1

First East Africa Co-operative Conference 29th February – 2nd March 2016 Conference Paper

Harnessing the region’s industrial potential for driving socio-economic development through the co-operative enterprise model: The People’s Ownership and Mobilization

Dr. Peter Davis, CFCIPD, AFHEA Adjunct Professor in Co-operative Management Education and Development

Abstract The paper first critiques the aspiration and vision contained in the conference position paper questioning the idea of industrialization and the role allocated to co-operatives in its achievement. The position paper states as follows; “The determination, participation, self-reliance and solidarity of the East African peoples and leadership are preconditions for the industrialization of the region, and hence the need to develop the critical enablers of regional transformation. This includes the continuous mobilization of the East African people and the Diaspora in various formations; employment of modern communication applications and outreach; co-operative research, innovation and development; and sustained and inclusive social dialogue on industrializing East Africa through co-operatives.” The paper questions whether the co-operative vision can be or should be contained and channeled in this direction? The paper cautions the co-operative movement in Africa not to lose sight of the global context and not to be too ready to accept the idea that economic growth as it is traditionally defined is either appropriate or desirable. The paper challenges the increasingly over-used idea of ‘sustainability’ and calls for an economics of ‘sufficiency for all’ as the best means to ensure against the threats to resource depletion, environmental degradation, climate change, and food security. The paper explores the benefits of supporting the small farmer and of enriching the rural community infrastructure and employment potential. Overall the paper argues the co-operative project is to ensure as far as possible popular ownership of wealth creation processes and resources, full employment, self-sufficiency in energy and food and an enhanced cultural and spiritual community that is both open to the best influences from the global environment but can also resist robustly the erosion of its own cultural identity and co-operative and human centered values. The paper argues that grass roots economic and social development that aims to ensure sufficiency of resources for everyone in the region can achieve the conference goals of debt reduction and dependency on foreign aid whilst at the same time raising living standards, eliminating unemployment, and insulating the regions peoples from the turbulence and instability that is so often a feature of global capitalisms boom and bust. There is also an urgent need to protect the poor against inflating food prices. The remaining sections present case studies of successful and unsuccessful co-operative enterprises and attempts to draw out key lessons for successful co-operative development; identify those barriers that arise preventing successful growth; consider the problems of inappropriate leadership and governance, and the consequences for co-operative development of ignoring the co-operative wider social and communitarian vision.

Key Words Co-operation, Community, Culture, Governance, Industrialization, Management, Organization, and Sufficiency Economics.

1

2

1. Introduction 1.1 What is industrialization? A reflection on development goals, power, sustainability and justice. Past, present and future. The position paper for this conference correctly identifies the growth of co-operation with the early development of industrialization. However, co-operation at this time is best understood as a reaction against industrialization. We should not forget that this phase of British economic development was prefaced by a massive dispossession of its peoples from their traditional land; by famine and colonial expansion in Ireland; the destruction of the traditional clan land ownership and the clearances of Scottish people to be replaced by sheep owned by aristocrats in Scotland; and in England by the Enclosure Acts by which parliament forced small holders to sell their land if they could not afford to fence it. (1)This clearing out of the peasantry was an indispensible part of the Agrarian Revolution that preceded Britain’s Industrial Revolution. Industrialization helped to drive home the ascendency of the British Empire at this time but it was far from proving to be a panacea for Britain’s working people. Forced from their traditional lands in fact it actually generated unemployment and hunger. (2) The expansion of urbanization without the necessary public health infrastructure led to mortality rates worse than the worst we see in modern Africa today. In 1840s England the average life expectancy in our cities was 27 years of age. (3) Ricketts a condition affecting the development of children’s bones brought about my malnutrition was not finally eliminated from British working class children until the introduction of the welfare state by the post World War II Attlee Labour Government 1945 -1951. Today we can be equally clear that industrialization of itself will not address the issue of food security, poor housing and public health. “Industrialization is the process in which a society or country (or world) transforms itself from a primarily agricultural society into one based on the manufacturing of goods and services. Individual manual labor is often replaced by mechanized mass production and craftsmen are replaced by assembly lines.” (4) Industrialization can lead to reduced labour rates, create unemployment and hunger. The 1840s are known in British social history as the ‘hungry forties’. Today there is an the urgent need to protect the poor from the almost inevitable inflation in global food prices driven by speculation in food futures betting on population growth and the potential of climate change to harm food production leading to increasing monopolization in the global food supply chain. “The OECD-FAO Agricultural Outlook expects prices to come down again, but not to their historical levels. On average over the coming ten year period, prices in real terms of cereals, rice and oilseeds are projected to be 10% to 35% higher than in the past decade. The acute price hike adds to inflationary pressures in developed countries. Poor consumers in developing countries, and food importing developing countries overall, will have to spend an even higher share of their limited income on food.” (5) China’s rapid industrialization has been at the expense of polluting some 70% of its fresh water supply and on the back of a forced urbanization of its peasantry under conditions in which free trade unions are banned and other human rights abuses continue.(6) There is no doubting the benefits in wealth creation for the Chinese middle classes but child labour continues and the quality of life for the masses has been to exchange the hard life of the peasant for long hours at exploitative rates of pay in sweat shop factories owned by foreigners and a new class of Chinese billionaires. Power has not shifted away from the oligarchic form and civil society and economic polarization has dramatically increased whilst cultural and academic life and media continue to be tightly controlled. This is the substance of Chinas industrialization ‘miracle’ backed as it is by huge inflows of western investment. It is unlikely to say the least that industrialization in Africa aiming at supplying domestic and export

