CO‑OPERATIVES UNLEASHED
DOUBLING THE SIZE OF THE UK’S CO‑OPERATIVE SECTOR
NEW ECONOMICS FOUNDATION CO‑OPERATIVES UNLEASHED DOUBLING THE SIZE OF THE UK’S CO‑OPERATIVE SECTOR CONTENTS
EXECUTIVE SUMMARY 2
1. OWNING THE FUTURE 6
2. THE CO‑OPERATIVE APPROACH: A DIFFERENT FORM OF ENTERPRISE 8
3. CO‑OPERATIVES AS SYMPTOMS AND AGENTS OF SYSTEM CHANGE 11
4. THE CO‑OPERATIVE ADVANTAGE 12
5. THE CO‑OPERATIVE ECONOMY TODAY 14
6. THE UK IN CONTEXT: LAGGING BEHIND 17
7. THE IMPERATIVE OF NOW: THE OPPORTUNITIES AND CHALLENGES FACING CO‑OPERATIVES 18
8. CASE STUDIES 23
9. THE BARRIERS TO CO‑OPERATIVE EXPANSION 27
10. THE CO‑OPERATIVE ECONOMY BY 2030 30
11. POLICY RECOMMENDATIONS 33
ENDNOTES 44
BIBLIOGRAPHY 45 NEW ECONOMICS FOUNDATION CO-OPERATIVES UNLEASHED DOUBLING THE SIZE OF THE UK’S CO-OPERATIVE SECTOR
EXECUTIVE Now, more than half of UK company SUMMARY equity is owned abroad and only just over 12% by individuals. The interests of those who own Britain’s businesses For 40 years, the economy are often misaligned with those of has been a one-way- other stakeholders, such as employees, street. Assets and equity customers, service users and local communities. And even were they have flowed upwards are better aligned, a concentration of and outwards, and with shareholding and the distant power of them wealth. Margaret capital markets hollows out the agency of individual shareholders. Thatcher promised a world ‘where owning A different kind of business and, as a result, a different kind of economy shares is as common is possible, but it will not happen as having a car’. But by accident. Co‑operatives are both journey and destination in this quest. the grand promise of a They are a vector for democratic share-owning democracy, change in the economy, and a more and with it broad-based democratically-owned economic model that distributes wealth and is economic power, has viable today. And yet a lack of policy crumbled. and support, and a hostile economic environment for co-operation in the UK, holds them back.
This report is about doubling the size of the UK’s co‑op sector. It is also about how enterprise can serve the interests of the people it employs and those in the communities around them. And it is about how doing business can increase economic democracy, and how the wealth created can be more broadly and equitably shared.
BROKEN ECONOMY By most measures, the 40-year-old economic model, ushered in by Margaret Thatcher after her election in 1979, is broken: growth is anaemic; wages and productivity are stagnant or falling; inequality is stark; investment is low; consumer debt is high and crippling; asset bubbles are frequent.
The flaws in the neoliberal model came to a head 10 years ago during the great financial crisis and resulting economic crash. Since then, profound structural changes have been few
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and far between. Instead the broken or environmental goal by pooling the economy has lumbered on zombie- resources of a defined group of people. like, leading to greater inequality and a growing political tension between a Co‑operatives exist to share risk, power relatively narrow, elite group of winners and reward. They are therefore more and those whose living standards have democratic and accountable forms of stagnated. business that, again by nature, cannot sell equity on capital markets and so are beyond the influence of the OWNERSHIP MATTERS shareholding conglomerates. Recent This economic malaise and growing studies have shown them to be more sense of injustice is related to the enduring and resilient in the face of changing patterns of company market disruption, more profitable, ownership and control because who more productive, happier and longer- owns enterprise determines how the lasting than non-co‑operative forms of wealth businesses create is shared. enterprise. Powerful, distant shareholders have presided over a time when DOUBLING THE SIZE OF unprecedented levels of wealth CO‑OPERATIVES IN THE UK created have flowed in their direction while employees and others have If co‑operatives are better businesses experienced a declining share. that can help create a better economy, society and environment, why have In addition, ownership shapes they not thrived in the UK? And purpose. Creating an economy that why have they thrived elsewhere? addresses the real-world challenges To achieve the aim of doubling the we face, such as an ageing society or turnover of the UK co‑operative sector climate change, and produces goods by 2030, we must address these two and services designed to meet these fundamental questions. challenges, is immeasurably more difficult if control lies in the hands of The answer is not one of rocket- powerful shareholding conglomerates science complexity. Our research whose habitat is capital markets. The finds that co‑operatives and the new economy mission becomes more wider cause of democratising and achievable if the power to determine more evenly spreading the benefits the direction and strategy of business is of enterprise are held back due to in the hands of those with an interest an absence of legislation and policy, in addressing today’s challenges and institutional support, advice, incentive who live in the communities directly and promotion. With an economy affected. that does nothing to help co‑ops thrive and everything to create a hostile environment for models of THE CO‑OPERATIVE ADVANTAGE co-operation, it is unsurprising that the Co‑operatives are at heart free UK has one of the smallest sectors of enterprises. In the countries in which any country. they have thrived, they are often rooted in resistance to oppressive In those places where there is government or the march of a market a more significant co‑operative economy that is prejudiced in favour of ecosystem (Italy, France, Canada, an extractive and financialised model. USA, Costa Rica), there is also – to Co‑ops are by nature organisations varying degrees – a corresponding with a purpose, and are very often ecosystem of policy and an institutional established to achieve a specific social architecture that helps develop and
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shelter the co‑operative economy. size. We therefore recommend that In the UK this has not hitherto been the Co‑operative Party, which has the case. However, there are signs of commissioned this research and improvement in Wales and Scotland, which exists to promote the cause where non-statutory agencies have of co-operation in policymaking, been established – at a very modest sets its sights not only on a doubling level of investment – to encourage of turnover, but also on a profound the uptake of co‑operatives. Though transformation in business ownership. relatively young, they show significant success. POLICY RECOMMENDATIONS
One area of focus in Scotland has been Based on the findings of our research, on ‘business succession’; the moment we recommend a cohesive programme in the development of an enterprise of law, policy and institutional when an owner or founder seeks to arrangements, including a right to move on, often because of retirement. own for employees, a Co‑operative By promoting more democratic Economy Act and a new, statutory forms of ownership at this moment, Co‑operatives Development Agency for Co‑operative Development Scotland England and Northern Ireland. has had significant success in moving businesses towards the co‑op model. We have organised our programme of recommendations into five interlocking New NEF research, published here for steps: the first time, suggests that there are around 120,000 family-run small and 1. A new legal framework for medium enterprises in the UK expected co‑operatives. to undergo a transfer of ownership in 2. the next three years. If just 5% of these Finance that serves the co‑operative businesses were supported to make the agenda. transition to employee ownership or 3. Deepening co‑operative one of the other mutual or co‑operative capabilities through a Co‑operative models available in the UK, then the Development Agency. number of entities in the sector would double. 4. Transforming business ownership.
But doubling the number of co‑ops 5. Accelerating community wealth does not equate to doubling turnover. building initiatives. The UK co‑operative sector currently accounts for roughly 1% of business We firmly recommend that all five turnover, but around half of this steps are taken up with gusto by is achieved by two businesses: the policymakers. It is probable that some Co‑operative Group and the John form of doubling of UK co‑operatives Lewis Partnership. could be achieved with a more modest programme. But growth in To double turnover requires further co-operation and the democratisation effort and almost certainly a cohesive of business will likely stall unless web of legislation, support and we transform the hostile economic promotion. Creating this will in environment into one that is conducive. turn almost certainly lead to the development of a co‑operative sector To this end, we also recommend a that, perhaps even before 2030, will ‘heartbeat’ policy we call an Inclusive be more than double its current Ownership Fund, which would either
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compel or strongly incentivise (or both) This report was commissioned by all shareholder- or larger privately- the Co-operative Party, which was owned businesses to deposit a small, established by co-operative societies annual share of profits in the form of and works to provide a political voice equity into a worker-controlled fund. for the sector and to make the case for Over time – like a beating heart in co-operative approaches in the UK the economy – these funds would economy and wider society. reach a tipping point, at which time employees could opt to take various NEF was asked to take undertake forms of control over the running of an independent examination of the the business. policy framework required to meet the challenge of doubling the size in terms If this sounds radical, then it is only of turnover of the UK co-operative as radical as John Lewis because, in sector. We combined a quantitative effect, the Inclusive Ownership Fund analysis with a review of relevant would create more businesses as literature. We also conducted detailed employee-owned partnerships sharing interviews with people across the the wealth they create and involving sector and sought their views through employees and other stakeholders in an online survey, which more than 70 decision making and, in particular, in people completed. determining purpose.
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1. OWNING THE The UK has the richest region in FUTURE Europe – inner London – but most other areas are now poorer than the European average, with poverty rising. Our economy is marked The UK’s productivity performance has by deep fissures and been abject for a decade, while finance longstanding structural remains overmighty and too distant from production. problems. In the long wake of the cataclysmic Young people for the first time are set to earn less over their lifetime than financial crisis of a decade the generation before them. The basic ago, UK employees building blocks of life, from housing have endured the most to education to transport, are costly and inadequate for many, driving persistent stagnation in destabilising levels of indebtedness. earnings for 150 years. And in our era of hyper-globalisation, value added has shifted from labour Growth in the economy to capital, leaving many places and has not benefited the communities of people behind as majority of people and institutions of collective agency have been hollowed out and democratic large parts of the country power in the economy weakened. have yet to see a recovery. Overarching and reflecting this, we are operating beyond the planet’s ecological limits as we move deeper into the Anthropocene, our human- made era of deepening environmental crisis. Unsustainable, inequitable and undemocratic, our economic model is broken.
Addressing these problems will require more than tinkering. We will need to transform the economic institutions that generate today’s unequal, unsustainable and dysfunctional economic outcomes, such as how firms are owned and governed. Central to this must therefore be a 21st century enterprise agenda that democratises the ownership and control of business. This is because how businesses are owned – who has distributional and control rights within the firm and also who captures the value they add – vitally shapes how they operate, in whose interests, over what time horizon, and how they distribute their profits. In turn this determines the nature of enterprise and the distribution of economic power and reward in society.
