New hope for the Co-op Group

The Co-op group is in trouble, no doubt about it. The bank is now only partially owned by the group. The deficit that came with the recession or through optimistic spending is forcing decisions to sell some of its assets. The first on the line to cut are the farming and chemist branches.

Mondragon – the Spanish worker cooperative has had it’s problems relating to the recession and competitiveness too in recent years. The white goods manufacturer Fagor is going out of business leaving some 2000 people without work. Or do they? Historically when changes in the market place forced one cooperative in the group to close down, the workers were re-trained and channelled into the more prosperous ones. The current scenario, although much larger is offering the same solution. Because the labour force actually are the owners of the coop, no-one can simply chuck them out the door. The internal insurance company will pay 80% of their wages for two years and other coops will help them find more work internally. Because the money that was earned in the “fat” years was never claimed by one owner, now it creates a significant safety net without the need for government help.

The UK has a significant safety net provided by the government, but it comes at an expense of not only all of the citizens but also the future generations if we are to consider the national debt. Without going into much detail, the people who have not yet joined the workforce have already accrued tax to pay as soon as they do. As a state, for one reason or another we have lived above our means borrowing from banks too eager to charge interest for money they created for us.

The Co-op Group was one organisation to allow normal people to cut the costs of living and still provide enough for their families. The reason to come into existence is not much different than that of Mondragon’s. The path it took was quite the opposite. Instead of keeping the ownership to the workers, it hired workers and spread the profits to the customers. It worked very well until it exploded in numbers. Currently it employs about 90,000 people, but is governed by democratically elected representatives of it’s 8 million members.

At Mondragon governance chain starts right at the bottom and is continuous throughout the organisation. There are basic cells on every shop floor, made up of only a few people that elect a representative amongst themselves. From these people, each department may elect a person to meet every morning with their peers from the other departments. From there people go to speak to representatives of cooperatives in the group and so on. Everyone is actively involved on a daily basis and information is fed back from the higher level meetings to the lowest constantly.

The Co-op group democracy resembles more that of the state, but with far less participation. In the South East England (where I reside) there are twelve regional representatives. Each one represents about 87,000 members. That is comparable to the ratio of MPs to the residents of their constituencies (about 1:100,000). Considering that for the 2013 elections the ballot papers were sent to 2.7 million members in 2013 (33.7% of total), how many actually cast their vote? This creates a gap between the elected representatives and the members larger than that of UK citizens and the MPs.

Then there is the case for the value membership actually brings. The profits (if any considering the competition from other businesses in today’s saturated market) are so diluted that they resemble Tesco club card points. As an example of a good reported profit, this year Midcounties part of the group, based in Warwickshire, will pay more than £6m of dividends to its 439,000 members and staff. That is £13.67 per person (we will come back to that figure).

Here’s the point of this article: the difference between the Co-op Group and Mondragon is in the value it brings to it’s members and the level of democratic participation. Mondragon allows the worker employees to build their future without external input (government or owners). This is with the same size of the workforce as the Co-op Group – roughly 80,000 worker owners, in a smaller Spanish economy. All the benefits of being a member of the Co-op these days are eaten up by the cost of the workforce. This means that the group now resembles more a corporation than a cooperative. It hires people and negotiates against them to achieve the best return on investment. Additionally the most recent CEO was hired on the basis of £3.6 million for the first year. This is 144 times the AVERAGE salary for graduate new hires. The CEO at Mondragon earns no more than NINE times the LOWEST salary. Keeping in mind that Mondragon has proven worker coops to be more resilient to the whims of the economy, there is NO CASE for raising CEO salaries above a certain level.

Then there is the low income employees. In today’s market, rent, utilities, costs of food are so high that the state picks up the bill for the low income families. That bill gets added to the national debt that will have to be repaid by all of our children. The incentivised pay scale so prevailent in the private sector is nothing new to the Co-op who employ an army of low income workers. Most store clerks will be hired on national minimum wage or not much higher than that. SE England is one of the most expensive places to live. It is difficult to survive on low salaries. The only people to do it are teenagers living with parents, couples without children in single bed flats and flat sharing singles who more often than not come from abroad and then are vilified by the Sun or UKIP as the job stealing immigrants. Truth being, it’s the business owners who are the happiest as the constant churn of fresh waves of hopefuls fuells this low paid treadmill.

It’s not all doom and gloom though and with a bit of work the Co-op Group stands a chance to be a real beacon of fairness and hope for the people who work there. Should that Midcounties £6mil profit was to be shared amongst its 9776 employees, the dividend would be £613.75 – and that’s not end of year! Should the proposed £12mil pay packet for the top 8 directors of the group were divided among the 90k employees that is another £130 per year to everyone’s pay check. Then there is the case of levelling the wages within the group. At Mondragon the average manager pay is 30% lower than in another business whilst worker pay is 13% higher. The tax system in Spain further reduces that gap. All in all, the same could be achieved by making pay the same for all levels and skipping government redistribution totally. This would have impact on taxes in general. Smaller worker cooperatives usually operate on egalitarian pay scales and everyone earns the same.

Real democracy could be introduced. 90,000 people would be exposed to the democratic process on a day to day basis. Imagine what effect on national levels of participation this could have. 90,000 people taught to care about their workplace, their local and national economy.

All this is possible if the ownership is shifted from the disinterested consumer to the employees.

It wouldn’t happen overnight. The process requires willingness of enough people to relinquish ownership. It would need training for staff in the democratic process and the reading of financial statements. A process and structure needs putting into place to prevent the possibility of corruption. Full transparency is required. The levelling of salaries would need to happen over the three years to allow people on the higher salaries to cope or find alternative employment. In theory, the loss might not be that painfull as they pay more tax anyway, and the added profit from the larger dividends will further alleviate the “loss”.

I’m putting this up for a discussion. This is not a thought out solution, but an idea. It is based on solid evidence that worker cooperatives have more resillience than a regular business, and the Co-op Group today is not much different than one.

 

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