Strengthening co-operatives: blog for New Start

Posted on February 25, 2009 · Posted in New Start

Our discussion paper on the future of co-operatives was launched at the House of Commons on Tuesday (24 February) – and was a great success.

I had been asked by Greening the Earth to write the booklet – The role of the Co-operative Movement in Building a Sustainable Future. This argues that co-ops have played a particularly important role in the key sectors of the economy that are currently in crisis. We asked politicians to consider how co-ops can be supported to play an even greater role in the future of the finance, food and energy sectors. Positive contributions were made in the debate by all the MPs who attended – the Labour/Co-op MPs David Taylor (who hosted the event), David Drew and David Lepper (and Andy Love, who missed the main discussion because of other business), Labour MP Anne Cryer and SDLP leader Mark Durkan.

Mark has just chaired a committee of the Northern Ireland Assembly which considered the role of credit unions – a form of financial co-operative – and recommended strengthening them in Northern Ireland, by giving them the right to distribute more financial products, backed by greater legal safeguards. A similar argument was put forward in the booklet we launched.

Co-operatives are excellent and they offer a fairer and more efficient method of organisation. But they need to be protected – not least from any recurrence of the demutualisation scandal that hit building societies. All of the demutualised former building societies have now ceased to exist as separate businesses, with several of them having to be rescued by the Government. This raises questions about the role of the directors of those societies before they demutualised and whose interests they pursued.

Members typically gained a few hundred pounds from windfalls, yet those who had a mortgage with the society might have had to pay an extra £5,000 over the term of the mortgage to pay for the higher interest rates on loans that the demutualised societies charged. Similar demutualisations have occurred in much of the world, often with similarly disastrous results.

In the United States, the demutualisation of savings and loans institutions led to the collapse of most and a bail-out from the US federal government that plunged its budgets into deficit for many years. Yet we failed to learn the lessons from that event. All the MPs present agreed that failures of these kinds must not be repeated. Both David Drew and David Taylor are pressing the Government to ‘remutualise’ part of the banking sector following the rescue of RBS, Lloyds, HBOS, Bradford & Bingley and Northern Rock.

Anne Cryer has been pushing to put right the anomoly that the still mutual building societies are having to pay three times more as a proportion of their pre-tax profits than are the banks towards the cost of compensating savers in failed banks. The unfairness of this, she points out, is manifest when it is the banks that have been the guilty parties.

But there is controversy over the question of how far regulators should intervene in the running of democratically-elected mutual organisations. All the MPs present agreed with the view put forward in the pamphlet, that the mutual sector needs to be protected from mistakes and vested interests. David Drew asked what more should MPs do to support the co-operative and mutual sector in the current Parliament.

As author of the booklet I was given a good opportunity to outline its key points. Responding to David Drew, I also suggested that all of business needs to consider how to improve corporate governance and strengthen non-executive directors’ ability to hold executives to account. But that this was also true of the co-op and mutual sector. A facility to improve the competence of non-executives who sit on the boards of mutual organisations would be a fine legacy.

‘The role of the Co-operative Movement in Building a Sustainable Future’ is published by Greening the North and can be downloaded free of charge from my website. (http://www.paulgosling.net) The booklet also contains an introduction from environmentalist Jonathan Porritt and an endnote from community activist Rianne ten Veen.

 

This blog was written for New Start Magazine – www.newstartmag.org.uk