1. Introduction
Friendly Societies (sociedades de socorros mutuos) were the main actors in the provision of social welfare in Europe between the first third of the 19th and the early 20th centuries. These societies were based on mutual aid and self-management, and they were governed by rules which were largely inspired by the relief-focused brotherhoods of the Ancien Régime, now adapted to the needs of the new industrial society.
In Spain, traditional friendly societies reached their peak during the 1920s and 1930s, after which they began to decline in favour of more bureaucratized societies. Previous works chiefly attribute this decline to factors such as the small size of many of these mutual-help networks; their ignorance of actuarial techniques; the inflation in medical costs; the membership aging, due to the drop in affiliation of young workers; the competition posed by health insurance companies and other forms of sociability; and the growing role of the State in social issues. Hence, compulsory sickness insurance is recognised as the final blow to the friendly societies, after the Civil War (1936–1939) (Pons and Vilar 2011).
The Spanish historiography about mutualism has been rising in the last two decades (Castillo 2013). Studies focus on its history, characteristics and functioning, from the scarce documentation available. Many of them highlight features such as: the role of insurance and welfare, the benefits, the relationship with economic and territorial development, the role in sociability, the relationship with government or the geographical distribution according to official statistics. However, these analyses of the development of mutualism have neglected to take certain aspects into consideration. In this paper, I shall consider the role of institutional design. Since the publication of Ostrom’s Governing theCommons (1990), the importance of institutional design as a key to understanding the success or failure of collective action has been increasingly recognized, quite apart from other factors, such as the nature of common assets or the roles played by the State and the market.
I shall therefore try to determine the roles played by institutional design and the “exogenous factors” in the evolution of workers’ mutualism. In order to achieve this, I shall build upon the critical enabling conditions for sustainability proposed by Agrawal (2008), which will be adapted to the analysis of corporate collective action. As part of this analysis, I propose to use two variables (size and distribution of expenditures) as indicators of the evolution of mutualism from democratic and traditional societies to bureaucratized societies. In addition, I will examine the possible impact of size on moral hazard, which is generally a positive correlation, but is not in this particular case.
The subject of analysis will be workers’ mutualism in the Spanish province of Barcelona during the first third of the 20th century. The study of mutualism in Barcelona is relevant for two reasons: firstly, Barcelona was characterized by the operation of small- and medium-sized democratic societies that operated in a very traditional way. Secondly, in contexts where statistics were scarce, such as in Spain, the particularly well-developed nature of mutualism in Barcelona attracted the interest of provincial and local public bodies, as well as of other institutions, which collected statistical information in yearbooks published by the Barcelona City Council (Ayuntamiento de Barcelona) and other institutions. The high density of friendly societies in Barcelona promoted the foundation of a first federation of mutual societies in Spain, la Federación de Sociedades de Socorros Mutuos de Cataluña (Federation of Friendly Societies of Catalonia; henceforth “the Federation”), which generated a substantial amount of statistical information about its member societies, currently held in several archives and libraries.1 My sources are these statistics, historiographical literature on mutualism, documents from different mutual societies and documents generated by the Federation, among which the bulletin El Porvenir de la Mutualidad (‘The Future of Mutuality’) features prominently.
The institutional design of traditional friendly societies was well suited to 19th-century conditions, when these societies were socially homogeneous, medical costs remained low and competition was irrelevant. However, they could not adapt to the environmental changes that took place in the 20th century, which proved crucial to their decline. As I shall prove later, the social changes, the increasingly competitive conditions and price variations were more important for the transformation of mutualism before the Civil War than the intervention of the State, whether in its regulatory capacity or as a competitor.
This text is organized as follows: after the introduction, the theoretical framework is established in Section 2. In Section 3, the expansion and decline of Spanish traditional mutualism, as reflected in the available statistics, is summarized. Section 4 outlines the differential characteristics of friendly societies in the province of Barcelona and examines the conditions that worked in favour of institutional sustainability. Finally, Section 5 sets out the conclusions and future research prospects.
2. Theoretical framework
In the absence of a universal protection system, households had to establish the best ways to protect themselves from risk (sickness, old age, death). Among the most common strategies for this were charity, family, social circles and patronage. These options, however, are less effective than insurance systems, which are based on conflating the individual risks of a group of similarly exposed individuals, each of whom contributes to a common fund to face individual losses (Van der Linden 1996).
Friendly societies are characterized as ‘non-profit making voluntary associations, the insured, who acted at the same time as insurers and administrators, received aid from common funds in response to the situations of risk established in their statutes’ (Pons and Vilar 2011, 73). In such associations, the payment of a monthly premium gave members the right to obtain a benefit in different risk situations; this benefit was usually regular payments in cases of sickness, disability or accident, and one-off payments in cases of death. Not all societies assumed the full or even the partial cost of medical and pharmaceutical care and/or financial assistance in the case of old age or maternity (Instituto Nacional de Previsión [INP] 1927).2
Among the different ways that mutualism is classified in the literature, there is a distinction between ‘democratic’ and ‘bureaucratic’ societies. Both were self-managed and self-funded. Democratic societies combined insurance and other cultural and recreational needs, with the aim of promoting the loyalty of members and of strengthening the trust bonds between them through constant interaction. In contrast, bureaucratic societies were larger and led by professional managers, which facilitated the application of actuarial techniques. In bureaucratic societies, sociability and the personal involvement of members played a less significant role.
