Co-operatives in the Internet Age

Article for New Left Project

This article was published on the New Left Project website on 10 December 2014. It was written in response to The Strange Death of Co-operative England by Carl Rowlands, which was published on New Left Project on 22 October. The editors wanted an alternative view.

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Co-operatives in the Internet Age

In a world of disruptive digital technology and e-commerce, worker co-operatives are poised to flourish.

In his well-informed and readable article, Carl Rowlands points to some of the major challenges facing the consumer co-operative movement in the UK. He accurately diagnoses some of its ills, including the lack of real member power and the ossified hierarchy in the movement’s biggest player, The Co-operative Group.

Carl sets out to argue that Beatrice Webb’s vision of a powerful co-operative federation that would challenge capitalism was doomed to failure from the start, because of inherent contradictions in the co-operative model. Unfortunately, he repeats the mistakes that Webb made—mistakes that still have consequences today. 

Like Webb, Carl presumes that the only co-operatives that matter are consumer co-operatives, ignoring other forms such as worker co-operatives. Like Webb, too, he is more concerned with how co-operatives can be used as a political tool than in the real and immediate impact they have on people’s lives. Yet it is through their direct impact in the here and now that co-operatives offer an alternative to the alienation  that results from our existing economic system.  It is an alternative that is, moreover, much better adapted than conventional business models to economic conditions in the Internet age.

Carl’s core argument is that co-operatives have become increasingly irrelevant because they are forced to compete in the market with capitalist enterprises, and in doing so are either out-competed or compelled by economic pressures to adopt the same methods.

I would argue that, on the contrary, the co-operative model is more relevant now than ever, primarily because capitalism is in crisis, a view held by economists across the spectrum. Some aspects of the crisis would have been familiar to Beatrice Webb; others are novel, the product of the extraordinary pace of technological change. But any inherent contradictions lie elsewhere—not in the co-operative movement.

Co-opting the co-ops

Webb’s error—and perhaps Carl Rowlands’s too—was to see the co-operative movement as a political tool, an agent for socialist transformation, rather than what it arguably is and should be: a direct solution to people’s immediate problems. This misapprehension is rooted in a conventional socialist view focused on the role of the state as the primary vehicle for collective endeavour, rather than people doing it for themselves. The intellectual inheritance of the co-operative movement however owes more to libertarian and anarchist thinking—one reason why the movement is so strong in Spain. By attempting to co-opt co-operatives to their project, socialists like Webb diverted the movement from its core mission: empowering members to provide for their own economic and social needs. Arguably something similar happened to the labour movement.

Co-operatives come in different forms. The Co-operative Group, the focus of Carl’s article, is a consumer co-operative, owned by customer members. Consumer co-operatives however make up a small minority of the estimated one million co-operatives worldwide. These include producer and enterprise co-operatives (mostly farmers), financial co-operatives (credit unions and investor co-operatives), and worker co-operatives (businesses owned and controlled by their employees).

As Carl points out, Webb’s focus on building a powerful federation led her to dismiss worker co-operatives. This caused a disastrous split in the UK movement that it is only now recovering from. The merger of ICOM (the worker co-op federation) with the Co-operative Union (the consumer co-op federation) to form Co-operatives UK in 2001 was a welcome rapprochement after many years of mutual mistrust. Alas, some of the most successful employee-owned businesses, like John Lewis (where the term ‘industrial co-operative’ is still sometimes used internally), have continued to maintain a distance from the rest of the movement.

Like Webb, Carl Rowlands ignores worker co-ops. It may be small but the UK worker co-op sector is thriving and out-performs shareholder-owned business. Members of worker co-operatives are acting directly to provide themselves with meaningful jobs. They are in competition with shareholder-owned businesses, competition that indeed creates, as Webb charged, a downward pressure on wages. You can view that as an inherent contradiction if you like, but ask the members of such co-ops what they think and they will be clear: their work has meaning for them. They are not alienated.

Marx recognised the importance of alienation. By dismissing worker co-operatives as individualist, Webb was denying that importance. And yet in a world where technology means that scarcity can be a thing of the past, alienation is arguably the key issue. It’s certainly an issue in the mainstream consumer co-operatives like The Co-operative Group where many workers identify little, if at all, with the ‘values and principles’ of the movement. 