2

3

markets with cheap consumer products or products supporting industrial production can compete with China on costs without imposing similar conditions on its working people. This scenario can be avoided through the development of an alternative economic philosophy that shuns the siren calls of the western growth based model of development where technology sustains the status quo rather change it. We don’t just need a sustainable economic model – the question arises sustainable for whom – but a co-operative economics model of sufficiency where low growth but fairer growth can make a real difference to human well being for the poorest without harming our environment and eco-systems. Such an economy is based on local industry and service co-operatives focused on the goals of: a) enabling increased agricultural production for local and regional consumption yielding improved value added for the farmers and their families: b) creating rewarding wage based employment supporting agricultural supply, production, marketing and distribution: c) developing and managing clean water and irrigation management and energy production and supply: d) improved housing and health care; and e) enriching the solidarity and cultural life of the local community. The advantage of low volume local production is that it competes through local competencies in terms of enhanced quality and a better understanding of local community market needs. (7) It cannot compete on a global mass market but it can prevent dependency and dominance of local markets by cheaper imports. Its additional advantage is that it is possible to retain ownership and control in the community for the community. The wealth to sustain this development comes first in Africa’s context from the availability of land which, when properly irrigated and managed, can enable it to feed itself and export surpluses regionally and globally. Thus Agricultural Co-operatives need to support the small farmers continued ownership of the land, increase food production and ensure a balance between supplying Africa’s peoples with a sufficiency of food through improved arable, horticultural and animal husbandry and earning income from exporting cash crops. The other African advantage is solar energy capacity which could potentially provide for energy sufficiency and be a source of added income for the local community when exporting surpluses to the national grid generated by Energy Co-operatives. (8) Water management remains a key issue for agricultural development and public health and the general quality of life. Here there may be potential for Water Co-operatives to be established to provide local sewage, irrigation and clear water supplies. (9) Fundamental for the realization of genuine co-operative development is the latter’s autonomy from the State and their ability to reach out to other co-operatives for development support and for the achievement of common goals requiring co-operation between co-operatives. In the context of African co-operation the established co-operative savings and credit co-operatives and banks need to be free to invest in local co-operative enterprise development. Some appropriate industrialization can be beneficial as one of the case studies below demonstrates but here it is in the context of a strong community service focus. I will return to this question of raising capital in a later section of the paper dealing with models for industrial co-operatives.

1.2 Character Formation, education, participation, self-reliance and solidarity: the spiritual and social dimensions to co-operative economic development that aims to deliver justice and well-being to all. The goal of co-operation goes beyond the provision of wealth creation to the construction of a human centered society were the dignity of the individual is its central concern but where the individual good does not contradict the common good and where all decision-making is taken by those who will be most affected by the decision itself. Robert Owen saw the real goal of economics to be the formation of character (10). Co-operatives where not seen by their founding fathers to be supplementary to

