Five co-operative trends for 2014

In the spirit of possibility, as much as prediction, here are five hopeful trends I see for 2014:

1. The emergence of ‘open co-operative’ models that blend the ideas of free (or libre) software, open knowledge and democratic social enterprise, for example in work for a new vision for the economy coming out of Ecuador.

2. The growing movement around the ‘commons‘, from community woodlands to new garden cities.

3. The welcome reinvention of the Co-operative Group, the UK’s largest co-op, with a patient forward plan for renewal before its AGM in May 2014.

4. The spread of community share offers to save enterprises that people care about – a rooted and democratic form of community capitalism.

5. Co-operatives Act – due in the Summer of 2014, the result of our campaigning and Treasury backing, this will be the first consolidated act for co-operative societies for around fifty years, setting legislation for coops on a new clean, modern footing.

Best wishes to all involved in fostering a more ethical economy in 2014. Let’s work together wherever we can.

More UK share offers in co-operatives than in the stock market

It is great news this week that the Treasury will openly encourage increased investment in the country’s co-operative sector. The first new consolidated act for co-operatives since 1965 has been introduced into parliament, along with a fivefold rise in the limit for any one investment into a co-operative business (from £20,000 of withdrawable share capital to £100,000).

Laid before Parliament by Treasury Minister, Sajid Javid, the move comes on the back of focused campaigning by Co-operatives UK and our member over recent years. We have lobbied for the multiple pieces of legislation covering societies to be overhauled, including a rise in the limits on investment, in order to help co-operatives grow and avoid over exposure to debt finance.

Withdrawable share capital is used by co-operative businesses, large and small, such as consumer retail societies and agricultural co-operatives. It enables shareholders to withdraw their capital with relative ease, whilst still protecting the financial security of the business. The previous cap on investment by a member at £20,000 has seriously restricted the ability of many co-operatives to raise cash for expansion and capital investment. We estimate that the new limits, for example, will be worth around £5.3 million to the co-operative agricultural sector.

Today’s move will also be of significant benefit to small-scale co-operatives, where local people come together through calls for ‘community shares‘ to save neighbourhood assets, such as village shops, sports centres, heritage buildings and pubs. They are also used to finance community energy projects and regeneration initiatives.

Our research shows that there have been more community share offers for local and community enterprises than Initial Public Offerings for UK-listed companies in the last five years (182 share offers compared to 108 IPOs). Smaller sums, to be sure, but larger numbers. In 2013 alone, there have been almost 60 share offers, expecting to raise £15 million from over 15,000 supporters.

We need to be pretty careful to safeguard and support the quality of such offers, and avoid the obvious risks in some of the Wild West practices of peer to peer and crowd funding for enterprise, but the rise in share limits does confirm the arrival on the mainstream of a new asset class for ethical investment – locally based, co-operative and open to all.

The appetite and commitment to do business the co-operative way has not waned, and the Treasury decision is a vote of confidence in the strength and potential of the co-operative and mutual sector.

How are you doing today? A new guide to measuring performance in mutuals

How are you doing today?

If you are a business, then what I am asking about is your performance.

For investor-owned firms, this is typically going to be measured by return on capital over time. For co-operative and mutual businesses, it concerns, on our definition of performance, ‘the delivery of value to members over time and at least cost.’

For co-operatives worldwide, there tends to be a constitutional commitment to a set of core values and principles, which give different flavours to what is meant by value. More widely, over the last twenty years (thinking back to the first Social Audits we did at the New Economics Foundation for Traidcraft, Body Shop and then VanCity in Canada), there has also been a flourishing field of ‘triple bottom line’ accounting – codified in the Global Reporting Initiative and, this week, the welcome International Integrated Reporting Framework.

Understanding performance, however, is not the same as trying to measure it. The beauty of co-operative models is that members own and control the business, so they have a direct line of sight on what is going on, and a voice in shaping it. If you save your village shop, by forming a co-operative to do so (with support perhaps from the award-winning Plunkett Foundation), then the presence of the shop itself is as good a statement of performance and impact as you can get. Trying to do a triple bottom line report (or indeed social return on investment) can strangle the whole enterprise if you are not careful, through sheer distraction. That was one of the lessons perhaps of the ill-starred ‘community business’ models in Scotland in the 1990s.