Democratic friendly societies are clearly linked to the societies of social engagement and horizontal interaction considered by Putnam in his study of social capital (Putnam et al. 2011),3 including neighborhood associations, choirs, co-operatives, sports clubs and, indeed, workers’ mutual societies. As a result of repeated interaction and the importance of reputation within the community, these networks foster mutual obligation, increase the potential costs of dropping out, encourage norms of reciprocity and trust and facilitate communication and cooperation, even between individuals with selfish interests.
My analysis particularly highlights the importance of institutional design in the evolution of friendly societies, in particular, Agrawal’s (2008) enabling conditions for the sustainability of commons (Ostrom 1990; Wade 1994; Baland and Platteau 1996). These conditions are based on case studies of collective management of common-pool resources (CPR), such as fisheries, forests or irrigation systems, which collectively managed previously existing resources. Friendly societies, however, are located within the field of corporate collective action, which consists of autonomous self-governing institutions. These institutions are ruled according to written and regularly revised rules and are usually organized like a ‘club’ that some people belong to and some do not (De Moor 2008). There is no pre-existing common good to be appropriated; instead, private funds are pooled and distributed according to accepted standards. Despite this difference, these kinds of institutions have some common features, including the participation of stakeholders in regulation, supervision and conflict-resolution mechanisms, the existence of graduated sanctions and the recognition by higher authorities of the stakeholders’ right to organize (Ostrom 1990). Medina (2014), who has applied Agrawal’s conditions to another kind of corporate collective action network – Spanish wine co-operatives after the Spanish Civil War – is taken as a reference for my analysis.
Therefore, my aim is to determine the most relevant factors in the evolution of mutual societies. The theoretical framework synthesized by Agrawal, despite its limitations, is useful for this study once the characteristics of the resource system (crucial for an analysis of the CPR) are removed from the equation. I shall thus focus on: (a) the group characteristics, which include: small size, well-defined limits, shared norms, successful past experiences (social capital), leadership, interdependence within the group, heterogeneity of the membership but homogenous interests, and the socio-economic level of the participants; (b) the institutional mechanisms, which include: rules that are simple, easy to apply and locally constructed; gradual sanctions; low-cost enforcement and accountability of managers before the membership; and (c) exogenous factors (external environment), which include: the degree of State intervention, the support of external sanctioning institutions, support and subsidies, and other socio-economic factors such as demography, prices and market competition.
I shall argue for the particular importance of some of these variables, such as the size of these societies and the proportion of the available resources earmarked for subsidies and membership as the best indicators of the progressive replacement of democratic societies by bureaucratic ones during the first third of the 20th century. In order to prove this, I begin by presenting several hypotheses: (a) by necessity, democratic societies had to be small, which facilitated reciprocity and trust while reducing supervision costs and the risk of fraud; (b) in said societies, the benefits were virtually the only expense (between 80% and 90%), which was achieved by having the members carry out tasks for the organization for free; and (c) the importance placed on sociability as a source of social capital encouraged the use of some of those resources for festive or recreational activities, which strengthened the social ties between members. The increase in size and the reduction in the proportion of the budget spent on benefits and sociability costs are both indicative of the progressive increase of bureaucratic mutual societies to the detriment of traditional and democratic mutualism, a transformation that involves a hierarchization of these societies.
3. Expansion and fall of Spanish mutualism
The roots of contemporary mutualism go back to the Middles Ages, with the emergence of guilds and brotherhoods. It was nevertheless only in the 17th century that some brotherhoods evolved into assistance brotherhoods, which became consolidated in most parts of Europe a century later; their operation was similar to that of the friendly societies under investigation.4
In Spain, after the death of King Fernando VII, the guilds and brotherhoods were dismantled on the initiative of liberal governments, along with the social welfare system of the Ancien Régime, which was based on religious and individual charity. During the last two-thirds of the 19th century, the different Spanish governments used public charity and social policy with two objectives: maintaining public order and preventing epidemics (Grabuleda 2002; Espuelas 2011). Without public support, the loss of salary due to sickness or a work accident could easily push victims into vulnerability and marginality. In addition, neither private insurance companies nor savings banks were a viable welfare option for a working-class individual with a limited savings capacity. In this context, friendly societies, based on traditional brotherhoods became the most common welfare cushions for the working class (Pons and Vilar 2011).
The diffusion of mutualism was dependent on industrial development and the social legislation in each country. As shown in Table 1, mutualism was widespread in Great Britain and France, where it had attracted 7 and 4 million members, respectively, by the 1920s: that is to say, about 40% and 34% of non-agrarian workers. In Italy, around the same time, friendly societies had attracted approximately 900,000 people, which amounted to 11% of non-agrarian workers; in Spain, with 430,000 members, friendly societies did not even reach 10% of the non-agrarian working class.5
Table 1
Mutualism in Europe (in thousands of members).
| 1904 | 1920 | 1924 | |
|---|---|---|---|
| Great Britain | 6164(i) | 7216 | 7246(ii) |
| France | – | 4300 | – |
| Italy | 926 | – | 885 |
| Spain | 84 | 338 | 431 |
(i) Data from 1905 (ii) data from 1926. Based on: Vilar 2010; Instituto de Reformas Sociales [IRS] 1908; [INP] 1927.
