Friedrich Wilhelm Raiffeisen And Rural Cooperatives

by Knut Mertens, Germany

Friedrich Wilhelm Raiffeisen and the cooperatives associated with his name are in the German-speaking world, but not only there, a synonym for rural cooperatives. There is hardly a village anywhere without a Raiffeisen savings and credit bank. Raiffeisen's influence in the second half of the 19th century is both a good and encouraging historical example for the ways in which a trouble-torn farming community can manage to get back on its feet using self-help and unity.

The significance of Raiffeisen's huge achievement can only really be measured against the background of the economic problems faced by the farmers at that time. The first half of the 19th century was a period of deep-seated changes for German farmers. Although farmers were afforded greater independence after the doing away with hereditary subservience, serfdom, compulsory labour, this new 'freedom' was not without a darker side. Farms, especially the many smaller ones, no longer under the rule of a local landlord, were suddenly burdened by debts. In addition, the transfer from a barter economy to a money economy meant that farmers needed money, a great deal of money, to pay the amount required for redemption and the high taxes. The times when farmers could eat the meat of the animals they had slaughtered themselves and break the bread baked in their own ovens or pay the smith with sacks of corn had gone. Farmers were forced to convert their produce into money first in order to pay for the tools and machines they required. Many farmers failed to cope with this new situation, abandoned their farms and sold them to the landed gentry, the large farmers, and entered service as a day labourers.

Collapse of the small farms

International trade with agricultural products began to increase, and it was above all the smallholders who were forced to do everything they could to intensify farming practises in order to remain competitive. Capital became increasingly influential: new machines and farming equipment were necessary, and these were extremely costly. Earnings remained low though. As a result more and more money had to be borrowed.

Respectable credit facilities for farmers existed only for large land owners. Smallholders were practically excluded from procuring a bank credit. If such farmers wanted to obtain the money they needed, they had no alternative but to turn to usurious money brokers or livestock dealers, who deceitfully took advantage of the ignorance and plight of these 'little people'. Interest rates of a hundred and more percent were nothing unusual. In almost every case this led to the collapse of the small farms and they were then inevitably taken over by these usurers. Having been driven from their farms and land many of these farmers left their rural homes and drifted into the industrial towns or else emigrated. Large numbers of people were left destitute.

Raiffeisen himself did not hold back in his views about usury. He characterised such people as 'poisonous human plants who make a business out of other people's dire straits in the most heartless of manners for personal gain. Like gluttonous predators that fall upon harassed and exhausted noble game, avaricious and unscrupulous parasites descend upon the needy and defenceless country folk.' Anyone that came within their grasp existed purely as an object of exploitation. In their desperation many farmers ended up committing suicide.

Raiffeisen's main contribution consisted in alleviating this problem. He himself had been brought up in the country in Hamm in Westphalia. He came from a family of craftsmen, teachers and farmers. His grandfather was a churchman and his father a farmer. He himself was the seventh child of nine. Since his father died at an early age, Friedrich Wilhelm was brought up by his pious mother and the local parson.

After working for a number of years in the Army and as a civil servant Raiffeisen became a mayor in the Rhine Province in 1846. He was deeply moved by the suffering he witnessed in families in the area. Often the food they ate consisted of nothing more than sauerkraut and a soup made from certain roots which also served as a coffee substitute. A great many farmers were alcoholics. Raiffeisen quickly found out that most farmers did not really know how to take advantage of the freedom they had been granted. They lacked almost everything, but most of all it was money and loans they needed. In his own community usury was also widespread.

Raiffeisen's first effort was to call people together to perform communal work and to ensure that flour was given to the needy on credit. He set up a poverty commission, and loans were granted for the purchase of seed and potato tubers. A 'bread union' was established through which low-cost flour was sold to the needy at 50% below the going rate. It was not truly cooperative as it was funded largely with the capital from wealthy patrons, and these patrons controlled the society. Since it was a form of charity, it did not offer real long term solutions to the economic problems of the poor. To break the problems of poverty and usury, Raiffeisen decided that self-help and unity-not welfare-was the answer.

Loans, education programmes and mutual aid

At the end of 1849 Raiffeisen founded the Flammersfelder relief organisation to aid farmers without means. Here too funds largely came from wealthy patrons and again it was not truly cooperative. The organisation was mainly concerned with the purchase of cattle that farmers could gradually pay for until they fully belonged to them. Later, long term loans were also granted, and this constituted the beginnings of credit business for the particular needs of the small farmers. The capital which the individual members lacked was replaced by joint liability of the members, which was fundamentally different to other banks who insisted that credit had to be covered by the personal capital of the borrower. For Raiffeisen the cooperative idea was never a purely material one. It was just as important to encourage education and promote community life, social responsibility and mutual aid. To this end he organised educational courses, and in lectures and debates people were encouraged to take an interest in the problems faced by their times.

Having formed the Heddesdorf Credit Union in 1846, Raiffeisen had built upon his experiences of other credit societies, for example, of those founded by Hermann Schulze-Delitzsch, the other pioneer of cooperative credit in Germany. Raiffeisen had recognised that those in need must be motivated towards self-help and unity, and that one must do away with the principle of welfare. This credit union at first limited itself to the granting of loans. The individual credit cooperatives consciously operated in areas locally known to its members. The members knew each other personally and were prepared to accept joint responsibility for all the commitments of the cooperative. Credit was only granted to members and had to be paid back in acceptable instalments. In time, farmers in the same cooperative also purchased machinery which could be used by all the members. Conditions in many villages improved dramatically as contemporary descriptions bear witness. Once the farmers were free of the pawnbrokers, loan companies and unscrupulous money-lenders, villages could afford to set about repairing dilapidated houses, stables and barns. Fields could be tilled again and were often far more productive than they had ever been before.

In the knowledge that the influence of money is a continual danger, that it undermines the well-being of people, Raiffeisen established a large network of local cooperatives and set about safeguarding their survival by amalgamations on a regional and national level. This regional and national organising also helped promote the members' common purposes by providing for the exchange of information and supplying legal and legislative advice. The central banking system that developed is, to this day, a hallmark of the German cooperative credit system.

Raiffeisen's work is one more example of how the efforts of an individual can fire others in difficulties to organise themselves in order to face up to the excesses of the economic order. This form of initiative is again very much in demand today. It is necessary to listen to those who suggest that economic decisions should not be solely profit-oriented, but need to be implemented with a view to social responsibility. In this light, it is necessary to make business ethics an integral part of all economic activities. Consideration for one's fellow beings, for nature and for posterity are an indispensable condition for lasting economic success. Such an attitude would be a positive response to the ideology of radical economic liberalism at present gaining sway.