But for coops and mutuals at larger scale, such as consumer cooperatives running a range of shops, measurement does help to paint an overall picture that would otherwise be far less clear. For a number of years, Co-operatives UK has offered our members a recommended set of key indicators on financial, non-financial and environmental performance. This has been guided by the Co-operative Performance Committee – chaired by Professor John Arnold and a forum that brings together representatives from the co-operative business sector to advise our work around this – such as the annual ‘performance monitor’ we produce for the Boards of consumer co-operative societies.

When we looked across the cooperative and mutual business sector more broadly, what we found was that:

A. the indicators we were recommending were only used by a number of consumer retail co-operatives, rather than more widely;
B. it is hard to select a handful of indicators anyway, given the growing sophistication of ‘triple bottom line’ and social impact reporting; and
C. looking across the co-operative sector, everyone tends to use different measures of performance, that reflect their own area of business.

So, in looking forward, we then engaged with international initiatives around co-operative performance metrics, such as the Canadian-based Co-op Index and the research community on ‘measuring the co-operative difference‘, and we experimented with measures, such as measuring the local economic benefit of co-operatives – with a case study of Lincolnshire Co-operative Society. This tracked what happened to money spent in a Co-op food store in Lincolnshire and showed that every pound spent is recycled five times before the last penny leaves the local economy. Spend it elsewhere or online with other national brands, it is hoovered out, not just nationally but to tax dodging havens overseas.

As is often the case with measurement and reporting, these were of some value, but the methodologies were cumbersome and common sense says that if it is hard to do, then it is hard to get people to do it. As a result, the Co-operative Performance Committee decided that, while we can point co-ops to key sources of advice on triple bottom line reporting, such as the Global Reporting Initiative, our recommendations for co-ops large and small should focus in on a few key indicators only. These ten indicators cover headline metrics on financial, non-financial and environmental performance:

1. Annual turnover
2. Return on Capital Employed
3. Co-operative distributions
4. Staff profile
5. Community investment
6. Resource use
7. Member profile
8. Member satisfaction
9. Trade with members
10. Customer satisfaction

Alongside this, we have published a guide, Simply Performance, free to download, for co-operatives, large or small, wishing to measure their performance, including their wider social and environmental impact. Written by Philip Monaghan of Infrangilis, this includes case studies of co-operatives and mutuals that are tracking their performance in a practical and helpful way – including Midlands Co-operative, SUMA Wholefoods, Anglia Farmers and GLL (Greenwich Leisure).

So, how are you doing?

If you are a co-op or mutual, finding the answer is not that complex. You simply need to know your members, understand what it is they value and keep track of how you are delivering that for them … in line, of course, with the values you profess.

What does it mean to be wealthy?

The legend of King Midas dates back to the early days of Greek mythology and tells the story of a King, for whom everything that he touched turned to gold. Like all folk stories, the tale can be told in different ways. Aristotle reports that he died of hunger. Other versions say that he was rescued by the gods, when he repented after turning his daughter, Zoe (or ‘life’) into gold. Here in one story that has lasted over centuries is the conundrum of wealth. Is wealth the accumulation of money and property that can enable us to do the things that what we want to do, or is it those things themselves?

The artist and critic John Ruskin in the nineteenth century declared that there is no wealth but life – and in doing so, he was declaring himself for King Midas’ daughter: family, relationships, purpose, meaning, wellbeing – these to Ruskin are then true wealth. But the story of King Midas doesn’t necessarily so neatly line up with that – legends never do. He was, after all, already a King, with kingly possessions and a kingdom’s obedience. So, an alternative interpretation is that wealth may be gold – something that is scarce, desired, tradeable – but there are limits to wealth. In wealth, as in life, balance is everything.

The property that King Midas accumulated, gold, is scarce, famously so, and tradeable, reliably so. It is emblematic of wealth, in the sense that a stock of wealth today is something that we believe will allow for a flow of benefits and entitlements tomorrow. The term ‘capital’ captures both this sense of wealth, and offers an accounting framework for how future benefits may be valued or, if your wealth is in a form akin to a metal that rusts, depreciated. There are, of course, more forms of capital than money or precious metals – mainstream economics includes, typically, land, labour and physical structures and equipment – but, conventionally, the value of such capital can still be measured in terms of money. It is not gold per se. But, with a reference price, it can be counted in terms of gold coins.

