Gregor Gall: Are co-operatives the way ahead foran indy Scotland?

One of these will be about what kind of economy we have now and what kind of economy we should have after independence. It is in this context that the debate and discussion about co-operatives will continue – and move up a gear.

There are different types of co-operatives ranging from worker, purchasing, producer and consumer co-operatives to community co-operatives for finance, housing, land and utilities.

Purchasing co-operatives see small-sized businesses come together to act as one in buying supplies from bigger companies; in producer co-operatives, small-sized companies work together to sell their produce to bigger firms; and in consumer co-operatives, shoppers come together to buy in bulk at lower prices. Building societies, though now fewer in number as a result of demutualisation, do still exist, the Scottish Building Society being one of them. Housing, land and utility co-operatives have grown immeasurably in the last couple of decades.

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While all are important to increase the amount of co-operation in society and, therefore, reduce the amount of competition, worker co-operatives are arguably the most important because they are the quintessential foundation of the economy, namely, the activities of production, distribution and exchange.

Worker co-operatives take different forms from the pure to the hybrid, giving different emphases to the seven “Rochdale Principles”, which emanate from the founding of the first modern co-operative in Britain in 1844. The most important of these principles are voluntary and open membership; democratic member control, with each member having one vote; economic participation by members; autonomy and independence for the co-operative; and education, training and information for members.

In a pure worker co-operative, its workers fully own the enterprise and, therefore, are both managers and capitalists, giving them direct control. Hybrid forms exist in terms of employee ownership, where workers own most or all of the shares in the company through a trust but do not directly control its day-to-day management because a specific group of managers do this in between meetings of the trustees and shareholders.

In 2019, there were around 110 employee-owned companies operating in Scotland, with approximately 7500 employee-owners generating a combined turnover of around £950 million.

By early 2021, their number had risen to 195. In June 2022, the 200 mark was passed, with Scotland now having a greater relative proportion of co-operatives than any other region or nation in Britain other than London. The number of employee-owners has almost doubled since 2019. Among the latest companies to become co-operatives were Carlton Bingo and the Executive Shaving Company. Carlton Bingo is now one of Scotland’s largest employee-owned firms. It created an employee ownership trust for its 200-odd staff, with the new senior management being drawn from the previous managers.

The Scottish Government has a target of having 500 employee-owned businesses in Scotland by 2030.

There is a view that co-operatives are most suited to leftfield, hippie-type enterprises such as vegan food producers or vegetarian cafes. Nothing could be further from the truth. In Scotland, there are co-operatives in farming and fishing, services (architecture, environmental consultancy, hospitality, information technology, retail, public relations) as well as in manufacturing (engineering, jewellery, textiles, vehicles) and construction.

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One of the little-heard-about growth areas has been in social care, with Highland Home Carers, Stewartry Care, Paramount Care, Caledonia Social Care, and Aspire Housing and Personal Development Services now being significant employee-owned operators.

The start-up costs for co-operatives are very high, and thus favour non-manufacturing enterprises such as retail and hospitality. Most co-operatives in Scotland now emerge from decisions by conventional capitalists, upon their retirement, to gift their businesses to their workforces. This lowers the setting-up costs and difficulties compared to starting from scratch or buying a business, possibly a failing one.

Academic research shows the advantages co-operatives have are that they are more efficient and productive than conventional capitalist companies. This is because the worker-owners are more committed to their own enterprise, with staff retention and participation in decision-making rates much higher. This shows co-operatives are not plagued, as some might think, by endless and indecisive meetings over how to run the enterprise.

Hilary Prosser, a representative for her fellow workers at the 350-strong-employee Inverness-based Highland Home Carers, believes a co-operative “creates a company with employees who feel valued, happy and take great pride in their work, which in turn means service users receive the best care possible”.

Her co-worker Jocelyn Mitchell is chair of six trustees who oversee the work of the co-operative’s board, made up of a mix of management directors, elected employees and two experienced non-executives.

The trustees comprise three worker representatives (of which two must be co-operative employees) and three nominees of the board, with no director allowed to be a trustee. Mitchell said: “It is not our job to run the company but we do have to sanction major decisions that could affect the long-term stability of the business.

“A few years ago, the board restructured the company’s loan, opting to move the debt to a more favourable lender, which would result in us being debt-free in a few years. As trustees, we had to be satisfied that the impact of higher payments had been fully considered and that it would be for the company’s long-term benefit.”

Another urban myth about co-operatives is that they are more likely to bankrupt themselves through members taking rash decisions such as paying themselves too much. There’s no evidence of this in Scotland as the failure rate of co-operatives is much less than that of conventional capitalist companies. If anything, co-operatives are quite risk averse as worker-members know they are deciding their own futures.

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Yet with such advantages, why are co-operatives still so few in number? Although all political parties in Scotland before and after devolution support them, whether as forms of worker capitalism or worker power, state support has been somewhat lacking on the scale that is needed to reach a critical mass. In Mondragon in the Basque country in Spain and the Emilia Romagna region in the north of Italy, there are not only whole economies based on co-operatives making and providing all kinds of good and services, there is also a vast supportive infrastructure underlying their operation.

This includes their own banks and support organisations, as well as tax breaks and preference for public procurement projects in addition to start-up capital.

In the case of Mondragon, the wish to be free from Francoism was also a key driver of the desire for economic autonomy.

One or more variants of an independent Scotland would see far greater support given to co-operatives with the more radical variants trying to replicate the situation in the Basque country and Emilia Romagna region.

For the left, there remain some issues to be resolved in both theory and practice. The first concerns unions. Is there a need for them,and if there is, what does this say about the co-operatives? In pure forms of worker co-operatives, the internal relations would suggest there is no need for a union to represent workers’ interests because the workers are also the managers.

However, where this is not the case, or where one group of workers becomes dominant over other workers, unions may still be needed.

The second is that supporting co-operatives can be seen to amount to creating a form of people’s capitalism in that same way that Margaret Thatcher tried to create a form of popular capitalism through share and property ownership. The former was via privatisation of state-owned industries and the latter by selling off council houses. The third is that even when critical masses are reached in the cases of the Basque country and the Emilia Romagna, it is difficult to have “islands of socialism in seas of capitalism”. As enterprises existing within capitalism, co-operatives will be subject to the forces of capitalism, such as recessions or competing for market share with other conventional capitalist companies.

This can lead to co-operatives becoming like capitalist companies where they do not give adequate pay increases or demand longer working hours. In this sense, co-operatives can often end up being as exploitative as capitalist companies and without great benefit to their owner-members.

The best way to approach these issues in discussions about what an independent Scotland could look like is to be clear-headed about the pros and cons of co-operatives, rather than being uncritically romantic or entirely dismissive of them.

Discussion about the theory can only then be enriched by debate about the actual practice in an independent Scotland.

Gregor Gall is a Visiting Professor of Industrial Relations at the University of Leeds and co-editor of Scottish Labour History, the annual journal of the Scottish Labour History Society, www.scottishlabourhistorysociety.scot