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A different way of doing things

Robin Murray explores the potential of co-ops to form the basis of an alternative economy

May 20, 2012
17 min read

Illustration: Andrzej Krauze

The first great surge of co-operation took place in Britain at the dawn of the age of railways in the 1840s. It was a consumer co-operation of the industrial working class. Within 50 years it had grown into a network of more than 1,000 retail co-ops and a wholesale society that had become the largest corporate organisation in the world. By the first world war, British co-ops accounted for 40 per cent of food distribution. They owned their own factories, farms, shipping lines, banks, an insurance company and even a tea plantation in Ceylon (now Sri Lanka). The co-operative movement was, in the vision of one of its inspired organisers J T W Mitchell, on the way to developing an alternative economy.

There were similar movements of small farmers and artisans on the continent and in North America, and later in Asia. Common to them all was an emphasis on civic and workplace democracy, autonomy, the quality of work and on small-scale units gathered into large federated organisations where a larger scale was necessary.

This way of thinking about an economy did not chime with the model of mass production that became the dominant 20th‑century paradigm for industry as well as for the principal state-centred (and centralised) alternatives on the left. The forward march of cooperation was halted.

In the past 30 years, though, there has been a rapid growth of all kinds of initiatives in the social economy. Confidence was lost in the centralised state-based alternatives, particularly after 1989. The revolution in information and communications made it possible to develop much more distributed systems of organisation, with complex webs of collaboration. Now, with the financial collapse of 2008 putting neoliberalism on the back foot, we are witnessing a new interest in co-operation.

There has been a spate of books by evolutionary biologists on humanity’s deep-rooted dependence on co-operation and by sociologists on the skills required for it. To general astonishment, the 2009 Nobel prize for economics was given to Elinor Ostrom for her work on the social economics of the commons. And co-operation runs as a common thread through the discussions of alternatives across the Occupy movement. As one of the Occupy Wall Street activists put it, they wanted a world of ‘co-operatives, credit unions and fair trade’.

Co-operative alternatives

What should we make of all this? What part can co-operatives play in a 21st-century model of an alternative economy? Could co-operatives become the dominant form of enterprise just as joint stock companies were in the industrial era? Can the state – itself part of the social economy – find a way of working with them in new collaborative ways? Can it indeed internalise not only co-operation’s values but its practices? Can we imagine a model of the co-operative economy that generates as much confidence as once did the various versions of Fordist socialism?

Let’s start with finance. Instead of a financial system dominated by a few centralised global banks that have subordinated production to their logic, can we imagine one with a thousand local banks, owned either by their members or municipalities? They would be a repository of local savings and lend them to small enterprises and households in need, whom they would know as intimately as the English country banks knew their neighbourhoods in the early 19th century.

For larger investments and technical support the banks would form their own regional and national bodies. And for the major strategic tasks, there would be a national public bank that would provide funds and advice to the local ones.

These were the dreams of 19th-century co-operators throughout Europe and North America. Today in Britain they would be seen as green utopianism. Yet in Germany they are part of everyday life. There are more than 1,100 independent co‑operative banks, with 13,000 branches and 16 million members. In almost every neighbourhood in Germany you will find a co-operative bank, and usually on the other side of the street in co-operative competition will be one of the 15,600 branches of the 430 municipal savings banks or Sparkassen. That is more than 1,500 independent local banks with almost 30,000 branches.

Both the mutual and municipal banks have their own regional and national clearing and specialist banks. Together they dominate retail banking, with the commercial banks confined to less than a third of banking business. The public development bank, the KfW, commits more than €20 million each year to finance the switch away from nuclear energy and to meet its climate change targets. They need a highly granular banking network to reach the households and small enterprises who are key to the new energy model. That is provided by the co-operative and Sparkassen banks. These two social pillars of Germany’s ‘three pillar’ system have been a principal factor behind the economic success of the small and medium industrial enterprises of the German ‘Mittelstand’.

This model of co-operative banking was developed in the mountainous rural areas in the 1850s to support the local farmers, small traders and artisans ignored by commercial banks, and later in the eastern cities to fund urban artisans and traders. It spread all over Germany and to much of the continent, where it still plays a major part in the national banking systems. In Holland, for example, the second-largest bank (one of the top 30 in the world) is the Rabobank, a confederation of 141 local credit unions. Like the German co‑operative banks, and the similarly inspired networks in Canada, they are geared to the welfare of their local economies.

What about industry? Can we imagine a co-operative region that holds its own in a globalised economy? It might equip its farmers and artisans with the most modern equipment, and help them to form co-operatives to sell their products all over the world. Each town could focus on a particular product so that it developed the necessary specialisms. It could have its own college where the skills of one generation are passed on to the next. The finance would come from local co-operative or public banks, the loans guaranteed by other artisans in the town, and all the invoices and accounting would be handled by a dense network of joint bookkeepers and accountants.

