The Case for the Co-op

WHAT if the economy was organised around co-operation instead of competition? What if the principles of shared ownership and community solidarity replaced the pursuit of profit and maximising shareholder value?

It’s so far from our everyday reality that, for most of us, it is little more than a thought experiment.

First principles…

In fact, the co-operative movement has a long, proud and global history of doing exactly that. Dating from 1844, and updated in 1966 by the International Co-operative Alliance, the ‘Rochdale principles’ set out the ideals for operating a co-operative enterprise.

Central to these are open, voluntary membership and democratic governance on a ‘one member, one vote’ basis. For the most part, financial surpluses are reinvested in the coop, and the accumulated sur- plus belongs to all members.

There is also a commitment to education of members and the public around co-operative principles, and to co-operation between co-operatives. Essentially, these core principles underpin the operations of co-operatives worldwide to this day.

Worldwide, there are some three million co-operatives, numbering more than one billion members and employing 280 million people — or one in 10 paid workers on the planet.

The Irish Co-operative Organisation Society (ICOS) claims more than 150,000 members and more than 12,000 employees in its Irish co-ops. Many of these are producer co-ops in the agri-food sector. There are about 3.6 million members of credit unions in Ireland, showing the enduring attractive- ness of workplace and community-based co-ops.

Since it was set up in 1973, Co- operative Housing Ireland has sup- ported the provision of about 5,000 homes across the county, and currently manages a housing stock of about 2,000. In more recent years, co-operative communities have built up to deliver childcare services. As we can see al- ready, co-operatives come in many shapes and forms, bringing together workers, producers, con- sumers, savers, borrower, householders and social service users.

Concrete examples…

One of the common arguments made against co-operatives is that they are difficult to scale up, particularly in the face of cut-throat competition from shareholder- owned firms. Certainly, achieving scale is not without its challenges. But, an example from the Basque country is instructive. With nearly 12bn in annual sales, more than 80,000 employees and operating through 266 federated entities and 15 R&D centres, Mondragon Corporation is the most famous example of a successful transnational co-operative.

Operating in cutting edge industrial sectors, as well as in retail and finance, Mondragon has largely maintained its co-operative ethos while growing sustainably and competitively. Closer to home, John Lewis & Partners has blazed a trail in high-end retail.

The prosperous Emilia Romagna region of Northern Italy provides a slightly different example of scale, where a dense network of small- and medium-sized co-operatives is integral (accounting for 30% of GDP) to the fabric of an economy comparable in size to that of Ireland.

Rather than a single behemoth corporation, such as Mondragon, which has yet to be replicated else- where on anything approaching that scale, in Emilia Romagna it is the co-operative ecosystem that is key.

This networked ecosystem approach allows for economies of scale, without a need for centralisation in — or the leadership of — a single ‘unicorn’ co-operative. Essentially financed through an early form of membership crowdfunding, the region’s Co-op supermarket has since become the leading retailer countrywide. Emilia Romagna has also seen a significant growth in social co-ops, efficiently providing social services such as childcare and eldercare.

Some have argued that worker- owned firms couldn’t possibly be competitive in a global market economy. But, why then has the private sector taken such a fancy to employee stock ownership plans? Because, they know that employees will be more productive if they feel ownership of the fruits of their labours.

It is precisely this impulse that underpins the co-operative ethos. Along similar lines, the UK’s Labour Party Shadow Chancellor John McDonnell recently proposed the setting up of an Inclusive Ownership Fund to which corporations with 250 or more employees would issue 1% of their equity capital every year, up to a maximum of 10%.

Workers would then benefit by way of an annual dividend capped at £500, with surplus dividends going to finance public investment.

Similarly, some argue that worker control of firms is a recipe for chaos and unsustainable wage growth. On the contrary, Germany has at the same time one of the most competitive private sectors and most developed systems of worker representation in the world.

Every firm with five or more employees must have a work council where this representation is guar- anteed while half of the boards of directors of the largest corporations must consist of workers’ representatives. In Germany, as in workers’ co-operatives worldwide, it is more common during challenging economic times for workers to agree to wage moderation to avoid job losses.

Policy programme…

Irish policymakers have for too long fawned over foot-loose foreign capital, to the exclusion of indigenous entrepreneurs and social movements. We need to do more to value and support our social entrepreneurs, including those in the co-operative movement who prove every day that other economic and business models are possible.

What would a policy framework conducive to growing the co-operative alternative look like? A twin- pronged approach is necessary. On the one hand, there is a need for further study and refinement of the co-operative model to adapt it to various sectors of the modern economy, including how best to align incentives of all stakeholders.

On the other hand, there is a role for national policymakers to play. In Italy, for example, undistributed profits of co-operatives have been largely exempted from corporation tax since 1977.

Other reforms eased the restrictions on raising money from members and allowed unemployment insurance payments to be used in- stead as lump-sum capital for workers to co operatise their work- place rather than being laid off.

A supportive framework could also be put in place to foster links between co-ops in different sectors, between workers and consumers for example, or by incentivising credit unions to provide seed capital for industrial, housing or childcare co-ops.

At a time when the price of housing and childcare is becoming unbearable for too many families, community-based co-operative models could point the way to a more sustainable alternative.

This article, written by Vic Duggan, appeared in Liberty Newspaper