Let's talk about capital for co-ops, says researcher
This article by Andrew Bibby, in a slightly different form, was first published in Co-operatives magazine, 2005
Get Jim Brown talking, and it's easy to forget that the subject of the discussion is supposed to be boring, dry stuff, suitable only for nerds (or, of course, for Co-op Bank senior managers). Jim is talking about co-operative capital – or, more precisely, he's talking about Co-operative Capital, the newly published book which marks the culmination of the high-profile research project which he has led into the subject. And Jim is enthusiastic, passionate even, about the issues which the book tackles.
Jim Brown is no stranger to the co-operative movement. What began when, thirty years back, he first became involved as a member of a housing co-op in Liverpool developed into postgraduate research into industrial democracy, and that in turn has led to close involvement with the workers' co-operative movement from the 1970s onwards. For more than twelve years he has been a member of a small Bristol based co-operative consultancy business, working during this time for, among others, a number of consumer societies.
But whilst Jim is a committed supporter of the principles of co-operation, he is also impatient for change. The odd £20,000 loan to a small start-up co-op is all very well, he says, but it's investment in the multi-millions which will be needed to rebuild the movement for the new century. “If the co-operative movement is to achieve its full potential, it will need access to major resources, including investment capital,” he says. “New external sources of investment capital are required.”
It is the need to identify possible sources of capital, particularly investment capital of between £2m - £20m for co-ops wanting to venture into new areas of trading, which led Co-operative Action to grant-fund the research work behind Co-operative Capital . The book itself (a team effort, Jim insists) has now been published by Co-operative Action. It is a wide-ranging survey of the possibilities of change and, let's be frank, it may well be controversial.
Jim's starting point is that the investment capital which could be helping co-ops develop is not necessarily in short supply. He offers an example: think just of those people who are co-op employees, he says, and work out in total how much of their money is invested through their savings, pensions and insurance policies in the British economy. The sums, he says, are far greater than the total currently invested in co-ops. Or consider the growing popularity of ethical investment in Britain : “Over four billion pounds is invested in ethical funds in the UK . It is a travesty that barely a penny of this money is invested in co-operatives,” he says.
“There must be a way of enabling ethically minded investors to invest in the only truly ethical form of business, namely co-operatives. But there is a chicken and egg problem which has to be overcome first. Because there is no traditional way of encouraging equity investment in co-operatives, there are no mechanisms or markets to make it happen,” he adds.
It's this talk of equity capital which may get some co-operative brows furrowing. Bring in equity capital, and wouldn't co-ops have to start meeting shareholder expectations, rather than simply operating for the benefit of members?
Jim Brown's answer to the question is to argue that co-ops need to expand the concept of democracy, to embrace a multi-stakeholder approach. But first he focuses on the assumption that lies at the heart of the question. Yes, he says, the traditional co-operative response to capitalism was to replace ownership and control by investors with ownership and control by co-op members – in practice, either consumers or employees. In the process, he says, it led to co-ops facing major difficulties in accessing long-term investment capital, having to rely to a large extent on retained profits.
But the world has now moved on from stark nineteenth century dichotomies, Jim claims. “The class divide, separating a working class from an investment class – that's gone,” he says. These days, like or not, we each participate in the life of the economy in several different ways – as employees, as consumers, and as investors, too, building up our savings and putting money aside for our pensions.
The logic of this argument is that a place can be found for equity investors within the democratic structures of a co-operative. Of course, many co-ops already raise a part of their capital from their members, but Jim Brown believes that external capital will often be needed as well. So how do these external investors have their contribution to the business acknowledged and rewarded? “What we're suggesting in Co-operative Capital is the first multi-stakeholder solution. We're saying, ‘you've got to have a place for external investors, alongside the primary membership of a co-op, whether those be customers or employees',” he argues. Whilst different stakeholders may have their own particular interests – good pay and conditions for staff, good value products and services for consumers, a return on capital for investors - there is a common interest which all share in the health and development of the business. Jim Brown believes that investors will be satisfied to have a role which provides them with a fair return. “They will want the protection of their investment, rather than to control or direct the business,” he says.
This is not necessarily radical stuff for co-operatives elsewhere in the world, where in several countries legislation already exists to permit co-ops to access external capital. Neither is the theme entirely new In Britain: for example, the government has been venturing into very similar areas of debate in the consultation into ways that equity investor interests can be satisfactorily met in the proposed new community interest company model. But not everyone likes the idea of investors being brought into the internal democratic life of co-ops. Jim Brown rails against a die-hard conservatism he says exists in some parts of the British movement: “One person told me, I'm against your ideas, I haven't read the book but I know I'm against it,” he says.
Even if the idea of stakeholder co-ops is accepted, however, there's plenty of work needed to make it possible. Co-operative Capital discusses, for example, potential changes in co-operative legal structures which would facilitate the incorporation of equity capital. There's also a need to develop secondary market mechanisms and structures, so that ethical investors tempted to put their money into co-ops will be able to find willing buyers for their investments when the time comes to sell. The embryonic Ethical Exchange (EthEx) recently launched by Triodos Bank for recent ‘alternative' share issues like that from Café Direct suggests one way forward here.
But first Jim wants a healthy debate about the ideas he is raising. “There has been a fundamental and historic divide between the co-operative movement and equity markets. Adapting equity structures to conform to the values and principles of co-operation will not be easy, but it is not impossible,” he says.
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