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Crucially, though there are many the UK’s dysfunctional land market. If purposeful businesses in the UK, our capital was broadly owned, this would economy faces structural challenges be less of a problem. However, the that are rooted in the dominance wealthiest 10% of households own of private, investor-led, extractive 45% of the nation’s wealth, five times models of business ownership and more than the bottom half, and almost management: the short-termism in 70% of financial wealth, including decision-making it engenders, and its stocks and shares (ONS 2018a). The relationship to our poor productivity narrow ownership of economic assets, and investment performance; the including business equity, in a time lack of control most of us have over of rising capital income is therefore those decisions, despite the UK’s weak likely to drive rising inequality without record on management performance; redistribution of ownership. and the inequality and insecurity it promotes, including in the stewardship At the heart of any enduring economic of common but finite natural resources transformation must therefore be the (Co‑operative Party 2017; Labour development of a new architecture Party 2017). As Marjorie Kelly puts it, of democratic ownership. Piecemeal ‘ownership is the gravitational field reform that leaves current models that holds our economy in its orbit, of ownership and the distribution of locking us all into behaviours that economic assets untouched will leave lead to financial excess and ecological the fundamental values and operation overshoot’ (Kelly 2012). of our economic system unchallenged. In place of extractive, disconnected and The primacy of shareholders in our short-termist forms of ownership, we largest companies excludes workers have to build forms of ownership that and consumers from exercising are distributive by design, generative corporate governance rights and in purpose, democratic in orientation, incentivises short-termist and and have a sense of connection to place extractive business behaviour. Though (Raworth 2016). businesses are institutions that bring together capital and labour for the There is no single step that can purpose of production, involving achieve this. What is required is a political relationships of control pluralistic and proactive strategy to and the exercise of authority, capital scale alternative models of ownership is sovereign and labour without that can reorientate enterprise towards governance rights in our dominant the common good, shape production business models. Unsurprisingly toward democratic needs, stem then, the UK comes near the bottom financial leakage and build a future of OECD economies in terms of the of shared economic plenty by sharing extent to which patterns of ownership the rewards of our collective economic and business forms support economic endeavours. Co‑operatives – a tried democracy (Cumbers 2016).1 and tested means of democratising and equitably sharing the benefits of At the same time the distribution enterprise – must be at the heart of and nature of business ownership is this. a critical factor in inequality. Capital’s share of national income has risen over time, and is likely to rise further, driven by trends such as increasing automation, the rise of platform winner-take-all ‘superstar firms’, and
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2. THE CO‑OPERATIVE From their origins as a form of mutual APPROACH: A self-help in response to the hardships and exploitation of the Industrial DIFFERENT FORM OF Revolution, co‑operatives have applied ENTERPRISE democratic, collaborative processes to economic organisation. They are The International owned and democratically run by the people who work and use them. Co‑operative Alliance Their ownership structure aims to defines a co‑operative ensure people – whether producers as an ‘autonomous or consumers – have a genuine, democratic stake in their enterprise, association of persons and share in the wealth they create. united voluntarily to meet By putting genuine control in the hands of workers or consumers, their common economic, not the providers of capital, with social, and cultural needs formal equality among members in and aspirations through terms of economic decision making, co‑operatives embody a different vision a jointly-owned and of how power should be organised democratically-controlled and used in economic activity, one that institutionalises justice in production enterprise’ (ICA 2018). As (Hsieh 2007). such, they are a form of enterprise in common, From their emergence in Rochdale in 1844, co‑operatives have been based rooting ownership, on shared values, driving co‑operation control and benefits to meet common needs. These values remain central to co‑operation today: with the members and self-help, self-responsibility, democracy, beneficiaries of the equality, equity and solidarity. The co‑operative, not external seven foundational principles of the co‑operative movement provide investors. guidelines for practical action to realise those values: voluntary, open ownership; democratic owner control; owner economic participation; autonomy and independence; education, training and information; co-operation among co‑operatives; and concern for the community.
Co‑operative membership is voluntary and open to anyone who can benefit. Democratic control rests with the co‑operative’s members based on one member one vote, regardless of capital contribution, and there are limited returns on capital. An emphasis is placed – cultural and operational – on co‑operative autonomy and the collective development of the capacity of ordinary people independent of both
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capital and the state. Co‑operatives a co‑operative, compared to the also seek to deepen wider co‑operative transactional and more fluid financial culture, stressing the importance of participation of a shareholder in a non-market values as well of different company, as Labour’s independent values for acting in markets than profit Alternative Models of Ownership maximisation, through education report argued (2017). Another related among co‑operators and the wider difference is that while shareholders community. own the entirety of the value of the company, the membership of Co‑operatives are consequently a co‑operative only has a shared radically distinct from capitalist claim via common ownership, with firms in organisation and purpose, a core part of the underlying captial producing very different outcomes. remaining locked and not claimable by They are not simply a nicer form of the members. Members consequently economic organisation. The right of give up an element of influence capital is replaced by the sovereignty and financial gain for the benefit of collective membership. They are of the membership collective. This owned differently, governed differently, reflects the differing purposes of the and operate differently; their risk is organisations: a company exists for shared differently and the rewards are the private benefit of its shareholders, distributed differently. whereas a co‑operative is trading for the benefit of its members (Malleson Co‑operatives exist to serve and 2012). The co‑operative is a dynamic service the needs of their members. self-help mechanism enabling people Direct control and ownership lies to collectively meet their shared needs with the members and beneficiaries in a broader social context. of the co‑operative. Members of a co‑operative are all equal and As a form of common democratic determine democratically the ownership, any surplus generated by co‑operative’s policies and practices. the co‑operative is returned to the This contrasts with the membership co‑op’s members through dividends or of a company, where control rights lower prices, or otherwise reinvested are in proportion to the number of in the co‑op, held in reserves, or used shares owned and shareholders are for some other social purpose, all in assigned first and overriding priority accordance with the wishes of the in the governance of the business over members. This reflects their differing other stakeholders, at least in Anglo- purpose: to provide for the needs of American corporate governance. their members rather than maximise profit for external shareholders, Although both a co‑operative and embedding the principle of an a company are enterprises, in a economy that puts people before co‑operative people come together profit in their organisational fabric. As as equals, and strive collectively and such, they are fundamentally social in collaboratively to achieve the business orientation, a form of ‘enterprise for the aim together; whereas a company is a common good’ (Alcock and Mills 2017). mechanism for operating a business whose ownership and control is open In an era of often deliberately rootless to whoever is able and willing to ownership – as capital seeks to cut acquire it regardless of their objectives costs and exposure to redistributional or incentives (Alcock and Mills 2017). obligations (ie taxation) – and sharp economic inequalities of place, Membership is consequently a co‑operatives are mostly anchored more committed relationship in in their localities. They act to serve
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their members and whatever profit is in UK law that form part of the sector, generated is retained in the locality or the critical defining characteristic of among members; they generate and co‑operatives is that they are, in the keep wealth in communities, whether words of Co‑operatives UK, ‘run not geographic or membership-based. In by institutional investors or distant doing so, by pooling talent, resources shareholders, but by their members. and interests together for the benefit People like you and me – customers, for the membership, rather than employees, residents, farmers, artists, external investor-owners, co‑operatives taxi drivers’.2 (Co‑operatives UK are ‘a direct manifestation of socialist 2017c). Whatever the co‑operative progression’ (Hunt and Willets 2017). form, the objective remains the same: to capture the value added by doing The legal and institutional framework business within a defined community of co‑operatives consequently rather than opening it up for extraction. make them purposeful by design, established to serve specific needs There are therefore strong arguments and populations, generating beneficial for a large and broad-based social and economic outcomes in the co‑operative sector. Nevertheless, process. There are typically five types of because it has received so little co‑operative in terms of membership: attention and support, the UK co‑operative sector across this whole 1. worker and freelance co‑operatives, spectrum remains small. Much more with a controlling majority in the incentive, support and encouragement hands of the co‑operatives workers; is therefore needed now for those wanting to establish or transform their 2. consumer co‑operatives, where business as a fully-fledged, wholly membership is based on the democratic entity – the kind that many customers of the co‑operative; in the current movement have told us they consider to be a true co‑operative. 3. producer and enterprise But we argue that these interests will co‑operatives, such as in farming, also be served by implementing a where independent producers – policy agenda that also seeks a more usually small and micro businesses gentle transition across the whole – come together as members to form economy towards greater democracy a co‑operative, reducing their shared and participation in firms – not just fixed costs, participating in R&D, co‑operatives – of all shapes and sizes. investing in infrastructure, capturing These are not mutually exclusive, but more value-added in supply chains, mutually reinforcing strategies. and improving negotiating positions with other companies;
4. community co‑operatives, where members are typically a group of people with a defined common interest;
5. and multi-stakeholder co‑operatives, where members typically represent more than one co‑operative group, such as workers, consumers, service users or producers.
While there are a variety of legal forms
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3. CO‑OPERATIVES The co‑operative model – with its AS SYMPTOMS AND differing ownership and governance model generating different outcomes AGENTS OF SYSTEM – should be ubiquitous in an economy CHANGE that is successful at democratising ownership and sustaining purposeful Overcoming our deep, enterprise at scale. A growing co‑op sector would be one of many factors structural economic that could catalyse systemic change. challenges will require But a flourishing sector will also systemic solutions, be a symptom of a different type of economy emerging, one where because our poor thriving businesses are organised so outcomes are rooted they address deep democratic deficits generated by current patterns of in how we currently ownership, and operate with values of organise the economy participation and community control, and its institutions. while placing a primacy on social and ecological goals. If more people are to benefit from economic Co‑operative flourishing in a more democratic, equitable, sustainable production, then economy would advance what economic power and Raymond Williams called ‘the long control must rest more revolution’ – the difficult and ongoing struggle to build a society defined equally, requiring by democratic, open and purposeful measures to redistribute relationships, where hierarchies of power and illegitimate authority are ownership and control in replaced with values of co‑operation, society and, ultimately, dignity and solidarity in an equitable, capital. democratic and sustainable economy. Scaling democratic forms of ownership through co‑operative expansion is critical to that endeavour.
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4. THE CO‑OPERATIVE The geographic range of evidence is ADVANTAGE striking. The productivity bonus of co‑operatives has been confirmed in the USA (Kruse, Freeman and Blasi The co‑operative 2010; Pencavel and Craig 1994), France advantage derived (Fakhfakh et al 2012), Spain (Bayo- from its organisational Moriones, Galilea-Salvatierra and De Cerio 2003), Italy (Maietta and Sena form is considerable. 2008) and Germany (Cable and FitzRoy Wide-ranging evidence 1980), among others. suggests that productivity Studies in the UK, meanwhile, have in co‑ops is at least found that co‑operatives, mutuals and as high if not higher employee-owned enterprises with 75 employees or fewer are outperforming than ‘conventional’ conventional businesses, creating firms, primarily due to higher profits (both gross and per employee) than non-employee owned improved motivation businesses (Welsh Co‑operative and through a sense of Mutuals Commission 2016). They are collective ownership also more resilient. More than 90% of co‑operatives survive their first three and profit-sharing, and years of operation compared with 65% more effective internal of conventional businesses (ibid). The coordination due to evidence suggests that the co‑operative model not only offers all of the higher levels of trust systemic benefits of widening and and the better use of deepening the ownership and control of free enterprise, but is also durable employee know-how. and highly economically viable.
