22 July 2009

Part 2: The Surge of the 70's and its Aftermath

In the 1970’s ICOM, young and full of evangelising zeal, soon identified two key problems which were hindering the expansion of the employee-ownership sector; first, the need for an easily understood model legal framework, and second, the need for start-up capital. Several of the entrepreneurs behind these ten founder businesses of ICOM had spent huge amounts of time and expense on constitutions embodying their personal and varied convictions.

Scott Bader called itself a Commonwealth, Trylon was a Christian working community, Fakenham Enterprises Ltd. was an all-female business which scorned any male interference. Outwith ICOM, the John Lewis Partnership was growing into a large retail business with its own complex constitution for employee ownership.

The only model available was the CPF Rules, originated in 1882 and augmented on numerous occasions in the 90 years since. By 1970 these Rules had become a turgid 100 pages, incomprehensible to nearly all who persevered to read them. It was a time of considerable idealism but would-be co-operative entrepreneurs had no alternative but to go to solicitors who merely pulled a standard Companies Act Memorandum & Articles from the bottom drawer because they had no knowledge of IPS's. They would then modify the Memorandum a bit to accommodate the views of the founder, and take their fees.

Roger Sawtell, as chairman and dogsbody of ICOM, was given the task of formulating a simplified set of Model Rules for employee-ownership, ‘on one sheet of paper’. As the main principle, worker members should take decisions themselves, the Model Rules were to be minimal but had to comply with IPSA for registration. The first ICOM Model Rules were eventually adopted in 1976 and the first co-operative to register with them was Daily Bread Co-operative in Northampton. ICOM grew steadily in the 1970’s and by the end of the decade there were over three hundred employee-owned businesses, most of them registered with the ICOM Rules and covering a wide variety of industries. A door had been opened.

The second requirement to enable the sector to grow was to make loan capital available to emerging worker co-operatives. Working capital is just as necessary for a co-operative as for any other business but equity voting shares are not appropriate because the enshrined co-operative principle is that control rests with the working members on a one-person-one-vote basis, similar to parliamentary democracy, and not with ‘outside’ investors on a one-share-one-vote basis, looking for dividends and capital appreciation.

Banks were cautious and even suspicious of co-operatives so ICOM decided to initiate a revolving loan fund, taking in loans from well-established employee-owned businesses such as Scott Bader and lending to newly emerging worker co-operatives. At a meeting in the kitchen of the ICOM chairman’s home in October 1973, Industrial Common Ownership Finance (ICOF) was founded (later to operate as Co-operative and Community Finance). Several well-wishers pledged incoming loans to get the fund off the ground and ICOF grew slowly and with occasional setbacks. (By 2008 the fund was well-established and had £17 million out on loan, with few failures.)

The Triumph Co-operatives. Following the miner’s strike in 1974, a Labour government (Harold Wilson) was elected and determined to do something about industrial democracy. Tony Benn was briefly Secretary of State for Industry. ICOM recommended grassroots help for emerging co-operatives but civil servants argued that a more dramatic gesture would be to make substantial grants to three troubled businesses in danger of going bankrupt, Kirby Manufacturing, Scottish Daily News, and Triumph Meriden, to transform them into worker co-operatives.

Their shareholders must have rejoiced all the way to the bank for this rescue but there was no experience of democratic management among the workforce and failure was inevitable. The first two soon succumbed but Triumph motorbikes struggled on until 1983 before collapsing.

For the ensuing thirty years Conservatives used this debacle as ‘proof’ that worker co-operatives do not work. It became a millstone round the neck of advocates of all kinds of co-operative ventures. The bitter lesson was learned that money will not turn a failing capital-owned business into a successful co-operative. Very slowly, the positive lesson was also learned that sustainable development can be achieved by co-operative entrepreneurs from the grassroots or by the transformation of successful businesses, like Scott Bader.

The Industrial Common Ownership Act (1976)
In 1975, while the Triumph co-operatives were in the news, David Watkins, MP for Consett, which had suffered from the closure of its substantial steelworks, drew a favourable place in the annual ballot for private member’s bills and invited ICOM to draft a Bill.

