Credit Unions in a Globalising Economy Address to Be Delivered by the Hon Dr
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A Future or No Future: Credit Unions in a Globalising Economy Address to be Delivered by the Hon Dr. Race Mathews at the 41st Annual Conference of the New Zealand Association of Credit Unions, Hamilton, NZ, 12 September, 2003. My remarks today are not as I intended them to be as recently even as a little over a week ago. It was then my intention to talk with you today about the new and exciting opportunities that are opening up for credit unions and credit unionism in the context of a globalising economy – in summary, about opportunities for credit unions to move forward, in the words of a notable wartime speech by Winston Churchill, ‘to broad sunny uplands’. Subsequent events require that I strike a more sombre note. In the intervening few days, a shadow has fallen over the credit union movement that calls into question whether expectations of so positive and promising a future for credit unions are realistic or tenable. I refer to the announcement by the directors of the Connect Credit Union in Tasmania that they are seeking to have their credit union demutualised, as was previously the Sunstate Credit Union in Queensland. The Connect Credit Union announcement marks a black day for credit unions. It will be seen to have been blacker still if it touches off for credit unions the sort of Gadarene rush to demutualisation that has so largely destroyed Australia’s mutual insurance societies, friendly societies and permanent building societies. The harsh reality is that credit unions and credit unionism are an endangered species. Consequent on a demutualisation feeding frenzy such as has so largely overtaken permanent building societies, friendly societies and mutual assurance societies, credit unions could rapidly become as extinct as the dodo and the dinosaur. Credit unions should be mindful of the example of the Rochdale-style consumer or retail co- operatives that were present in great numbers of Australian towns as recently as the nineteen-fifties, and are now mostly not only gone but erased from public memory as completely as if they had never existed. It is not for me to speculate on the motives of those responsible for the proposed Connect Credit Union demutualisation, on the basis of what necessarily is at this early stage incomplete and insufficient information. It is enough to recognise that the consequences of their actions for the wider credit union interest – and thereby the public interest - may be catastrophic. Mutualism Let me at the outset recall the nature, purpose and proud history of the worldwide mutualist movement of which credit unions are an integral part. Mutualism is about self-help through co-operation – about resolute and principled households combining to bring about, through their shared efforts and enterprise, outcomes that would be unachievable for them in isolation from one another. Mutuals invariably emerge consequent on unsatisfied needs, as a means whereby access is obtained to goods and services that otherwise would be unavailable or unaffordable. For example, the Rochdale Pioneers – the twenty-eight poor cotton weavers who established their co-operative store in 1844 and thereby gave rise to the modern consumer or retail co-operative movement – were responding to an unsatisfied need for affordable household necessities such as food and fuel. Friendly societies were a response initially to an unsatisfied need for funeral benefits, and later for unemployment benefits, sickness benefits and medical and hospital care. Access to affordable life assurance was offered by mutual life assurance societies, as was access to affordable home loans by building societies. Agricultural processing and marketing co-operatives met a pressing need on the part of farmers to share in the value added to their produce beyond the farm gate. Worker co-operatives responded to the need on the part of workers for secure employment by enabling them to own their workplaces and jobs – by enabling labour to hire capital rather than capital labour. Trade unions were originally mutualist bodies or co-operatives, formed by employees in response to the need to obtain better working conditions and a just price for their labour. Credit unions in their turn were at first a response to the need for affordable carry-on loans for smallholder farmers, and later for affordable consumer finance. For example, when my wife and I bought our first home in 1958, our housing loan from our bank was for a thirty-year period at a fixed interest rate of 3 1/2 per cent. However, when households like ours came to put sea-grass matting on the floor as was fashionable at the time, a simple refrigerator in the kitchen and a single-tub washing machine in the laundry, we were referred by our banks to hire purchase companies for loans at interest rates in effective terms of up to 60 and 70 per cent. As a result, families in the outer suburban Catholic parishes of Australia’s major cities began to gather round card tables after Mass, pool such savings as they had and queue to borrow from the pool at interest rates that were affordable for them. In this way, parish credit unions were born. A little later, neighbouring non-Catholic households looked over the church fences, saw what a good thing the Catholics had going for them and secured admission, thereby causing the parish credit unions to become community credit unions. Later again, some trade unions recognised that workplaces were every bit as much communities as were suburbs, and industrial credit unions were established. So obviously right was the credit union idea, and so urgent the need for affordable consumer loans, that Australian credit unions now have more than 3 million accounts – equal to one in every six of our population - and assets under management of more than $A23 billion. What follows logically is that mutuals must be sufficiently flexible to adapt to changing needs and circumstances – must be able to recognise when the needs for which they are established no longer exist, are less pressing, or are being met on as favourable terms by other businesses and agencies. For example, the interest rates that my younger children, who are marrying today, will pay to a credit union for loans will be no less than is freely available from banks and a wide range of other conventional financial intermediaries, and the rate they receive for deposits will be no greater. Mutuals must constantly reinvent themselves and re-target their resources so as to respond to new needs or those that are being experienced more widely or with greater urgency. In this way they avoid becoming what is referred to technically as ‘frozen’ mutuals. Re-invention in no sense means that credit unions should cease to be providers of affordable personal loans, but rather that perhaps radically innovative additions to their product mix should be adopted as changing opportunities and obligations may dictate. The operative concept is not ‘instead of’ but ‘as well’. What is central here is respect for the principle of the conservation of mutualist capital. Each generation of members of a mutual adds to its store of savings in the expectation that they will be passed on for the benefit of generations still to come. Mutualist bodies are in this sense trustees for the intentions of the dead and the inheritance of the unborn. It was not by accident that the names of some early mutuals included the word ‘perpetual’. Change as may the purposes for which a mutual’s capital is employed in conformity with changing circumstances, that it should be retained intact on behalf of the community is fundamental and mandatory. The acclaimed science-fiction author Arthur C. Clarke has noted in his 2001: A Space Odyssey that ‘Behind every man now alive stand thirty ghosts, for that is the ratio by which the dead outnumber the living’. So too there stand behind current members of mutuals those who have gone before them, and ahead those still to come. Mutuals take seriously Chesterton’s definition of tradition as ‘the democracy of the dead’ Reinventions There is no shortage of mutualist bodies that have adapted to new community needs and thereby re-invigorated themselves, re-established their relevance and retained the involvement of their members. For example, a major US co-operative – Co-operative Services Inc of Oak Park in Michigan – was formed in the 1930s in response to an urgent local need for affordable, hygienic household milk delivery services. When the commercial dairies moved in with comparable services at a comparable price, the co-operative re-invented and re-tasked itself, so that the community capital it had accumulated was applied to meeting the need for affordable eye testing and spectacles. Following the arrival of the optometric services corporations, the co- operative re-tasked its capital again, to meet the need for affordable accommodation and support services for older people. It now operates large apartment complexes – self-governing co-operatives within the over- arching structure of the parent body – in several states. Other examples of mutuals re-inventing or re-positioning themselves include the great complex of manufacturing, retail, financial, civil engineering, service and support co-operatives – now known as the Mondragon Co-operative Corporation (MCC) - at Mondragon in the Basque region of Spain, which I have discussed in detail in my 1999 book Jobs of Our Own: Building a Stakeholder Society, and the Canadian Desjardins credit unions that are discussed in my 2002 blue book Turning the Tide: Towards a Mutualist Philosophy and Politics for Labor and the Left. Closer to home – and on a much more modest scale – the Cobar Co- operative in NSW began as a traditional co-operative butter factory, and is now a retail co-operative meeting the needs of its customers and also keeping honest conventional competitors such as the giant supermarket chains.