There is also evidence that even relatively diluted forms of employee ownership brings business benefits. Publicly listed companies quoted on the London Stock Exchange or AIM that have 3% or more of their equity capital under employee control outperform the wider FTSE all share.3
Crucially, the co‑operative model generates genuine social, economic and political benefits for its members, particularly compared to conventional businesses. Co‑operatives have been found to have far lower levels of staff turnover compared with the average, lower pay inequality within the firm, and lower absenteeism rates (Mayo ed. 2015). Workers in co‑operatives report much higher levels of job satisfaction and economic well-being than those in privately owned firms, as well as higher
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rates of engagement and productivity co‑operative federation, where small (Mayo ed. 2015; Freeman et al 2010). to medium sized co‑operatives share functions under an umbrella structure. Strikingly, in an era of unaccountable corporate power and the facilitation by footloose capital of grand-scale tax avoidance, the five largest co‑operatives paid 50% more corporate tax than Amazon, Facebook, Apple, eBay and Starbucks combined (Co‑operatives UK 2016). And in an often extractive global economic system co‑operatives can localise finance. One 2011 study found that employees of John Lewis spent between 20% and 25% of their partnership bonus (18% of annual salary in that year) within the same local authority area as the shop in which they worked (NEFC 2011).
This is not to say co‑operatives do not contain trade-offs. Co‑operatives are not suited to all industries or businesses. In particular, sectors involving high capital intensity are sometimes less suitable, due to the higher cost and risks that members would bear. In these cases, other models of democratic governance and ownership are likely to be more appropriate. The growing complexity and size also typically require more focus and work to maintain co‑operative governance and democratic processes.4 .
Membership can also be demanding. Participation takes time, sustaining a rich democratic life requires effort and resource, and being an active member takes commitment. Nor do co‑operatives dissolve the hierarchies of complex organisations or the potential tensions of the workplace. However, they are at least better legitimated and negotiated through the democratic structure of co‑ops, and the sharing of formal decision-making powers. And it is exactly the democratic costs that underpin the benefits of co‑operativism. Moreover, while scale can potentially be an issue, this can be addressed through networking and
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5. THE CO‑OPERATIVE The majority of co‑operatives are ECONOMY TODAY small scale, with only 41 of the 6,000 qualifying as medium or large The UK’s co‑operative businesses. economy is significant The co‑operative economy had a and spread across all combined turnover of around £35 billion, up from £34.8 billion in 2014 regions and nations of (Co‑operatives UK 2017a). By far the the UK. In 2017 there biggest sector in these terms is retail – some £23 billion – which includes the were around 6,000 Co-operative Group and John Lewis. co‑operatives, with 13.6 million members and just over 226,000 employees and 118,000 workers and freelancers working in co‑operatives.
Number of co‑ops by ownership type NUMBER OF CO-OPS BY OWNERSHIP TYPE
8.9%, Enterprises
7.8%, Workers
3.9%, Self‑employed 18.0%, Community of Interest
3.9%, Multi‑stakeholder 2.8%, Tenants
Other
0.4%, Co‑operatives 53.8%, Consumers
0.4%, Employee Trust
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CO-OP TURNOVER BY INDUSTRY
Industry Turnover £ % of all co‑ops Retail trade, except of motor vehicles and 23300677278 66.98% motorcycles Crop and animal production, hunting and 7096975170 20.40% related service activities Wholesale trade, except of motor vehicles 1738553993 5.00% and motorcycles Real estate activities 831586944 2.39% Sports activities and amusement and 603308054 1.73% recreation activities Activities of membership organisations 431838383 1.24% Education 283248185 0.81% Human health activities 62518894 0.18% Other professional, scientific and technical 56682958 0.16% activities Manufacture of food products 55826268 0.16%
However, while the sector is Group, the broad range of entities measurably larger in terms of turnover that make up the UK co‑operative in 2018 than it was in 2010, since sector accounts for less than 1% of UK around 2014 growth has stalled. business turnover. Currently, including John Lewis Partnership and the Co‑operative Trends in turnover
£40,000,000,000
£35,000,000,000
£30,000,000,000
£25,000,000,000
£20,000,000,000
£15,000,000,000
£10,000,000,000
£5,000,000,000
£‑ 2010 2011 2012 2013 2014 2015 2016 2017
All other co‑ops Co‑operative Group John Lewis
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Other notable areas of strength of other enterprises (largely driven by included education (325 with a big agricultural co‑ops) but this has turnover of £409.3m), manufacturing been slowly contracting since 2014. (75 with a turnover of £264.1m), health Consumer co‑ops are still important, and social care (97 with a turnover even discounting the Co‑operative of £131.1m), and professional and Group, and their turnover has been legal services (151 with a turnover of relatively stable over the course of £101.5m) (Co‑operatives UK 2017a). the decade. Removing John Lewis Excluding the Co‑operative Group massively shrinks the impact of and John Lewis shows the importance employee trusts.
TRENDS IN TURNOVER Turnover excluding The Co‑op Group and John Lewis £10bn
£9bn
£8bn
£7bn Co‑operatives £6bn Community of Interest Consumers £5bn Employee Trust Enterprises £4bn Multi‑stakeholder £3bn Self‑employed Tenants £2bn Workers
£1bn
0 2010 2011 2012 2013 2014 2015 2016 2017
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6. THE UK IN CONTEXT: In the EU, where the income for LAGGING BEHIND the sector is €1.3 trillion each year, people are twice as likely (20% of EU citizens) to be a member of at least Despite the benefits of one co‑operative than a shareholder co‑operatives, the UK in a listed company (11% of EU has disproportionately citizens) (Hunt and Willets 2017). In eleven countries in the EU, including fewer co‑operatives Germany, France, Italy, Spain, Denmark and mutuals than most and Sweden, co‑ops and mutuals are other OECD countries worth a per capita income of over €2,000 per citizen each each, compared (Ownership Commission to between €350-2,000 in the UK (ibid). 2012). Germany has a The bigger size of co‑operativism co‑operative sector four in other European economies and times the size of the the evidence of the success and viability of the co‑operative as a UK’s as a proportion model of enterprise both in the UK of GDP and France six and internationally, suggest that their times (ibid), while in the relative rarity in the UK is not due to their ineffectiveness as a business form, Netherlands, Finland, but a result of contingent factors and Sweden and New barriers that can be addressed. It is no Zealand co‑operatives accident that co‑operatives are more prolific in countries where policy has amount to between 5 and provided them with incentives and 10% of GDP compared to made their creation a priority. 2% in the UK (McCarthy 2018).
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7. THE IMPERATIVE • Automation and ownership – OF NOW: THE rising inequality or a future of shared plenty? OPPORTUNITIES AND CHALLENGES FACING The growing ability of machines CO‑OPERATIVES to substitute or augment human labour is likely to increase inequality without a transformation in As we enter a period patterns of economic ownership. of disruption, of which This is because automation is Brexit is only the start, likely to accelerate the trend of capitals share of income rising over the values and benefits time as capital is substituted for of co‑operation are labour in the production process (Karabarbounis and Neiman 2014). needed more than ever. As capital is narrowly owned, if a The social, economic growing share of income flows to and ecological forces capital, this will increase inequality (Lawrence, Roberts, King 2017). transforming society At the same time, technological provide both an change is likely to boost the income and power of people whose opportunity and need skills complement technological for the expansion of change further polarising the co‑operatives, while also labour market. Reversing this dynamic of divergence will require containing substantial broadening ownership of capital risks to the sector. to fairly distribute the benefits of How society and the technological change. Co‑operatives as a form of collective ownership co‑operative economy can therefore play a crucial role in chooses to shape and building a future of shared economic plenty by helping democratise respond to these trends capital. will in part determine the • The future of the platform success of the sector. economy: surveillance capitalism or ‘social-ist’ networks?
Industrial capitalism is giving way to platform capitalism (Srnicek 2016) and what Shoshana Zuboff calls ‘surveillance capitalism’ (2015). This epochal shift is driven by a set of networked technologies – smartphones, mobile internet, cloud computing, sensor and locative technologies, computing power – that enable the capture, analysis and monetisation of mass data, coupled to a financial system seeking new sites of profit. The platform monopolies leading this
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process are transforming models is running out of steam. But of production and consumption, alternative business models are reshaping the traditional flourishing. Crucially, this includes employment relationship, and a new generation of small and financialising everyday life. In the medium-sized co‑operatives, from process, they are reaping enormous creative industries to community economic reward, underpinned by pubs, football supporter trusts to their control of society’s data and the locally-owned energy schemes, digital infrastructure. They occupy housing co‑ops to community the commanding heights of the care (Co‑operative Party 2017). contemporary economy. Without Consolidating and expanding this reform, we risk ceding the future to surge of alternative enterprise is a them. significant opportunity.
