MPs back Co-ops paper: Co-operative News

Posted on March 20, 2009 · Posted in Co-operative News

David Taylor is a long-standing friend of the co-operative movement who will be sorely missed when he steps down at the next election. He showed his commitment to the cause yet again by hosting a discussion at the House of Commons on the role of mutuality in responding to the global economic crisis.

 

It was David Drew who insisted this column should report the discussion and I am happy to oblige. The conversation was stirred by Greening the Earth’s recently published booklet on the role of co-operatives and other mutuals in building a sustainable economy, which was to a large extent based on columns published in the Co-operative News last year. But the discussion went significantly beyond that.

 

One thing we can all now agree on – not just within our movement – is that demutualisation has been a terrible policy failure. That failure afflicted not only the UK in terms of the collapse of the former building societies that converted into banks. It previously caused serious grief in the United States, where savings and loans institutions were demutualised and had to be bailed-out by the federal government. Similarly, across much of the world, farmers’ co-operatives were turned into companies and then suffered because of the lack of reserves – that had been squandered as windfall payments to members.

 

All the MPs present agreed that failures of these kinds must not be repeated. Both David Taylor and David Drew are pressing the Government to ‘remutualise’ part of the banking sector following the rescue of RBS, Lloyds, HBOS, Bradford & Bingley and Northern Rock. This is also the position of the Co-operative Party. Hopefully this proposal is being given serious consideration by the Treasury.

 

It is not merely that our movement has become smaller through the demutualisation process, it is also that creating giant ‘mega-banks’ severely damages consumer interests and governments. The collapse of the world trading system is to a large extent the result of global banks and insurers becoming too large to fail. Consequently, governments have had to save them. Yet part of the policy response has been rescues creating even larger conglomerates – for example, Lloyds taking over Halifax Bank of Scotland and Santander incorporating Alliance & Leicester and Bradford & Bingley together with Abbey.

 

A long term priority should be government support for a more diverse and competitive financial services sector, that improves consumer choice, undermines monopoly interests and reduces governments’ risk exposure. Incidentally, exactly the same arguments apply to the other two trading sectors at serious risk of market failure – energy and food.

 

Ann Cryer has been pushing to put right another unfortunate anomoly arising from the crisis – that building societies are paying 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. Ann has tabled an Early Day Motion protesting against this, signed by 158 MPs.

 

Mark Durkan has just chaired a committee of the Northern Ireland Assembly which recommended the strengthening of Northern Ireland credit unions, giving them the right to distribute more financial products, backed by greater legal safeguards. A similar argument was put forward in the booket for all mutuals – not least to protect from market failure or demutualisation.

 

I believe the movement missed a trick by not challenging the directors of building societies who promoted demutualisations against the long-term interests of their members. A member of Northern Rock might have gained a few hundred pounds as a windfall, but will have lost about £5,000 in terms of the higher interest rates charged over the term of their loan – or as much as £12,000 if they had a mortgage backed by an endowment policy.

 

The real winners were those directors of building societies, whose pay escalated on conversion into a PLC. They seemed to ignore their primary responsibility to serve the interests of members. David Taylor and Ann Cryer expressed particular anger about the way directors benefited at the expense of members interests, which was described as a form of insider trading.

 

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 that mutuals need protection from mistakes and vested interests.

 

David Lepper stressed another serious downside to consolidation. Mutual organisations – particularly building societies, co-operative societies and credit unions – originated as local bodies, that had strong local connections with their memberships. They provided stable local services and employment to their local community. This is now being lost as mutuals become national (or even international) organisations.

 

Lepper believes that one of the opportunities today is to reinstil that local connection to mutual organisations by supporting community-based energy generation schemes. He, and other MPs, have been members of a fact-finding visit to community energy schemes in Germany that are owned and controlled by local people. This gives them a vested interest in these local schemes succeeding. David believes this is a model we could usefully follow, not only in the energy generation sector.

 

Linda Gilroy had hoped to attend the discussion. Linda was to have talked about her own promotion of one of the most recent materialisations of local mutuality – community land trusts. She recently initiated a debate on how CLTs can manage land to serve the interests of local people, create a supply of permanently affordable and sustainable housing and generate local employment and service provision in a democratic format.

 

David Drew asked what more MPs should do to support the co-operative and mutual sector in the current Parliament. What he didn’t say, but I can, is that the clock is now ticking for many of our friends in the House of Commons and our influence could be marginal after the next General Election.

 

I suggested that the current global crisis – as with the Enron affair a few years ago – is essentially one of corporate governance. Too many executives were driven by greed and the non-executives failed to keep them in check. They also financially benefited from the way the companies were mismanaged and they were typically of insufficient quality to understand what was happening within their companies.

 

But corporate governance has also been a fatal weakness not only for major banks and other PLCs. Look at Equitable Life, Standard Life and the German retail business Co-op AG. If there were one further legacy I would wish from the current Parliament it would be a system of training and support, perhaps sponsored by the Treasury, to improve the capacity of mutuals’ non-executive directors to fulfil their roles. If the directors of mutuals performed to the highest levels, that would indeed be a fine legacy.

 

But the final and optimistic word should be with David Lepper. The time is right for co-operation, he said. It is the appropriate business model to meet the needs of international justice, the economy and a sustainable environment. Who in our movement could disagree with that?

 

* The discussion was attended by Labour/Co-operative MPs David Taylor (host), David Drew, David Lepper and Andy Love; Labour MP (and Co-op Party member) Ann Cryer; SDLP MP and party leader Mark Durkan; and supporters of the co-operative movement. Other MPs had expressed their intention to attend, but the meeting coincided with an important unscheduled Parliamentary debate on the refusal of the Cabinet to release minutes approving the Iraq war.