Part 3

The restaurant is the oldest. Seven years ago a group of Finns in this locality boarded together. Their capital was a hundred dollars which some one had loaned to them. They ran their little business on a cooperative basis, paying for the meals and putting back any surplus into a reserve. No one contributed anything, but before long they paid back the one hundred dollars. Early in 1922 they incorporated. They then owned a fine modern restaurant, had done $70,000 worth of business in 1921, and had three thousand dollars in the bank. And no one had ever paid a cent into the business. With all this they sell their food at unusually low prices, well cooked, wholesome, and clean.

In 1917 a larger group determined to have a bakery which came up to their standards. In 1919 they had raised enough money to start construction. Then they faced their first test Their money gave out. Undaunted they organized a money raising "army," as they called it, of thirty or forty men. The money was raised. By the time the new bakery was opened they had fourteen hundred members and had raised $140,000. The total organization expenses for three years came to $400, less than three-tenths of one per cent for promotion expenses.

The new business block was opened in May, 1920. All but the restaurant was under one general manager. He was bonded for $10,000. He had had business experience in running a cooperative bank in Wisconsin. To him was delegated a large degree of freedom, but he was held strictly accountable to the Board of Directors. A thorough and comprehensive system of bookkeeping and accounting was installed. Each separate business, the bakeries, the pool room, the meat shop, was put on a cost accounting basis and the manager knew just which one was making or losing money.

All the branches of the business, however, have made money. Over $12,000 in net earnings, after allowing for interest on the investment, have been made since the business started. Last year the bakery did business to the extent of $135,000, the meat market and grocery $58,000, and the pool room $12,000. Already the business has outgrown its quarters. A new oven has been added to the bakery. The third floor, which was used exclusively as a pool room, has been invaded and the thirteen pool tables rearranged and put closer together so that more room may be had for bakery products. Adjacent land has been purchased so that the building itself may be added to. The membership of the Trading Association alone is eighteen hundred and forty.

The employees of the association work among almost ideal conditions. The twelve bakers are all union men and members of the cooperative association as well. They work seven and one-half hours a day and are paid from forty-five to fifty dollars per week. The light, airy bakery is always kept spotless. Adjacent to it is a commodious room with lockers for each man and two shower baths make it easy to keep clean. Down on the first floor the retail bakery is so immaculately clean that you would be willing to defy anyone to find one speck of dust in the place. Every article of food is under shining glass. The floor is white tiled. But the food is what attracts one. The pies swell out as if about to burst. To look at the bread and rolls makes one hungry and to smell them hungrier still. This, you are told, is because only the purest ingredients are used. Many bakers use powdered eggs for baking, commonly imported from China; this cooperative uses only fresh eggs. They buy a better grade of flour than their competitors do. The same thing is true of the meat shop next door. They do not aim to make money on their meat. Their sole aim is to sell only the best. This policy has been so popular that the quantity sold the first three months of 1922 was almost treble that for the same months in 1921. And the meat store, too, has made substantial net earnings.

The two cooperative apartments which lie adjacent to the business block house thirty-two families. The apartments contain five rooms and bath and are thoroughly modern. They are light and airy with high ceilings and hardwood floors. Needless to say their tenant-owners keep them in the most immaculate condition. Recently a group of business men, several of them builders, went through the buildings and many expressed the wish that they could get similar apartments for three times the money that these cooperators were paying. For the best apartments the rent has recently been raised to $31.50 per month. But out of this amount the tenant-owner is not only paying all upkeep but is paying off the mortgage at the rate of $1,000 per year. Similar apartments in the locality rent from $75 to $80 per month. The tenant-owners, of course, run their apartments on the cooperative plan of one vote per member.

The members of the Finnish Cooperative Societies of Brooklyn are fast becoming independent of the middlemen, for cooperation touches them on many sides. They have learned to serve themselves and they get what they want, honest goods--and clean.

COOPERATIVES THAT FAILED

When one has made mistakes the importance which is attached to them depends upon the gravity of the consequences. This being the case, the stones of cooperatives which follow are worth attention, for, as a result of their mistakes, they are now dead. One of the most pitiful aspects of cooperative failures is that one group after another will go on making the identical mistakes that have brought ruin to others. Sometimes it is the result of sheer ignorance, and sometimes of shameful negligence. In either case the result is the same--the stockholders lose their savings and cooperation feels the blow.

Two years ago the State authorities were called upon to investigate a cooperative that was about to fail. Several members made the claim that the officers had defaulted with property of the association. An accountant was called in to examine the books. After considerable coaxing the secretary-treasurer unearthed them and turned them over. They consisted of an old black bag full of all the bills, vouchers and other scrap paper for the previous six months! Those were his books. He 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.

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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.

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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.