There are no unbroken national statistical series in Spain. The longest-running statistical series was collected by the National Institute of Welfare (Instituto Nacional de Previsión [INP]) between 1915 and 1925 on behalf of the International Labour Organization ([INP] 1927). Table 2 illustrates several important trends. Firstly, there is a sharp increase in both the number of societies and the number of members, although the directly insured population was less than 1.8% of the total population in 1925. Secondly, the main risks covered are sickness, death and disability, followed by medical and pharmaceutical care.
Table 2
Mutualism development and population covered.
| 1915 | 1920 | 1925 | |
|---|---|---|---|
| Friendly societies | 1274 | 1514 | 1770 |
| Members | 143,993 | 303,640 | 398,999 |
| Total population | 20,615,156 | 21,303,162 | 22,433,515 |
| Coverage | |||
| Sickness | 153,393 | 293,139 | 383,169 |
| Disability | 53,513 | 97,570 | 124,285 |
| Old age | 13,383 | 19,853 | 28,489 |
| Death | 82,743 | 174,573 | 237,360 |
| Maternity | 4894 | 10,609 | 15,440 |
| Medical care | 42,336 | 73,374 | 81,786 |
| Pharmaceutical care | 35,890 | 51,977 | 59,805 |
| Widows and orphans | 12,810 | 13,744 | 15,924 |
| Other risks | 2299 | 16,661 | 22,684 |
Although the mutualism continued growing, over barely two decades between the 1920s and the early 1940s, democratic friendly societies lost their predominant position as providers of welfare (and even sociability) in favour of larger and more professionalized (bureaucratic) societies, mutual societies set up by employers and commercial insurance companies (Pons and Vilar 2014). Aware of the above-mentioned causes of the decline in workers’ mutualism, an analysis of the role played by the institutional aspects can help provide a better understanding of its evolution.
4. Institutional analysis of friendly societies in Barcelona
Mutualism took root very unevenly in Spain, where it was a modest phenomenon compared with other European countries. Its impact was greatest in the most economically developed regions, but especially in the region of Catalonia and the province of Barcelona, which by the mid-19th century already presented a typically industrial profile. This development had been initiated by the textile industry (cotton and wool) and eventually expanded to other sectors, such as construction, metallurgy and chemistry (Carreras 1990). At the end of the 19th and the beginning of the 20th centuries, Catalonia became ‘the factory of Spain’ with all the socio-economic implications, including the growth of workers’ associations and mutualism. In this way, Barcelona was the Spanish province where democratic friendly societies were most developed (Montero and Esteban 1991). This was mostly due to two factors: firstly, the characteristics of its industrial development, which was dominated by small-scale companies with limited capacity to offer sickness insurance to the workforce, in contrast to large-scale companies in various sectors, which predominated in other regions of Spain where company-based mutualism (banks, electricity and public-sector companies) was more widely represented (Pons and Vilar 2011); secondly, the relevant associative life that existed in Barcelona (Solà 1993): of 1691 friendly societies (351,629 registered members – 1.8% of the total population) registered in Spain in 1904, 574 (124,254 members) were located in Barcelona (11.3% of its total population) (IRS 1908). Regional INP statistics also emphasize this trend: Catalonia, which contained 11% of the Spanish population in 1915, was the base for 73% of the friendly societies and 56% of their members.
Data regarding benefits indicate that during the first decades of the 20th century the predominant friendly societies in Catalonia followed the traditional and democratic model. In 1915, sickness-, disability- and death-related cash handouts amounted to 71%, 73% and 85%, respectively, of all the payments made under these headings in the whole of Spain. Medical care, however, accounted for only 5.2% and old-age pensions for only 3.2% of the payments made under these headings at the national level. This fits well with small societies, managed according to traditional methods and having limited financial resources, which only permitted the provision of cash benefits.
4.1. Group characteristics
Solà’s (1993) analysis of the societies registered by the civil government of Barcelona indicates a strong tradition in the province, with over 19,000 societies of all types registered until 1939, of which over 4000 are welfare related. As for the age of friendly societies, the records indicate the considerable growth of friendly societies during the first third of the 19th century, as illustrated in the Figure 1.
Friendly societies arranged by date of foundation in Barcelona (Solà 1994, 75).
In the case of democratic friendly societies, excessive heterogeneity and size could impair the ability to self-manage democratically and to generate trust and reciprocity. De Swaan (1986), referring to the case of Great Britain, notes that excessive homogeneity increased the probability of failure by concentrating on accident-related risk, occupational diseases or local epidemics. Only diversification and the opening of broader and more heterogeneous networks could mitigate this problem, at the expense, however, of weakening reciprocity, trust and group solidarity. This is what De Swaan called the ‘paradox of collective action’, which, as we shall see, was largely behind the progressive disappearance of democratic friendly societies and/or their transformation into new mutual entities with different management methods.
In the case of mutualism in Barcelona, between the mid-19th and the early 20th centuries, heterogeneity and size increased. Taking social diversity as the relevant variable, Grabuleda (2002) observes changes in the composition of mutual societies in the early decades of the 20th century in relation to the inflation caused by World War One and the significant reduction in the real value of premiums and benefits. The loss of the purchasing power of benefits had two important effects. On the one hand, some of the best-paid workers opted out of traditional mutualism and approached commercial insurance companies or bureaucratic mutual societies. On the other hand, it attracted workers with low purchase power, until then outsiders of mutualism. The socioeconomic bracket of the membership, therefore, widened substantially.
