The cooperative renaissance

Growing consumer demand for businesses that combine profit with purpose has generated a renewed interest in cooperatives. What can the public and private sectors learn from values-based business models in today’s post-recession landscape?

A number of factors have thrust the cooperative business model back into the spotlight after it spent several decades languishing in the doldrums. The first is the fallout from the credit crunch, which has affected the trust that people place in the traditional capitalist business model. The second is the financial and social renaissance of key examples of the model, most notably John Lewis and my own organisation, the Co-operative Group. The third, and perhaps most unexpected, is the sudden widespread political support for the model from across the political spectrum.

Despite abundant rhetorical commitment to the ideal of a fair global economic order, the world has actually moved in the opposite direction. According to the UN Food and Agriculture Organisation, the number of chronically undernourished people had steadily increased from the early 1990s before rising above a billion in 2009 for the first time in human history. Branko Milanovic reports that, in a mere 17 years of globalisation (1988 to 2005), the share of global household income going to the bottom quarter of the world’s population has fallen by a third (from 1.155% to 0.775%), with the gap between the average income of the top 5% and that of the bottom quarter widening from 186:1 to 299:1.

Despite this renewed interest in the cooperative model, however, it is clear that enthusiasm for it greatly outweighs any real understanding of its strengths and weaknesses. The Commission on Ownership, which Will Hutton chairs and on which I sit, hopes to shed light on this.

Dating from the middle of the 19th century, cooperatives spread quickly from their roots in Rochdale, England. Their strength lay in closeness to the communities they served and in promoting the economic and social interests of their members. They not only provided good, wholesome food at a time when adulteration was commonplace, but also advanced their members’ education and cultural interests.

So successful were they that, by the early 1960s, cooperatives had a combined market share in line with that of Tesco today. That was the high watermark for the movement; the abolition of resale price maintenance in 1964, followed by the ‘pile it high, sell it cheap’ approach of more fleet-of-foot competitors, turned previous strengths into considerable weaknesses. Faced with the chill wind of serious competition for the first time, the fragmented movement, with its incoherent, inefficient and high-cost model, experienced severe decline. What followed was a 40-year period of falling market share, to the point where the movement was flirting with extinction.

Over the past few years, however, as a result of significant consolidation that provided the scale and efficiency lacking previously, the Co-operative Group has witnessed a renaissance in its fortunes, doubling sales, doubling profits and, equally importantly, doubling membership.

At the heart of the recent success has been an ownership model that ensures the right balance is struck between a management team focused primarily on ensuring commercial success and an elected board of directors focused primarily on ensuring adherence to cooperative ethics and values.

That healthy tension between commercial considerations and ethics has protected cooperatives from the short-termism inherent in the profit-maximising approach that characterises so many traditional capitalist businesses. You do not have to look far to see the dangers of getting that balance wrong. Too great an emphasis on commercial success, to the detriment of business ethics, led to many of the excesses of the credit crunch. Too great an emphasis on ethics, while ignoring the commercial realities of the market, led to the demise of many previously successful cooperatives.

The credit crunch has certainly helped the Co-operative Group’s renaissance, bringing with it a renewed interest in businesses that customers can trust. The fact that the
Co-operative Bank did not need a government bailout, thanks to its old-fashioned prudent banking practices, has certainly boosted current account switching among customers. Again, this is partly because cooperatives are not forced to maximise profits and partly because customers know that they have a long track record of taking ethical considerations into account when making decisions.

I am not suggesting that we should convert all businesses to the cooperative model. I believe that we need a diversity of business models for the UK economy to grow and prosper.

I also believe that cooperatives need to be well-led, well-managed, profitable businesses, just like their capitalist competitors.

I do think, however, that all businesses need to have a clear social purpose beyond simply making profit, and that is where the cooperative model may have something extra to offer. For cooperatives, corporate social responsibility is not enough.

Businesses need a long-term CSP – corporate social purpose – not some short-term, ‘here today, gone tomorrow’ adherence to a corporate social responsibility agenda that is merely viewed as the latest marketing ploy.

From private to public
What lessons does the recent renaissance of the cooperative movement hold for the debate about the possible mutualisation of public services, where it has been suggested that a cooperative model might have much to offer?

First, some commentators appear to view cooperatives and mutuals as a universal panacea for all the real and perceived ills associated with public services. They are not. I believe that cooperatives and mutuals – properly established, properly managed and properly funded – have a major role to play in delivering some public services. I also believe that they can do this in a way that is both more cost effective than current provision and can encourage a greater sense of shared ownership among providers and consumers of those services.

There is, of course, no single cooperative or mutual model that applies in all cases. In some instances, the John Lewis Partnership model will be the answer; in others, a consumer cooperative option will be appropriate. In yet others, a multi-stakeholder model will need to be developed to fit the bill.

If the government is serious about wanting cooperatives and mutuals to flourish, it needs to help create the right climate for that to happen. I believe that there are lessons to be learnt from elsewhere in Europe. If new mutuals are to enter the market to provide public services, and existing ones are to thrive, it needs to become easier for them to raise capital. That is where governments can really help the economic diversity they support. In France, Italy and Spain, for instance, non-equity capital raising has played an important part in helping to develop the mutual sector.

Values-based organisations – both cooperative and others – have much to contribute to the UK economy and society. The renaissance that such organisations have enjoyed recently suggests that we are at the start of a great age for these businesses.

Peter Marks is group chief executive of the Co-operative Group

Illustration: Irene Infante