Yet an alternative world is possible • An ageing society – co‑operative contained within the technological demand and the coming wave of infrastructure and values of the business transition. digital age: networked technologies can enable us to co‑operate and The UK is an ageing society. The collaborate more effectively than population aged 65 or over is ever (Murray 2010); value is expected to grow by a third by 2030, increasingly found in our common even as the working age population data if we can harness it; and the stays essentially flat (Lawrence growing real time ubiquity of digital 2016). This will drive demand for information could help us plan more services such as health and social justly and efficiently than the price care, areas that co‑operative models mechanism in the decades ahead. have the potential to thrive in with Co‑operatives have the potential to the right support. At the same time, further spread these benefits. as the baby boomer generation approaches retirement, it is likely • Neoliberal exhaustion – a growth to trigger a wave of business exits, model out of steam? marking a profound moment of ownership transition. For example, The perverse outcomes of a 63% of small business owners are shareholder-driven model of over 50 and more than one in five hyper-global capitalism have long are aged 61-70, with many of these been noted; it is now increasingly businesses being sold in the coming matched by a growing recognition of decade. Yet of those over 60, little the exhaustion of our growth model. more than a third (36%) agree Advanced economies are struggling that they have a clear succession to break out of secular stagnation plan (BCMS 2016). Original NEF and risk becoming trapped in a low analysis shows that 120,000 family growth, low inflation, low interest businesses are likely to close or rate equilibrium. They remain over- transfer ownership over the next reliant on unsustainable levels of three years. To double the number of debt to generate what (ecologically co‑ops in the UK within that time, unsustainable) growth there is, only around 5% of them would need while corporations are increasingly to opt for employee ownership. If the financialised and short-termist right mechanisms are established institutions (Keen 2017, Carney to incentivise existing businesses to 2016, Krippner 2012). In short, transform into co‑operatives, then there is a sense that neoliberalism the decade ahead could provide
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a key opportunity to shift the • Social care co‑ops, serving but also landscape of enterprise. empowering people in need through multi-stakeholder models that • Ecological overshoot and the align the interests of care workers impossibility of the present. and receivers. Due to demographic trends, demand for care is expected We are firmly in the Anthropocene, to grow significantly in the 2020s. the geological era in which For example, the number of people human activity is the dominant who will need daily physical and destructive influence on assistance to wash, feed or clothe the planet’s ecosystems. The themselves will double between scale of compounding crises 2010 and 2030 to two million already underway will require us people (Lawrence 2016). As seen in to transform how we produce countries such as the Netherlands, and consume. The status quo where co‑operatives provide an is unsustainable; with multiple important role in the provision of planetary boundaries already social care through the Buurtzorg exceeded by our actions, we system, there is a significant have already entered an ‘unsafe’ opportunity to expand more humane environmental operating space, forms of care provision in the threatening the preconditions context of an ageing society via the upon which society can flourish expansion of both user and worker (Stockholm Resilience Centre 2015). care co‑operatives. More democratic, equitable and long-term orientated enterprises • Platform co‑ops, offering shared such as co‑operatives are well suited ownership and collaboration to providing the regenerative forms through digital platforms. of enterprise we urgently need. Digitalisation is already enabling the aggregating of dispersed workers Social, economic and ecological trends onto digital platforms to provide are set to make the 2020s a decade of goods and services. However, at disruption. This is likely to drive the present, the platform provider growth of a number of key sectors typically pushes the risk onto the in which co‑operatives can thrive providers and users of the platform, (National Co‑operative Development undermines the employment Strategy 2017b): relationship and the rights that go with it, and extract significant • Freelancer co‑ops, where the amounts of value. If the technical, self-employed come together to financial and legal infrastructure provide mutual self-aid. The growth was developed to enable the in self-employment appears to be development of co‑operative an enduring trend. An estimated platforms, where users and workers 15.1% of the UK workforce is self- could co-ordinate efficiently but employed, up from 12% in 2001 without an extractive and often (ONS 2018b), and is expected to exploitative platform provider at the grow in the coming decade (Dromey centre, co‑op platforms could thrive. et al 2017). Networks of co‑operative freelancers, pooling their resources • Professional and creative services and skills, are ideally suited to co‑ops, where the co‑operative provide the mutual self-help advantage is a competitive that can deepen the security and advantage. Co‑operatives and capabilities of the self-employed. mutuals have already developed
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a successful if small niche in • Reshaping agriculture. As Brexit professional services in the UK, such takes shape and the subsidy regime as digital agencies, architecture and and supply chains shift, co-operation accountancy (Co‑operatives UK between farms – already a strong 2017a). Given this employment- facet of agriculture in some UK rich sector is expected set to expand regions and nations – can be a key in the 2020s (Dromey et al 2017), way to reshape food production there is an opportunity to increase and supply. Traditionally, smaller the share of co‑operatives in a scale farms have always shared growing sector. This is particularly machinery and other common the case because the comparative functions, but greater collaboration advantage of co‑operatives is in the production of social and typically most pronounced in environmental goods as well as in employment intensive, as opposed providing supply at volume could to capital intensive sectors, making significantly help increase resilience them well suited to the high-skilled, in post-Brexit agriculture. Also, human-focused provision of services linked to more co-operation in (Borzaga et al 2011). digital platforms, individual farms can access markets in new ways as • Co‑operatives participating in some fishing communities such as St public services, as they are moved Ives already are, bypassing some of from private to public sector in the traditional market gatekeepers. the wake of the Carillion collapse. The experiment of the widespread Others sectors that exemplify a outsourcing of public goods co‑operative fit include childcare and services to democratically and education, banking, renewable unaccountable, financially energy, creative industries, tourism, overleveraged large private sector and transport, all of which are likely actors who rely on public contracts to see growth in the decade ahead, to function has failed. Carillion’s offering opportunities for significant entry into receivership and the co‑operatisation (Co‑operatives UK uncertain position of several other 2017a). firms exposes a business model that is not fit for purpose: over extended, A durable expansion of the unsustainably indebted, poor value co‑operative economy is likely to be for money, opaque and barely driven by growth in these sectors by accountable to the public. In its three types of co‑operative. wake, there is a growing momentum to reclaim the public realm, with • First, the development of more many local authorities looking to medium and large co‑ops that can inhouse public services and growing operate at scale. calls government departments and agencies to do the same • Second, through the proliferation (Walker and Tizard 2018). Many of smaller and more locally rooted public institutions will look first to co‑ops in these sectors, whether bring public services back under through encouraging new start- public control and accountability. ups, growing existing micro But co‑operatives could play an co‑operatives, or transitioning important role alongside this in existing businesses to the providing goods and services to the co‑operative model. Often these public sector – as has been the case will share back-office services and in Preston for instance. other networked facilitation, such
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as website hosting, that can also be provided co-operatively.
• Third, if the sector does grow effectively, co‑operatives that provide infrastructural services to other co‑ops, including back-office functions, advice and training, could be a source of future growth. ‘Co‑op of co‑ops’ networks are most likely to operate and deepen co‑operative footprints at the regional level.
Growth in turn is likely to be driven by a combination of the expansion of existing co‑ops of various sizes, the establishment of new co‑operative businesses and the conversion of existing businesses into co‑operatives. Taken together, there are a wide range of sectors well-suited to co‑operatisation that are expected to grow significantly in the 2020s and are ideally placed to drive an ambitious project of co‑operative expansion.
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8. CASE STUDIES In that time, Mondragon has consistently recorded significantly MONDRAGON: THE higher labour productivity than CO‑OPERATIVE FORM AT SCALE conventional Spanish firms, with its growth outpacing the average of Mondragon, arguably Spanish companies (Malleson 2012). the world’s leading Its success attests to the economy co‑operative group, viability, indeed vitality, of the was established in co‑operative model at scale. This has been achieved alongside delivering the the Basque country in broader social gains associated with 1956 to provide local co‑operativism. Wages are more equal employment. Since then, than comparable capitalist firms, with salary ratios between the lowest and it has grown to become highest paid workers of 1:6 compared the tenth largest business to an average of 1:129 for a FTSE 100 company (Young Foundation 2017). group and the fourth Democratic participation and decision- largest employer in Spain, making power, from the strategic with more than 260 to the everyday, is also higher than ‘conventional firms’. The Mondragon different companies and complex has also exhibited far greater subsidiaries, over 75,000 resilience in terms of retaining and expanding employment than workers in 35 countries, conventional Spanish firms (Malleson and annual revenues of 2012). over €12 billion (Young The success of Mondragon Foundation 2017). demonstrates the economic viability of industrial co‑operativism at scale, with valuable lessons and challenges to be learnt from its experience.
First, the creation of a co‑operative bank – the Caja Laboral (CL) – in 1959 is generally regarded as critical to Mondragons later success (ibid). Structured as a co‑op of co‑ops, CL enables the co‑operatives of the Mondragon group to pool their resources to finance development. This has enabled the group to fund expansion without entanglement with forms of finance that would put pressure on co‑operative ownership and governance. The CL also has a business unit – the Empresarial division – whose purpose is to support co‑operative business development, with tailored support and expertise on hand.
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Second, the internal structure of densest co‑operative economies. The the group ensures a high level of 8,000 or so co‑ops of Emilia Romagna internal investment, to sustain and produce 40% of the region’s GDP grow Mondragon. This is achieved by and a quarter of the population either requiring that 10% of the surplus of work for or belong to a co‑operative a Mondragon group co‑operative is (Malleson 2012). The region is the apex given to charities, 45% is mandated of Italy’s vibrant co‑operative economy to go to Mondragon’s collective that is among the largest and most reserve for co‑operative specific successful in Europe. A number of financing, and 45% go into individual factors underpin this. members’ capital accounts, that divorce membership rights from property and First, under the umbrella of La Lega income rights (Young Foundation (the National League of Co‑operatives), 2017). an enabling co‑operative network operates to provide mutual support, Third, it has constitutionalised problem solving, training, and general democratic structures such as the support for the establishment and Governing Council and the Social expansion of co‑operatives. Council, which enable employees to act as both workers and co-owners, Second, supportive government policy sharing formal decision-making has bolstered Italian co‑operativism. powers. This has included: tax reliefs on income that is deposited in a co‑op’s This are nevertheless substantial indivisible reserve, a supportive challenges to the Mondragon public procurement environment that model, not least the threat of privileges co‑ops for certain public co‑operative degeneration. Due contracts; targeted and specialist forms to rapid expansion and growing of financial support, first through the internationalisation, for a period in National Institute of Co‑operative the 2000s, a majority of employees Credit and today with the National were non-members, particularly in Labour Bank; and a legislative non-Spanish subsidiaries, threatening framework that requires co‑ops to the co‑operative status of the significantly re-invest their surpluses, enterprise. A subsequent effort to forbids sell-offs, and requires co‑ops re-democratise the firm has increased to contribute 3% of their profits to employee membership to 81% (Young a development fund that finances Foundation 2017). Nonetheless, it wider co‑op development and worker does suggest the potential pressure takeovers. The 1985 Marcora Law that globalisation and competition can allows workers to capitalise buyouts place on co‑operatives. Overall though, of their company if it is closing by the success of Mondragon underscores bringing forward two years of their that co‑operatives can be successful, benefits payment and has helped large-scale enterprises with the right create more than 250 worker-owned institutional underpinnings. co‑operatives in the past 30 years (Duda 2016). Taken together, these ITALIAN CO‑OPERATIVISM: measures ensure co‑operative wealth CULTURE, NETWORKS AND is not transferred out of the sector, and CO‑OPERATIVE SUCCESS more positively, support the steady growth of co‑ops. It is a striking fact that one of the richest and most equal regions of Italy’s political culture has helped Europe is also home to one of the drive the growth of its co‑operative
