Few, other than perhaps the most trenchant ‘Chicago school’ economist, would today believe that the 21st century will be as heavily dominated by free market capitalism as its predecessor. Claims about the death of capitalism are clearly exaggerated. However, the events of the past 24 months – the credit crunch, collapse of the world’s financial markets, commodity price surges and sharp reductions in property values – have seriously undermined any belief in the capacity of the global capital markets to deliver economic prosperity and social welfare to us all.
With this economic and social turmoil as a backdrop, it is perhaps time to ask whether there is an alternative model of doing business – a model that looks to the longer term, that seeks to be more equitable, and that works within the ecological constraints of our planet. The increased level of interest we are seeing in mutual and co-operative models of ownership – particularly in the media and in policy circles – suggests that the original self-help and local business model may now have a relevance that is more than just marginal.
A change started over a decade ago with the growth of the fairtrade movement. This grassroots movement brought together those concerned about the socio-economic plight of growers and producers in the developing world, with those keen to know the wider environmental and social cost of the products they consume. But this marriage of commercial values and principles has its origin in an altogether older tradition, one that is rooted in our communities and is a fundamental basis of modern Britain.
Co-operative, friendly and other mutual societies grew out of the social turmoil caused by the industrial revolution. Great hardship and social disruption was caused by the transition from a rural subsistence economy to a mechanised and urban way of life. The new industrial economy brought with it access to greater wealth, but such wealth was almost entirely held by the factory owners and landed classes, while the social and environmental costs of industrialisation were paid by those less fortunate.
It was out of this hardship that this self-help movement was born, a movement so powerful that it changed the face of post-industrialised Britain and much of the rest of the industrialised world. These co-operative organisations provided a much-needed safety blanket for ordinary working people, established with a set of basic principles – food at a fair price; protection against illness; and finance to buy their own home. These co-operative organisations provided some vital relief in a very challenging world, giving ordinary people access to food at a fair price, protection against illness and finance to buy their own home.
The success of such organisations was due in part to their members’ self-interested need to make provision for ‘me and my own’. However, unlike today’s consumer-driven society, that self-interest sprang from the recognition that ‘me and my own’ were powerless without the help of others. By pooling an individual’s very personal need with the needs of others, this collection of people could together work effectively to meet common needs. Although the starting point came from self interest, the collective model would only work if everyone made a commitment: to trade with the local society, because if that trade were taken away, the co-operative business model could not survive.
The very fact that each individual’s savings were also deposited with that co-operative society (providing an important banking facility in the days before high street financial services were available) meant that there was also an economic interest in supporting that society’s business. And if the service or products didn’t match expectations, then as a community-owned business, there was an incentive to bring that dissatisfaction to the attention of those running the business – the elected representatives or the manager that they employed – to make sure it was resolved. Not only did this provide a sense of control and self-worth – because it was up to the individual and other members to drive the organisation to do better; it also helped to manage the risk to the capital held by the society.
So successful was this model that at its peak in the 1960s, 30% of the UK food retail market was served by the mutual sector. The latter half of the twentieth century, however, saw a drastic decline in the mutual sector. There were a number of factors at play, but a significant cause was the creation of the welfare state. In one fell swoop, the mutual movement’s main societal benefit – providing social welfare support to its communities – was undermined. This, combined with the lack of consistency in the way mutual organisations provided social welfare, meant that the majority of these organisations were swept away as part of Clement Atlee’s post-war social reforms. With the creation of universal state provision of healthcare and general taxation, communities no longer needed to come up with their own solutions to meet the social needs of those who lived there.
The introduction of state education, a National Health Service, and a range of other public services – accompanied by the creation of huge state-owned businesses through the post-war nationalisation programme – resulted in a vast state enterprise, or public sector. State provision became a major part of the UK economy and this process was further accelerated during the 1980s, as Margaret Thatcher brought responsibility for the delivery of a range of services into central government departments. Indeed, so centralised was the UK economy by the 1990s, that when Margaret Thatcher came to look for an alternative source of provision to the state, the only viable option was to bring about private investor-ownership. This led to the high-profile privatisation of the UK’s gas, water, telecommunications, rail, airports, airlines, and many other service providers.
How did this affect the traditional co-operative, friendly and mutual societies? The reforms of the latter part of the last century – deregulation; the abolition of retail price maintenance; and the creation of a consumer market based on competition – undermined the very basis on which these societies had been formed. Trade suffered badly, and the struggling retail co-operatives found themselves unable to keep customers and staff, who were being enticed by larger salaries and bonuses offered by the growing number of private and listed companies. The co-operative movement survived – largely due to its portfolio of prime property sites. But the self-help business model no longer appeared relevant to modern society, and was fading from the collective memory.
But recently, the situation has changed again. Witness the public outcry over ‘fat-cat’ bonuses, windfall profits on energy companies and the furore surrounding MPs’ expenses; crashing pension funds; the growing public sector deficit; and global resource scarcity; these have all brought the question of responsibility to the fore. Can we really entrust bankers, regulators, or politicians with the provision of services which we deem to be essential? This is the same question that environmental campaigners have been asking for a while: whether, amid global deals and European regulations, there is a role again for local community ownership and direct action – in short, self-help?
A key weakness in the traditional business model is that it is based on a system of investment, which is dependant upon the ability of the business to generate a private profit for investors. This model is very efficient at maximising profit for those individuals with capital, but can it answer the challenges that we as a society face at the start of the twenty first century: climate change; global competition for resources; and a scarcity of capital?
Many now believe that it has not, cannot and will not – for the very reason that the infrastructure and assets needed to support a developed and democratic low carbon society can only be delivered with the support and backing of everyone in society. Take for example the low carbon energy assets that are now needed to serve the UK’s energy needs. Communities are much more likely to accept a new wind farm or district heating system where they feel a sense of ownership, control and investment in its outcome. Current investment models are not based on any sort of long-term commitment to the local community but to an entirely different community of interests – private investors, pension fund managers or central government funders. None of these groups are concerned about the basic needs of the local community. Nor do they need to be, because their investment could always fund the same project elsewhere; it is not dependent on that community’s agreement or its own peculiar needs.
The traditional mutual societies were funded by members depositing their cash, at a time before high street financial services were available. Looking after cash is not the problem today that it was in the nineteenth century; however, we have different problems today, not least of which is saving for retirement. Putting savings into equity investments will not cease as an option. But it might become less of an attractive option if we were able to put some of our funds into a different type of business: one that exists for a public or community purpose; one which provides something that communities need; and one where the investor could have a voice as a member, to play a part in helping the business to improve.
The most effective part of the mutual business model is that the long-term viability of the business remains in the hands of the members – because they are both the customers and the owners. By maintaining their loyalty to the business, by encouraging others to bring their trade there and by using their relationship as members to resolve dissatisfaction, they can drive the business to improve and serve the community in the most efficient way – and minimise the risk to their own funds.
The traditional mutual societies were hugely successful. The self-help business and funding model worked, and these organisations prospered. The pursuit of the common good was an effective basis for doing business, and a successful alternative to conventional capitalism.
Clearly, mutuality is not just a different way of trading; it is a different basis for society. It operates on the basis of people behaving as citizens with a collective sense of responsibility for themselves and others, rather than as selfish consumers. If, as seems to be the case, we no longer trust the state to invest our taxes efficiently – nor big business to deliver what we want without causing damage to our planet and to society – then surely it is time for us to learn the lessons from our great industrial past and, as citizens, take back control of our destiny?
This article is a summary by Hugh Goulbourne of ‘Funding the Future: An Alternative To Capitalism by Cliff Mills. The full article can be viewed here