From the point of view of social capital, this change in the composition of democratic friendly societies contributed to impairing their ability to create networks of trust and reciprocity because links are more difficult to maintain in conditions of greater heterogeneity, and also encouraged their replacement by bureaucratized societies, which were characterized by lower personal involvement of the membership. Another circumstance that certainly contributed to this process was the expansion of the scope (geographic or professional) of mutual societies, which only emphasized their heterogeneity, making their traditional management mechanisms, based on frequent interaction, more complex. Despite the increase in social and identity-based differences, the final aim of friendly societies – its character as an insurance institution – fomented the homogeneity of interests within the society. Political and social differences could indeed exist, but the democratic character and the statutory limitation of said societies made it difficult for problems of these sorts to crystallize.
Size, for its part, can be deemed a decisive factor. The idea that a small size facilitated collective action while reducing the probability of fraud and egotistical behaviours is generally accepted in the literature (Ostrom 1990; Putnam et al. 2011). Guinnane et al. (2012) link the size of mutual societies with moral hazard and actuarial risk. The moral hazard in sickness insurance was directly related to the size of societies (see point 4.3). Conversely, there was an inverse correlation between actuarial risk and size, since a small number of members makes it impossible to determine premiums and benefits with any accuracy. The law of large numbers can only be applied to organizations of a significant size at the expense of increasing moral hazard. Optimizing both risks was a very complex task. Statistics generated by the Federation published in 1911 allow for a more detailed analysis about size. As illustrated by Figure 2, 80% of all federated societies had fewer than 300 members.
Federated societies by size, 1911 (Ayuntamiento de Barcelona 1911, 594–605).
The following decades witnessed a process of concentration. Not only were mutualities larger on average, but the gap between the largest and smallest had widened. Between 1896 and 1922, the average number of members remained relatively constant and always below 240. From 1923 onwards, the average size of societies tended to grow, reaching 345 in 1946 (El Porvenir de la Mutualidad, No. 193, July 1929; Report by the Institución Sindical de Mutualidades 1939–1945).With regard to the differences in size between mutual societies, the breakdown of the statistics demonstrates that in 1910, 5.7% of the largest societies encompassed 24% of the total members, growing to 41% in 1939. This proves beyond doubt that an increase in size and social diversity was necessary for friendly societies to stay afloat, but this triggered a process that exacerbated the inverse relationship between social capital (understood as trust and reciprocity) and the ability of societies to manage their own welfare policies. This process certainly affected the operation and organization of mutualism, re-directing it toward a more professionalized approach to management and a more commercialized approach to mutual aid (Largo 2015).
The high degree of interdependence: it is obvious that the need for cooperation, equality among all members, frequent contact and the damage brought about by fraudulent actions all fall under this heading. As for leadership, while it is true that, in theory, all members were obliged to participate in management at one time or another, the greatest responsibilities tended to fall to the ‘hard core’ members, who held significant positions, as they were founding members, either because of their knowledge or their charisma within the group. The re-election of presidents and secretaries over a number of consecutive years was common. On the one hand, this could cause client-patron relationships to emerge, whereas on the other hand, experience gained in the post palliated what on other occasions was a considerable problem, especially in associations formed by workers: the limited training of directors. Finally, concerning well-defined limits and shared norms, friendly societies largely met both conditions. Everyone knew who belonged to the society and who did not, as well as the rights of each member, and, as to the norms, a copy of the statutes was given to each member upon entry into the society. As such, these were widely known and shared.
4.2. Institutional arrangements6
The lack of external regulations meant that friendly societies could continue operating according to their own traditional rules, originally formulated for 18th- and 19th-century brotherhoods. Minor changes became frequent from the beginning of the 20th century onwards. Normally, they rendered the operations of the society more flexible, widening the geographic or professional spheres or the benefits offered.
A board of directors was put in charge of the daily management of the society, but the most important decisions were made at compulsory attendance annual assemblies, in which every member had one vote. Appointments (president or director, secretary, treasurer) were honorary (they involved no remuneration) and followed a system of rotating election. Other positions accountable to the board were those of the nurse, who was in charge of preventing fraud by visiting the sick; and the collector (andador), who was responsible for collecting the monthly premiums and delivering medical reports and discharges to the board of directors. The collector – along with a doctor, if there was one – was the only member who was paid a small stipend for his work.