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movement (Gann 2018). In particular, a paid the living wage. The council have broad and deep socialist lifeworld that also helped establish two worker existed outside of Italian capitalism, co‑operatives to fill procurement gaps. bolstered by the active social Alongside this, concerted efforts have presence of the Italian Communist been made to redirect spending to local Party in many of the heartlands of businesses, including co‑operatives. For Italian co‑operativism, was crucial to example, spending from the anchors providing the institutional, cultural, with Preston-based organisations has and political space and momentum for increased from 5% of total spend in the development of co‑operativism. 2012/13 to 18.2% of total spend in This suggests that a supportive 2016/17 (Todd/CLES 2017). institutional framework is best enabled and embedded by a broader political In partnership with the University of culture conducive to co‑operation. If Central Lancashire and with support culture and institutional support are in from the Centre for Local Economic place, the Italian experience suggests Strategies (CLES) the council is co‑operatives can thrive. expanding the co‑operative economy through Preston’s Co‑operative Network – supporting new and existing THE PRESTON MODEL: THE co‑operatives to grow and bid for IMPORTANCE OF PLACE-BASED contracts from anchor institutions. INNOVATION Efforts are also underway to build In 2011, faced with among the largest up the co‑operative common wealth central government cuts in the country, through the pooling of members’ and with a £700 million investment in capital and the storing of surpluses a new shopping centre falling through, in reserves to support broader the city of Preston embarked on an co‑operative development. effort to reimagine its growth model. Instead of relying on often footloose The council is in the process of and extractive forms of inward establishing a Lancashire Community investment to drive the local economy, Bank designed to lend to co‑operatives the council – led by councillor and small businesses that currently Matthew Brown – began pioneering a struggle to access finance, while it has community wealth building strategy. At also supported the re-establishment of the heart of this approach is an effort Guild Money, a city-wide credit union to build a more inclusive, rooted and with 500 members. democratic economy, drawing on the collective strength of the local public The Preston Model is in its infancy, sector, businesses and communities. yet highlights, in the face of austerity, the vital partnership role innovative Central to this has been an innovative local government can play in fostering use of public procurement, which co‑operatives and a more rooted local explicitly aims to develop the economy, not least through innovative co‑operative sector. This began with the procurement policy and a supportive identification of 12 major institutions local financial system. that are geographically rooted in Preston, ranging from the hospital to CO‑OPERATIVE DEVELOPMENT the police to the university and city SCOTLAND: THE ROLE FOR A council. The procurement strategies NURTURING STATE of each of these was redesigned to ensure that these institutions and Co‑operative Development Scotland, their supply chains as far as possible a subsidiary of Scottish Enterprise, exists to support new and existing
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co‑operatives to grow and develop, have either implemented or are along with raising the profile of planning to implement more flexible co‑operatives as a viable business working practices; seven in 10 EO model. The Wales Co‑operative Centre businesses report increased employer fulfils a similar function in Wales. CDS’s engagement; seven in 10 report input record demonstrates the important to decision-making; 56% have seen role an innovative, proactive and better employee performance to date nurturing state can play to expand the and the remainder expect to see this co‑operative sector. in future; and half already improved productivity; two thirds of consortia The body seeks to promote and EO businesses have improved co‑operatives and raise awareness, knowledge-sharing wholly as a result and increase the adoption and growth of consortium working/EO, and half of co‑op models. This includes the have increased skills / knowledge partly provision of technical support to or wholly as a result in the change of vendors considering an employee business operation, while almost two- buy-out, information sharing and fifths had also seen new innovations facilitation of introductions. Notably, (Ekosgen 2015). it is backed by a thicket of policies to promote workplace innovation, In short, CDS has already played a engagement and collaboration, from hugely positive role in supporting the Scottish Business Pledge, to the the co‑operative sector on a small Community Right to Buy, to the budget, with many positive social and Scotland CAN DO framework to economic spillovers. Moreover, the support inclusive ownership. CDS Wales Co‑operative Centre, which estimates that for every pound spent has supported the sector since its supporting the organisation(totalling foundation in 1986, also has a track just over £5 million between 2009- record in helping grow the Welsh 2016), it generates cumulative gross co‑operative movement. A similar value added ten times that, and has institution tasked with proactively a target for developing 350 new nurturing co‑operatives in England and co‑operatives in ten years. Northern Ireland could play a vital role in expanding the sector. A review of the CDS’s impact by Ekosgen suggests that a supportive, entrepreneurial state encouraging co‑operative and social enterprise can make a real difference. The ‘return on investment (RoI), based on total actual spend of over the 2009/10 to 2014/15 period of £4.4m, is £4.4 to 1 for impacts to date, rising to £6.4m to 1 if future forecast impacts are realised’ (Ekosgen 2015). Across ‘the 148 CDS supported businesses since 2009 this generates total net additional turnover of £54.2m and GVA of £27.9m’. There are were also a range of further social and economic benefits from CDS intervention. For example, partly as a result of working with the CDS, 88% of businesses surveyed
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9. THE BARRIERS These include: TO CO‑OPERATIVE • Finance: the difficulty co‑operatives EXPANSION face in accessing effective affordable, patient (ie the opposite of short- An ambitious expansion term high-return) finance is a of the co‑operative sector critical inhibitor of the sector’s growth, whether it is financing must address the barriers start-ups or expanding established that have held back the enterprises. For example, almost half of co‑operatives and mutuals sector, while identifying have experienced difficulty accessing what constructive steps finance (Welsh Co‑operative and can be taken to support Mutuals Commission 2016). This is partly due to the structure of a expansion. There is broad co‑operative, which makes raising consensus on the factors external equity finance difficult and often excludes them from traditional constraining co‑operative investment method including debt- development. financed investment. However, other European economies provide a deeper and more effective range of alternative sources of finance for co‑operatives, whether through direct public funding, legislation to ensure the development of common co‑operative development, or support for innovative financial instruments tailored to the local co‑operative economy. The paucity of long-term finance available in the UK means that co‑operatives risk under-investing, triggering economic deterioration or potential acquisition by firms better able to access finance. It also inhibits the formation and expansion of co‑operative businesses. Conversely, financial and regulatory innovation, drawing on successful international practice, suggests a supportive financial ecosystem for co‑operatives can be developed. It is important to note though that while tax measures and financial institutional arrangements are not necessarily conducive to co‑operative growth, many of the solutions arguably lie in non-governmental and co‑op to co‑op action, which if there was a groundswell in new co‑op activity would likely create an impetus and
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capacity to develop solutions to the lacks mandatory indivisible reserves finance challenge co‑ops face. requirements that provide co‑ops with a financial buffer and de-couple • Regulatory challenges: resource dependency from a narrow co‑operatives are democratic fish pool of members. At the same time, swimming in a capitalist, acquisitive the lack of a statutory asset means sea. The legal, regulatory, auditing that wealth generated in the co‑op and financial institutions of the sector risks leaking out, with assets UK economy are designed for leaving the movement and inhibiting private companies, tailored to the development of co‑operative their needs. By contrast, and as a wealth. It also removes the scope result, co‑operatives operate under for potentially destabilising investor a framework that disadvantages speculation. them, burdening them with a layer of rules and regulations that • The ‘know-how’ gap: another equivalent conventional firms do major challenge is the absence of not face. They also face hurdles in a broad common knowledge of bidding for public contracts, with what co‑operatives are, how they public procurement geared towards operate, and their advantages. One major private companies. An manifestation of this is staffing unequal playing field consequently difficulties – including issues around places the sector at a competitive recruitment, retention and skills – disadvantage and makes it easier which just over half of co‑operatives for new enterprises to adopt surveyed for the the National conventional business models. Co‑operative Development Strategy Perhaps as important, the regulatory highlighted as an inhibitor of success environment for co‑operatives in (2017b). There is also inadequate the UK fares poorly in safeguarding support for co‑operative business co‑operative degeneration relative planning or advice provision, for to the most successful co‑operative financial management during economies. This includes having different parts of the business life no statutory asset lock to retain cycle, or for building democratic co‑operative wealth in the co‑op governance and succession planning. sector, or strengthening democratic Indeed, as the Welsh Co‑operative practices, such as requiring a and Mutuals Commission majority of employees or users concluded, the ‘provision of specialist to be members. Societies are also business advice, support and registered under the Financial mentoring that meets the specific Conduct Authority, not Companies needs of co‑operatives’ is crucial to House, which creates differing the prosperity of the sector, but too and often more onerous duties for often is lacking (2016). Relatedly, co‑operatives compared to other at points of business transition, for businesses. example when a founder is deciding whether to sell their business and • Organisational durability: related to whom, the option to co‑operatise to the regulatory and financial is little known and currently lacks challenges co‑operatives face there adequate technical and financial is the risk that key institutional support to make that a common features of co‑operative economies option. Addressing what Schwartz common to other European (2012) calls the ‘familiarity effect’ countries are missing in the UK. In – whereby due to awareness and particular, the UK’s co‑op sector knowledge about how to start and
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run a ‘conventional’ firm, this model the most successful co‑operative predominates – is important to regions. As Robin Murray argued: expanding the sector. ‘Radical co-operative development depends on creating networks • Membership: membership is a and institutions that can mutually source of massive strength to the strengthen each other’ (2010). One co‑operative movement, particularly potential barrier to co‑operative when the interests of members expansion is therefore the need align. However, there is also the risk to develop the political, social that it limits the pool of resources and cultural forces needed to available for co‑operatives to draw popularise and embed a culture upon, whether capital or labour, in and institutional strategy that can turn inhibiting the ability to either ensure co‑operatives aren’t, in the establish or grow the enterprise. words of Raymond Williams, ‘simply Much of this is the fault of capital trading organisations isolated or regulatory barriers, with from any struggle for alternative which we deal below. But some social purposes’.5 More deeply academics have also suggested embedding co‑operatives in wider that the nature of member-owners social movements and communities leads to under-investment due will help give co‑ops the strong to a ‘horizon problem’; members cultural and social underpinnings do not potentially want to invest that have driven the most successful beyond their expected membership co‑operative economies elsewhere. and a free-rider problem leads to Finally, co‑operatives face an image short-term investment decisions problem, that they are an ethical (Giannakas et al 2016). The alternative but not especially requirements of membership effective business model, which may also make co‑operatives will need addressing to enable the too demanding for some. An co‑op model to achieve widespread ambitious expansion of co‑operative popularity and normalisation. membership, while making active membership as easy as possible Addressing these barriers is and reducing the transaction fundamental to any ambitious costs and burdens of co‑operation agenda for the co‑operative economy. (costs, financial and non-financial), However, what exactly would is therefore an important step constitute ambition in this context and toward co‑operative success. how should it be defined? Shared platform technologies and co‑operative infrastructures offer massive opportunities in this regard.
• Cultural isolation: the most successful co‑operative ecologies have grown out of broader social, cultural and political movements that have struggled for an economy with fundamentally alternative social and environmental purposes beyond capital acquisition. It is that connection to a vibrant alternative economic lifeworld that has sustained and scaled
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10. THE Given this, it is encouraging to see a CO‑OPERATIVE growing political commitment to the sector’s expansion and the doubling of ECONOMY BY 2030 the co‑operative economy by turnover by 2030 (Co‑operative Party 2017). Co‑operatives can play a critical role in building In such a vision, there is scope for a broad range of co-operative models, a more democratic, but an imperative that all roads lead sustainable society. in the same general direction, which is towards the creation of a new economy To have that effect, that puts people before profit. The however, will require a reason co‑operatives offer the promise significant expansion of of both journey and destination is that their proliferation bakes in more the sector in the 2020s. stakeholder control and better sharing In turn, to expand the of the wealth created by enterprise into the economy. The more of them there co‑operative sector are, the closer to a new economy we substantially will require edge. the creation of a new At the same time, given that a defining business and economic feature of the sector is putting member culture, perhaps already experience and benefits above corporate growth, it is important that a underway in Scotland bundle of metrics are used to monitor and Wales, but largely co‑operative expansion, not just absent in England and turnover. Northern Ireland. With this in mind, there are a number of key metrics that a doubling of the sector by 2030 can be measured against:
• The number of co‑ops: from around 6,000 to more than 12,000.
