International Symposium for the International Year of Co-operatives, Consumer Co-operative Institute of

Japan, November 2012.

Presentation: The potential of co-operatives in socio-economic development

Johnston Birchall (Professor of Social Policy, Stirling University)

Four questions1. What is the potential of co-operatives in the

field of environmental protection and sustainable energy?

2. What is the potential of co-operatives in the field of provision of social services?

3. What is the potential of co-operatives in the field of job creation and social integration?

4. How should co-ops work for the public interest as well as for mutual interests?

Question 1: The cooperative potential in in environmental protection and

sustainable energy First, I want to compare two countries, Denmark and the UK,

Why have renewables co-operatives in Denmark have been so successful?

Denmark has invested heavily in energy technology over the last 25 years, and its knowledge and manufacturing expertise are now being exported; the sector is worth 5.5% of total exports.

It has pioneered energy taxation, designed to reduce CO2 emissions and support renewable forms of energy, and the result is that renewables now supply 20% of the country’s electricity.

The electricity grid has hundreds of small-scale distributed generators, using wind power and a range of fuels such as wood, straw, biogas and bio-oil.

Why Denmark?Denmark leads the world in wind power, and co-

operatives have played a surprisingly large part in its development.

The idea is not new; even in the 1930s there were 30,000 windmills, some of which were producing electricity and so when modern turbines began to appear they were not seen as controversial.

Local communities became involved, on the principles that they should own their own power source

When schemes became larger and moved offshore ownership was opened up to the whole population.

Between 1978 and 1994 co-ops had over 50% market share, but this has now fallen to around 23% as landowners and larger investors have entered the market.

By 2004, no new wind farms were being planned because of a cut in subsidies.

Still, the sector is here to stay: 150,000 families are members of wind-energy co-operatives, owning well over 3000 turbines.

Windfarm off Copenhagen

District heating Denmark is also a world leader in district heating networks.

They now account for over 50% of space heating, and allow cheaper, low grade fuels than gas or oil to be used.

The decision was made 30 years ago to invest in district heating rather than individual connections to natural gas networks.

From 1986 onwards, the emphasis was put on combined heat and power plants which were more efficient and allowed for fuel flexibility;

natural gas, biogas, woodchip, straw, bio-oil and even solar thermal can be used, and excess heat from power stations can be circulated to city heating grids.

Why co-operatives? In order for the new system to work, local authorities

were given the power to force consumers to connect to the system, and this was counterbalanced by a commitment to the consumer control and price transparency that co-operatives provided.

Of the 430 district heating companies in 2001, 85% were co-operatives, but they only account for 37% of the heat sales because the larger ones are owned by local authorities.

They are, however, recognised as being more efficient and responsive to consumers than the local authority district heating systems.

Biomass plant, Sweden

Energy co-ops in the UK In the UK, the key support organisation for co-operatives is

Energy4All, a not for profit association owned by the co-operatives that it creates.

It has developed several co-operatives on an asset-ownership model pioneered by the Baywind Co-operative in Cumbria

Profits from the electricity produced are distributed to members through an annual payment. 

Energy4All aims to create a national Scottish Co-operative that will invest in renewable energy projects which are unable to raise sufficient funds themselves

As wind farms begin to be developed offshore, a national investment co-operative will make a lot of sense.

The development trust model

The co-operative model is competing with an alternative development trust model.

For instance the Tiree Development Trust is developing one wind turbine on the island of Tiree, using National Lottery money to fund it and intending to dedicate the profits to community development.

Six communities in Orkney are also intending to install one turbine each

The Fintry Development Trust in Stirlingshire has bought one turbine in a 15-turbine wind farm, and is also dedicating the profits to the community.

The problem with the development trust model is that it depends on public funding for equity

Village of Fintry

Renewables developed by a consumer co-op

In 2005, the Co-operative Group led the development of an eight-turbine wind farm on one of its farms at Coldham in Cambridgeshire. 

The joint venture with Scottish Power generates some 38.5 GWh per year – enough to power over 9,000 UK homes, and saving an estimated 36,000 tonnes of carbon dioxide being released into the atmosphere each year.

The Group has allocated £1billion to the development of renewables, and has two more wind farms planned.