With regard to finances, the payment of benefits was the largest financial outlay. The most common payments were related to sickness, and consisted of a daily payment of between one and three pesetas.7 Some of these societies also covered medical and pharmaceutical attention, and this benefit was generally also paid in cash. The benefit was regularly paid for 50–90 days, depending on the illness. It was common that, after these periods, the member could not claim benefits again for a period of three months. This aid, although small and only temporary, facilitated access to medical and pharmaceutical assistance beyond what the public charity system, which was stigmatized by the liberal discourse, could provide. In the case of a member’s death, the widow or orphans received a lump-sum payment, which ranged between 100 and 1000 pesetas. Collectors’ and doctors’ wages, administration costs (supplies, not labour) and costs related to religious ceremonies and festivities celebrated on the society’s patron’s day were the other expenses. Regarding democratic societies’ incomes, these depended heavily on monthly premiums (usually between one and three pesetas), membership fees and, to a lesser extent, fines imposed on members. Public subsidies barely deserve mention, as they were very sporadic and were not universal. Mutual aid funds were generally small and vulnerable. Actuarial mathematics were unknown to the managers, who, lacking any statistics about morbidity, calculated fees on the basis of custom and the ability of members to pay. Almost all small-sized and democratic friendly societies applied the same premiums to all members. Discrimination based on risk (age) was more common in large and bureaucratized mutual societies, which were more likely to use actuarial criteria, even if in most cases these remained rudimentary.8
Supervision was undertaken by the members themselves, and two main areas can be distinguished: economic management and control of the sick. Concerning the former, the collector was held accountable to the treasurer, who was subject to the constant supervision of the board of directors and had to provide the board with accounts that, once audited, were sent to the members a few days before the annual general meetings, when they would be approved. Concerning the supervision of the sick, members had to punctually present their medical leave documents to the president, in addition to the follow-up by a doctor – either one appointed by the friendly society itself or an independent one – who established the necessary treatment and the period of illness. The role played by nurses must be stressed: despite their title, they did not have a medical function, but rather one of supervision. They could appear at a beneficiary’s house (who was compelled to let them in) ‘in order to gain information … concerning the state and circumstances of the illness, and scrupulously staying alert so as to avoid fraud or trickery’ (Regulation of Montepío San Isidro de Montornès del Vallès, 1891. Municipal Archive of Montornès del Vallés (AMMV). Documentary collection Mutualitat de Sant Isidre).
Sanctions were gradual, ranging from a small fine to the expulsion of the member. The regulations indicated the violations and punishments, such as failing to attend a general meeting, malingering or refusing to accept a position of responsibility. The most common reasons for expulsion include repeated failure to pay monthly dues, participation in fights or other improper behaviour, trickery and withholding of information when approached by a member. Respectability and morality were determinant factors that affected the admission of new members and caused some risks to be excluded from coverage (for example, those caused by alcoholism or sexually transmitted diseases). This attitude was inherited from the traditional brotherhoods and was universal, being particularly significant among British friendly societies. Respect for the rules and exclusion of untrustworthy people were not only intended to protect the image of the society itself but also to preserve its economic solvency, since an immoral lifestyle frequently affected the ability of a member to pay his or her premiums.
Finally, in cases of conflict, which were usually due to disagreements over benefit claims, conflict resolution mechanisms were in place through which all sides could express their views. Usually, this consisted of a panel composed of board members and members appointed by both parties; as a last recourse, the dispute could be elevated to the law courts.
The regulations also established ritual activities that were related to the guilds from which many of these societies had developed; their purpose was to bring the members of the organisation together. For the same reason, the use of the word ‘brothers’ to refer to members was common. Although formally religion had played a merely accessory role (except in societies with a religious substratum), it was common for small- and medium-sized societies to adopt the name of a saint (usually the patron of their trade or of their town), whose feast day was celebrated with an offering or a fraternal meal and a dance. Another widespread custom mandated that several members attend the funeral of a deceased ‘brother’. Apart from being part of their traditional roots, sociability played a decisive role in democratic societies because personal interaction facilitated both the management of the society and the performance of monitoring tasks, which were carried out by all partners at once (Van der Linden 1996).
The financial information published by the Federation for 1914 and 1926 reflects the transformation that mutualism was undergoing at the time.9 As evident in Table 3, income per member remained constant in real terms, and the subsidies decreased considerably (10% of total spending). During this period, also, the cost of collectors and doctors per member also decreased, as did costs related to standard visits, pharmacy costs and socializing. Conversely, staff costs remained stable, and expenses related to the convening of meetings and celebrations and, above all, ‘various’ expenses, increased. Given that ‘various’ can only include expenses that were not justified by the statutes and rules, it is likely that these entries refer to underhanded payments to board directors (expenses allowance, travel expenses or other considerations) and other costs that were not covered by the objectives of the societies. Finally, it is also worth stressing that expenses for social activities (community acts) – important for fomenting trust and reciprocity, as we have seen – were cut by more than 90%. It is reasonable to conclude that, in the first third of the 20th century, Spanish mutualism tended to evolve towards larger and more professional societies, and that the members, formerly ‘brothers’, were now becoming ‘mutualists’ (Largo and Pujol 2016).
Table 3
Financial indicators of federated societies, 1914 and 1926 (Constant pesetas of 1913).
| Concept | % of total spending (1) |
Amount per insured (2) |
|||
|---|---|---|---|---|---|
| 1914 | 1926 | 1914 | 1926 | Evol (2) in % 1914–1926 | |
| Collector | 6.87 | 4.88 | 1.08 | 0.69 | −36.5 |
| Doctor | 1.24 | 0.64 | 0.19 | 0.09 | −53.8 |
| Physician visits | 0.32 | 0.23 | 0.05 | 0.03 | −33.6 |
| Pharmacy | 0.23 | 0.07 | 0.04 | 0.01 | −75.6 |
| Staff | 0.65 | 0.70 | 0.10 | 0.10 | −3.9 |
| Registered office | 0.50 | 0.38 | 0.08 | 0.05 | −31.7 |
| Assemblies | 0.13 | 0.18 | 0.02 | 0.03 | 29.6 |
| Printed material | 1.84 | 1.76 | 0.29 | 0.25 | −14.4 |
| Various | 1.70 | 16.86 | 0.27 | 2.37 | 788.8 |
| Community acts | 1.45 | 0.15 | 0.23 | 0.02 | −90.8 |
| Benefits paid | 85.07 | 74.14 | 13.38 | 10.41 | −22.2 |
| Income from premiums | 15.28 | 15.19 | −0.6 | ||
Author’s own after the Federation’s statistics for the years 1914 and 1926, El Porvenir de la Mutualidad, No. 112, p. 10, October 1916 and No. 193, p. 19, July 1929, respectively. Deflator: Maluquer de Motes 2009.