• Turnover (co‑operative total and as percentage of all business turnover): £35.7bn to £71bn, from 1% to 2% of turnover.
• Number of members: from 13.6 million to 26 million.
• Number of employees (and as percentage of total employment): 226,000 people to 450,000; from 0.7% to 1.4%.
• Pre-tax profit (total and as percentage of turnover).
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• The number of co‑operative older companies such as Scot & Fyfe champions (medium to large co‑op Ltd (CSD 2017), which was owned business): from 41 to 80. by the Tough family and transitioned to employee ownership and smaller One place to start is with the potential companies such as Skye Instruments, for business succession to boost owned by John and Gill Wilde6. the number of co‑operatives. Both Co‑operative Development Scotland NEF has independently analysed and the Welsh Co‑operative Centre and estimated the proportion of UK have identified that family-owned businesses that are family run and are SMEs whose owners are looking likely to be transitioning ownership to retire and have no clear plans in the next three years. The baseline for succession could present an sample of businesses in the UK is taken opportunity for worker co‑operatives. from the Annual Business Survey, which gives counts of businesses by Their work suggests families who own number of employees. The initial size businesses are more likely to face issues band is 0-9 employees, so in order to around business succession and to estimate how many of these do have transfer ownership over to employees employees, the proportion of registered as a way of prioritising business businesses with no employees in this longevity and keeping jobs in the local size band is taken from the Business areas. Examples includes larger and Population Estimate (52%).
0 to 9 10 to 49 50 to 249 Source Baseline number of UK UK business businesses registered for 2,386,740 231,715 40,530 workbook VAT/PAYE Proportion of registered Business UK businesses with 0-9 Population 52% employees that have no Estimate, employees Table 1 1 to 9 10 to 49 50 to 249 Adjusted baseline sample 1,152,846 231,715 40,530
To estimate what proportion of these 2016 on this subgroup are used, taken SMEs are family businesses likely to from Institute for Family Business’ State be facing business succession issues, of the Nation report (IFB 2017).7 results from the Small Business Survey
1 to 9 10 to 49 50 to 249 Source % of private businesses BEIS SBS 75% 59% 47% family firms 2016 % family firms anticipate BEIS SBS closure or transfer of 16% 11% 6% 2016 business % family firms not BEIS SBS 76% anticipating transfer to family 2016 Number of family businesses could be open to employee 105744 11741 887 ownership Total 118,372
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This suggests that there are around internationally, while deepening and 120,000 family-run SMEs in the expanding the strengths, capabilities UK likely to be facing a transfer of and culture of co‑operativism in the ownership in the next three years. UK. There are approximately 6,000 co‑ops in the UK, so to double this number, If this is achieved in the coming years, only 5% of these family businesses then the potential exists to profoundly would need to be supported to use alter the trajectory of the co‑operative a transition to employee ownership economy. In particular, an ambitious as an option for business succession. institutional agenda could underpin While this would clearly not constitute even bolder targets for success. a doubling in turnover, if repeated over Doubling the sector is the core goal.8 successive three-year periods, it could clearly set the UK on a path towards Beyond that though by the early this measure of doubling by 2030. to mid-2030s we should aim for a co‑operative economy where half If achieved, this would constitute the the population enjoy the benefits beginnings of a significant change of membership, employees of in the economy, with a substantially co‑operatives represent 5% or more broader co‑operative footprint in terms of the workforce, and turnover is of employment, economic activity, equivalent to 10% of GDP. This would and membership. Other indicators of be a bold stepchange, and provide a success could include the densification powerful mechanism for cumulative, of the co‑operative economy, including enduring economic transformation. increasing the number of co‑operatives working in networks, clusters and To do so will require an equivalently federations, greater trade between bold reform agenda, to which we now co‑operatives, and an increased turn. reproduction rate among co‑operatives.
However, arguably a deeper measure of success is not simply the doubling of certain metrics, but the establishment of a new and enduring legal, financial and technical framework that can enable the sector to enduringly flourish. This will require embedding, reinforcing and creating co‑operative- specific institutions that have underpinned co‑operative success
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11. POLICY Instead, it should be because they RECOMMENDATIONS are a form of purposeful, successful enterprise that most effectively brings together the ability and interests of Significant co‑operative ordinary people backed by a supportive expansion – beginning institutional, financial and legal with at least doubling framework. Co‑operatives should thrive, in other words, as a form of the turnover of co‑ops economic organisational ‘common in the UK by 2030 – will sense’. not happen under the For an economy with free but current legal, financial co‑operative enterprise at its heart, and operational many of the specific policies and approaches that are needed (outlined arrangements, which below) would be at their most effective inhibit the sector’s if set within a wider framework of economic development and prosperity development. Nor can that sought at heart to broaden or should we expect democratic ownership and control. co‑operativism to expand This would see small- and medium- dramatically through sized enterprise as the primary the force of ethical economic building block, networking between businesses as essential example and exceptional and, by extension, co-operation effort, not least because and community wealth creation as co‑operatives are key objectives. In this context, the co‑operative model would no longer be currently subject to exceptional; it would be foundational. intense external pressures NEF notes that for relatively little due to their operating in investment, Co‑operative Development a wider, extractive and Scotland and the Wales Co‑operative dysfunctional economy. Centre have made significant inroads. CDS remains nevertheless a modest player sitting inside a larger national enterprise agency.
How much more could be achieved if co‑operatives were given the undivided attention of a better-resourced agency? And how much more ambitious could the cause of democratising businesses be if we sought to inspire and provide incentives for all firms to give employees a stake?
To be certain that co‑operatives could double in size and, perhaps more profoundly, to create the conditions
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for much more ambitious growth – a reserve via statutory underpinning. new economy based on wealth-sharing An asset lock would enshrine the enterprises and economic democracy, ‘disinterested distribution’ principle no less – NEF recommends a five-step common in other European programme.9 countries, which ensures that there can never be a benefit from FIVE STEPS TO CREATING A ‘cashing out’ via liquidating or CO‑OPERATIVE EONOMY selling the co‑operative because the assets must be transferred to Five interlocking steps can form another co‑operative. This ensures part of such a strategy and so drive co‑operatively earned wealth stays co‑operative expansion: within the co‑operative economy. While the asset lock and indivisible 1. A new legal framework for reserve incentivise, reward and co‑operatives utilise ‘common wealth creation’, the process should be optional for 2. Finance that serves the co‑operatives, depending on their co‑operative agenda circumstances.
3. Deepening co‑operative • Introduce a right to own to capabilities through a support employee buyouts Co‑operative Development and the co‑operatisation of Agency existing businesses. This should be underpinned by the legal 4. Transforming business ownership framework, financial instruments 5. Accelerating community wealth and institutional mechanisms building initiatives needed to allow for a negotiated employee buyout between workers, The foundational step is to develop exiting owners and the co‑operative a legal framework tailored to the sector. Further details are set out in specific needs of co‑operatives recommendation 4: transforming and supportive of their future business ownership. development. This must address the • A duty to develop the diversity of current disincentives to co‑operative corporate form. The government growth that exist in regulation and law, must provide official recognition of ensure co‑operative wealth is rooted co‑operatives as inclusive business in the wider co‑operative economy, models, and introduce a new and create the conditions for the statutory duty to foster diversity accumulation of co‑operative capital of corporate forms to help enable and commercial expansion. a new culture of co‑operative entrepreneurship, and broader 1. A CO‑OPERATIVE ECONOMY pluralism of ownership in the ACT SHOULD ESTABLISH THE economy as a whole. This would FOLLOWING: include amending the government’s • Create a statutory underpinning impact assessment on new for the creation of co‑operative legislation and regulation, to make indivisible reserves and an asset sure that all legal forms are properly lock. Co‑operatives should be considered and fairly treated, and given the option of creating an asset to identify and remove burdensome lock on co‑operative wealth and unintended consequences of building up a common indivisible new government policy. To assist
34 NEW ECONOMICS FOUNDATION CO-OPERATIVES UNLEASHED DOUBLING THE SIZE OF THE UK’S CO-OPERATIVE SECTOR
the growth of diverse corporate Finally, while there are substantial forms, reform should include a benefits to the co‑operative movement requirement for the Competition to not having too narrow and singular and Market Authority to review its a definition of what constitutes competition policy with a view to a co‑operative, there may be an fostering markets with different advantage in greater definition of legal forms, not just focusing on the co‑operative endeavour in particular size of market share among often sectors. Consideration should therefore monocultural enterprise forms. It be given to whether greater definition is noticeable that economies with in legislation is required for specific significant co‑operative sectors forms of co‑operative enterprise; these have statutory duties to promote might include in certain sectors or them. For example, both the activities that require legal definition as Italian and Spanish constitutions a condition for legal recognition, such oblige the government to promote as housing or energy. co‑operatives and underpin supportive legislative frameworks. 2. BUILDING FINANCE THAT SERVES THE CO‑OPERATIVE ENDEAVOUR • A Co‑operative Development Agency in statute. To strengthen The second step is to develop a the development of the sector, range of financial instruments and a Co‑operative Development institutions tailored to the needs of Agency for England and Northern the co‑operative economy. Crucially, Ireland should be established on a these must be capable of providing statutory basis. This would mirror patient forms of capital without the institutional support provided requiring control rights in exchange, to co‑operatives in Scotland and enabling co‑operatives to continue to Wales. We recommend that both employ capital in pursuit of enterprise, Co‑operative Development Scotland rather than capital dictating and and the Welsh Co‑operative Centre distorting their purpose. A range of are given statutory underpinning, interventions can develop such an which they currently lack. Further ecosystem. details on the role the agency could play are set out in recommendation • A National Investment Bank three. should be established that includes a mandate to supply Legislation should also review areas patient risk capital specifically where co‑operatives are currently at a to the co‑operative, mutual and disadvantage compared to other types social enterprise sector. NEF, along of business in legislation, regulation with many other organisations and other areas, redressing this where and academics, has called for appropriate. For instance, while the establishment of a National people in the co‑operative movement Investment Bank with regional have spoken to us favourably of the divisions to provide the productive Mutuals Team at the Financial Conduct investment that the private sector Authority, through which co‑operatives is failing to supply (Macfarlane are registered, the disconnection 2016). A division of the bank should between establishing a business via be tasked with tackling another companies house and a co‑op via the market failure of the UK’s banking FCA speaks to the disjointed nature of system: the failure to adequately government’s current approach. finance co‑operative development. This would require the development
