Article The World We Want In partnership with the UNDP

Beyond Capitalism: Can co-operatives offer an alternative model for social progress?

The crisis at the Co-operative UK Group, which began at the Co-operative Bank in May 2013 (the Co-operative’s 150 year anniversary!) has brought the ethics and business practices of cooperative business models into sharp focus, leaving many publicly questioning whether the coop model can co-exist, within the current system of deregulated global capitalism.

2012 was the ‘International Year of the Co-operative’ – and a moment in time when the health of Cooperative movement appeared to be in rude health.

However fast-forward to 2014, and current problems at Co-operatives UK are mirrored by the worlds largest co-op - Mondragon in Spain, with its largest business unit - Fagor appliances entering bankruptcy in November 2013.

So what is going on within the Co-operative movement? Are we witnessing the slow death of the coop model, as it is voraciously consumed by the PLC?

With commentators and academics across the political spectrum from Alastair Heath to Thomas Piketty decrying corporatism and the cozy nexus of power that exists between big corporates and the political elite - can cooperatives offer a alternative progressive economic model to capitalism?

Despite recent setbacks, cooperatives continue to deliver significant benefits to workers and society.

If we look at the physical structure of Co-operatives like the Co-op UK, or Mondragon in the Basque region of Spain - what are the defining principles of a Co-op, and how are they different to a PLC model?

Co-operative Principles

Co-operative businesses are owned and run by and for their members, whether they be customers, employees or residents. As well as giving members an equal say and share of the profits, co-operatives act collectively to shape a better world.

Rather than rewarding outside investors, a co-operative shares its profits amongst its members. Co-operatives are owned by ordinary people just like you.

Co-op’s represent a business model that exists to serve its members, whether they are the customers, the employees, or the local community.

Members are the owners, with an equal say in what the co-operative does.
As well as providing the products and services they need, members help shape the decisions their co-operative makes.

Across the UK, co-operatives are owned by 13.5 million people – and the numbers are growing. Co-operatives UK employs around 90,000 people.

Co-operatives UK has vertically integrated a sprawling business encompassing finance, food production, distribution and retail, to energy, insurance and funeral services.

100 million people around the world are employed by co-operatives, whilst nearly 1 billion are members.

Democratic engagement with how the businesses are managed and run, is typically complimented by more equitable pay ratios and progressive social and environmental policies than comparable PLC’s.

Mondragón Corporation centred in Basque - Spain’s separatist region is an extraordinary 80,000-strong network of worker-owned cooperatives, demonstrating to the world how to develop ideas of worker-ownership and co-operation at pace and scale. Mondragón dates from the mid-1950s, evolving over time into a federation of 110 cooperatives, including 147 subsidiary companies with total assets of 35.8 billion euros and revenues of 14 billion euros.

Mondragón offers an inspiring example of what can be achieved through cooperative organisation.

It has developed a participatory decision-making structure, and a top-to-bottom compensation structure that challenges current economic management practices throughout the PLC corporate world.

On the hot topic of executive pay, the pay ratio between top Mondragon executives and the lowest-paid members is between three to one and six to one; in a few of the larger cooperatives it can be as high as around nine to one.

Private corporations often operate with top-to-bottom compensation ratios of 250 to one or 300 and for the oil majors and banks, exceeding 1000 to one.

Should the business strike upon hard times (as with Fagor appliances), as part of any restructuring or liquidation Mondragón policy provides jobs and periodic income security for its workers in Spain - one of the cooperatives great advantages over the PLC model.

Mondragon’s problems began in 2007 when Spain’s over leveraged housing market, fed by the corruption of local officials and local bankers began to burst.

Fagor, which manufactures white-ware for this hitherto booming sector began to experience a sharp downturn in demand, as cut price goods from Asia began to flood global markets.

In response, Mondgragon publicly announced that its internal insurance company Lagun Aro would pay 80% of the co-operative member’s salaries for two years and the corporation will relocate as many employees as possible to other coops within the network.

Not the sort of practices commonly associated with a PLC restructuring.

Whilst the co-operative model offers tangible benefits of interest to the labour movement and broader society at large, communicating these benefits via the corporate mainstream media is often fraught with challenge.

For these reasons, in the UK with a conservative leaning mainstream financial press, awareness amongst the general public regarding the Co-operative model is not high, and Co-operative interests have little control over the news cycle.

This fact was painfully exposed at the Co-operative Bank via sustained negative press following its downgrade by Moodys in May 2013 revealed publicly that the Co-op Bank was not a Co-op, but a PLC bank 100% owned by the Co-operative’s UK parent co, angering many customers. Ownership control of the bank has since been ceded to hedge funds, prompting a “Save Our Bank” campaign.

