Co-op has totally lost its way

Admitting that it has lost touch with “its customers and members and with the communities in which it operates”, the Co-op is at a crossroads. After the near collapse of its bank, the Co-op is asking anyone and everyone to help determine the organisation’s future direction.

Crucial to its history and current identity, the Co-op makes a big contribution, via its own political party, to the Labour Party. The two parties maintain an electoral alliance – candidates who want to stand on the Co-op ticket have to be members of the Labour Party and appear on ballot papers as Labour Co-operative. 

The Co-operative Party is completely dependent on its income from the group’s trading activities. In 2012 the group donated a total of £805,000 to the party and its councillors. This included donations to 32 Labour and Co-operative MPs, as well as a one-off £50,000 grant to the office of the shadow cabinet.

At first sight, consulting widely by opening up a questionnaire to whoever wants to spend 20 minutes answering the questions might seem like a democratic move, but:

Q. where does it leave the more than 6 million members who’ve loyally stood by the organisation, liking and respecting its principles for decades?

A. Left by the wayside.

Euan Sutherland became group chief executive last May, from a career in for-profit companies including Coca-Cola, Curry’s and Superdrug. Peter Hunt, the former general secretary of the Co-operative Party, accuses him of threatening the abolition of the party.

The question that’s worrying the Co-operative and Labour parties is this one:

Q. To what extent do you think it is appropriate or inappropriate for big businesses to donate money to political parties?

A. It won’t stop huge donations to the Tories from the oil and banking industries.  But it does attempt to bury the Co-op’s ethos by equating it with all other businesses. According to the answers to the wide-open questionnaire, it could lead to the end of the Co-operative and Labour parties. 

Over the years, the democratic process has been largely reduced to becoming part of the corporate branding, giving its members a sense of belonging.  You won’t find many members even knowing how they could attempt to influence the big, or even small decisions. Those that have tried, for example, to get the Co-op to source some of its food offering locally have been disappointed, despite its claims to be in favour of a sustainable society and economy. So questions on that issue don’t impress.

Q. Is this questionnaire a return to democracy, or a threat to it?

A. A threat.

The co-operative movement came to prominence as an attempt to defend the livelihoods of workers being wrecked by the industrial revolution in the 19th century. Today, around the world co-operatives are being widely promoted as the antidote to the effects of the global crisis. Millions of people are once again coming to the conclusion that the unsustainable for-profit chase after growth is a dead-end and has to be replaced.

But that isn’t an option offered in the questionnaire. You can agree or disagree with the idea that the Co-op “is not just for profit”, but not whether it should be not for profit at all. You can agree or disagree with statement that “the Co-op supports and drives growth in the local economy”, but not whether this kind of growth is a bad or a good thing.

But there is an open-ended question you can answer:

Q. What, if anything, should The Co-operative do to encourage more people to shop with it?

A. become a not-for-profit enterprise run by its members through a participative democratic process. Campaign to ensure that all enterprises follow a similar model, ending the for-profit exploitation of people and planet.

Gerry Gold

Economics editor

How coexistence with capitalism undermines co-ops

Two of the world’s biggest and best known co-operatives are struggling with the impact of the unending global recession. Both are seeking rescue deals by a hedge funds and private equity groups that could lead to their destruction.

Yesterday, the UK’s 150-year old Co-operative Group announced a revised plan to rescue its loss-making bank. Meanwhile, Fagor, the consumer electronics arm of Mondragon – the Basque workers’ co-operative established in 1956 – is racing to secure emergency funding to avert a bankruptcy declaration.

The Co-operative Bank’s troubles began with its acquisition of the Britannia Building Society in 2009. Britannia had made big corporate loans which lost value following the 2008 crash, contributing a major part of the bank’s £709m loss.

Fagor has been hit by the sharp fall in consumer spending across Europe and the collapse of Spain’s speculative construction boom. Sales at the division fell from €1.8bn in 2008 to €1.1bn in 2012. It has not reported positive earnings since 2008 and has accumulated debts of €850m owed to banks as well as other parts of the Mondragon group, including its credit union and its own employees.

Is this a story of the failure of the co-operative model? Most certainly not. Co-operation and collective activities have been fundamental to society since modern humans evolved. 

In the US, for example, as John Curl explains, cooperatives, cooperation and communalism were intertwined with history of the country: from native communities where property was unknown to the self-governed co-operatives who challenged and overthrew the corporate monopoly of the British East India

Company. The ending of slavery, and the gaining of rights including women's suffrage, workers’  rights and union rights, as well as civil rights are other examples he rightly cites.

In the short history of the global rise to dominance of private ownership and the wage-labour contract - the social relations of capitalist production - the modern version of the co-operative movement has pursued contradictory aims. It has attempted to make a place for itself, offering an alternative model whilst coexisting and competing within the capitalist framework.