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of national and regional expertise SMEs through legislating for mutual of the differing requirements of guarantee societies. We are missing co‑operatives compared to other out: 8% of small businesses in business forms. The focus would the EU used a mutual guarantee most likely be on scaling already society to access finance, with a medium to large co‑ops, financing portfolio of €80bn, while the OECD substantial worker buyouts, and concluded that mutual guarantee financing the co‑operatisation of schemes represent ‘a key policy tool existing public assets, such as Royal to address the SME financing gap, Bank of Scotland, if such an asset while limiting the burden on public was transforming to a co‑operative finances’ (OECD 2013). To redress governance and ownership model.10 this gap, legislation should create The development of a co‑operative a definition of a mutual guarantee financing wing of a National society and add mutual guarantees Investment Bank should be part to the list of regulated activities as of a broader strategy to ensure it set out in the Financial Services is a ‘mission-oriented’ bank, with and Markets Act 2000, rather than one such mission being expanding being considered – as they are under alternative forms of business current legislation – as a commercial ownership. In the absence of a insurer, which imposes significant National Investment Bank being and inappropriate regulations, established, consideration should be conditions and capital requirements. given to establishing a public bank focused on providing long-term • Introduce tax relief on profits funding to the co‑operative and reinvested in asset-locked social economy, learning from the indivisible reserves and on profits successful Green Investment Bank paid into a co‑op development prior to its ill-advised privatisation. fund to incentivise common wealth creation. The UK should • A new model for co‑operative adopt the model that is common financing should be developed and successful in many European to allow the provision of non- countries, in which co‑operatives member investment, which receive a discount on corporation provides capital in return tax if the eligible profits are paid for a limited return but no into their asset locked indivisible participation rights. It would be reserves, with a proportion paid into similar to the co‑operative bond a national or regional co‑operative investment market common in development fund established by the leading co‑operative economies in sector or by the state, to support new Europe. and growing co‑operatives. There is broad and proven acceptance of • Legislate for the creation of this model in terms of economic and mutual guarantee societies, competition policy. For example, ending the UK’s anomalous the European Court of Justice position11. Mutual guarantee decision on 8 September 2011 was societies are private guarantee decisive in supporting differential institutions created by small and taxation regimes for co‑operatives medium sized businesses who because of the distinctive ownership benefit from mutual loan guarantees and social benefits of the model and better access to finance. (Ibarra 2014). Even at a relatively Critically, the UK is almost unique low level, a bold commitment in Europe in terms of not supporting to incentivising common wealth
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building could catapult the sector and as a network – to grow. forward. Tax relief should be accompanied by a requirement In Scotland and Wales existing on co‑operatives to complete an institutions provide this function independent co‑operative audit admirably already, but scaling of their performance against the such efforts across the rest of the co‑operative principles once every country is crucial. We therefore five years, as a form of accountability. propose establishing a Co‑operative Development Agency for England and • Offer people facing one for Northern Ireland that would unemployment or receiving in- seek to replicate and expand on the work benefits the opportunity success of Co‑operative Development to start a business using a ‘co- Scotland and the Welsh Co‑operative operative enterprise grant’ and Centre across the rest of the country. allowance to start a co-operatively In Scotland and Wales, given the run business. The Co‑operative success of their development agencies Development Agency would provide on a tight budget, we recommend advice and support for business expanding their funding. development. It will also require holistic support, including ensuring The agency would provide a network access to skills and retraining of support and capacity building options, to support people to explore to co‑operatives large and small to their co‑op options. facilitate networking, federating and risk sharing among co‑operatives, It is worth noting that most small and and act to increase familiarity with the micro firms – whatever their structure co‑operative model. A central public – struggle for finance, especially in agency is particularly well placed to order to grow once established. If provide buyout support, support for attractive forms of finance can be co‑operation between co‑ops, and found for financing co‑ops, there is digital platform development. In a strong case to say that many micro other areas, the need for a diverse, firms will be actively incentivised to flexible, networked weave of things change structures. A better ecology independent of politicians and the state for financing co‑operative production is important; the agency should also could act as an accelerator for existing seek to nurture, enable and partner co‑ops and a pull for other business not take over all direction of co‑op forms to co‑operatise. development.
A Co‑operative Development Agency 3. A CO‑OPERATIVE DEVELOPMENT should operate at multiple levels: AGENCY nationally in England and Northern The third step is to develop Ireland, co-ordinating with existing and extend the capabilities of Welsh and Scottish equivalents, as well the co‑operative movement by as providing tailored support to city establishing a new Co‑operative regions, local government, combined Development Agency. As we have authorities, and local co‑operative seen, the most successful co‑operative ecosystems. Specific actions it could regional economies are underpinned undertake or have responsibility for by a thick ecosystem of institutions and include: cultures that provide the information, advice, expertise and support necessary • Facilitating knowledge exchange for co‑operatives – both individually among co‑operatives by helping
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co‑operatives share best practice and • Fund the development of costs. This could include supporting a core co‑op API that could the development of co‑operative provide the building blocks of a clusters and federations, thickening common digital infrastructure. networks of co‑operative support This would be a pivotal step to and exchange. It could also promote enabling co‑operatives to use digital peer support and mentoring technologies to operate at scale. programmes based on sector-specific Benefits of digital connectivity focus and provide pooled training, could include more meaningful expanding on the excellent but membership participation in currently limited activities provided governance, greater collaboration through the Co‑operative College, within and between co‑operatives, Co‑operatives UK, Plunkett, ABCUL, and better relationships with Confederation of Co‑op Housing co‑operative customers and and others. members. This would build on existing developments. The Scottish • Supporting co‑operative business Government’s Expert Advisory Panel development: the agency could on the Collaborative Economy has work with the sector, at differing recommended developing a digital scales, to promote economic infrastructure for the common co-operation between co‑ops. good, including a core co‑operative This could include connecting API that could then be adopted. up co‑operative supply chains The UK government has also set in and helping to encourage inter motion the creation of a ‘Workertech co‑operative trading, alongside Catalyst’ to the same effect. Building providing support for co‑operative and deepening these through a federation. dedicated co‑operative development agency would accelerate the process. • Enhancing the image of co‑operatives. Young • Replicate, shelter and expand communicators and creatives in successful co‑op models by the co‑op movement should be providing an accessible co‑op funded by the agency to promote replication service. This would and modernise the image of the provide the required support co‑operative model. While in many to enable the replication and ways well suited to new start-ups, proliferation of successful if the co‑operative sector is going co‑operative models. In doing to expand it is crucial that attitudes so, it would help shelter new to co‑operativism shift, and more co‑operatives by providing support early businesses take on the model. with the core infrastructural This will likely require changes in requirements, reducing costs in the the broader infrastructure to make process. It could potentially develop it easy to form and operate a co‑op, certain functions, such as auditing but also a sustained effort to make or accounting capabilities, that the co‑operative model more widely co‑operatives could join together attractive. It is vital that strategies to to buy at a discounted price, further promote co‑operatives are part of a assisting them. It could also support grassroots economic development peer mentoring and other forms strategy, with supportive of co-operation between co‑ops. arrangements in place to help The agency should work with local people explore and then develop government to reproduce successful their co‑op options. co‑operative initiatives, for example
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supporting city regions to develop boomer business owners reach the and expand ride-sharing co‑op end of their careers and seek to pass platforms or co‑op care networks. In on their business. With relatively doing so, it should work within the little resource, Co‑operative context of community development Development Scotland has and place-based economic managed to persuade more than strategies. 50 business owners to build greater democracy and take steps towards • Provide the technical support to co-operatising their businesses as assist in worker buy-outs. This they look to move on. The Wales should include providing workers Co‑operative Centre has had a who are considering buying out similarly successful track record. their company and transforming This approach, alongside the suite it into a co‑operative (see next of advice and support available to recommendation for further details) people at all stages in the cycle of with professional business feasibility entrepreneurship, should be a core studies for assessing the viability of strategy of the new Development new worker co‑ops, as well as legal Agency. and technical assistance during the process. • Introduce a right to own to support employee buyouts and 4. ACCELERATING THE the co‑operatisation of existing ‘CO‑OPERATISATION’ OF EXISTING businesses. This should be BUSINESS underpinned by the legal framework, financial instruments and As the discussion of Co‑operative institutional mechanisms needed Development Scotland above suggests, to allow for a negotiated employee perhaps the greatest near-term buyout between workers, exiting opportunity to increase the volume owners and the co‑operative sector. and scale of the co‑operative sector in the UK is through ‘co‑operatisation’ of -- New legislation should be existing business. introduced, potentially as part of the Co‑operative Economy Without steps to accelerate new Act, that would give employees models of ownership, it will be a statutory ‘right to request’ impossible to achieve a step-change employee ownership during in the size of the co‑operative business succession, with the economy. Private capital will remain potential to extend this to the privileged actor within the firm, any point in the life cycle of a while growing returns to capital will business. increase inequality. Scaling democratic, inclusive forms of ownership is -- To support the ability to do this therefore crucial to addressing the effectively, an ‘early warning’ systemic problems of inequality and resource should be introduced, ecological crisis confronting us. Two which would mean workforces steps to democratise capital at scale are were informed in advance of recommended: insolvency or disposal of a viable business, allowing them to • Prioritise promotion of assess the scope for acquisition co‑operatives or more democratic and prepare a bid if appropriate. options at point of business The Co‑operative Development transition. The pace of business Agency would provide technical transition is speeding up as baby-
