperatives by now. The reasons given for this are the high amount of the required total assets and the increasing bureaucracy necessary due to US-requirements demanding a larger staff.
Nevertheless, the Raiffeisen- and Volksbanken still enjoy the confidence of customers and cooperative members and that is why economically they are still very successful. Less well received is that in many places large bank-style stately buildings were created with their money, which is diametrically opposed to the modesty of Raiffeisen’s founder. Although even in rural regions the number of cooperative members has increased to more than 4500 and many non-members join as customers, Raiffeisenbank Switzerland still advertises with the slogan: “Proximity to the customer is both ideationally (business philosophy) and geographically founded. Normally the bank manager and the staff know their customers personally.”1 In order to rethink further planned mergers and to preserve this business philosophy it seems more than appropriate to reflect on the thoughts of the cooperative banks’ originators Friedrich Wilhelm Raiffeisen und Hermann Schulze-Delitzsch about the question of size and lending policy.

When the stronger holds sway over the weaker by means of money…

Both Raiffeisen and Schulze-Delitzsch did not view their cooperatives as utilitarian organisations of advantage for their customers. They both wanted to raise social peace within their country by their respective cooperative movements. Raiffeisen was convinced that Christian charity was a crucial basis to alleviate social hardships and to promote social welfare. Cooperative associations and cooperative labour were to function as a school for moral improvement of public spirit in order to ensure self-help by solidary union.
As early as 1866 Raiffeisen lamented in his work “Die Darlehnskassen-Vereine als Mittel zur Abhilfe der Noth der ländlichen Bevölkerung sowie auch der städtischen Handwerker und Arbeiter”2, that after the unfreedoms of status law (the so-called “Ständerecht”) and guild coercion money was now ruling the world. “Money has become an insurmountable power, eliminating all obstacles. As formerly physical violence, money now enables the stronger to dominate the weaker. Besides political powers globally governing world powers are emerging, which are collecting vast treasures and are therefore exerting unlimited influence. It is this influence, which more and more undermines the people’s wealth, destroys the lifeblood of a healthy life among the people and threatens not only the good continuation of society, but also that of states and thrones.”3
Raiffeisen saw the solution to the problem neither in a “top-down rescue” (by the government and so on) nor in a communist revolution. His solution, successfully tried and tested by now all over the world, were voluntary cooperative associations for mutual self-help. “As in former times, neighbours have to associate today very closely and intimately in mutual protection and defence, in order to free themselves by their joint forces, i.e. to break the baleful influence of the usurious money power, so as not to waste their forces vainly on the latter, but to use them in a fertile and beneficial way for the sake of the family. We have to establish guilds again, but guilds that are emerging in a natural and liberal way from the true needs of the people, according to their peculiarity. Only such associations will take firm roots among the population and be of enduring existence.”4

Cooperatives have a political-moral duty

Schulze-Delitzsch, too, was concerned about the hardship of the people. He also fought against economic privileges that were undermining political equality and thereby continuing suppression and discrimination by means of the former status law. According to Schulze-Delitzsch cooperatives have both a materialistic and a moral political task: “‘Funds and education’ – ownership of the exterior working materials and bodily, intellectual, and ethical valour – these are the factors, to which the success of modern society is linked. It is our task to provide them to the workers to a larger extent, than has hitherto been the case. […] Again, it is our free associations, in which our artisans and labourers join together, in order to achieve their objective. Joining together in our worker’s associations, our artisan societies, and learning societies, the people, powerless in their isolation, become a mighty force. These, the true ‘guilds of our time’, are destined to realise the great principle of free labour in its full extent, the complete naturalisation of the workers in state and society. To associate firmly, to exercise one’s foresight and energy, independence and stirring intervention in the nearest field of daily life, in household and professional life, this is where we have to start, from here everything else has to begin. This is the pre-school of self-government and autonomy in state and community, a nursery from which free men, diligent people, and brave citizens will emerge, the seed, out of which the salvation of our fatherland will grow!”5
Already at the time, Schulze-Delitzsch saw in their mutual support, a guarantee for personal self-fulfilment: “By incorporating their members into a powerful community, they leave the greatest possible leeway for individual demeanour, for the individual character of each. It is precisely by this solidarity, by this responsibility of each for all and all for each that they provide for the individual the secure basis for personal recognition; mutuality is the best safeguard for the individual’s independence. […] But it is not only the solidarity of obligations, which manifests itself in this commitment – no, it is most notably the solidarity of right, which is the actual keystone of the organisation, which has the effect that the free personality will not be submerged by the collectivity, but find the best support in it.”6
The credo of Schulze-Delitzsch was: “Whosoever asks for the support of another, and be it the state, gives him the sway, the supervision over himself and relinquishes his independence. That would be the surrender of oneself, a despairing of one’s own forces, which would be all the more amiss, all the more unfounded, as evidence has been provided by cooperatives that workers, once properly engaged, are indeed able to help themselves, and do not stand in need of outside support.”7

Education for cooperative members

In order to foster and preserve this solidarity, Schulze-Delitzsch wanted first of all to encourage and promote cooperatives for educational purposes. “Such associations coalesce, in order to provide educational means to their members, which are not available for them, when they are isolated. One debates, one exchanges views, provides teaching material, inspiring lectures are being held. In this way one tries to improve the understanding of the individuals, by gauging them with each other; funds are being raised, to acquire books and periodicals, to ensure joint lessons and advanced training schools, and no one will fail to recognise the pleasant things which have already been achieved in this field.”8
In 1889, as a Prussian representative, Schulze-Delitzsch participated in significant way in the development of the first Prussian cooperative act. Furthermore, he encouraged the forming of diverse cooperatives in the following domains: advance disbursement-, credit- and loan-societies, people’s banks, commodity societies, consumption societies, health insurance funds, and cooperatives for joint businesses. The main policy of these cooperatives he summarised in the following way:

  1. “Those for which the cooperative takes care with regard to any necessity in business and acquisition, must be members and promoters of the entire enterprise, bear their profits and losses, because this is the only way social self-help can be organised in our associations.
  2. 2They shall not only participate in the case of losses or profits of the associative business, but also in the conduct and administration of the latter. This is the cognitive part of the business tasks; they are to take administrative functions as well as the participation in decisions of the association, which leads to the fact that even sovereign decisions come from the whole body of the members.
  3. The formation of the funds required for the associative business is done by cash deposits of members, which gradually must be brought to shares of the corresponding value by continuous contributions and attributions of individuals’ profit shares (dividends), as scope and risk of the company – the financial circumstances of the members – require.
  4. In order to find a solid footing for the loan it is in any case necessary that all members hold the responsibility for the joint liability of the association’s debts;
  5. Finally cooperatives cast off the principle of exclusivity otherwise prevailing in business. Cooperatives do not make sure some few get the benefits of the company, but on the contrary extend it to as many as possible. The conditions of access are accordingly regulated in such a way and so generally held that they can be fulfilled by any regular, industrious worker, who has the sincere will to help himself, because its purposes can be achieved most easily and most completely for all through numerous participants in the association.”9

In order for Schulze-Delitzsch’s admission criteria for the cooperatives to be fulfilled, an examination of the interested person’s readiness to cooperate, his abilities, and his willingness for collective liability is required. The admission committee must know the person, a pure written application would not do.

Responsible choice of the cooperative’s members

For Raiffeisen it was also of great importance that cooperative members were chosen very responsibly. Cooperatives, which had grown too big, were to be subdivided. As he wrote, “Board members and executive directors did not collectively have the necessary knowledge of the circumstances of their members.”10 For loan associations the precept was established “to keep the associations’ area of operation - irrespective of its viability – as small as possible. It has emerged to be appropriate not to expand an association over the limits of a parish. So only parishioners are to be joined to an association in question and only when one parish is too small several parishes are to be joined together in a greater area of operation. […] Only in this way is it possible for the association to discharge its task, which is to influence positively the ethical and material conditions of their members.”11
On the selection of the cooperatives’ board members Raiffeisen was also very explicit: “Reliability of character and a charitable disposition are the main requirements for the administrative body.”12 In order to manage the risk that well-known persons could because of personal entanglements be inconsiderately trusted, the solvency of debtors and guarantors were also to be revised every three months.
Raiffeisen already warned the cooperatives against one of the causes of the still lasting financial crisis. He clearly rejected the questionable trading in securities. Accordingly, Raiffeisen would surely not have agreed to the Raiffeisen-group’s acquisition of the Notenstein private bank in Switzerland, which earns its money by so-called structured financial products (as honourable as the intentions behind them might have been). His fellow feeling with the hard working population forbade such enterprises. “The rural population wants nothing to do with securities, even if they were the safest government bonds. […] Once investment of funds in such papers had been introduced in the countryside, it would be difficult – if not impossible – to observe the limits. Papers of hoax companies could then easily be introduced as well, which could cause unpredictable damage. The farmer, more than anybody else, has to eat his bread in the sweat of his brow. His sweat beads are attached to the earnings he can arduously spare and put aside. He feels it […] and wants to invest his savings due to innermost conviction with utmost safety. He knows the men who chair the association. Their character and their wealth provide him a security, which he himself is able to estimate, something impossible with foreign papers and distant savings banks. […] He would rather put his money into a crate or any other save hiding place.”13    •

1      www.raiffeisen.ch/web/raiffeisen_organisation
2    Raiffeisen, Friedrich Wilhelm. Die Darlehens-kassen-Vereine als Mittel zur Abhilfe der Noth der ländlichen Bevölkerung sowie auch der städtischen Handwerker und Arbeiter. Praktische Anleitung zur Bildung solcher Vereine, gestützt auf sechszehnjährige Erfahrung, als Gründer derselben. Neuwied 1866, quotations from the 8th edition. Neuwied 1966
3     loc. cit., p. 109
4     loc. cit., p. 110f.
5     Schulze-Delitzsch, Hermann. Die nationale Bedeutung der Deutschen Genossenschaften. Berlin 1865, p. 14f.
6     loc. cit., p. 4
7     Schulze-Delitzsch, Hermann. Capitel zu einem deutschen Arbeiterkatechismus. Sechs Vorträge vor dem Berliner Arbeiterverein. Leipzig 1863,
p. 123
8     loc. cit., p. 126
9     loc. cit., p. 128
10     Raiffeisen, Friedrich Wilhelm. Die Darlehnskassen-Vereine als Mittel zur Abhilfe der Noth der ländlichen Bevölkerung sowie auch der städtischen Handwerker und Arbeiter. Praktische Anleitung zur Bildung solcher Vereine, gestützt auf sechszehnjährige Erfahrung, als Gründer derselben. Neuwied 1966, p. 37
11     loc. cit., p. 37
12     loc. cit., p. 55
13     loc. cit., p. 74

(Translation Current Concerns)