Co-operatives: the people’s movement

Co-operatives: the people’s movement
The Guardian

Just as Captain Renault was shocked to discover that gambling was going on under his nose in Casablanca, so the world has been shocked to discover a banker allegedly buying cocaine. More shocked, seemingly, than it was to discover that a Methodist preacher who had never progressed beyond part one of the Institute of Bankers’ exams was chairing the Co-operative Bank as it embarked on a series of mergers and buyouts that would put it in the front rank of retail banking.

The Rev Paul Flowers is disgraced. Police are investigating the drug allegations. His church has suspended him. The Labour party has stripped him of his party card. This is a personal catastrophe. It is quite separate from his role at the bank. His detractors should recall that the regulators approved his appointment and monitored the bank’s projects. And MPs should recall that politicians cheered from the sidelines, promoting him and his bank as the human-scale answer to the City fat cats that the taxpayers had had to bail out.

Hindsight is a wonderful thing. It’s only two years since the chancellor, George Osborne, triumphantly declared the Co-op Bank’s proposed takeover of 632 Lloyd branches around the country as the arrival of "a new challenger bank". In 2009, Labour had been equally enthusiastic when the Co-op trebled its high street presence through its acquisition of the Britannia building society. Now the deals are in tatters: the Lloyds buyout, Project Verde, stillborn, and the Britannia deal blamed for reducing a proud 140-year-old mutual venture expressly intended to support local business to the status of City roadkill, good only to be picked over by vulture funds like Aurelius and Silver Point. The bank insists its ethical values can survive. But that depends on the hedge funds thinking they are an important enough part of the brand to preserve.

On Tuesday, Len Wardle, who chaired the Co-operative Group, the conglomerate that includes the bank, along with the funeral parlours, farms, pharmacies and food shops that make up "the Co-op", added to the sense of crisis when he stepped down in an acknowledgement of his responsibility as the chairman of the board that appointed Paul Flowers. In the short term, his place has been taken by Ursula Lidbetter, chief executive of the Lincolnshire Co-operative since 2004.

Lincolnshire is a model of what mutualism can achieve: as well as its food shops, it subsidises rural post offices, owns social housing and is a commercial landlord. It’s the seventh largest of the co-op societies – it made an £18m trading surplus this year, and it is handing over a £4.2m dividend to its 228,000 members. If the authoritative voice of success were going to be enough to salvage the brand, then Lidbetter’s should be it. But clearly it will take more than that to restore confidence in a group stitched together out of the Co-operative Wholesale Society and Co-operative Retail Services only a dozen years ago.

As Paul Flowers told MPs on the Treasury committee a fortnight ago, the bank was not only struggling to handle Britannia’s growing book of dodgy debt as the regulator demanded greater security – which ended with the catastrophic £1.5bn black hole in its accounts – it was also embroiled in a huge back-office rationalisation exercise. The irony of the failed Verde bid was that strong management and a new IT system were part of the deal.

The sensible lesson from this sad tale is that mutuals may have limits and should probably test them by growing organically rather than by hubristic capitalist-style merger and acquisition. The foolish one is to declare that the mutual model itself is broken. It’s easy to mistake the Co-operative Group for the co-operative movement. In fact, it accounts for just over a third of the value. There are 6,000 co-operatives in the UK alone, and a new one sets up each day. Credit unions have a million members. Two-thirds of Scotland’s farmers are in co-operatives. The weakness of the Co-op bank wasn’t that it was a co-operative, but that it was a bank.