4.3. Collective action problems: Moral hazard and adverse selection
As insurance institutions, friendly societies were subject to the problems related to asymmetry of information, among which moral hazard and adverse selection must be highlighted. These problems were carried out in a similar fashion to that of the ancient guilds (Van Leeuwen 2012; Murray 2007).
Moral hazard refers to incentives created by insurance benefits to reduce efforts to prevent the insured event from taking place: that is, changes in the behaviour of workers that were induced by the insurance itself. In the case of sickness insurance, the moral hazard involves the possibility that the insured is malingering or extending the period of convalescence. The effects of moral hazard were reduced through co-insurance, which is to say that all members were both insurers and insured at the same time; a reduced size, which facilitated the creation of ties of trust and effective monitoring; and the low subsidies. Guinnane et al. (2012) demonstrated the positive correlation between the average number of days on sick leave and the size of societies in German friendly societies. Based on the data in Table 4, this phenomenon did not occur in the mutual societies of Barcelona. Between 1914 and 1929, there was a notable increase in the average size of societies, but the days of sick leave remained constant, and the number of sick members decreased by 4%. An explanation for this tendency could be that the daily subsidy, in real terms, decreased by 46%, discouraging workers from taking more days off than necessary.
Table 4
Average society size and sickness rate among the federated societies.
| Year | No. of societies | Average size | Days on sick leave | Daily benefits per person (pesetas 1913) | % sick members |
|---|---|---|---|---|---|
| 1914 | 664 | 212 | 23 | 3.20 | 15.0 |
| 1915 | 538 | 236 | 23 | 2.91 | 12.0 |
| 1916 | 580 | 223 | 15 | 3.51 | 13.3 |
| 1917 | 726 | 244 | 22 | 1.89 | 12.1 |
| 1918 | 610 | 236 | 21 | 1.29 | 18.6 |
| 1919 | 600 | 211 | 22 | 1.13 | 11.9 |
| 1920 | 573 | 231 | 21 | 1.00 | 10.3 |
| 1921 | 564 | 237 | 23 | 1.28 | 9.3 |
| 1922 | 519 | 246 | 22 | 1.45 | 10.9 |
| 1923 | 653 | 259 | 23 | 1.51 | 11.2 |
| 1924 | 641 | 256 | 22 | 1.49 | 11.9 |
| 1925 | 555 | 267 | 22 | 1.51 | 10.7 |
| 1926 | 637 | 291 | 23 | 1.70 | 9.7 |
| 1927 | 732 | 291 | 25 | 1.78 | 10.2 |
| 1928 | 784 | 284 | 24 | 1.99 | 11.1 |
| 1929 | 741 | 308 | 23 | 1.73 | 11.3 |
The Federation’s statistical reports, 1928 and 1932.
Adverse selection refers to the fact that insurance is a much more attractive proposition to those who are most likely to make a claim. This problem of adverse selection was greater in societies in which affiliation was voluntary (such as the friendly societies that are the subject of this study) because when affiliation is obligatory, people with a high risk and those with a low risk necessarily mix. Adverse selection was discouraged by the admission norms: an applicant must be a resident in the locality where the society is based and must have a good reputation. The applicant must also be backed by one or more members, who become responsible for his or her conduct. Applicants must be between sixteen and forty-five years old. A general medical check was required prior to joining, as was an entrance fee. Once a period without benefits had passed (from three to six months), during which time the new member was only an insurer, the new affiliate became a full member and was entitled to all the rights and benefits of membership. This ‘trial’ period and the immediate expulsion of any member who withheld information tended to minimize the problem.
4.4. External environment
Among the factors that promoted the development of mutualism in Barcelona was the population increase. During the period under consideration, large contingents of immigrants arrived from other Spanish provinces, and Barcelona’s population nearly doubled between 1900 and 1940, from just over a million inhabitants to almost two million. Economic growth in the industrial and service sectors, which are niche markets of mutualism, also encouraged the expansion of mutualism among the new proletarians.
Conversely, and paradoxically, the social and cultural effervescence experienced by the working class during the first third of the 20th century had one negative impact on traditional mutualism. It was common for different kinds of associations, such as cultural societies, trade unions and political parties, to offer some mutual aid or healthcare scheme as a way to increase the loyalty of its members. These societies, which were not treated as mutual aid societies in the official statistics even though they played a welfare function, brought about a paradigm shift with regard to the previous generation, when no alternatives existed to friendly societies as far as healthcare was concerned. This helps to explain the decrease in membership among young workers, which was one of the greatest problems for mutualism during the period under study (Pons and Vilar 2014). Apart from the alternatives offered by other institutions, the drop in membership is also explained by the improvement in the living standards of workers, which made it possible for them to use savings as a welfare cushion; this created a vicious cycle, as the aging of the membership jeopardized the financial solvency of friendly societies, which discouraged youths from joining. Finally, cultural changes also played an important role, including the growth of other types of sociability, such as football or cinema, and created the idea that traditional mutualism was ‘something for old folks’ as the Federation’s board of directors lamented (El Porvenir de la Mutualidad, No. 47, p. 1, May 1911).
