Ownership matters

Labour’s 2017 manifesto commitment to double the size of the co-operative sector, as part of its wider vision to create an economy that works for the many and not the few, is both radical and practical.

The radicalism of the proposal stems from the recognition at its heart that ownership matters. It matters at a macro level, because an economy owned in substantial part by powerful, unaccountable, distant shareholders is an economy that has enabled a break in the link between hard work and reward for most employees; and in the link between success and executive reward at the top. Ownership also matters at a company level, because who owns a company dictates in whose interests it is run, how the spoils of success are distributed, and how decisions are made about critical issues like pensions.

So, would a Labour government with a mission to actively build an economy with a more diverse ownership eco-system, and a much larger co-operative sector at its heart, be likely to succeed? The short answer is yes – as recent independent work by the New Economics Foundation, commissioned by the Co-operative party, shows. Their report, Co-operatives Unleashed, recognises that the UK co-op sector, while growing, is smaller than the co-op sectors of other comparable economies (including Italy, France, Canada and the US) as a result of entirely correctable deficits in policy, advice, incentives and promotion.

There are five proposed steps to change this. First, a legal framework tailored to the specific needs of co-operatives and which would support their further development. This has been the on-going mission of the Co-operative party over the last century but it remains a work in progress. A co-operative economy bill in Labour’s first Queens speech could introduce a ‘right to own’, with employees having a right to put together a buy-out bid when a company goes through a transition; a legal lock on co-operative assets to ensure they are available for future co-op growth; and action on the additional administrative and regulatory burdens placed on co-operatives compared to privately owned businesses.

The second step would be to tackle the investment gap that would inevitably be a barrier to expansion. This would see a national investment bank charged specifically with providing patient capital investment to the co-op sector; new tax reliefs when co-operatives reinvest surpluses into the development of new co-operative businesses; and legislation to enable the use of mutual guarantee societies which are a common way for small business to access finance in other EU countries but not currently legal in the UK.

Third, the government would need to establish a Cooperative Development Agency in England to provide the expertise, support and advice necessary to grow a new generation of co-operative businesses. Cooperative Development Scotland – established by the Scottish Labour government in the 2000s and the Wales Cooperative Centre which continues to receive support from the Welsh Labour government, are showing that the benefits of having a specific and expert body should not be underestimated (we see this in other countries too). Margaret Thatcher wasted no time in 1979 in abolishing England’s Cooperative Development Agency. It’s time to right that wrong.

Fourth, accelerating the ‘co-operatisation’ of existing businesses, with a particular focus on businesses which are going through an ownership transition. NEF point out that if just 5 per cent of the small and medium sized family owned business that say they don’t currently have a succession plan, transitioned to employee ownership, it would lead to the creation of 5–6000 new co-operative businesses. The tax incentives for business owners to go down this path already exist, though they are not well enough understood or actively promoted beyond the brilliant work of the Employee Ownership Association.

Finally, government should build on and support the radical and visionary work already being driven by Labour and Co-operative councillors in places like Preston and Plymouth to use strategic partnerships and procurement to support the development of co-operative enterprises in their local economies.

A government willing to take these steps could achieve a doubling in the size of the sector by 2030. One of the impacts of such a shift would be to create the kind of economy in which co-operation would more readily flourish in the future. In other words, doubling could be just the beginning.

We all rely on the owners of businesses in our economy and in our communities to make responsible decisions about the stewardship of their businesses, and the extent to which they operate in the interests of the many or the few. As our economy continues to change rapidly, as a result of social and technological trends that at times take our breath away, these responsibilities become even bigger and the social and economic consequences greater. Labour is right not to stand idly by as if government has no role in shaping this, and the good news is its commitment to build an economy in which ownership is more dispersed is both radical and achievable.