3

4

capitalism or government planning systems or as marginal palliatives to fill the low profit gaps in the market economy. They looked for a new social order and with it a new humanistic culture. The existence of extreme poverty and want must not become an excuse for economistic solutions that ignore the social and cultural dimensions of co-operation. Indeed these dimensions are central to the economic projects success for it is from the social and cultural aspects that solidarity unity and commitment to the common good rather than agency self interests arise. The co-operative movement has always been a contested terrain. It is just not true that Rochdale co- operation was meant to be the start of a consumer co-operation. The original Rochdale co-operative model used retailing as a means to raise capital for the purchase of manufacturing capacity and land to establish a self reliant co-operative community. Its founding belief was that labour was an important source of added value and that individual workers in association supported by small savings could create their own wealth and industries. At this time mainstream economics, following the teachings of Adam Smith and David Ricardo, taught that Labour was more than just a means of production – it was seen to be a principle source of added value. The radical reading by the early British co-operators of these classical economists labour theory of value frightened the ruling class of the day and by the mid late 19th century a rival Neo-Classical economics that taught that price and value were the result of consumer preference had arisen and within the co-operative movement the priority of the consumer was advocated against the rights of the worker to share in the profits of their co-operative. Led by a leading manager, JWT Mitchell, and a leading intellectual, Beatrice Potter (later Webb), the consumer co-operative movement proposed that consumer co-operation was the morally superior form and that all dividends should go to the consumer not to the producer. (11) This co-operative consumer ideology was complementary to the new right economics of the day and led to the splitting up of the co-operative movement into the silos we recognize today: agricultural co-operatives, worker co- operatives, consumer co-operatives and savings and credit co-operatives etc. (12) Today labour is a resource that often lies idle but that can create added value if properly organized. Work is central to our human identity, the separation of its product from the owner, its bureaucratization and the alienation through the dull routine and mechanization of the modern work experience lies at the heart of both the reality of poverty and the spiritual crisis of our age. Co- operatives must brand their ideals and vision as core to their identity if they are to attract managers and workers and young people who share these ideals. What makes for human happiness is the quality of our relationships not the quantity of our bank accounts. Co-operative economic development must involve high quality cultural production to uplift the spirits, unite the peoples and bring joy as well as material well-being to a civil society that works to ensure economic sufficiency and social solidarity for all. Thus the establishment of Performance Arts Co-operatives, Art and Craft Co-operatives, Literary Co-operatives supporting writers, playwrights and poets must be a key goal in any strategic co-operative development strategy for the rural and urban societies. (13) Thus if we are to develop economic sufficiency and social solidarity and autonomous civil societies freed from the dyadic patron-client relationships that stifle true democracy and perpetuate dependency mentalities we need to develop a leadership and followership that is distinctly co-operative in its attitudes, values and aspirations. This responsibility remains one for all bodies concerned with education and formation. Such attitudes, values and aspirations will only be realized fully when individual workers and manager’s adopt co-operative and humanistic virtues. Without a virtuous leadership and followership organisational mission statements, ethical codes and Corporate Social Responsibility (CSR) programs adopted by organizations will generally become undermined by day to day practice and agency costs (14). As useful as the later can be experience by now has surely demonstrated that they are an inadequate barrier when it comes to preventing the subverting of co- operative mission and values by unscrupulous managers and board members. Co-operative Development requires an integrated approach that sees co-operative values as integral to co-operative

4

5

economics. However, unless these values are internalized by leaders and managers as co-operative virtues governing personal behaviour the movement will always find itself bedeviled by governance problems, misdirection of mission and distortion of vision.

2. Why Some Co-operative Enterprises Succeed and Others Fail. Lessons from four short case studies

2.1 The Vancity Credit Union. A credit co-operative reaching out to member’s building solidarity and social capital in communities. (15)

By the numbers Members: 509,008 Assets: $18.6 billion Branches: 59 Employees: 2,539 Shared Success: $273 million since 1994

More details Vancity was founded in 1946 to provide financial services to people from all walks of life. Vancity offers a full range of financial products and services for individuals, businesses and not-for- profit organizations, including deposits, loans, investments, credit cards and foreign exchange. Vancity is a co-operative, which means being owned by its members and democratically controlled on the basis of one member, one vote. Vancity is committed to values-based banking and joined the Global Alliance for Banking on Values in 2010. Vancity shares 30% of its net profits with members and communities—over $273 million with members and communities through ‘Shared Success’ since 1994, with over $155 million paid to members and $112 million given in grants to local community organizations. Vancity employs about 2,500 people and has been consistently recognized as one of the top employers in Canada. Vancity is the largest private-sector Living Wage employer in Canada. Vancity's innovative approach to serving the financial needs of its members and the community has lead to a number of firsts among Canadian financial institutions, including the first to offer mortgages to women without a male co-signor, the first to offer a socially responsible mutual fund and the first to become carbon neutral.

Lessons  Although Vancity started small it has grown steadily and has never let competitive pressures divert it from its co-operative mission and ethical trading stance - insisting on ethical banking across its supply chain.  Although a credit union Vancity is reviewing its policies to shift emphasis from consumer lending to employment creation  It is reviewing how to redefine its impact to one emphasising community development that ensure relevance for real communities needs  It’s a leading proponent of Green Energy, conservation and recycling  Around 10% of its surplus goes in grants to support community activities and groups  It has led the way in employment conditions and paying higher wages to its staff.  Co-operative values training is a key element in its middle and executive management development programmes  The majority of the surplus is not distributed but retained.  It has a huge investment in member outreach and in staff and member education.

5

6

2.2 The Mondragon Co-operatives. A co-operative story of community, solidarity, resilience and technological transformation (16)

The Mondragon Corporation is a corporation and federation of worker co-operatives based in the Basque region of Spain. It was founded in the town of Mondragón in 1956 by graduates of a local technical college. Its first product was paraffin heaters. Today it is the tenth-largest Spanish company in terms of asset turnover and the leading business group in the Basque Country. At the end of 2014, it employed 74,117 people in 257 companies and organizations in four areas of activity: knowledge: finance, industry, and retail. Mondragon co-operatives operate in accordance with the Statement on the Co-operative Identity maintained by the International Co-operative Alliance.