Curl shows above all how participative economic democracy has been in a constant battle with capitalist wealth concentration.

Two comprehensive reviews of the UK’s co-operative movement - in 1956, and in 2000 – were designed to keep it in bounds, ensuring its survival “in the modern marketplace” whilst preventing the liquidation of assets built up by prior generations of co-operators.

Today’s proposed deal between the Co-operative Group and the LT2 group of vulture funds would, it is promised, embed its ethical values into the constitution of the bank. But the deal also involves the group as a whole - which owns supermarkets, farms, pharmacies and funeral homes - pumping £462m into the bank, equivalent to around £60 for each of the group's 7.9 million owner-members.

This would open a main artery through which the private investors would be able to suck the vitality not just of the bank, but from the whole of the group, carrying out the liquidation of assets the 2000 review was supposed to prevent.

Far from being failures of the co-operative model, the problems at Fagor and the Co-operative Bank show that the time for coexistence and competition, for compromise with the now bankrupt capitalist system is over. Rather then meekly offering themselves up as prey to vulture funds, co-operators must now go on the offensive.

Co-operative enterprises can and should play a key role in the People’s Assemblies which are forming throughout the world. A global network of Assemblies can provide the democratic framework needed to replace capitalist destruction with the principles of co-operation. Such a network could acquire the power to end the rule of globalised private finance capital.

Gerry Gold

Economics editor

Co-operative movement at the crossroads

Signs of a meltdown at the Co-operative group of companies are multiplying at an alarming rate. Following last week’s mark-down of bank debt to junk status, the malaise is hitting all of its operations including insurance, supermarkets and beyond. 

The head of the bank, Barry Tootell, has resigned. He was hired three years ago to lead the purchase of 632 Lloyds branches. That failed. The Co-operative was found not to be up to scale of the task.

Then came the news that the group was forced to consider selling its long-established insurance businesses as the bank struggles to meet a shortage of capital estimated to reach as much as £1.8 billion.

Increased centralisation in its distribution network has led to supply problems with smaller shops being left with empty shelves for part of the day. Staff are said to be furious at being forced to accept worsening conditions, including increased productivity and longer hours.

Customers are complaining that the range of Fair Trade goods, which have been at the heart of the supermarket’s ethical brand image, is being reduced, and prices are rising.

The Co-op’s problems are bad news for the Labour Party which depends on a huge £3.9 million overdraft from the bank, the latest in a long series of loans on favourable terms. The trade union-backed Unity Trust Bank is also concerned because it is 27.6% owned by the Co-operative.            

So what has gone wrong with a bank that has 6.5 million customers and claims an ethical approach to investment?

In 2009 the bank merged with the Britannia Building Society, an apparently good partner for the Co-op, with a shared concern for ethical trading and environmental issues close to its heart.  But appearances can be deceiving.

When Lloyds staff were going over the books in preparation for the takeover of branches they discovered the awful truth. In merging with the Britannia, the Co-op had acquired a portfolio of highly aggressive commercial property lending and buy-to-let mortgages, dangerously exposed to the downturn. Now the losses are mounting

What can be learned from all of this?

The co-operative movement began in 1844, and now involves a billion members of 1.4 million co-operative societies across the world – and it is spreading as the crisis deepens. 

But the movement is at a crossroads. Its members can no longer sustain the idea of a peaceful co-existence with its capitalist competitor. Many say that the UK Co-op lost its way years ago, attempting to ape the behaviour of the major supermarkets, whilst offering a caring, sharing alternative.

New and old co-operatives elsewhere in the world face similar problems.

On May 9, after along struggle, the 17 remaining workers of the 280 who famously occupied the US Republic Windows and Doors factory in 2008, officially opened the New Era Windows Cooperative after purchasing the production equipment and materials. But the 17 are working without pay.

Meanwhile In Spain’s sharply contracting economy, workers at the co-operatively-owned Mondragón Corporation voted unanimously to create a restructuring and employment fund. This is intended to guarantee the financial sustainability and employment of Fagor Electrodomesticos, a large domestic and commercial appliance manufacturer.

Half of the €70 million fund will come those companies in the group that have profits, draining a permanent fund usually used in order to set new projects in motion. The remaining 50% will come from all the companies in the group. They will hand over 1% of their gross salaries for six years.

So even in this most successful of co-operatives, co-existence within the capitalist model means the worker-members have to vote to absorb the effects of the global crisis.

These self-defeating acts of defiant compliance pose the question of replacing the for-profit capitalist model of production lock, stock and barrel. In a new framework, co-operative working would predominate rather than remain the junior partner that it is now.

Gerry Gold

Economics editor