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Co-operative movement at the crossroads

Signs of a meltdown at the Co-operative group of companies are multiplying at an alarming rate. Following last week’s mark-down of bank debt to junk status, the malaise is hitting all of its operations including insurance, supermarkets and beyond. 

The head of the bank, Barry Tootell, has resigned. He was hired three years ago to lead the purchase of 632 Lloyds branches. That failed. The Co-operative was found not to be up to the scale of the task.

Then came the news that the group was forced to consider selling its long-established insurance businesses as the bank struggles to meet a shortage of capital estimated to reach as much as £1.8 billion.

Increased centralisation in its distribution network has led to supply problems with smaller shops being left with empty shelves for part of the day. Staff are said to be furious at being forced to accept worsening conditions, including increased productivity and longer hours.

Customers are complaining that the range of Fair Trade goods, which have been at the heart of the supermarket’s ethical brand image, is being reduced, and prices are rising.

The Co-op’s problems are bad news for the Labour Party which depends on a huge £3.9 million overdraft from the bank, the latest in a long series of loans on favourable terms. The trade union-backed Unity Trust Bank is also concerned because it is 27.6% owned by the Co-operative.            

So what has gone wrong with a bank that has 6.5 million customers and claims an ethical approach to investment?

In 2009 the bank merged with the Britannia Building Society, an apparently good partner for the Co-op, with a shared concern for ethical trading and environmental issues close to its heart.  But appearances can be deceiving.

When Lloyds staff were going over the books in preparation for the takeover of branches they discovered the awful truth. In merging with the Britannia, the Co-op had acquired a portfolio of highly aggressive commercial property lending and buy-to-let mortgages, dangerously exposed to the downturn. Now the losses are mounting

What can be learned from all of this?

The co-operative movement began in 1844, and now involves a billion members of 1.4 million co-operative societies across the world – and it is spreading as the crisis deepens. 

But the movement is at a crossroads. Its members can no longer sustain the idea of a peaceful co-existence with its capitalist competitor. Many say that the UK Co-op lost its way years ago, attempting to ape the behaviour of the major supermarkets, whilst offering a caring, sharing alternative.

New and old co-operatives elsewhere in the world face similar problems.

On May 9, after a long struggle, the 17 remaining workers of the 280 who famously occupied the US Republic Windows and Doors factory in 2008, officially opened the New Era Windows Cooperative after purchasing the production equipment and materials. But the 17 are working without pay.

Meanwhile In Spain’s sharply contracting economy, workers at the co-operatively-owned Mondragón Corporation voted unanimously to create a restructuring and employment fund. This is intended to guarantee the financial sustainability and employment of Fagor Electrodomesticos, a large domestic and commercial appliance manufacturer.

Half of the €70 million fund will come from those companies in the group that have profits, draining a permanent fund usually used in order to set new projects in motion. The remaining 50% will come from all the companies in the group. They will hand over 1% of their gross salaries for six years.

So even in this most successful of co-operatives, co-existence within the capitalist model means the worker-members have to vote to absorb the effects of the global crisis.

These self-defeating acts of defiant compliance pose the question of replacing the for-profit capitalist model of production lock, stock and barrel. In a new framework, co-operative working would predominate rather than remain the junior partner that it is now.

Gerry Gold
Economics editor
15 May 2013

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