The Strange Death of Co-operative England

by Carl Rowlands

However destructive recent mismanagement of the Co-operative Group has been, the root cause of co-operative sector difficulties runs much deeper, stemming from an unresolved contradiction at the heart of the model itself.

First published: 22 October, 2014 | Category: Economy, Employment & Welfare, History

The problems at the Co-operative Group have been widely and painfully publicised over the last year. The Group, the biggest if not the brightest star in the UK’s constellation of co-operative businesses, has been undertaking emergency measures, forced to sell off some of its most profitable enterprises, such as the pharmacy division, and its farms. The Group’s future, upon which most co-operative retail in the UK depends, is unclear. Yet, however destructive recent mismanagement of the Group has been, the root cause of co-operative sector difficulties runs much deeper, stemming from an unresolved contradiction at the heart of the model itself.

The growth of co-operative societies in the UK through the latter years of the nineteenth century paralleled the rise of skilled labour trades unions. Both downplayed their radical heritage, from Robert Owen’s writings and attempts to create socialist communities in Scotland and the USA, to the Chartists, who had so threatened the rights of England’s propertied classes. Co-operative societies and trades unions both represented an uncomfortable accommodation with everyday life under capitalism in Victorian England, seeking to ameliorate the practical problems that system threw up rather than to frustrate and replace it. The Rochdale Pioneers, accredited with founding the forerunner of the current Co-operative Group, were probably more implicated in evangelical Christianity than revolutionary socialism.

But there is little doubt that underpinning the success of these associations was an implicit criticism of capitalism, as it then existed, and the failure of markets to successfully provide reasonable employment and access to decent food and housing. Many of the first co-operatives were not dedicated to retail, initially describing themselves as ‘Industrial’ societies, and there were high expectations that they would make possible a manufacturing process that was more efficient and, at the same time, much less exploitative. These early attempts to run companies without bosses or managers tended to be concentrated in the threatened artisan sector. They promised autonomy and to restore freedom to the terms and conditions of the workplace.

Co-operating competitively

The central contradiction in their model, highlighted by Beatrice Webb and many others at the time, was that to maintain efficiency within individual worker co-operative enterprises it was necessary to set the value of labour at a rate the capitalist system would allow. Wages had to be competitive. Unlike in wider, member-owned retail co-operatives, the labourers involved in this early co-operative production were isolated from other labour units, were not subject to union pay scales and attempted to exist as a non-capitalist entity within wider capitalist social relations. Webb warned that such producer co-ops—which she labelled individualist—would quickly fall behind without access to capitalist-directed large-scale investment.

As the leading co-operative theorist of the time, Beatrice Webb sought an institutional solution to the issues inherent in small-scale producer co-operatives. She was a strong advocate of the Co-operative Wholesale Society (CWS), the direct forerunner of today’s Co-operative Group, which she described as operating according to co-operative federalism, as opposed to the individualism of producer co-ops. Webb contrasted retail co-operatives, which drew a wider membership from the town or surrounding area, and which made this membership sovereign, from the producer co-operatives, which consisted solely of the members directly employed within the enterprise.1 Building upon the existing network of retail co-operatives, she imagined a huge Co-operative Wholesale Society as a ‘state within a state’ and aimed to build up its capabilities and scale to create what could be described as a kind of socialist corporation. The corporation would operate as a mass wholesaler and backer for all of the retail co-operative societies in the UK, and would ensure that the retailers were part of an overarching movement. The scale would be such that it would engender an economic micro-climate around itself, benefiting from rent power and thereby influencing the surrounding social and economic relationships. Armed with its own bank, it would be able to control its own finance and investment strategy.2

But with the onset of long-term, structural difficulties in the British economy during the Great Depression, disproportionately affecting the working classes in the strongest co-operative areas, such as the mill-towns of Lancashire, what began as a deliberately engineered process of creating an unsinkable, large wholesale society became a dash to absorb struggling businesses before they disappeared. Profits that continued to be made from the different parts of the business—the co-operative insurance service, for example—were not consistently re-channeled into investment in food production or retail. It was originally envisaged as a federated wholesale business, set to gain in strength as more local societies sheltered under its protection. Yet the infant CWS instead became pre-occupied by both deflationary economics, which deeply impacted the co-operative movement in its industrial heartlands, and the prospect of profit from nascent ‘white goods’ consumerism in the South and Midlands. In 1933, the CWS was forced to create a retail operation of its own—the Co-operative Retail Services (CRS)—for the express purpose of absorbing failing retail societies. From this moment, events increasingly diverged from Webb’s initial plans.