Coldham Farm – Co-operative Group

Producer co-operatives and renewables

In Denmark, farmer co-ops manage the fuel supply chain in biomass fuels, owning the majority of the 120 straw and woodfuel district heating plants.

They also own over 20 large-scale digester plants that treat slurry and use it to create methane. These account for over 80% of biogas production.

Swedish foresters are also getting involved in biomass, delivering woodchips to heat and power plants.

The important factor here is that governments have to create a market, through planning for the use of the fuels by local generating plants.

We have to think of co-operatives in renewables as being part of a wider system in which governments take the lead.

The conditions for co-operative development

Citizens have been used to the idea of consumer co-ops supplying utilities, particularly in rural areas, and the same model seemed a natural one to use in developing new sources of energy.

Their governments have put in place policy frameworks providing ‘comprehensive and sustained support’ for renewables over the last 25 years, and co-ops have been supported within these policies.

Investment has been made in district heating schemes that are a natural monopoly, and so consumer ownership has been chosen as a necessary way of safeguarding consumers’ interests.

Trade associations having the character of secondary co-operatives have been crucial in promoting renewables

Local authorities have provided a supportive planning system

The opportunity to build consumer ownership into new wind farms has led to greater support from local communities for planning approvals.

Co-operative development agencies have supplied detailed support

Some co-operatives on the producers’ side have been large enough to develop new ventures, for instance bringing together industry stakeholders to develop the biomass supply chain.

It is the combination of all these supports that is crucial; together they provide an enabling environment, sustained over a long period of time.

Question 2: the potential for cooperatives in provision of social

services Here I want to contrast Italy and the UK, and then to draw

some conclusions about the potential of co-operatives in delivering social and public services.

In Italy, social co-operatives deliver social care services and employment services to vulnerable and dependent people.

There are around 7000 of them, and they fall into two types: those that provide social services and have workers, beneficiaries and volunteers in membership, and those that integrate vulnerable people into paid work and have different types of worker in membership.

In both types, the interests of the public and of funding agencies are also represented, and so these are what we call multi-stakeholding co-operatives.

They have some features that are different from co-operatives in other fields.

First, they are heavily dependent on public funding, and so are vulnerable to changes in government policy.

They have a lock on their assets that prevents them from converting the co-operative to investor-ownership, or selling it for profit.

They have a rule that profits cannot be distributed to their members but must be used for their collective benefit.

The Italian modelThe idea of the social co-operative is being copied in

other countries, particularly in Spain and the UK.

In the UK, a good example of a multi-stakeholder co-operative is the foundation trusts that run hospital services in England.

In 2003, the British parliament passed a Health and Social Care Act that offered existing hospital trusts in England the chance to gain more autonomy by applying for ‘foundation’ status.

The legislation describes the foundation trusts as being ‘modelled on co-operative societies and mutual organisations’

Foundation trusts in England

It required the trusts to offer membership to local patients, the public and employees, and to set up a board of governors who are (mainly) elected by these members, and who then appoint, and call to account, a board of management.

Previously, trusts had only one board, whose non-executive directors were appointed by an Appointments Commission acting on behalf of the Secretary of State for Health.

The multi-stakeholder co-op

This is becoming the favourite way of devolving public services in other areas such as leisure services, social care services, and social housing.

A variant of this is the co-operative school, of which there are now well over 200.

These schools are independent trusts, with a membership group of parents and teachers who elect the trustees

It is a way of democratising previously hierarchical governance structures in public service delivery organisations

It attempts to balance the interests of service users, employees and the wider public, and while it extends the idea of membership it also has the potential to dilute it.

Employee owned co-opsAnother model for delivering social services is the

simpler one of an employee co-operative that contracts with government to provide services, under competition with other potential providers.

Examples include day co-operatives providing care services for disabled and older people, and nursing services within a foundation hospital.

The UK government (with jurisdiction only over England in public services) has a strong policy of trying to persuade public sector workers to set up new ‘employee mutuals’.

However, progress has been slow.

Employee mutualsA progress report on the mutual pathfinders

published in December 2011 says that out of 21 pathfinders seven have gone live, eight are progressing well, three are in the early stages and four have decided not to go ahead.