Founder: Father José María Arizmendiarrieta (A local Roman Catholic priest)

Headquarters: Mondragón, Basque Country, Spain Area served: International

Revenue: € 11,875 million (2014)

Total assets: € 24,725 million (2014) Number of employees: 74,117 (2014)

Divisions: Knowledge: Finance, Industry, Retail Knowledge The group are driven by high quality cutting edge technologically driven innovation supported by its own community Bank and Technical Institutes, a Business School and a University. It established in 1984 a specialist Training Institute ‘Otalora’ focused on ‘co-operative education’ aimed at the top leadership of the governing councils within the co-operatives and the Corporation and various professional levels. From the beginning its first technical institute, founded by Father Arizmendiarrieta, established a co-operative business to enable students to experience co-operative working know a ‘Alecoop’ which was seen as both a teaching instrument and a source of revenue to keep the tuition fees within the reach of the poorest families in the region. The educational institute ‘Eskola Politenikoa’ is the oldest part of the Mondragon Group founded in 1943 some 13 year before the fist productive co-operative was founded.

Finance ‘Caja Laboral’ the Groups bank was established by the first four producer co-operatives and one consumer co-operatives as a credit co-operative. For the first 28years the Bank focus was on establishing co-operatives to ensure long term employment in the region. The Bank supported the creation of over a hundred co-operatives in this period where each co-operative signed a contract of association with the Bank when the bank entered into financial participation with the co-operative. The finance arose from the existing co-operatives using the Banks facilities to place their reserve funds and social funds and they used the bank for the provision of all their banking services. In addition the Bank developed it retail banking and savings side and attracted a lot of individual retail savings accounts.

Solidarity and unity within the Mondragon group can be demonstrated most clearly by its distribution of the co-operatives surpluses to provide for common services.

The following goes into a common fund for the whole group. 10% goes to the educational fund 3% goes to a solidarity fund

6

7

The individual co-operatives reserve fund Between 35 % and 52% of each co-operatives surpluses goes to its reserves. These reserve funds are indivisible and upon liquidation of the co-operative cannot be distributed to members but must be put in the Groups central investment fund for new co-operative development. Profit Sharing Worker members receive the remaining approximately 45% as a co-operative return or profit share which is paid into member capital accounts which are refundable on retirement based on the hours they work against an index of the level of compensation. The compensation (pay and conditions of service) are determined by the trade union rates in the external labour market as the group sees this as an expression of its solidarity with the wider community of labour.

Industry The Groups engineering division has ‘cutting edge’ capacities in R&D specialising in developing engineering prototypes for development by MNCs in addition to a foundry and co-operatives producing wide range of products and spare parts across a range of industries from domestic appliances to the automotive sector. A feature of the Mondragon approach is that although committed to job creation its aim is to create lasting jobs Economist have found that the per capita investment in Mondragon Co-operatives is on average around 40% higher than the per capita investment per job in the private sector in Spain. This means that the worker members’ contribution to the investment creating their job is rarely more than 10% and the remaining 90% comes from the groups common investment funds

Retail The Mondragon Groups biggest employer is its Retail division EROSKI running between 500 and 600 establishments across Spain and in France. The retail businesses outside the Basque region in Spain are currently registered as three civil societies on for sports equipment, one for multiple stores and one for Hypermarkets. Their structure of worker participation is such that EROSKI hopes to establish each one as a separate worker co-operative over time and is considering a similar strategy in France but this is delayed due to the complexities of the French context.

Lessons

 Although it started small the Mondragon Group has grown steadily whilst never letting competitive pressures divert it from its co-operative mission. The Mondragon Group has stayed rooted to its goals of supporting its community both economically and socially. Early in its history it promoted schools teaching in the local Basque language. One of the groups more recent social service initiatives is the development of special housing for the elderly.

 It is committed to full consultation and involvement of worker members in both economic business and social decision making. Despite being a group operating at the scale of Mondragon with complex managerial professional / technocratic structures Mondragon maintains a democratic leadership remaining committed to a clearly defined co-operative value base with a strong identity in its community. Management commitment is clearly critical for this to be maintained and remains a powerful motivator for all stakeholders recognising that community benefit provides a powerful mechanism for distributive justice and development.

 It’s important to recognize that the goals are long-term, high quality employment creation, community service and economic development not profit sharing.

 Most profits go to an indivisible fund(s) for use by the Group as a whole. During the last financial services led global melt-down (2008-20010) when unemployment rose amongst young people in Spain to 40% the Mondragon group repeated its success in weathering the previous global financial services crisis (1980s) and recorded nil redundancies despite zero

7

8

growth. Strong solidarity funds helped co-operatives experiencing difficulties plus the policy of redeployment of redundant workers and /or retraining helped. In times of crisis Mondragon has a policy of placing more surpluses in reserves than in immediate member consumption.