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assistance in this process. At present, local economies are too often indifferent to people and -- Employees should be able to place (Birley 2017), underpinned by purchase part or all of the target extractive, distant and often footloose business through a variety of ownership models that suck capital ways: share capital purchases out of places under the guise of made via their savings and/ inward investment. An alternative or redundancy payments in approach is that of community wealth the case of a potential business building, which seeks to embed closure; advances of up to three co‑operative values of participation, years of their cash transfer- social responsibility, reciprocity and based and employer portions of democratic accountability in the their unemployment insurance operation of the local economy. This benefits, as in the successful will require radical, place-based Marcora Law for worker buyouts enterprise strategies; literally, rooting in Italy12; debt capital financing enterprise in a place within the context from either the co‑operative fund of wealth-building orientated, spatial within the National Investment industrial strategy. This would develop Bank for large businesses or the democratic models of ownership and network of co‑op development control, and increase the retention funds for medium to small firms and circulation of wealth within local secured on the projections of communities. A number of interlocking future revenues of the business steps can help achieve this: and/or on the collateral offered through the assets acquired • Local authorities should be from the target business. The required to produce place-based co‑operative should have limited industrial strategies that seek liability to protect workers from to retain and build wealth at losing their personal assets in the the district or borough level. case of business failure. These should interlock with regional or city regions’ industrial 5. ANCHORING CO‑OPERATIVES strategies and fall within nationally- WITHIN PLACE-BASED INDUSTRIAL described parameters, such as key AND COMMUNITY WEALTH environmental limits. The local fund BUILDING STRATEGIES of funds described above, and other aspects of growing and investing Finally, co‑operatives must be in the creation and retention of supported to thrive in their local wealth, would develop in line communities and localities as with these strategies. Co‑operatives genuinely rooted businesses capable should be seen as a key aspect of of retaining power and control within these strategies because of their that place and returning value to innate capacity to hold wealth in communities. This requires creating place (Birley 2017). real life contexts across the UK where people can come into contact with • A new approach for genuine co‑op ideas and realise how they can and powerful place-based be applied to their livelihood and localism with an economic focus. community. Innovative place-based More strategic and place-based community wealth building and community development strategies, local industrial strategies are crucial co‑op option programmes and to this and hence to co‑operative enterprise support; an ecosystem of development. private business, co‑ops, community
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groups and anchor institutions will with the community, social all play their part. New powers to oriented enterprises and unions, support this could include a new should work together to increase community right to shape local the capacity of co‑ops and other industrial and economic strategies; local businesses to bid for anchor a new community right to list institution contracts. This could and bid for an asset of economic include pre-market engagement to value, and to share ownership provide training, advice, mentoring of local developments; establish and meaningful feedback to help more diversified measures of local prepare bids; supporting the economic success than gross value formation of local consortia if larger added (GVA). contracts require scale; and the creation of local portals to enable • Encourage local procurement co‑operatives, social enterprises and commissioning strategies and SMEs to easily see available to support, where appropriate, opportunities, and anchors and co‑operatives and social larger businesses to understand the enterprises. There remains a lively local market and more easily obtain debate as to whether Brexit will quotes (Mayo 2017). The regional allow for greater flexibility in socially Co‑operative Development Agency oriented procurement (Guinan should support local authorities in and Hanna 2017). Regardless, developing such community wealth there is clearly a case for the more building strategies, in partnership strategic use of procurement and with groups such as Co‑operatives commissioning, beginning with UK. using the spending and supply chain footprint of local anchor institutions CREATING AN UNDERLYING to support local businesses and CULTURE OF DEMOCRATIC co‑operatives. As a first step, anchors OWNERSHIP: THE INCLUSIVE should commit to using local small OWNERSHIP FUND and medium sized businesses, community sector, third sector, social It is no coincidence that the enterprise and co‑operatives where co‑operative sector in the UK is possible and appropriate. Contracts smaller, weaker and more atomised above a certain value should require than in countries such as Italy, France, bidders to demonstrate how they Canada, Costa Rica and even the US. will use the local supply chain, While the sector itself has worked and all other suppliers should be hard to preserve and promulgate the encouraged to source locally where spirit of co-operation first pioneered possible and to consider local in Rochdale, it has done so against businesses and co‑operatives when a backdrop of ruthless, extractive, sub-contracting. Larger procurement deregulated, neoliberal capitalism and should be broken into smaller with little supporting legislation and lots where possible, to enable and active promotion. encourage local SME, third sector, co‑operative and social enterprise As the political sun sets on neoliberal participation. Where larger contracts economics and hyper-globalisation, are unavoidable, there should and demand grows for greater wealth- be a requirement on suppliers to building and sharing of value with obtain quotes from co‑operatives, those that add it, there is a real need social, community and local SME for policy that creates the kind of enterprises (Wright 2016) enterprises that can fulfill this demand.
• Local authorities, in combination In addition to the five steps described 41 NEW ECONOMICS FOUNDATION CO-OPERATIVES UNLEASHED DOUBLING THE SIZE OF THE UK’S CO-OPERATIVE SECTOR
above, further policy is needed to a non-tradable stake. Partnership create a deep economic heartbeat that stakes carry with them democratic consistently and over time transfers the control rights over the management ownership and control of businesses to and direction of the business. In many workers and other key stakeholders. respects, our proposal for an Inclusive Ownership Fund can be thought of as a We call this an Inclusive Ownership John Lewis law. Fund. Under this proposal, all shareholder- or larger privately-owned An economic heartbeat of this sort businesses would transfer a small would ensure that over time and in all amount of profit each year in the businesses, the ownership and control form of equity into a worker or wider of workers and other designated stakeholder-owned trust. Once there, stakeholders, such as users of social these shares would not be available for care, would grow. This could be further sale. achieved by mandating the transfer of the equity of firms into an Inclusive In a world that presumes companies Ownership Fund, with formally are owned privately or by distant designated stakeholders, annually shareholders, this may sound far- and at a low level, or by incentivising fetched. And yet even in the US this transfer through the business tax (and for a while under Thatcherite system. Or both approaches could be privatisation in the UK), through adopted: mandating at a low level and Employee Stock Ownership Plans incentivising to allow some business to (ESOPs) workers can be rewarded opt for a more rapid transfer. in the form of shares which are transferable and held in an ESOP trust When the fund reached a controlling until the worker retires. level of ownership of a firm (or, in the case of businesses succession, ESOPs, however, while opening up proposed takeover or crisis, a lower ownership to workers are not generally but significant level of ownership) accompanied by control rights and the stakeholders controlling the fund can also often be bought and sold. In could opt to assume control of the the UK, many ESOPs, developed as business. But prior to that, steps could a means of retaining worker control be built into the fund that would see when local authorities were required to incremental improvements in worker privatise services, merely went the way or wider stakeholder participation of the wider share-owning democracy when the fund reached certain levels. concept, with ownership eventually conglomerating in the hands of a While for some, becoming a member relatively small number of often distant of or setting up a full co‑operative asset owners. While revived timidly and will be the answer to the questions in dilute form under George Osborne posed by the dramatic scale of through the introduction of Employee current economic injustice and lack of Ownership Trusts, the concept of democracy, for many a greater share of employee ownership has never taken the wealth created by a business, and root in the UK, perhaps again because the opportunity to participate in its of the hostility of the business and governance, will be enough. economic environment. While not strictly about greater co- One exception is John Lewis operatisation, in the current economic Partnership, which is owned by its context and with such deep economic employees – or partners – through inequalities, the Inclusive Ownership Fund demands political attention.
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APPENDIX: NEF also asked organisations and members of various co‑operative INTERVIEWS AND networks to complete a survey looking SURVEY at the barriers to and steps towards doubling the size of UK co‑operatives. NEF conducted a series of informal interviews to explore with those 77 people responded. However, NEF involved in the UK co‑operative sector had no control over the population the barriers to growth and to discuss of the survey; it was taken by anyone potential interventions. Alongside who received the link and wanted to a literature review and the result of participate. Therefore, the results – the survey, these underpinned our however significant – should only be research, conclusions and helped steer viewed as broadly indicative of the our thinking as we sought to develop preferences of existing people with the recommendations. UK sector.
The following interviewees agreed to The results can be viewed at https:// be listed as having taken part: neweconomics.org/uploads/files/co- op-survey1.pdf • Russell Gill – Co‑operative Group • Paul Gerrard – Co‑operative Group • Ed Mayo – Co‑operatives UK • James Wright – Co‑operatives UK • Russell Marsh – Co‑operatives UK • Simon Borkin – Co‑operatives UK • Johnny Gordon-Farleigh – Stir to Action • Matt Parsons – Outlandish/Fixed Abode • Bob Cannell – Co‑operative Business Consultants • Sion Whellens – Calverts • Ieva Padagaite – Blake House • Dr Rob Jump – University of the West of England • Charlotte Christison – John Lewis Partnership • Deb Oxley – Employee Ownership Association • Sarah Deas – Co-operative Development Scotland • Adotey Bing-Pappoe – University of Greenwich
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ENDNOTES
1 The analysis is a composite of four different measures of economic democracy, of which the level of collective, co‑operative and employee ownership and employee share ownership, and the distribution of economic decision-making powers within an economy, are critical factors for a country’s overall score. 2 See https://www.uk.coop/about/what-co-operative 3 See http://www.employeeownershipindex.co.uk/wiki/index.php5?title=Welcome_to_the_UK_ Employee_Ownership_Index 4 An interesting test will be whether Nisa remains a store-owner mutual following its takeover by the Co‑op group, or whether incorporation into a larger scale entity will change its character. 5 This point, and the Williams quotation, was made in Tom Gann’s review of Labour’s Alternative Models of Ownership document. 6 See http://www.kellogg.ox.ac.uk/wp-content/uploads/2015/11/Employee-ownership-defusing- the-business-succession-time-bomb.pdf 7 The baseline numbers are first multiplied by the proportion of all UK businesses that self-report as family firms; this includes businesses that have one single owner. This is then multiplied by the proportion of UK family businesses that anticipate the full closure or transfer of ownership of their businesses in the next three years. Finally, this is multiplied by the proportion of family businesses anticipating a closure of ownership but who aren’t planning to transfer ownership to another member of their family. 8 Crucially, there is growing political support for such a goal; for example with a commitment in the Labour Party 2017 manifesto as well as the independent report commissioned by the Labour Party examining the case for alternative models of ownership. 9 It is worth noting that the ILO Recommendation 193/2002 on the promotion of co‑operatives is a key global policy influence on nation states and arguably one that puts a soft law obligation on the UK to take action to develop the co‑operative sector. The strategy set out would help the UK meet its obligation. 10 A specific investment remit for the investment bank would echo the Industrial Common Ownership Act 1976, which gave seed-funding to the Industrial Common Ownership Movement, which successfully financed more than 2,000 worker-owned co‑operatives. 11 The society acts as a guarantor on behalf of the SME, insuring and supporting businesses in their engagement with financial institutions. Societies are typically co‑operative or mutual, with capital provided by the member SMEs, who apply for a loan guarantee in the form of co‑operative or mutual shares. Each member has equal voting rights and elects the society’s general assembly and board. For banks the mutual guarantee provides a form of security on otherwise unsecured enterprise lending. By lowering the risk, societies reduce the cost to members, increasing the supply of capital to SMEs under a co‑operative framework. 12 Italy’s ‘Marcora Law’ provides funds and business support for employee buyouts, and has generated an economic return of 6.8 times the capital invested by the funding mechanisms.
44 NEW ECONOMICS FOUNDATION CO-OPERATIVES UNLEASHED DOUBLING THE SIZE OF THE UK’S CO-OPERATIVE SECTOR
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48 NEW ECONOMICS FOUNDATION CO-OPERATIVES UNLEASHED DOUBLING THE SIZE OF THE UK’S CO-OPERATIVE SECTOR
49 WWW.NEWECONOMICS.ORG WRITTEN BY: [email protected] Mathew Lawrence, Andrew Pendleton +44 (0)20 7820 6300 @NEF and Sara Mahmoud Registered charity number 1055254 COVER IMAGE BY: Bonninstudio/Stocksy Co‑operatives Unleashed is an independent New Economics THANKS TO: Foundation report commissioned Ed Mayo and Co-operatives UK by the Co‑operative Party.