2012 will be a tough year — it takes no intelligence to predict that. Consumer confidence is likely to fall further, while unemployment rises yet higher. Europe is suffering, but the knock-on effects are spreading out — with the extraordinary growth reported in recent years in China and India now falling back.
This is, in the main, bad news for the co-operative and mutual sector, both at home and abroad. One example of this is the recent downgrading of Credit Agricole, the quasi-mutual, quasi-stock exchange listed giant French bank. Other lenders across Europe are also at risk of further credit rating downgrades and the need to turn to governments to bail them out.
In the UK, there are nervous eyes looking at the weak and downgraded ratings status of some building societies. There are market fears that a few smaller building societies could either go to the wall, or else need to be rescued by a larger financial institution. With the Financial Services Compensation Scheme in place, there is no reason for savers to worry too much — providing they have the nous to hold no more than £85,000 in any one financial institution.
Investing in building societies’ Permanent Interest Bearing Shares is a different matter — taking out PIBS in one of small societies in the current environment should be regarded as high risk. The risk attached to this was, in effect, highlighted in recent months by the problems that PIBS-holders in the former Bristol & West Building Society are going through in seeking to recover their investments from the Bank of Ireland, which acquired Bristol & West in better economic times.
There is also concern for some smaller credit unions. While credit unions in the Irish Republic look certain to need large bail-outs from the Irish government as an indirect result of the property crash, we can also expect to see more consolidation among smaller credit unions in Ireland and the UK. The credit union crisis in Ireland demonstrates once more the need for mutuals to have robust corporate governance arrangements in place and to adopt cautious risk management practices.
The wider context of declining consumer confidence creates a problem, in particular, for retailers. The Mary Portas review of high street retailing environments underlines the reality that the traditional co-operative society department stores are a thing of the past for the most part. High streets can only meet the challenge of out-of-town shopping centres if they can offer something substantial in terms of ‘value added’.
Retailers in town and city centres must work together with their local authorities — for example, through Business Improvement Districts — to create a visitor experience that is above and beyond just the retailing itself. This can be achieved by renewing the infrastructure; producing a better ‘feel’; exploiting the history of the place; offering childcare facilities for shoppers; and improving public transport facilities. Simply providing the same offering of the past is no good.
This is particularly true for some niche high street retailing. Quality booksellers have mostly disappeared from the high streets of all but the largest cities. Travel agents are similarly endangered. The internet has undermined the business models of both sectors in terms of high street retailing.
Clearly the Co-op Group’s ‘joint venture’ with Thomas Cook could face further difficulties in the time to come. It is difficult to see how holiday operators in the high street can compete with online providers, unless they come up with something that gives them a clear market edge. What that could be, I have no idea.
But if town centre retailing as we have known it is dying, this does at least provide better returns for many of the new style co-operative convenience stores — smaller shops, locally situated, working on higher margins, should have a future. The challenge, though, is the increased challenge in these locations from smaller new shop units run by the likes of Tesco, Sainsbury and Marks & Spencer.
One retailer facing a tougher economic climate is the employee-owned John Lewis Partnership. It has done very well in recent years through high-quality retailing, but the period we have entered could be a problem when more consumers are tightening their spending patterns. This is equally true for the Waitrose division of John Lewis. However, both operations have fared reasonably well in these tough times — the test will be whether top earners feel the squeeze in the same way as lower earners.
But it must be emphasised that weak economies offer as many opportunities as challenges. The pinch points in the modern economy are finding ways to afford homes, food and energy, while prices rise. These are the opportunities for mutuals in the modern economy — including through housing co-ops, food co-ops and energy co-ops.
And it is clear that there are exciting initiatives underway through mutual interventions in the energy sector — in particular via Co-operative Energy and the Energy Saving Co-operative. These projects make enormous sense. Energy is a market that does not work properly in the capitalist system — it is prone to exploitation, market manipulation and monopoly/oligopoly provision. Consumers are unable to benefit from open competition because of restricted choice.
Moreover, for consumers to exercise their best options, they need to invest for the long term — both by entering into longer-term contracts and also by investing in energy saving and local energy generating (solar, wind and geothermal, for example) equipment. This is only practical if there are market interventions that make these investments realistic and affordable — and this requires mutual type solutions. Unrestricted market operations are usually geared to encouraging higher demand, rather than energy-saving approaches — hence the benefits of mutual based support.
It may also be that we will see more government initiatives badged as ‘mutual’ or ‘co-operative’. But we must be wary about buying into the terms put forward by central government. The ‘free school’ movement promoted by education secretary Michael Gove was, in opposition, called the ‘co-operative school movement’ — but it was always unclear in what way these schools would be co-operative. Similarly, giving employees a minority stake in the privatisation of their workplaces, while the majority stake is held by private equity firms, is only ‘mutualisation’ in a very broad sense of the word.
It has always been true that the co-operative movement contains ideas that appeal to a wide range of political thought. But this does not mean that everything put forward by politicians from different political traditions and called ‘mutuals’ or ‘co-operatives’ is in the movement’s interests to support. As Shakespeare said, ‘not all that glisters is gold’.
Similarly, not all that is called a ‘mutual’ or a ‘co-operative’ is actually part of the Movement, or is in accordance with its working practices.