The original purpose of these retail societies was simple: to guarantee a supply of untainted foodstuffs, provided at low cost. Following the Second World War, however, this objective became increasingly redundant as the capitalist food industry developed into a sprawling petro-industrial hive of global production, logistics and processing, all of which resulted in—it’s fair to say—reliable and cheap food. It became increasingly difficult for co-operatives to compete with high-street discounters, as control over supply became ever more concentrated and farms conglomerated and industrialised. Webb’s plan would have seen the federated co-operative (CWS) establish a dominance over the business of food production and distribution; in the event, private capital proved better able to build upon wartime advances in domestic production, which allowed the sharper retailers to benefit from a glut of produce and drive forward automated processes. The emergence of the supermarket and the luxury trappings of modern food consumption were not driven by the co-operative sector—rather, the latter was left floundering in their wake, struggling to respond to a paradigm shift over which it had little purchase.

In the 1960s, 70s and 80s, in the absence of a dominant federated co-operative wholesaler, UK co-operative societies each had their own buyers who were played off against each other by the major food manufacturers. Co-operatives therefore ended up paying as much as 10% over the odds for their supplies—this even without the corruption and kickbacks that were allegedly rife throughout the period. Co-operative retail lost market share throughout the 60s and 70s, whilst contraction was funded by the sale of freehold assets. The CWS, designed to be a wholesale supplier, found itself acting instead as a retailer, as it attempted to staunch the avalanche of collapsing retail societies. This sometimes put CWS-owned stores in competition with stores run by independent societies, or even by its former offshoot, Co-operative Retail Services. The results were often chaotic. At a time when the retail sector was growing massively, expanding the range, availability and format of shops, retail co-operatives were being left behind.

In the throes of collapse, its woes exacerbated by the Thatcher government’s economic policies, the CWS in 1983 created a Co-operative Retail Trading Group (CRTG) to act as a central buyer to negotiate with the all-powerful major food suppliers. Whilst not every co-operative society bought in—Co-operative Retail Services maintained its own consortium until 1998—this did result in a more disciplined single structure which managed to slow down the decline in market share and secure a return to sustainable levels of profit for many independent societies and for CWS’s own retail division. The CRTG stabilised the situation. However, it represented a decisive acknowledgement of the co-operative movement’s situation: that it would never be the main player in food distribution and supply, but would operate in perpetual partnership with the big businesses that dominate food manufacture in the United Kingdom. The Co-operative movement was saved, at the price of its status as a real alternative to the corporate model. In essence, capitalist social relations had established their predominance. What Webb had predicted would happen to producer co-operatives had eventually occurred to her own co-operative federation.

Co-operation from above

The CRTG has effectively functioned as an umbilical cord connecting wider co-op retailing to the mainstream of modern UK retailing supply. Through it, CWS shops and ‘independent’ co-operative societies have been able to draw upon a centralised supply network and thereby consolidate buying into a singe bloc. One consequence has been that higher echelons of CRTG management developed close—perhaps too close—relationships with the suppliers. By the 1990s, the CWS was a messy hybrid of federation, wholesaler, banker, insurer and retailer. Neither it nor its separated retail division, the CRS,  had shareholders, which meant neither was subject to discipline of shareholder scrutiny. Instead, both comprised a hierarchy of elected members, many of whom were elected unopposed. As members progressed up the hierarchy, there was always a risk that their proximity to management would render them complicit, rather than exacting, representatives. In the absence of  a well-organised internal opposition—arguably the word opposition is itself un-cooperative—the higher echelons of management in both CRS and CWS exercised a level of control over their businesses that was at least equal to that of their corporate rivals.