A Question of Media Framing

The UK mainstream media has not been especially kind to the Co-operative movement. From my own experience covering the unfolding drama at the Co-operative Bank for Move Your Money UK - I see two obvious reasons.

1) Conservative and Lib Dem despise of the Labour party.

Lets face it folks, the ConDem marriage has been a rocky affair since the coalition partners got into bed together back in 2010. Whether it has been student fees, media & electoral reform, NHS privatisation or MP recall – there are not many things they have agreed upon. A mutual dislike of Labour is one of them.

Critically damaging the Co-operative Bank and Co-operatives UK parent company that donates funds to the Labour party political machine is in the interests of both incumbent parties. And if that means pushing the boundaries of the objectivity and ‘public interest’ requirements of the BBC in order to do so, then so be it.

In late 2013 - I submitted a FOI request for email exchanges between George Osborne and Vince Cable, for insights into how the Cooperative Bank crisis was managed by Government. The FOIA requests were denied by HM Treasury.

2) Mainstream media alignment with neoliberal, free market capitalism

In the years following the 2008/09 financial crisis, many of the words emanating from politicians mouths about the various wisdoms of deregulation began to ring hollow, as across the USA, UK and then Europe, bank after bank collapsed or was rescued at great expense to the taxpayer.

Co-operatives on the other hand came through the financial crisis relatively unscathed, or at least they appeared to in the short term.

Politicians from all parties, under increasing pressure from the public over bank bailouts and the ongoing bonus culture in the City were happy to point to the Co-op Bank as an ethical alternative to the excesses of capitalism, that had brought the UK economy to its knees.

It is important to note that politicians and regulators had waived away concerns regarding the Co-operative Banks merger with Britannia Building Society in 2009, and were publicly backing the Co-operative Banks bid to pick up 600 Lloyds branches in a deal known as ‘project verde’ which ultimately collapsed – resulting in the relaunched TSB brand.

The Co-operative Bank provided a convenient political alternative to sweeping reforms of the big banks. The thinking within Westminster circles went that the banking problem could be reframed. A lack of competition, and not a story of toxic bank culture or poor regulatory oversight.

It followed that if the ethical Co-operative was allowed to grow big enough to compete with the big banks, it would keep the other banks honest, removing the need for reforms - something Conservatives are generally reluctant to engage with.

In doing so, the mainstream media ignored concerns raised by the regulator of the day, the Financial Services Authority, regarding the Co-op – Britannia merger which would prove near fatal for the Co-op in the years to follow.

The prospect of an enlarged Co-op Bank on the high street, with ethics baked into its DNA, of a size to rival the big boys was used as a carrot to placate angry voters demanding more serious banking reform.

When the Co-operative blew up in May 2013, it became quickly apparent we would have neither adequate financial reforms, nor a challenger bank on the high street. The Co-operative Bank management was framed as “naive,” “out of its depth” and in need of questioning its strict adherence to its ethical principles in order to survive in a cut-throat corporate world.

As part of a resolution plan to address the £1.5bn hole in its balance sheet, the Co-operative Bank was forced to hive off profitable arms of its business in order to make whole its losses.

This included the Co-ops renewable energy arm, and a forced retrenchment of its public sector and corporate banking division, leaving hundreds of local authorities with no alternative to the predatory big four banks. Co-operative Group farms are also likely to be sold, with losses at the Co-operative UK group approaching £2.5bn.

In all of this, clearly the Co-operative Bank, and Group are not without fault. Management made poor decisions regarding large acquisitions - buying into the same ‘grow at any cost’ strategy that sunk RBS, whilst failing to resolve IT and legacy problems.

But these are human failings, just as common within the PLC model, and not a failure of the Co-operative model per se, as has suggested recent media framing.

Author Naomi Klein wrote powerfully in the ‘Shock Doctrine’ of the way the terms ‘capitalism’ and ‘democracy’ have become so co-mingled by the mainstream media, so as to be almost indistinguishable from each other.

In truth, the terms capitalism and democracy are not inter-changeable, and there is a long history of capitalism actively suppressing democracy for profit - such as in Chile, by Milton Friedman’s ‘Chicago School’ neoliberal pioneers.

Co-operatives teach us that capitalism and democracy need not be mutually exclusive either.

With the ongoing media storm over Reverend Paul Flowers, we should pause and reflect, ensuring a sense of perspective. No public money was needed to bailout the group, or bank (unlike Northern Rock, HBOS and RBS whose management received less prolonged criticism) and its ethical investment policy still sets the Coop apart from its high street rivals.

