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

Tell Goldman Sachs to get lost

The cracks in the global economy are widening at a hard-to-grasp rate. Contraction is accelerating in Europe, and growth is slowing in the United States and China, the world’s two largest economies.

One of the key measures of the health of the capitalist economy – Markit’s purchasing managers’ index (PMI) for manufacturing in the eurozone – dipped to a four-month low of 46.5 in April. On this measure anything below 50 means contraction. The composite index for Germany, the eurozone’s largest economy, fell sharply to a six-month low.

Banco de Espana, Spain’s central bank estimates that its country’s GDP was 0.5% lower in the first quarter of 2013 than the same period in 2012. One of the consequences is that migration out of Spain is soaring as people desperate for work move to other parts of Europe.

Greece’s economy is expected to contract a further 5% this year, bringing the total since the crash to 25%. Optimists, with no evidence to support them, hope and pray that the decline will stop there.

Debt levels continue to mount. Overall, eurozone sovereign debt rose to 90.6% of economic output (GDP) last year, the highest on record. Of the four eurozone countries receiving bailout funds only Greece saw its debt levels decrease, from 170% of GDP in 2011 to 157%  – still the highest in the EU. Irish, Spanish and Portuguese debt levels all hit euro-era highs last year, with Portugal close to surpassing Italy as the second most indebted nation in the eurozone.  

Despite all the efforts to arrest the contraction by injecting monstrous amounts of fantasy finance they call “quantitative easing”, and imposing austerity budgets to deal with the debt mountains, some are indicating that the game is up. 

President of the European Commission José Manuel Barroso now believes that the assault on living standards through slashing cuts in government expenditure known as austerity “has reached its limits in many aspects”. Revolt throughout Europe has convinced him that “a policy to be successful not only has to be properly designed. It has to have the minimum of political and social support.”

What his next step might be isn’t clear, apart from lowering the European Central Bank’s base interest rate from its current 0.75%, a move that’s been tried and failed in the US and the UK.

And elsewhere, in the world’s largest economies?

The PMI index for the US fell in April to its weakest level since last November. A similar measure for China dipped to a two-month low at a rate that’s just half a per-cent from contraction territory.

It’s no wonder that the world’s governments are impotent. There are powers greater than all of them. Some 97 of the top 100 multinational corporations pay no corporation tax. So when Goldman Sachs’ chairman and chief executive Lloyd Blankfein says the UK government has to stick to austerity or face the wrath of the markets, you know who actually decides the country’s economic policy.

Amidst the crisis, there’s the best ever opportunity to move to something much better. The capitalist “mode of production”, as Marx called it, has nurtured the social forces who, as he also wrote, have nothing to lose but a world to win. 

For the 99% the question is not how to bring about a recovery for the capitalist system. The best of the global elites have applied their minds to this task and have patently failed.

Instead, let’s look to co-operative, collectively-owned democratically-run productive enterprises like Mondragon in Spain, founded in 1956 and the brand new Vio.me in Northern Greece. These are models we can develop throughout the rest of the economy when we achieve the power to do so. We could begin by telling Goldman Sachs to take a running jump.

Gerry Gold

Economics editor