With the numbers of forced mergers increasing throughout the 1960s, 70s and 80s, many towns and cities, and indeed the entire country of Wales, entirely lost their independent co-operative retail societies. The democratic structures of the Group and its constituent parts have struggled to absorb members who would previously have had far more direct leverage with their local stores. As evidenced by the unfilled seats on local members’ boards, and the majority of listless, heavily managed members’ meetings, the democratic processes which distinguish co-operative organisations have suffered, despite the best efforts of many. The process of rescuing failed societies, often bravely undertaken in the most difficult circumstances, has led to increasingly unwieldy and unlikely democratic structures. Only in rare instances, for example in the Oxford, Swindon and Gloucester Co-operative Society during the 1990s, have members been able to re-establish vibrant democratic control. 

In common with most other retailers of the same scale, major retail co-operatives have been employers with a steeply hierarchical structure, in which a large number of employees receive poverty wages. Even those staff working for the co-operative funeral service are increasingly employed on zero hours contracts. This contrasts, as it does elsewhere in the sector, with extremely generous executive renumeration. This is nothing new: since the Second World War, despite a cosy relationship with retail union USDAW, the Co-op has consistently paid some of the lowest wages in retail, even presenting a grumbling resistance of sorts, conducted internally, to Labour’s introduction of a national minimal wage in the 1990s. This would seem to make a mockery of Webb’s original intentions, which envisioned the working conditions of the co-operatives setting a positive example to other businesses. As initially conceived, it was assumed that co-operative employment conditions would be exemplary by default, since the federated co-operative (in this case, CWS) would largely determine the environment within which its members operated. But as retail developed in a different direction, the structures designed to represent workers at the highest level of the company have proven wholly inadequate.

The current crisis

However imperfect, the CWS could plausibly claim credit for stabilising the co-operative retail sector, though the cost of consolidation has been a high degree of uniformity within the shops themselves. By the mid-1990s, it was seen as a respectable, if conservative, organisation. But in 1997, a city trader, Andrew Regan, who in 1994 had already benefited from a dubious firesale of CWS-owned manufacturing facilities, threatened the CWS with a corporate takeover—attempting to convert the business in much the same way that building societies had been converted from mutuals into private entities. This jolted the movement, as well-respected executives had been involved in the conspiracy. It precipitated a re-examination of internal structures, eventually contributing to the merger (or re-merger) of the CRS and CWS into today’s Co-operative Group. The Group inherited many of the issues which had afflicted the individual societies over the years—shops in dire need of investment, and a hollowing out of democratic representation—but there was a degree of trust in the stable, if unadventurous, leadership of the time, and an expectation that the worst was over. 

The rest, alas, is recent history. Another merger, this time with United Co-operatives, was followed by disastrous purchases of Somerfield and Britannia Building Society, and a farcical attempt to prove the Group’s worth to the current government by bidding to run hundreds of Lloyds TSB branches—events mercifully preventing that particular catastrophe from materialising. Last year's implosion and the resulting state of the Group today reflect recent failures of management, to be sure, but its roots lie in the compromises forced upon the co-operative movement by its failure to free itself from the constraints of capitalist competition. These accommodations progressively transformed co-operation from an alternative to the capitalist food industry to a poor imitation of it, as the co-operatives imported the worst features of the latter without the pay offs.

Recent shifts in the retail environment away from big supermarkets may yet present the UK co-operative movement with a chance to find a new role. The legacy of recent crises will, however, substantially reduce its room for manoeuvre. Whilst it has achieved much that is laudable and ethical, the federated co-operative sector in the UK has not threatened the wider social relations of capitalism. Its effect on the way food retail is conducted has been marginal, and on the structure of the labour market, negligible. One wonders whether finding an ethically-principled accommodation with capitalism is becoming even less possible now than it was in the 1860s.

Top image: Representation of the Co-operative Wholesale Society (CWS) flour mill in Silvertown, London, England at the Royal Victoria Dock. It is believed to show the factory as it looked in 1915

Carl Rowlands is an activist and occasional writer based in Budapest.

 


1 Beatrice Potter, The Co-operative Movement in Great Britain (London: Allen & Unwin, 1904 [1891]).

2 Webb’s concept of a federated co-operative was arguably realised more convincingly in the development of the Mondragon Corporation, her work having been cited as directly influencing its founders. One of the major critiques of Mondragon, Sharryn Kasmir’s The Myth of Mondragon, acknowledges the positive effect of a mass-scale federated co-operative upon employees’ terms of conditions in the Basque country as a whole.

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