 Credit Co-operatives that concentrate on savings can become a powerful engine for job creation and local economic development as we see in the case of Mondragon

 Solidarity and Education have been the foundations and the key to the group’s positive responses to the turbulence and competitive pressures caused by both the global economic crisis and Spain’s entry to the EU. Solidarity is tangibly expressed in the bringing together of surpluses and savings and the indivisibility of reserve funds.

 Leadership development and close consultation and discussion with the workers and a strong community service are key factors keeping the co-operative ethos and founding purpose alive across more than half a century of turbulence, change and massive growth.

2.3 The United Kingdom’s Consumer Co-operative Movement. How co-operative complacency and managerialism hid realities and smothered innovation leading to one of the world’s biggest co-operative due diligence failures in history. (This and the final case study are the author’s compilation from multiple papers and websites referenced in the text) The case study starts nearly two centuries ago where the goals of establishing a just democratic community that owned and controlled their own economy was established with education and character formation seen as critical as both means and ends. Profits (or surpluses) was to be invested to enable these goals to be realized rather than distributed for immediate consumption. 1832 London Co-operative Congress chaired by Robert Owen adopted a set of Co-operative Model rules. Rule5 stated: ‘Capital in a Co-operative should be indivisible. All profits should be allowed to accumulate’. (17) 1844: The Rochdale Equitable Pioneers' Society is founded. Purpose to establish a community on the land, provide housing, and production, and establish self supporting land based communities run with democratic governance and common ownership. Dividend on purchases was not in the Society’s objectives or seen as a principle. It was allowed under rule 22 as a loyalty payment for regular use of the retail store. (18) 1850 – 62 The Rochdale Equitable Pioneers' Society operates a joint venture with workers to establish a flour mill enabling the production of unadulterated bread for the poor. Profits were shared between the Rochdale Society members and the Four Mill Worker members. 1862 The Mills manager (JWT Mitchell) had permitted outside investors to invest in the Flour Mill Venture as there was no appropriate co-operative legislative frame work at this time. As soon as the outside shareholders gained a majority they abolished profit sharing with the workers and the Rochdale Society withdrew from the joint venture in protest. (19) 1863: North of England Co-operative Society is created to provide wholesale purchasing operations for a group of 300 co-operative societies in Lancashire and Yorkshire. 1872: North of England Co-operative Society changes its name to Co-operative Wholesale Society (CWS) and begins manufacturing and banking operations. Its General Manager is JWT Mitchell. Up to this time profit sharing with the workers is still practiced by the controlling co-operatives, 1870 -1880s A fierce debate took place about the wrong question between those advocating profit sharing with the workers and those advocating dividend on purchases for consumers. Rule 5 of 1832 Co-operative Congress had been forgotten. (20)

8

9

1872. The CWS founds its own co-operative bank originally titled The Loan and Deposit Department of the CWS Ltd. 1880s to the 20th Century Profit sharing with the workers is abolished in the CWS. With this we see the consolidation and further development of the contemporary co-operative ‘silos’ we recognize today. The case of the establishment of Agricultural Co-operatives in Ireland facing competition from UK CWS owned Dairies (21) is an example of the divisive impact caused by the loss of common purpose resulting from the consumer –producer co-operative debates which resulted in the establishment of an independent association for worker owned co-operatives. The CWS continued to establish its own productive capacity and extended its trading operations into the British Colonies to secure raw materials for its wholly - owned food manufacturing and packaging operations. 1934: Formation of Co-operative Retail Services (CRS) to serve as "ambulance" to struggling co- operative societies indicating that problems were occurring that needed addressing. 1948: London Co-operative Society becomes first retailer in the UK to open an American-style supermarket. 1955-58: In response the first time the consumer movements’ history it had failed to record any growth and had lost ground to the new multiples a Co-operative Independent Commission, Chair Hugh Gaitskell MP is established it recommended the movements 400 plus local societies merge into 40 regional societies. (22) 1960s to 2000 Co-operative Independent Commission recommendations met with resistance by local society boards and the recommendations were not implemented. Yet by the end of the century the movement had in fact been reduced to just under forty regional societies but these were the result of commercial failures disguised as mergers mostly with the CRS Ltd which before its crash in 2000 had become the biggest consumer society in the UK. 1973:Co-operative Wholesale Society takes over Scottish Co-operative Wholesale Society, which brings CWS into the retail sector for the first time. The CWS began divesting itself of its manufacturing capacity. 1994: The CWS sold most of its remaining manufacturing to entrepreneur Andrew Regan who after closing some resold others at a profit of around £9 million. 1997: CWS fights off a hostile takeover attempt, and then conducts strategic review. Andrew Regan induced senior co-op managers to hand over confidential papers in a failed hostile take-over bid supported by Lloyds TSB. (23) 1998: CWS launches Travel Care travel services subsidiary and acquires Broadoak Farming. At this time the co-operative group was the UK largest farmer. 2000: The CRS goes bankrupt and closes amidst huge undisclosed losses. This was disguised as a CWS / CRS merger and announced as the creation of the world's largest retail co-operative group. Thus masking huge numbers of store closures turning many areas, particularly London and the south east, into virtual co-operative deserts. Another Co-operative Commission Chaired by John Monks General Secretary of the TUC was established to review the state of the movement. Davis and Donaldson were commission by the Society for Co-operative Studies to survey the movement. In the event they conducted the biggest survey of consumer co-operatives in post war history. Their survey found hardly any UK Society had above 2% membership participation in their governance processes and few involved managers in any training and development that taught about co-operative values and identity (24) 2001: CWS changes its name to Co-operative Group (CWS) to reflect its status as a diversified retailer. 2002: CWS creates new financial services unit, grouping together its banking and insurance subsidiaries.