The media storm represents capitalism and its political foot servants asserting their dominance over a potential rival which threatened a possible alternative at a time of prolonged crisis.

What is clear is that the cooperative movement needs to find its own voice in the mainstream media.

Solutions: Media Co-operatives

Co-operatively owned, pluralistic and democratically accountable media.

If existing media institutions such as the BBC - which are explicitly obliged to report in the public interest, and yet do not reflect the publics views, (especially on business and finance) cannot be reformed by democratic means, one solution is to build our own alternative media platforms.

Whilst the Guardian is by no means perfect, we are all better for its existence. Following the hacking scandal, the need to democratise the broadcast monoliths surely still rates a mention.

With the barriers to entry in to media landscape declining year on year, this is an increasingly realistic prospect for progressives and could involve elements of the trade union movement, cooperatives, NGO and third sector groups, and non-incumbent political parties such as the Greens, which lack regular access to news platforms.

Thus giving progressive voices, alternative business models and policies, the space to influence public and political discourse.

Co-operatives in the Renewable Energy Sector - An Area of Potential Growth?

A growing number of communities around the UK are looking at the possibility of community renewable energy as a means of reducing reliance on the big six energy companies and addressing fuel poverty. Promoting local resilience and sustainability, whilst providing skilled local jobs and a future career path for residents.

Pioneering community renewable energy coops such as Westmill (2004), and those which have more recently emerged in places like Brixton, Hackney, and in Balcombe (in response to fracking) are leading the way.

But there are structural problems.

Bank finance is typically focussed on larger projects in the multi-million pound scale-range, and the Green Investment Bank has had to step in to pick up the slack following the problems at the Co-operative Bank.

Meanwhile, the cost of solar and wind technology continues to decline - prompting the need for larger scale projects to achieve a financially viable scale.

We need to create cooperative community energy models which are both replicable and scale-able, in order to access finance, and fast-track adoption. We also need to train people to plan, build and run them.

Agamemnon Otero of Brixton Solar/ Repowering South London is confident he has the makings of such a model which began from humble origins on Brixton’s Loughborough Estate with the support of the local community [who invested amounts starting from just £50 to raise the initial £58,000 capital] and a supporting partnership with Lambeth Council.

But community energy also needs skilled community organisers and project managers. Members of the community working on ground-breaking projects such as Brixton Solar energy scheme often do so as passionate volunteers, putting in long hours for free, which in the long term, is not sustainable.

With the UK Government’s hot and cold approach to supporting renewable energy and the loss of support for the renewable feed in tariff, there is little certainty for either investors or workers.

Finally, local authorities – the public bodies best placed to partner with civil society groups, communities and businesses to help roll out community energy coop schemes have been placed in the fiscal straight jacket of austerity.

With 35% budget cuts and the loss of crucial business development and project management staff, who or what is going to plug the local capacity gap to enable the growth of community energy?

Councils appear generally unwilling to utilise their publicly managed financial assets such as treasury or pension funds to invest in community energy, despite often supporting the notion of cooperatives and renewable energy through various council environmental and economic development policies.

Can networks of cooperatives step up to fill this void in the areas of renewable energy finance, local organising and project management capacity, and renewables manufacturing – or will the opportunity be seized by larger monolithic PLC players?

Reflections and next steps

Undoubtedly, the cooperative model has been through a tumultuous period since the global financial crisis of 2008/09. Mondragon, despite the setback at Fagor appliances appears to be well placed to recover, regroup and diversify its remaining business interests into other sectors.

The Co-operative Bank and Co-operatives UK Group appear to be facing a longer road to recovery. Financial drain, prolonged negative media coverage and management infighting have undoubtedly taken a toll on morale.

The loss of the co-ops renewable energy division, and potential loss of the network of cooperative farms is devastating for members, customers and supporters alike.

Where the group turns next is an open question, but communicating change to members and the general public is a vital part of process, and one which I hope opens a wider debate about mainstream media ownership, bias and framing vs PLC businesses.

Ultimately, co-operatives offer significant advantages over the PLC model, but these benefits need to be adapted, moulded and communicated to remain relevant in a rapidly changing world. Rather than abandon ethical and democratic principles as suggested by the corporate media, co-operatives must do more to communicate such strengths to the general public.

Far from being dead and buried, I hope to see the further extension of the cooperative model into new areas like community renewable energy and social housing.

Turning the Co-operatives UK Group around, is going to take a lot of reorganisation, energy, patience and public support.

Lets all work together to ensure they succeed…

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