The parliamentary lawyers changed every clause of the draft and the resulting Act, expertly steered through parliament by Watkins, and brilliantly supported by Peter Melchett at the Department of Industry, was disappointingly weakened. It provided a legal definition of a common ownership enterprise but few co-operatives perceived this to have much merit.

However, the Act gave a publicity boost to the co-operative concept and underpinned the surge in worker co-operative registrations in the 1970’s and 1980’s, despite the impending failure of Triumph. The Act also provided a very helpful grant of £250,000 to ICOF to lend to emerging worker co-operatives.

Co-operative Development Agency (CDA) 1978 – 1990.
After much political lobbying, a national development agency was initiated in 1978, chaired by Bert Oram (Lord Oram), a seasoned co-operative campaigner. This augmented the work of about 30 local co-operative development agencies which had sprung up all over the country. The CDA legislation was one of the last Acts before Labour succumbed to 17 years of Conservative government. It acted as publicist, advocate and adviser, and decided to concentrate its efforts on worker co-operatives to provide good quality jobs. The first Directory published by the CDA in 1980 listed 330 worker co-operatives and the third Directory in 1984 showed 911.

Although accepting the CDA as a means of generating jobs in a time of recession, the Thatcher government was lukewarm towards co-operatives and happier to encourage private ownership and equity share companies. So the CDA was deflected away from co-operative ownership towards employee shareholding schemes and the playing field was tilted towards minimally-regulated capital ownership. The CDA was gradually strangled by diminished government funding.

Despite the debacle of the Triumph co-operatives and the lack of real support from the Conservative government, the surge of the seventies had generated a momentum and many more small worker co-operatives were initiated in the 1980’s. Larger employee-owned businesses like John Lewis Partnership and Scott Bader continued to do well and worker co-operatives of all sizes showed that this structure could survive recession because there were no outside shareholders expecting dividends and because the working members were committed to survival in a way that conventional wage earners never could be.

A directory published by the Co-operative Research Unit (CRU. Open University) in 1989, listed 1400 worker co-operatives, probably the highest figure recorded. The foreword to this directory reflected an optimism which was soon dispelled by those who claimed that private enterprise would bring everlasting increases in material prosperity. Greed was not to be discouraged and the doldrums for worker co-operatives set in.

The government finally killed-off the CDA in 1990, local authorities were closing down some of the local co-operative development agencies to save money, the CPF continued to be moribund and the Co-operative Union(CU) the representative body of the co-operative movement, dominated by the consumer co-operatives, showed scant interest in worker co-operatives. ICOM and ICOF passed through various crises but struggled on. The number of worker co-operatives began to diminish.

Hope re-emerged around the turn of the century when Co-operativesUK, led by Pauline Green, replaced the CU and was determined to represent all manner of co-operatives and mutual enterprises and become truly representative of the whole co-operative movement. ICOM responded by merging with Co-operativesUK in 2001 and other co-operative bodies joined until there were 560 members by 2009. Co-operativesUK have brought together several different model rules for co-operatives and offer a straightforward registration service and advisory support for worker co-operatives.

The recorded number of worker co-operatives at March 2009 is 403 and, if those with other legal forms are added, the total number of employee-owned businesses is about 500. This is significantly less than twenty years earlier but, and it is an important but, plenty of these 500 are well-established and experienced in effective management under the seven Co-operative Principles established by the International Co-operative Alliance(ICA). Thus the worker co-operative sector has never been stronger and is ready to meet the challenge to make this the century of co-operation.


bob cannell said...

Many thanks for this summary Roger. It will help a lot of people place events in a timeline and a community. Too many worker cooperators believe they can go it alone. maybe one day we will learn from past lessons rather than being doomed to repeat the same errors.
bob from suma

Anonymous said...

great article, are there any figures for the number of coops in the UK in during the late 90s early 2000s? It owuld be interesting to see how much interest in coops has increased since cooperatives UK was set up.