This is a description of the region of Emilia Romagna in Italy. Many of the light industries there and in neighbouring regions have not just held their own but become leaders in their sector in Europe. In the ceramics town of Imola the main co‑operative is now the largest ceramic producer in Europe. Carpi is one of the major clothing areas in the EU – a town of 60,000 people with 4,000 artisan firms. The Emilian farmers not only supply the local co-operative supermarkets that dominate retailing in the province but they have established their own co-operative processing and branding. Parmesan cheese is made by a co-operative of 550 milk producers, Parma ham by a co-operative of pig keepers on the banks of the Po.

This pattern of production is not confined to the so called ‘third Italy’. There are similar industrial regions in Denmark, Germany and the Basque and Valencian regions of Spain.

Alternatives of this kind already exist in many of the core areas of today’s economy. In the face of industrialised food, Japanese consumers (almost all women) in collaboration with local farmers have created a remarkable food box scheme. Once a week they put in their orders, gather to assemble the produce into boxes and deliver them through a network of their own local micro groups (known as Han). The consumer co-ops now have 12 million members and have started associated co-ops for food processing, packaging, design, printing and catering, and are currently extending into childcare, health and elder care.

Or take renewable energy. Denmark produces a quarter of its energy from windpower. This is largely generated from turbines owned by more than 2,000 local wind co-operatives. The UK has many fewer, but those that there are can now distribute their energy through the recently-formed Midcounties Co-operative Energy, which attracted 20,000 members in its first year. There are similar thriving co-operative networks in fields such as education, health, social care and sport.

Co-operative democracy

Many people’s idea of co-operatives is coloured by the problems that any small group of us has in choosing a place to eat, or by the idea of incessant discussions that make it hard to run anything. But in order to survive, co-ops have had to find effective means of running themselves democratically and making that involvement a source of strength not weakness.

It is least complex at the level that evolutionary biologists say is the maximum for close personal ties. The British anthropologist and evolutionary psychologist Robin Dunbar puts this at 150. Interestingly, the largest 22 worker co-ops in the UK have an average of 41 members, with only the largest, Suma Wholefoods, reaching Dunbar’s 150. If anyone doubts the viability of co-ops they should look at Suma. The staff circulate the various tasks among themselves, so each person knows the enterprise as a whole. They are a constant source of innovative ideas (and are paid equally). The key post is not the finance director but the person responsible for the staff, who would normally be called the director of human resources.

Many co-ops are much larger than this – credit unions can have millions of members – but many of them are built up from what we could call ‘Dunbar cells’, combined into confederations for those things that need a larger scale of operation.

The Mondragon network of worker co-ops in the Basque region of Spain exemplifies this. Its inspiration, the priest Jose Arizemendiarrieta, shared Gandhi’s belief in human‑scale organisations. If a Mondragon co-op got too large, he recommended it spin off some of its parts to a new co-op. Mondragon’s collective services, such as its bank, are owned by the co-ops they serve, just as the local credit unions control their apex organisations. This is a widespread feature of co‑operative democracy – small local units controlling the collective service organisations above them.

There are other conditions for effective democracy. First is a commitment to human-oriented technology. For Gandhi this was epitomised by the spinning wheel. His lifelong argument with Nehru was that the large-scale technology advocated by Nehru would have its own imperatives and interests and could never be subject to effective democratic control. In Mondragon, there is a commitment to modern technology (there are three large research laboratories) but it is a technology that is understood and controlled by the worker-owners.

Second, it is not just a quantitative question of one member, one vote. It is a qualitative one about the degree of a member’s involvement, and his or her development as a person. Gandhi’s formulation was that co-operation was an extension of the principle of self rule or swaraj. He rooted the idea of co‑operatives in personal and spiritual and not merely collective terms. This has been a theme of many of the major co-operative movements, secular and religious, of the past 150 years. In other words, co-ops are not merely about collective economic power but about the skills and rewards of being social. It is about the power to be human, not just the power to get more.

This helps explain the strong emphasis in co-operatives on education. The earliest co-operators, the Rochdale Pioneers, wanted to spend 10 per cent of their surplus on education but were restricted to 2.5 per cent by the Registrar of Friendly Societies. Many of the early British co-ops had a reading room and library, and a wide-ranging education programme for members. The Mondragon co-ops arose from courses run by Arizmendiarrieta, and education remains the primary pillar of the group today – it even has its own university. Arizmendiarrieta referred to this remarkable network of worker co-ops as an educational project with an economic base.

The idea of co-operative democracy is one of members individually and collectively ‘in process’, not the punctuated sounding out of fragmented opinion. It is about what the French sociologist Bruno Latour called ‘reassembling the social’, not as a concept separate and opposed to (or dominating) the individual, but rather as something created and recreated through the forms and processes of daily practice. As a result it works best when its members have a close pragmatic interest in the work of the co-op. There are lessons here that are transferrable to the state.

Strong ties

The early British consumer societies required members to shop only at their co-op. Each member therefore had a keen interest in the relative quality and price of its products, and how it was run. The same is true of worker and farmer co-ops, and of services such as education and healthcare that benefit from continuing relationships of trust.