9

10

2002 -2009 The Co-operative Group sold its Opticians, Shoe Retailing business 'Shoefayre (25) and its Travel Business to Thomas Cook (whilst maintaining a 30% minority shareholding).(26) 2009. Britannia Building Society merges with the Co-operative Bank. The Britannia Building Society former CEO had earlier been appointed to the Co-operative Banks Board and was made CEO of the merged organization. He immediately embarks on an attempt (Project Verde) to purchase a large number of Lloyds TSB Branches. The deal fell through and he immediately left the Co-operative Banks employment receiving a personal compensation package estimated at around £4.6 million. (27) 2012 Co-operative Congress. Celebrating the 10th Anniversary of the Co-operative Commission Report, Dame Pauline Green, Head of Co-operatives UK and President of the ICA, in an address to the UK Co-operative Congress noted amongst the achievements of the past decade has been a “Strong professional and lay leadership in the movement.” (28) 2013 The Co-operative Group made huge losses necessitating the sale of its Life Assurance business that had been trading for 125 years. (29) 2014 Following the recent merger of the Co-operative Bank with Britannia Building Society the Banks stock is listed as ‘Junk’ as the full extent of the Britannia’s toxic debt becomes public. The Co-operative Groups share holding in the Co-operative Bank is diluted to 20%. (30) The Co- operative Group is forced to sell its Pharmacy and Farming businesses and other small divisions. It also sold a number of key retail stores including at least one city centre store continuing an overall remorseless reduction in the number of co-operative retail establishments that has been in progress since the since the 1950s The Kelly Report (31) and the Miners Report (32) into the failure of the Co-operative Bank identified poor governance with the Co-operative Groups’ main board simply not up to the job of leading a business of the size and complexity of the Co-operative Group. They found that in fact the way the elections to the board were established via lower level boards upon which one had to serve before getting elected to a higher level virtually excluded the majority of the Group’s membership from participating in the elections for office.

Lessons

 The Failure of the Co-operative Group has been portrayed as being a matter of poor due diligence and a lay board that could not cope with the complexities and who were not competent to hold office.  In fact this was a failure of a governance model – the Civil Service Model – where the Board (elected) is supposed to make policy and the CEO and management team to carry out the policy. Underpinning this model is a further error that the movement has two parts a ‘business part’ that is supposed to earn money and a ‘social’ part that spends it. Thus top management who had really made the poor decisions could blame the board who had legal responsibility whilst the COE and other top managers went away with large pay-outs, enhanced pensions and often into other comfortable posts in the private sector.  We can also see a failure in member engagement that left tiny minorities to elect often self perpetuating Boards who clung on to office and the expenses fees and other considerations that accompanied the office when it was clearly in the interests of the membership to merge from strength rather than merge from weakness when the price of merger was deep cuts in services.  What the case study demonstrates is that at the heart of the emergence of consumer co- operation was a separate ideological statement of the principles of co-operation that placed the emphasis on economistic short term consumption rather than on accumulation for long

