By Henry Bushell
Illustration by Keo Morakod Ung
The ‘worker-led co-operative’ sounds like an institution that might be found in the old European Eastern Bloc, far from something that would be seen in a 21st-century Western capitalist economy. UK readers may be surprised, then, to find out that you have almost certainly shopped in one, may have banked with a similarly structured ‘mutual’, and may have even unwittingly voted for a politician who is a member of the Co-operative Party. So, what are they and why are they different to a normal firm?
The structure of a co-operative business is simple. In a typical firm, capital, in the form of tools, machinery, intellectual property etc., is owned by a private individual or group of private individuals (i.e. shareholders) who ultimately are in charge of what the firm produces and how production takes place. This is the model used by the vast majority of businesses in the developed world. In the case of the co-operative, however, another party owns the capital and hence decides how the company is run. There are two common types of co-operatives: the consumer co-operative, fully owned by its customer-members, and the worker co-operative, owned by worker-members. The members of the co-operative vote in major company decisions and to decide who is on the board of the business. The anticipated result of these unique ownership models is to create businesses that are more socially beneficial, equitable and stable than traditional firms.
A famous and important example of a consumer co-operative is the aptly named Co-operative Group, known as the Co-op, based in the UK. The company has branches providing legal services, funeral services, insurance as well as operating supermarkets and academies. Customers of the group can pay £1 to become a member, and active members elect directors and council members and make decisions as to which charitable activities are funded by the group.
John Lewis & Partners, on the other hand, is a well-known worker co-operative, and the largest employee-owned business in the UK. Each employee is a ‘partner’, having a democratic vote in how the business is run. Pay can be viewed as being fairer too, with John Lewis’ current CEO earning an annual salary of £990,000, which while is no small fee, is still considerably lower than the current Tesco CEO’s pay, reportedly currently standing at almost £10 million a year. In total, co-ops in the UK employ almost 250,000 people and contribute over £40 billion to the economy every year – how did this movement come to fruition?
The origin of the modern co-operative movement is widely attributed to the Industrial Revolution’s Rochdale Society of Equitable Pioneers. The depravity imposed on workers at this time served as an inspiration to a group of 28 artisans, the Rochdale Pioneers, who in 1844 founded the Rochdale Society. The Society collected £1 each in capital from its customer-members. Originally it acted as no more than just a small shop selling essentials, but as popularity and membership grew, it quickly span out into a number of co-operatives including social care, housing and insurance, spreading out across the UK. In 1863, a group of co-operatives including the Rochdale Society would go on to create the Co-operative Wholesale Society providing products to sell across the Co-op stores – the CWS is the ancestor of the aforementioned Co-operative Group. These early co-operatives followed the Rochdale Principles which can still be seen reflected in the governance of contemporary co-operative businesses, including open, voluntary membership, democratic member control and distribution of a portion of profits among other policies.
The co-operative movement is far from limited to the UK. A staggering example of the success of co-operativisim is the Mondragon Corporation located in Mondragon, a small town near Bilbao in the Basque country. The basis of Mondragon was inspired and fostered by Father José María Arizmendiarrieta, a catholic priest who was passionate about co-operatives as a method of putting the Church’s social doctrine into practice through work for society. This included the founding of the Caja Laboral (now Laboral Kutxa), a co-operative and credit union part of the Mondragon Corporation which provided financial services to help the creation and development of the co-operatives in the area, as well as providing loans for workers to afford the membership fee needed to join one of the co-operatives. Now, Mondragon is a group of 81 co-operatives, almost all worker co-operatives, and is one of Spain’s largest employers. These are resilient and profitable businesses: of the 103 co-operatives part of the group created between 1956 and 1986, only 3 have been shut down. Differences in pay between workers are low too, with the pay ratio between the highest and lowest paid generally being between 3:1 and 5:1.
You may well have an account at a building society or credit union, which while are not technically co-operatives, operate with a similar democratic membership structure and often perform far better in ethics rankings than traditional banks.
Despite potentially never having heard of the co-operative movement, it does hold some significant sway in UK politics. In fact, they currently hold the fourth largest number of seats in parliament with 43 seats. How can this be? The UK Co-operative party has a partnership with the Labour party, with many Labour MPs representing both parties simultaneously. This includes MPs in Leeds, Manchester, Westminster, Birmingham and York. Whether membership of the party meaningfully distinguishes the politicians from normal labour candidates can be debated, but it’s argued that most Co-operative MPs have some background in co-operativism prior to running as an MP, and they often use their positions to promote the co-operative movement. Co-operative MPs have had some significant influence in important policy too, influencing consumer and environmental protection legislation and introducing some of the world’s first disability rights legislation. In fact Labour’s recent manifesto included a pledge to aim to double the size of the co-operative economy over its time in government.
There are currently more Co-operative MPs in power in the UK than there has been at any point since the Party’s founding. While the movement is rarely at the forefront of the political zeitgeist, it does represent a potential method of improving people’s working lives and providing stability in an increasingly unstable economic environment. It is true, however, that starting a co-operative can be significantly harder than starting a traditional business, with banks less willing to lend to groups of workers than to already-wealthy entrepreneurs. It is also argued that co-ops will be less innovative due to diminished profit incentives for individuals in the businesses. In any case, the expansion of the co-operative as a recognised institution in our economies depends on whether co-op businesses can continue to succeed and thrive, as well as the scope to which co-operativist politicians are able to influence policy to cultivate their growth.
UCL Rethinking Economics 