What marked out King Midas though was not that he had too much gold. That is a different legend, the one of Croesus. It was that he loved gold so much that he turned other things, including those that had value of a different form, into gold. In terms of economics, this comes to the heart of the issue of wealth – what forms and combinations of capital do combine to increase the flow of benefits and services more widely. How wealth is spent is easier to trace. How wealth is created over time in the most effective way remains, if not a mystery, certainly a conundrum.

There can, for example, be more forms of capital than those that are measured in traditional economic terms. One model of this is to characterise four forms of capital – environmental capital, human capital (including knowledge, skills and health), physical capital and social / organisational capital (including legal, political, community, family, organisation and firms). This feels more encompassing, but, in turn, less likely to be reduced to the calculus of money. Even if there are attempts from time to time to do just that, putting a price, or a shadow price, on what is outside of conventional markets in order to understand or adjust for wealth that can’t be counted in gold, there are limits. What price parenthood? What price the butterfly?

There is a long tradition of radical economic thinking that argues that prices established in money terms in the context of a market trade between two or more parties is blind to these wider forms of potential wealth, because they suggest that it is possible or even desirable to cash them in for money. John Ruskin, in the nineteenth century context of the British Industrial Revolution, had a name for this. He distinguished ‘wealth’, as life giving, and ‘illth’ as economic activity that created ugliness and unhappiness. One hundred years later, President Kennedy sparked a debate that continues today about the measurement of wealth in national accounts – again contrasting what is measured in economic terms as wealth as measuring all but that makes life worthwhile. The ‘Nobel Prize’ Economist Herbert Simon argued that most wealth was created on the back of a common inheritance from previous generations. A more recent prize winner, the late Elinor Ostrom focused on wealth outside of the market, in the form of commons. These are ideas reflective of the co-operative tradition of commonwealth and common ownership.

The challenges these perspective throw up are far more than the issues of unconsidered costs, which might lead you to consider such ‘externalities’, or narrow measurement, which might tell you to broaden your national accounts or indicators of progress. The crunch issue is the extent to which we can draw down one form of capital, in order to build another. After all, it has been a hallmark of modern economic development that it draws into the market those activities that were previously outside of the field of monetary exchange, whether household work or subsistence farming… and assigns a lower status to what is left.

Some forms of capital, though, cannot simply be cashed in. Some environmental assets, such as the diversity of species, may have a value beyond a narrow market price (that is, in turn, ‘discounted’ over time, leading inexorably to a short-term view of what may be long-run assets). But they may also be critical to our survival, in which case no amount of money gain will capture quite what we are doing. This is the argument of Herman Daly, a pioneer of the field of ecological economics. What we take for economic growth is, in his words, uneconomic growth.

In short, then, to assume that wealth is narrowly financial is as impoverished an account of economic life as assumptions of poverty that start and end with income and expenditure. It is important, but far from the whole story – and in turn may be a framing that becomes problematic, for example if today’s economics rights and rents are at odds with a climate constrained world tomorrow. Today’s wealth may not be that of tomorrow.

But, as with the legends of old, these are claims that have life that is sometimes unconstrained by the fact and evidence to back them. It is a tendency of us all to look to stories that confirm our existing beliefs, rather than to keep a genuinely open mind. I was pleased this year to be part of a Wealth Commission set up by the University of Birmingham, which was an attempt to explore some of the facts that lie behind one of the most enduring challenges of our day – how to generate and distribute wealth and prosperity in ways that are self-reinforcing rather than self-defeating. My contribution was to help explore these competing ideas of wealth.

The legend of King Midas echoes today. Our own balance of wealth has shifted in recent years, in terms of a less even distribution of people, for all the widening of growth around the world, who are able to share in prosperity. It has also shifted in terms of a perceived decline of the quality or sustainability of the social, civic and natural environment, just as the reach of financial factors in decision-making is larger than ever.

So, what does it mean to be wealthy? It suggests, I think, that you have the means, the mindset and the relationships that allow you to sustain what matters all around you.