4.4.1. Regulatory framework
Although friendly societies were regarded positively by the State, the bourgeoisie and the Church – they fomented moral behaviour, frugality and responsibility among the working class and helped to stifle social conflict – Spain did not have a national legislative framework for mutualism until 1941 (López 2003). This is due to several factors, including a certain indifference on the part of public agencies, the inability of friendly societies to assume new obligations and the mutual distrust between workers and government.
In the context of liberal Spain, mutual aid societies were the only kind of workers’ associations authorized by the government between their legalization in 1839 and the enactment of the Associations Act (Ley de Asociaciones 5/30/1887), which regulated freedom of association in Spain for the first time10. The Social Reforms Institute (Instituto de Reformas Sociales or IRS) was created in 1903, followed by the National Welfare Institute (INP) in 1908: both focused on researching and developing ways to improve the Spanish welfare system. The Registration and Inspection of Insurance Institutions Act (Ley de Registro e Inspección de Seguros), passed in 1908, excluded friendly societies from its jurisdiction, but compelled them to file a copy of their statutes, a model of their insurance policies and a copy of their annual accounts with the General Directorate of Insurance (Dirección General de Seguros) (Tortella 2014). Likewise, friendly societies that offered medical assistance were placed under the control and supervision of the Central Health Commission (Comisaría Sanitaria Central), created in 1925. In this way, the regulation of mutualism aimed only to protect the public from abuses and fraud, and to ensure that adequate medical attention was provided ([INP] 1927). With the proclamation of the Second Republic (1931–1939), Catalonia recovered its main government institution, the Generalitat, which assumed responsibilities over mutualism. The importance of this associative movement prompted the Catalan government to enact the Mutual Societies Act (Llei de Mutualitats, 03/22/1934), which aimed to regulate and structure the Catalonian friendly societies while allowing them an ample degree of freedom. It is worth mentioning that this act introduced some novelties: expulsion of members was banned; societies had to subscribe to reinsurance policies; the Federation was given the authority to arbitrate conflicts; loans were made available for societies undergoing financial difficulties; societies were obliged to have a minimum number of members, to ensure solvency, and to submit accounts to a public office; the Higher Council for Cooperation (Consell Superior de Cooperació) was created; and societies were obliged to deposit funds in banks or other financial houses, and to invest only in safe investment options. The shortcomings of the Act include that it neither made it compulsory to declare the age coefficients of members, which were a good indication of the actuarial risk of the society, nor to subscribe to a reserve fund (Oliva 1987). Enforcement of the Mutual Societies Act was difficult, due to the opposition of friendly societies and the outbreak of the Civil War (1936–1939), which limited its impact. However, Catalan law was used as a model for the Mutual Societies Act (Ley de Mutualidades, 12/6/1941), which was enacted on a national level by the Francoist regime after the conflict (Pons and Vilar 2014).
4.4.2. The market
During the analysed period, premiums for the sickness never exceeded 6% at the private insurance companies, but were focused on other risks, such as life, accident and fire insurance. Most sickness insurance companies were small-scale, with a limited geographical area of operation, little capital, and headed by nonprofessionals from the insurance sector (usually doctors). Two factors could explain their lack of capacity: the underdevelopment of actuarial techniques and the lower capitalization and concentration (Pons and Vilar 2014). Figure 3 illustrates the evolution of the premiums for sickness in commercial insurance companies and mutual funds.
Premiums for sickness insurance in Spain, 1912–1933 (amounts expressed in thousands of pesetas. 1913). Instituto Nacional de Estadística (1919, 1930 and 1934); Pons and Vilar (2011, 81); [INP] 1927; Deflator: Maluquer de Motes (2009).
A relevant example of the success of bureaucratized mutualism during the period was the creation of mutual societies by employers in order to insure their employees. Initially, these schemes only covered industrial accidents, but they progressively expanded their coverage. Between 1900 and 1940, 108 such societies were founded, 74 of them during the Second Republic, as a result of the compulsory character of accident insurance schemes and their extension from the industrial to the agricultural sector (Unión española de entidades aseguradoras y reaseguradoras [UNESPA] 1981).
4.4.3. Public welfare
Murray (2007) distinguishes between four insurance systems in Europe between 1880 and 1914: the French and Belgian system, marked by a liberal ideology and little public intervention (Spain is included in this group); the Danish system, based on voluntary membership and strong subsidization; the German system, which was compulsory (Social Security Act of 1883); and the British system, characterized by a multiplicity of friendly societies that ended up merging with the public health system in 1911.
According to Van der Linden 1996, when the State leaves welfare responsibilities in the hands of the market, for example in Spain, democratic friendly societies are faced with two options: either to expand and bureaucratize in order to compete in the insurance markets and assume the subsequent loss of sociability, or to prioritize sociability functions and become simple social clubs. Those societies that tried to maintain both disappeared. Conversely, when the State provides direct social insurance, friendly societies can become integrated into the system and can act as intermediaries, in which case bureaucratization and loss of sociability is also encouraged, or excluded, so that marginalization is inevitable.
