In a hole in the ground

In a hole in the ground there lived a hobbit… the opening words by Tolkien come round again with the premiere of the Hobbit.

Ramsey Margolis, my counterpart in New Zealand, is nearby it all and we’ve compared notes on the co-operative dimension.

It seems to amount to a sense that teamwork pays when you are facing a dragon, and that treasure is better shared than hoarded. It’s still good advice for our times, especially for any of us with our heads below ground.

Everyday essentials – cheaper co-operatively

In the market for essential household (‘white’) goods, like vacuum cleaners, cookers and washing machines, the old adage is true that the poor pay more. The reason is that it is not easy to find a lump sum at short notice, and many people turn to doorstep lenders and easy access schemes, such as ‘rent to own’ purchases, that end up costing far more than if you could purchase outright or with affordable credit.

One in five tenants in social housing has used a doorstep lender. The leading rent to own company, Brighthouse, is marketed well and operates across the UK with 250 stores, serving 200,000 customers. Its message at this time of year is ‘pay a little bit at a time this Christmas’. The low upfront costs make it easier to sign up, but the total costs are high. Barnado’s for example has found that for the purchase of a washing machine, with service cover, you can pay an astonishing £780 more when buying through rent-to-own companies. The Guardian reported this weekend on prices for basic goods that were up to twice the same prices you could get from Tesco or Co-operative Electricals.

Not too long ago, the Office of Fair Trading found that consumers can easily face three-digit figures (APR from around 100 per cent up to 400 per cent) when buying with shorter-term credit products, with offers from some suppliers even marketed as ‘interest free’.

The solution is the winner of the Buy Better Together Challenge that we launched this year with the Department of Business. Our research shows a growing trend of collective buying – with half of all consumers now planning to save money by co-operating with others on purchasing.

We had one hundred and nine entries and awarded the prizes to finalists today with two senior Ministers (invite one, get one free), Ed Davey, Secretary of State for Energy and Climate Change, and Jo Swinson, Consumer Minister.

Smarterbuys is a collective purchasing scheme that uses its group purchasing power alongside existing sources of affordable credit to bring down the costs of everyday essentials. It has been developed by a co-operative consortium of housing associations and local authorities (Northern Housing Consortium).

Smarterbuys is a website that links consumers both to the product they want to buy and to the credit provider, typically a local credit union. The pricing policy is to ensure that they beat the list prices of Asda and Tesco Direct, while also connecting people through to affordable credit so that the end cost is less still.

The offer of the month in November is a Hoover HP2200 Hurricane Power bagless vacuum cleaner, selling for £73.99, a 62% discount on the full retail price. The site was launched in April 2012 and has the backing of 110 housing providers, representing 1.2 million tenants.

Having launched the core e-commerce platform, with over 12,000 enquiries since launch, Smarterbuys now plans to partner with local housing associations and authorities to market this as a service to tenants from their landlord.

Smarterbuys uses the convening power of social landlords to enable tenants to buy together and save money in the process. Because it handles the need for affordable credit and operates a simple to use online store, it makes the end of a cooker or breakdown of a vacuum cleaner far less of a crisis.

It is a worthy winner of the inaugural Buy Better Together Challenge Prize.

Everyday dignity

The United Nations Secretary-General Ban Ki-moon has lauded the coming close of the International Year of Co-operatives.

“We know there continues to be a hunger for policies and approaches that address social and economic goals that go beyond a one-dimensional bottom line,” he says. “By emphasizing core values, cooperatives help advance a vision that embraces social objectives into the business model.”

“As a strong partner in development, the cooperative movement works … every day to empower people and enhance human dignity.”

A senior director at HSBC asked me on Monday quizzically whether there could be a UN International Year of Multinationals.

Get values, get people, get democracy, I said… and we’ll talk!

Can we save more businesses that fail?

New is shiny, old is not. Innovation is the rage, conservation an afterthought. In business, a lot of dissipated energy goes into the frenetic chase to do something new, where a loving touch to something already out there could deliver so much more.

This gives us, for example, an obsession in policy on the start-up of new enterprises, rather than a concern for reducing the closure of existing firms. It is as if we have swallowed the distant myths of Joseph Schumpeter, that destruction, particularly if it hurts, must be good for the creative process.

In the UK, around 17,000 businesses fail each year. Within this number there are many companies that on economic grounds could be saved. A large number, forty four percent, are wound up because of poor management prior to insolvency. There is a pool therefore of up to 7,500 viable enterprises that are failing.

One way to do this is to look to the staff. Workers taking over an insolvent company to preserve their jobs and entitlements has emerged as a trend in a number of other countries. Appropriate enabling legislation exists in Spain, Sociadades Laborales (SAL), and Italy, the Marcora Law.

A new report, Saving Business, written for us by Anthony Jensen, based out of the University of Sydney, tells the story.

In a period of economic crisis in the 1980s, both countries enacted legislation in 1985 to support workers take over thousands of failing enterprises. Both countries based the legislation on encouraging workers to become entrepreneurs in saving their jobs by taking their entitlements, and three years projected social security payments, in a lump sum payment, and investing these in the new company. This was supported by government loans and advice.

The Marcora Law set up the Campagnia Finanzaria Industriale (CFI), a financial institution to support workers establish a workers cooperative, to take over the failed company. CFI also provided advice, finance and has the right of a seat on the board of the co-operative.

Both these programmes were suspended by the European Union (EU) in the 1990s. The reason given was they contravened European competition law. However after a redesign, they have both restarted. Professor Alberto Zevi in Italy reports that the Marcora Law is working well, with eleven buyouts assisted in recent months.

In France, over 700 businesses on the verge of closing down have been transformed into cooperatives between 1989 and 2010 (over 30 every year), thereby saving thousands of jobs.

Now, I am sure that there is a view that says ‘don’t go there. Let them fail. It is too difficult. Or we don’t want to be associated with their failures.’ I understand the view, but the UK has now to be more entrepreneurial.

Worker cooperative buyouts of insolvent businesses have been successfully carried out in many countries as measured by their longevity, job saving and job creation and performance impact. There are successful case studies in the UK: UBH International, Tower Colliery and a number of smaller buyouts in Wales. There have also been failures when best practice has been ignored namely a viable market, strong leadership, a homogeneous culture and ongoing advice.

Not every business can be saved. But success overseas points to the potential to save some.

Making our mark

Today, I am giving my talk at Co-operative Congress – the annual gathering for co-ops – which this year takes place as part of ‘Co-operatives United’, the closing event for the UN International Year of Co-operatives.

We have taken the visual identity of stamps for the event and it is the comparison between the first stamps and the first co-ops that I will touch on.

Before stamps were introduced getting deliveries from one place to another was a nightmare. A free-for-all – profitable in town, extortionate in the countryside; paid for by the person receiving, not by the person sending the mail.

The first modern postage stamp – the penny black – was introduced in the same decade as the Rochdale Pioneers set up shop – both working to a different business model. The new stamps would be a single price, paid for by the sender for all mail across the country. The price of a stamp was set not to maximize profit, nor to reflect variable costs but to widen access and win trust – and grow the market on the back of that.

That first stamp enabled the ideas of the Pioneers to reach every corner of the land and then travel to every continent. To the position today where co-operatives have made it in many countries onto the stamps themselves.

Today, the debates around what form the internet will take in future – its openness and issues around, ‘net neutrality’ – mirror the debates around those first stamps and co-operatives. It is all about how to spread business on the back of transparency and trust.