10

11

term social change. Instead of uniting labour in a sense of common community it divided labour the labour of the farmer, the labour of the production worker and ‘consumer’ become warring or at least rival groups.  Once the movement ceased to be a movement – that is when the methodology of democracy plus dividend became not a means to an end but the end itself it was easy for followers and subsequent leaders and managers to become misdirected and confused.  It is also clear that professional management brought in from outside can be contemptuous of the movements values and governance and particularly its lay leadership and miss-use their power.  We need professional co-operative value based managers to sit on the board of their co- operatives so as to be legally accountable for their decisions.  A purely economistic justification for co-operation is never an adequate long term strategy. It’s the community values and focus that gives co-operatives the possibility of competing due to their local knowledge and brand loyalty from stakeholders arising from a recognition of the common good being articulated through their co-operative organization. 2.4 The UK Worker Co-operative Movement Having been refused access to affiliate to the CWS Ltd the 22 remaining and isolated Productive Co- operative Societies founded in 1882 the Co-operative Productive Federation (CPF) with the aim of raising capital and promoting worker co-operatives. By 1914 there were some 73 of these Societies affiliated the CPF heavily concentrated in three industries: 15 in textiles; 15 in footwear and 14 in printing. Others were involved in a variety of trades 8 in metal working ; 9 in the building trades and the remaining were in an odd assortment of dying trades such as barge making and bucket making. As a model there success is demonstrated by their longevity. Many provided employment for up to 100 years (Leicester Boot and Shoe Makers) and, as all three main sector industries failed in the private sector, these co-operatives were able to continue maintain employment for much longer. Leicester Carriage Builders specializing in security vehicles and police vehicles still exists as a division of the Midlands (consumer) Co-operative Society. Research has also refuted the attacks made upon them by Beatrice Webb who predicted these co-operatives would turn into capitalist businesses. (33). But the questions remain why did their expansion falter and in the end what caused their decline? Their failure can be put down to four factors: a) They had to compete with the consumer co-operatives CWS own manufacturers which denied them an obvious and substantial market in the consumer societies. b) There unique governance structure enabled capital investment from outside bodies and indeed most of their capital came from such bodies. Some consumer co-operatives invested in the co- partnership worker co-operatives, for example, to support job protection within their society boundaries. Trade unions also wanted to support otherwise redundant members, to create their own employment. Thus they had to pay outside shareholders and employees out of profits leaving insufficient capital reserved for growth and development. c) Perhaps most important of all these productive societies were concentrated in ‘low tech’ mature industries for which there was only limited potential for growth. d) Finally, their capital was capable of being realized and distributed between the members. In the 1950 and 60s many of the remaining societies simply closed down to realize the rising land values for industrial development and their members sold up and cashed in. But a new form of worker co- operative came into being by this time to replace them affiliated to the Industrial Common Ownership Movement (ICOM) in which capital was indivisible. However these new generation worker co-operatives were based almost entirely on small loans and remain (there one or two exceptions) very small and mostly located in the services and retailing sectors. e) Clearly they lacked of a Bank committed to the original communitarian vision. This was not available in the UK as here the Co-operative Bank was owned by the consumer movement. Secondly

11

12

overall the economistic emphasis on profit distribution rather than retention and the lack of emphasis in technological innovation also clearly differentiates these co-operatives from the Mondragon Group.

3. Conclusions I believe out of these four case studies seven development rules can be, provisionally at least, presented for debate. 1. Co-operative Development must be focused on the community it serves and the vision of the just community that co-operation embodies. 2. Co-operative development must always be underpinned and preceded by co-operative value based education as foundational for its leadership and management. 3. Surpluses from co-operative enterprises need in major part to be retained not distributed for reinvestment for the common good as both an economic development strategy and as a means to cement solidarity and infrastructural and cultural development in the community. 4. Small savings and co-operative retention funds should be encouraged as a low cost means to generate significant investment capital. 5. Membership and broader stakeholder engagement with the co-operative project and identification with the co-operative brand are key development goals. 6. Developing cultural assets in the community is both of economic and social importance contributing to opportunities for quality employment and public amenity. 7. Production should first be geared to enhance local needs for food, housing, energy, health care, cultural, other social infrastructure and the sustainability of local environmental and ecological amenities. This is not to ignore the possibilities for moving outwards to regional, national and finally international markets where this does not divert funds from local economic development and where there are mechanisms to ensure that such productions surpluses are to some degree at least for the benefit of the community as a whole. 4. Break out questions 4.1 How relevant is the papers insistence on the importance of community for setting the agenda for co-operative development? 4.2 Can we seriously talk even in a co-operative business context of character and virtue as being significant for successful development? 4.3 Given the paper might have a point - what are the barriers to the author’s visions of true co- operative development being realized in the context of East Africa? 4.4 The author has not discussed the social, environmental, health and economic challenges that the current high levels of urbanization have created in Africa. Is the concept of community transferable to an urban context? Are his proposed 7 rules applicable here? Does the Vancity case study provide an example of an urban communitarian approach?

12

13

Notes

1. G.D.H Cole and A.W. Filson, (1951) Britsh Working Class Movements. Selected Documents, 1789 -1875, Macmillan, London.

2. Ibid.

3. ibid.

4. www.investopedia.com/terms/i/industrialization.asp

5. OECD, (2008) Rising Food Prices. Causes and Consequences. http://www.oecd.org/trade/agricultural-trade/40847088.pdf

6. See Reports on Human Rights Abuses in China by Amnesty International which remains a banned organization in China. https://www.google.co.uk/#q=Amnesty+International+Reports+on+Human+Rights+in+China

7. Peter Dicken, (2007) Global Shift. Mapping the Changing Contours of the World Economy, Sage, London, p550

8. Dan van der Horst and Peter Davis, (2009) (2009) Ch10 Developing Renewable Energy: The Potential Role of Rural Electric Co-operatives’ in Energy Policy. Economic Effects, Security Aspects and Environmental Issues, Editor Noah B. Jacobs, Nova Science publishers Inc., New York.