In Spain, during the first decades of the 20th century, social policies, although expanding, were restricted, rigid and poorly adapted to the economic structure of a country that remained largely rural. Therefore, at the beginning of the Civil War, a significant proportion of the population remained uninsured. Despite the significant progress, Spain remained far behind the rest of Western Europe concerning both when different measures were adopted and the degree of coverage, as illustrated by Table 5.11
Table 5
Dates for the passing of laws making social welfare schemes compulsory.
| Accident | Sickness | Old-age pensions | |
|---|---|---|---|
| Great Britain | (1897) 1946 | 1911 | (1908) 1925 |
| France | (1898) 1946 | (1898) 1928 | (1895) 1910 |
| Germany | 1884 | 1883 | 1889 |
| Italy | 1898 | (1886) 1928 | (1898) 1919 |
| Spain | (1900) 1932 | 1944 | (1909) 1919 |
Dates in parentheses refer to subsidized voluntary insurance (Herranz 2010, 62–64).
Healthcare was a matter of charity. The public system remained limited to the official poorest, and the amount earmarked for this purpose was very low. The cost of healthcare increased from 0.19% of the GDP in 1900 to 0.26% in 1930 (Espuelas 2011, 140–141). This cost was faced both by the central government and the provincial bodies, upon which the responsibility for providing healthcare generally fell. In Table 6, several statistics for the city of Barcelona are presented, concerning attendance in relief houses, hospitalizations and the members of federated mutual societies that enjoyed sickness benefits. The increase in the number of hospitalizations and federated societies members who enjoyed sickness benefits is quite clear. In a context of demographic growth, it does not appear that public healthcare replaced mutualism as an option for the working class.
Table 6
Evolution of public healthcare and federated societies’ sickness beneficiaries.
| Year | Patients attended to in relief houses |
Hospitalization | Federated benefits beneficiaries | |||
|---|---|---|---|---|---|---|
| Home visits | General medical visits | Accidents | Total assisted | |||
| 1919 | 272 | 135,311 | 16,537 | 152,120 | 11,817 | 20,855 |
| 1920 | 461 | 126,302 | 17,108 | 143,871 | 11,608 | 18,328 |
| 1921 | 1716 | 104,420 | 16,806 | 122,942 | 11,130 | 16,611 |
| 1922 | 2016 | 121,208 | 14,203 | 137,427 | n.d. | 19,076 |
| 1923 | 2361 | 108,302 | 12,930 | 123,593 | n.d. | 23,399 |
| 1924 | 2784 | 113,416 | 14,862 | 131,062 | 10,795 | 23,579 |
| 1925 | 3683 | 116,402 | 14,518 | 134,603 | 10,961 | 21,817 |
| 1926 | 3271 | 137,890 | 15,204 | 156,365 | 11,105 | 24,789 |
| 1927 | 3450 | 90,251 | 13,259 | 106,960 | 15,812 | 27,240 |
| 1928 | 3718 | 91,428 | 15,623 | 110,769 | 16,789 | 32,165 |
Instituto Nacional de Estadística (1916, 1919, 1920, 1921–22, 1922–23, 1923–24, 1924–25, 1925–26, 1927, 1928, 1929, 1930, 1931, 1932–33, 1934). The Federation’s statistical reports, 1928 and 1932.
This situation starts to change after the Civil War. According to Pons and Vilar (2011), there is a cause-effect relationship between compulsory health insurance (Seguro Obligatorio de Enfermedad, Law 12/14/1942) and the disappearance of democratic friendly societies. The Francoist Health Care System ignored the friendly societies and their know-how in the field of healthcare, which effectively compelled their virtual disappearance. However, due to the organisational and financial problems of implementing a National Health System, it received the collaboration of the biggest mutualities. Among them was the Federation of Friendly Societies of Catalonia, which signed a cooperation agreement with the National Welfare Institute (INP). In this setting, membership in the Federation was make-or-break for Catalan mutual societies, which had already experienced the changes described. Traditional and democratic friendly societies had lost their predominant position, and had little to offer to their members, except for very low benefits and old traditions.
5. Conclusions
Historically, democratic friendly societies met the sustainability conditions synthesized by Agrawal (2008). In terms of group characteristics, these societies were generally small, had well-defined limits and shared compulsory rules that all members knew from the moment they joined; poverty was not a problem (labour aristocracy); and traditional customs tended to promote the generation of social capital. Institutional arrangements were respected and collective action problems were rare. Their institutional design was adequate for 19th-century conditions, a time when medical costs were low and competition was irrelevant. The small size of traditional mutual societies (especially relevant in the case of Barcelona) reduced management and monitoring costs, but otherwise reduced the economic capacity of those societies.
As for the external environment, although the State did not facilitate the work of mutual societies, it provided the insured with legal security, which was complementary to the societies’ internal arbitration mechanisms. However, as the 20th century advanced, exogenous factors, such as rising inflation and medical costs and the emergence of market-based alternatives, forced transformations whereby sociability became a secondary concern. The societies that chose not to adapt, or did not know how, were replaced by a new type of mutualism, which was more technical and growth-oriented and finally gained the upper hand, as demonstrated by both the increase in the average size of mutual societies and the waning amounts of money spent on subsidies and social activities. Our analysis has revealed that before the Civil War, price variations and increased competition were more important than State intervention. On the other hand, the data indicates that the increase in size did not lead to increased moral hazard problems, possibly because of the small value of the benefits.
Democratic societies were not transformed into bureaucratic, but gradually lost importance in favour of them. However, the boundary between the two is vague, so in the future, I will intend to study a longer period, including the post-war years and the evolution of specific kinds of societies. This will allow an analysis of the behaviour of mutualism and the institutional changes that it underwent during the 1940s.