The latter are areas of potential co-operative growth. There are many economic problems that involve the collaboration of different parties for their solution. In social care, for example, there are the receivers of care together with their families and neighbours, as well as the care givers and funders. New multi‑stakeholder co-ops have sprung up that have led to a marked improvement in the quality of care. Quebec has been a leader in North America. In Europe it is Italy that has again been the pioneer. There are now 7,000 Italian care co-operatives. In cities such as Bologna social co-ops now provide 85 per cent of public care services.

There is a parallel trend – for similar reasons – in education. In England, there are today 200 co-operative schools. Many of them are in deprived neighbourhoods. As state schools they had been threatened with special measures and transfer to the growing number of private educational chains. Instead they have converted to co-operatives, the membership ranging from children and parents to teachers, community supporters and local colleges. The schools have established their own secondary co-op to provide the kind of support services that local authorities have been cutting and privatising.

The discipline of the market

Karl Marx was in favour of co-operatives. He saw them as practice grounds for working-class people to run the economy. But he thought they would always be limited by the market competition of private capital. The productive power of capitalist technology coupled with cheap labour would always tend to destroy co-operatives or press them to follow a capitalist path. The wings of aspiration would be sharply clipped.

Today’s co-operative economy reflects this continuing competition from the market. There are at least four ways in which co-ops have survived:

• Individual visionary initiatives have succeeded in areas peripheral to the main economy. These have been confined to gaps beneath the private market’s radar.

• There are some co-ops that in the face of direct mainstream competition have, as Marx forecast, had to match the scale and centralised structures of their private rivals (in some co-operative banking, building societies and mutual insurance, for example). They still have some of the protection of co-operative structures but member ties are weak and open to the threat of demutualisation.

• In some countries co-ops have had a measure of protection against the private market via government legislation or financial support.

• Some co-ops have developed networks like those I have described, whose principles and alternative ways of working have given them decisive advantages against private competition.

Particular co-operatives may experience each of these in turn (or simultaneously). Many have started as movements of the marginalised. Some have then grown and found ways of providing services without sacrificing all the advantages of small, human-sized cells.

The successful networks have their own ecology. They collaborate on buying and selling. They raise finance from co-operative banks and share know-how, machinery and even orders. In an era when economies of system are becoming more important than economies of scale, these co-operative systems have proved more than a match for their private competitors.

Even then they will always face the contending forces of chaos and order. Fragmentation can become a weakness rather than a strength. In the face of crises, co-operatives are often pressured into centralisation as a means of survival. They then lose the advantages that come from the diversity and engagement of their members. Some of the most successful networks have found ways round this – repairing the faltering units and returning them to their members.

Marx, then, took too narrow a view of the spaces that can be opened up for an alternative economy. Such spaces will always be under pressure – from the market, from the state and at times from the corrosion of co-operative values and practices internally. In these circumstances, individual co-ops will be like small craft isolated on the ocean. They need the combined strength of a fleet.

Future directions

They need also to focus on areas where co-operation – by its very character – has qualities that private capital cannot match. We are living in a period when these areas are growing. There are intractable problems, which neither the private market nor the state in their current forms appear able to solve. In these fields mission-driven co-operatives are potentially a more effective form of enterprise than the private corporation.

In Britain, to realise this potential requires a radical strengthening of our own co-operative economy. The primacy of a broad, liberal co-operative education is a first priority. Ways need to be found to use existing co-operative strongholds as platforms for innovation and expansion into the new ‘intractable’ fields. At a point when ideas, knowledge and information have become the key to competitivity, every co-operative has to find ways of tapping into the ideas of the many millions of co‑operative members.

Co-operatives also have to develop new relations with the state. In the past civic co-operation has been jealous of its autonomy, while the labour tradition has seen co-operatives as a potential threat to state services. But in many areas they are natural allies, not opponents. Each represents a way of realising social and environmental goals. There are already examples of public/social partnerships, carefully protected against privatisation. For such partnerships to work the state will need to be innovative in its structures of finance, accountability, employment and contracting.

In the early 20th century there was a strong current among co-operators and guild socialists that recognised such a model of a civil economy and a supportive state. While it was out of tune with the era of mass production, the revolution in information technology and the internet has changed the industrial and post-industrial paradigm. It has led to a surge of informal civic co‑operation. This is now a world of open source software, Creative Commons, Wikipedias. Informal co‑operation has already extended far beyond the dreams of William Morris.

In the formal economy, co-operation is already well rooted. It has its own systems of management and accountability. At its best it is driven by its social rather than short-term profit imperatives. In the debris of the current financial meltdown, this reversal is what so many areas of our daily lives require. Co‑operation in its many forms now has the wind behind it. Has it now the capacity to expand its fleet?

Robin Murray is a research economist at the LSE. He is an associate of Co-operatives UK and author of Co-operation in the Age of Google

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