9. See (2016) http://water.usgs.gov/coop/ There are over 3000 water co-operatives in the USA and such utility Co-operatives are found in Africa, Asia, Europe, the Far East and Latin America.

10. Peter Davis, (2008) Ch9 ‘Robert Owens Abiding Legacy to Management’ in New Views of Society. Robert Owen for the21st Century, Editors, Richard Bickle and Molly Scott Cato, Scottish Left Review Press, Beggar, Scotland.

11. Peter Davis, (1996) Ch 16 ‘Rochdale: A Re-evaluation of Co-operative History’ in Towards The Co-operative Commonwealth. Essays in The History of Co-operation, Editors Bill Lancaster and Paddy Maguire, The Co-operative College, Loughborough.

12. ibid.

13. Edwin Juno-Delgada, Maureen McCulloch and Christine Sinapi, (2011) Ch23,’Shared services and Performing Arts Co-operatives’ in Research Handbook on Sustainable Co-operative Enterprises, Edward Elgar, London.

14. Sigismundo Bialoskorski, Neto, (2012) Economics and Management or Co-operative Organizations, Atlas, Sao Paulo, Brazil, pp22-25.

15. See (2016) https://www.vancity.com/AboutVancity/ I am also obliged to students from Vancity Management who it has been my pleasure to teach on the Sobey School of Business, Saint Mary’s University Halifax NS, Canada Masters in Management of Co-operatives and Credit Unions for their additional insights.

16. Claudia Sanchez Bajo and Bruno Roelants, (2011) Ch 8 “The Mondragon Co-operative Group: Local Development with a Global Vision.” Capital and the Debt Trap. Learning from Co-operatives in the Global Crisis, Palgrave Macmillan, and London.

13

14

17. Peter Davis (1996) op cit

18. ibid

19. ibid

20. Phillip N. Backstrom, (1974) Christian Socialism and Co-operation in Victorian England, Croom Helm, London.

21. Vincent Tucker, (2011) Ch 4 ‘Ireland and the origins of the co-operative movement,’ The Origins, Ethos and Evolution of the Co-operative Credit in Ireland. Celebrating the Centenary of the Birth of Nora Herlihy. IRD Duhallow Ltd and UCC, p32

22. Co-operative Independent Commission, (1955-58) Chair Hugh Gaitskell MP. http://discovery.nationalarchives.gov.uk/details/rd/faec6671-73df-4700-97f1-2af28869fb4d

23. Simon Bowers, (2002) ‘Regan bid for Co-op 'had inside help'. http://www.theguardian.com/business/2002/feb/06/12 Bowers

24. Davis P. and Donaldson J., (2000) A Survey of Sixteen British Consumer Co-operative Societies, Journal of Co-operative Studies, Vol. 32, No 2, August.

25. (2007) Shoefayre sold by the Co-op. Manchester Evening News, Sept., 13th http://www.manchestereveningnews.co.uk/business/business-news/shoefayre-sold-by-co-op-1003882

25. Patrick White, (2014) The Complex Story behind the Cook / Co-op Merger. http://www.ttgdigital.com/news/the-complex-story-behind-cook/co-op-joint-ventures-6m- profit/4691082.article

27 A Hawkes, (2013) Sept. Financial Mail on Sunday. Retrieved from http://www.thismoney.co.uk/money/newarticle-2407859/former-Co-op-Bank-Chief-faces MPs-calls- cut -4-3m-pay-packet

28. Dame Pauline Green, (2012) ‘10 years on from the Co-operative Commission’, http://www.uk.coop/option/congress/10-years-co-operative-commission-dame-pauline-green

29. Graham Turner, (2013) Co-op to stop selling life insurance after 125 years Guardian Professional 07.05.2013http://www.theguardian.com/business/2011/jul/15/co-op-to-stop-selling-life-insurance

30. Peter Davis (2014) ‘Retrieving the Co-operative Value-Based Leadership Model of Terry Thomas’ Journal of Business Ethics, Vol. 125, No.4, December,

31. Sir Christopher Kelly, (2014) Failings in management and governance. Report of the independent review into the events leading to the Co-operative Bank's capital shortfall. (April) http://www.co- operative.coop/PageFiles/989442031/kelly-review.pdf

32. Lord Myners Review, (2014) May http://www.cooperative.coop/MynersReview/Report

33. Paul Derrick and J.F. Phipps, (1969) Co-ownership, Co-operation and Control, Longmans Management Series, London.

14

15

15