The conclusion that they have enjoyed significant successes seems rather optimistic.

The four who are not proceeding cite uncertainty over future service needs and the impact of restructuring, and the report admits that unless a clear market for a service can be identified, this type of development may not be appropriate.

Are co-ops in public services too risky?

The drive to cut public expenditure is cutting across the mutuals policy, causing a turbulent environment in which employees do not want to take more risks.

Trade unions are worried about the effect of the move to the private sector on staff pensions; transfers of engagement rules protect existing but not new employees’ pension rights.

Recently, the whole programme received a setback. Central Surry Health is a mutual formed by 700 NHS staff to provide community health services under a £20m contract.

It bid for a similar contract in North and West Surrey but lost out to a for-profit company that was 75% owned by the Virgin Group.

SCH’s own contract is due for renewal in 2012!

Forced to be free?The limited impact to date of the mutualisation of public

services in England can be explained quite simply; for most public service workers it is too risky.

The gains in ownership and control from converting to an employee mutual are offset against the risks and uncertainties of ceasing to operate within the public sector.

Conversion offers new rights but also takes away some old ones.

It introduces a contractual relationship between purchaser and provider that a real market in which providers may expand and flourish or decline and even cease to exist.

Push and pull factorsThere are push and pull factors.

Employees and service users can be pushed into conversion if the alternatives are seen to be worse.

They can be pulled by the example of successful mutuals that are expanding and demonstrating the comparative advantages of the form.

If the only alternative is takeover by an investor-owned business, then the risks of not converting will be seen to be greater.

Then there will be mass conversion of public service providers to mutuals.

The potential of cooperatives in job creation and social integration

Consumer co-operatives create jobs, but that is not their main aim.

For instance, the Co-operative Group in the UK has 106,000 employees, but its aim is to provide services to consumers.

The jobs are a by-product of this. It does not mean that the Group does not care about unemployment; in 2011 it took on 400 apprentices, and in 2012 will take on 800 in its ‘Apprenticeship Academy’.

It can only do this because it has the resources and because it needs skilled workers.

Producer co-ops and job creation

Producer co-operatives can make job creation their aim – the Mondragon co-operative group is a good example

During the current economic slowdown the Group has successfully defended existing jobs.

However, a desire to create jobs has to be balanced against the need to remain financially sound, otherwise the co-operative’s existing jobs would be at risk.

In Europe, co-operative development agencies have been set up at various times and places to try to generate jobs, but they have not been very successful.

Social integration?Co-operatives do create social integration, but

this should be seen as an outcome of the business, rather than as an aim in itself.

We know that social capital is both a cause and an effect of the co-operative way of doing business, but it is also difficult to manufacture directly.

The best way to promote social integration is to enable people to do business together.

Question 4: the potential to create public interest as well as mutual

interests

If co-operatives are working well in the interests of their members, and if their members want them to take on a more public role, then they can work in the public interest.

However, in my view the public interest is always secondary.

If it is primary, then the business should be organised as a public service. (and government should pay for it!)

An example – co-operative health centres

In Serbia, Poland, the USA and Canada co-operative health centres were set up in rural areas to meet a need that governments were not meeting.

In all these cases eventually local governments took over and made them into public providers.

The reason is that in rural areas there are no alternatives, and so the idea of membership was contradicted by the need to serve everyone in the local population.

Thus the idea of membership is undermined.

In urban areas, in contrast, health co-operatives can be made to work because people have a choice not to be members.

Examples from developing countries

In the past, co-operatives in developing countries were ruined by governments that used them as vehicles for economic development while deliberately over-riding the interests of the members.

We do not want to make that mistake again.

The public interest is best served when co-operatives serve their members first

The example of Tanzanian coffee co-ops

For instance, in Tanzania government- sponsored coffee and cotton co-operatives used to provide scholarships for children to go to secondary school.

Some of them actually provided the schools. Yet often they did not pay the farmers for their crops!

They have been reformed.

They are doing what they should have done in the first place – marketing their members’ coffee and through a link up with fair trade organisations earning a good profit that they are returning to members.

Now they are providing school scholarships again, but as a by-product of the service they give to the members.

A personal viewthe public interest is best served when co-

operatives serve their members and then, as a by-product, serve the public interest