1988 Law on Cooperatives

Adoption and lineage

The law was adopted by the plenary session of the USSR Supreme Soviet on 26 May 1988 (No. 8998-XI, signed by Gorbachev) and took effect on 1 July 1988, after the Fourth All-Union Congress of Collective Farmers held on 23-25 March 1988. Its preamble states that it develops Lenin's ideas on cooperation as applied to the contemporary stage of building socialism in the USSR and aims at equal interaction between the state sector and the collective-farm and cooperative sector.

The law's lineage runs back to the Law on Individual Labor Activity of 19 November 1986 (in force from 1 May 1987), which permitted individual income activity in free time outside one's main job and private practice in some service sectors but did not allow hired labor. Council of Ministers decisions No. 160, 161 and 162 of 5 February 1987 experimentally permitted cooperatives in public catering, household services and consumer-goods production, again without hired labor. The 1988 law broadened these measures by permitting the hiring of workers and recognizing the right to lease and purchase means of production, laying the starting point for non-state forms of ownership.

Implementation and amendments

Rather than dissolving existing collective farms and consumer cooperatives (the Central Union system), the law regulated them together in Part Five (Articles 33-52), covering collective farms and other agricultural cooperatives, cooperatives in production and services, and consumer cooperatives, integrating new cooperatives and the existing cooperative system into a single legal framework.

A Presidium decree of 14 March 1988 introduced a progressive tax on cooperative income, levying 30 percent on the 501-700 ruble bracket and 90 percent above 1,501 rubles; Finance Minister Gostev described it as recovery of excess income, but on 29 July 1988 the rates were reverted to those for workers and office employees. Amendments followed on 16 October 1989 (Law No. 603-I, introducing the possibility of ceiling prices for goods, work and services), 6 June 1990 (Law No. 1540-I, introducing licensing and restrictions on foreign trade), and on 5 and 7 March 1991.

Scale and growth

From about 9,000 cooperatives across the USSR in mid-1988, the number reached 193,000 with 4.7 million workers by February 1990; other reports record 77,500 cooperatives with turnover above 6 billion rubles and about 1.5 million workers as of 1 January 1989, rising to about 200,000 and roughly 5 million a year later. In 1988, 35 percent worked in household services, 22 percent in goods production, 13 percent in public catering and 4 percent in collecting and processing secondary raw materials. By 1990 about 39 percent were in manufacturing and construction and produced half of total cooperative output, but most operated on lease agreements with parent state enterprises, showing the continued dominance of centralized planning.

On 6 July 1988 'Razvitie' (headed by A. Yu. Getman) became the first cooperative registered, in Moscow, followed by the Leningrad scientific cooperative 'ORKON', attached to the House of Scientists.

Evasions and side effects

With prices controlled, collusion with state enterprises and cash-conversion channels generated uncontrollable incomes for the 'cooperator' stratum and are said to have worsened deficits, inflation and shortages. A memorandum of the CPSU Central Committee economic department of 28 November 1988 reported that many cooperatives were bypassing the law to buy raw materials and goods through retail networks, and the Omsk regional party committee cited the case of 'Omega', a cooperative under the state firm 'Kruzhevnica', which bought knitwear in state shops, reworked it into hats and sold it at speculative prices on city markets. State enterprise managers and those close to them founded cooperatives to exploit rationing opportunities, and cases of speculation, usury-style cooperative banks and weapons smuggling spread corruption; the law is judged to have failed its aim of improving popular consumption. In Armenia, by one account, children's winter jackets were made from expired parachutes, and a Moscow office-worker family stencilled brand marks on hats and T-shirts bought in shops and sold them by Riga station for three to six times a monthly salary of 160 rubles; such testimony rests on retrospective interviews. Early cooperative entrepreneurs accumulated wealth, as in the scandal around Artem Tarasov's cooperative 'Tekhnika', after which the October 1989 and June 1990 amendments tightened restrictions.

End and legacy

The USSR Law on Enterprises adopted in June 1990 replaced the cooperatives law and the state enterprise law and summed up Soviet-era enterprise legislation, and in 1991 the cooperative form declined as small enterprises took its place (including a Russian Republic Council of Ministers decision on supporting small enterprises of 18 July 1991). The law cannot, however, be described as definitively repealed or replaced; its exact repeal date and provisions remain unconfirmed. Sector-specific Russian Federation laws (such as No. 3086-1 of 19 June 1992) later superseded it in part for consumer, agricultural, production and service, and horticultural and dacha cooperatives. The definition of a cooperative in Russian law after 2002 still carries over the wording of Article 5 of the 1988 law, which survives as a legal legacy.

Distinctions

The law classed cooperatives not as private property but as a form of socialist ownership, and Article 8 gave them protection equal to state ownership. Production cooperatives rest on the individual labor participation of members, while consumer cooperatives serve members' and other citizens' trade and household-service needs and housing, dacha and garage requirements, without requiring members' labor (mixed forms are possible). A cooperative is an independent legal person with its own budget, separate from state finances: the state is not liable for cooperatives' liabilities, and cooperatives are not liable for those of the state or their members. Unlike state enterprises controlled through plan indicators, cooperatives independently drew up production plans and handled distribution, sales and services on the basis of jointly owned or leased property; under Article 19 they sold their output at prices and tariffs set by agreement with consumers or on their own, and under Article 25 they set wage forms and systems for members and other workers and could hire non-members under labor contracts. Article 23 let them set their own cash balance limit so that sales revenue could be used directly for wages and purchases without deposit in a bank, a condition state enterprises lacked and an institutional peculiarity later linked to 'cash conversion'.

Duality of the founding procedure

Cooperatives were founded voluntarily without special permission from Soviet, economic or other bodies, needed at least three members and acquired legal personality on registration of their charter. Registration, however, followed a permissive (authorization) procedure, charters had to be registered with district or city soviet executive committees, and land or natural resources required consent from the relevant state body. The export and import licensing and quota systems introduced in March and December 1989 also constrained their actual autonomy.