Webb wanted the movement to have scale. So did Peter Marks, the chief executive at the helm when The Co-operative Group made its problematic takeovers of Britannia and Somerfield. Webb wanted to create a state within a state, Marks wanted to challenge the big four. In both cases the result was alienation for staff and members. By abandoning worker co-operatives the consumer co-operative movement missed an opportunity to break down the alienation between worker and consumer. Instead the consumer was elevated to the position of key stakeholder. This means that, aside from a commitment to progressive business (fair trade and so forth), the only distinguishing feature of the retail co-operatives is their customer-member democracy.

In the case of The Co-operative Group this became an unwieldy and sclerotic structure. Commentators in the media were quick to identify it as the source of the Co-op’s recent troubles. The structure undoubtedly failed to challenge and control management ambition. The perceived failure has led to a root-and-branch review, largely eliminating elected directors and installing a separate elected council to oversee the board.

The response of many in the movement was to see this as a betrayal of democracy and hence of the movement itself. According to this view, a co-operative must have a board of directors elected by the customer members: this is its defining democratic institution. And yet for most customer members this ‘democracy’ was at best meaningless and at worst profoundly alienating. Staff simply didn’t count as stakeholders because of an ancient taboo inherited from Beatrice Webb. This narrow and doctrinaire view of what does and what does not constitute a co-operative is counter to the spirit of the vibrant and diverse worldwide co-operative movement—a movement that employs more people than the transnationals, and enables billions to solve the problems they face by building structures that work for them.

It also denies the huge opportunities that come from looking to the future rather than to Beatrice Webb and the past.

A co-operative future

The most recent and profound crisis facing capitalism comes in part from a nightmare acceleration in the power of capital, capital divorced from any link to productive capacity. At the same time there has been a collapse in consumer confidence in the ability of the system to deliver, coupled with a dramatic increase in consumer power due to new technology.

Carl argues that the ability of capitalism to produce food cheaply and in quantity after World War 2 undermined the original purpose of the (consumer) co-operative movement. This surely is the opposite of what is happening now, when people no longer trust big business to provide wholesome food sustainably. This failure of trust is the opportunity that drives successful co-operatives like Suma, a thriving worker co-op based in Yorkshire wholesaling whole-food and ethical grocery products.

The Internet has empowered consumers in new ways not foreseen. The component of value due to search and transaction costs drove the creation of giant conglomerates in the last century, making it easy for consumers to find and buy what they needed in one place with one transaction. Now, because of the Internet, transaction and search costs have collapsed. This collapse, along with the replicability and portability of digital products, is responsible for the wholesale disruption of twentieth-century business models. The first casualties were the content industries—music, film and publishing—but other industries will soon follow.

Notwithstanding the huge power of giants like Amazon, Google and Apple, this disruption is driven by small, agile businesses. They often have flat structures with highly-motivated and engaged staff—staff who don’t feel particularly alienated.

Perhaps more importantly, these disrupters—important drivers of growth following the crash—do not require capital, at least not in the way the Beatrice Webb understood it. Modern disruptive businesses generate value through innovation, aggregation and collaboration. They use the power of the net to aggregate demand. Innovation requires speed to market and for this collaboration is a vital tool. In disruptive digital business, this is the critical success factor, more than access to capital. On the Internet, Webb’s principal objection to worker co-operatives—that they had difficulty accessing capital—matters much less.

Indeed, the Internet itself is a giant collaboration, a network of independent networks connected together in Internet exchanges. Many of those Internet exchanges, including the London Internet Exchange, the world’s second biggest, are co-operatives, owned by the networks they link up. One-member-one-vote ensures no single interest dominates. Without these co-operatives the Internet would collapse.

The Internet is creating new behemoths like Google. But it is also enabling successful new ventures using co-operative approaches. This is not obvious to many in the movement, particularly those who look back to the world of Beatrice Webb. Their difficulty in adapting to new approaches is exemplified by the reaction of many to disastrous loss of co-operative majority control at The Co-operative Bank. They argue that the bank is lost, that we should abandon it and strip it of its name. Meanwhile the bank itself is clinging to the name and its connection to the movement, without which it is dead. The Save Our Bank campaign, on the other hand, aims to build an alliance between customers, staff and like-minded investors—an alliance that could wield more real influence than members realistically had when the bank was under Co-operative Group control. This is the inclusive approach the movement now needs.

The co-operative movement was created by people who were interested in the difference they could make to their lives by working together, here and now. By recognising the opportunities offered by new technology for creating new alternatives—here and now—the co-operative movement can return to its true intellectual heritage.