A different point of view: Ha-Joon Chang

What does the current co-operative movement look like to a world-leading economist?

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One of the world’s leading economists gives his frank analysis of the co-operative movement and what it needs to do to establish its relevance today.

“I feel like an imposter,” says Ha-Joon Chang in his book-lined office at the University of Cambridge.

Korean born Chang is a prize-winning economist. An advisor to everyone from the World Bank to Ecuador’s President Rafael Correa and ranked inside the top 10 of Prospect’s world thinkers this year, his views deserve to be taken seriously.

Economics: The User's Guide by Ha-Joon Chang is published by Bloomsbury Press on 26 August 2014

Economics: The  US edition of User’s Guide is published by Bloomsbury Press on 26 August 2014

Chang is also the keynote speaker at the International Co-operative Alliance’s research conference in Croatia this June, where he will launch the US edition of his new book, Economics: The User’s Guide, which aims to help people understand the often obscure economic theories that drive so many policy decisions.

He feels like an imposter because, although supportive of the co-operative model, he is distinctly downhearted about the movement and offers a frank account of its current state.

Throughout Chang’s work, there is a persistent concern about short-termism in the economy.

“One disease of capitalism today is that the influence of short-term impatient capital has become too strong. Of course you want some liquidity and speed. But my view is the balance has been broken. Whatever delivers a result next quarter, at most next year, is preferred over long-term development of the enterprise.

“Frankly, shareholders couldn’t care less. They ruin a company by not investing, demoralising workers, destroying subcontractors; that’s not their problem because next year they will own some other company.”

Chang’s support for co-operatives comes from his view – similar to the argument that many in the co-operative sector have used throughout the financial crisis – that co-ops, as “membership-based organisations, tend to be more long-term oriented”.

The question he asks is why, despite their size, is there such limited awareness of co-operatives? “In Switzerland, a co-op is the second biggest supermarket. We eat butter and milk produced by Danish and Swedish co-ops all the time. And people don’t realise,” he says.

“I think there are two reasons. One is an overall change in political atmosphere. The general shift to the right, if you like. Co-ops are seen as some old-fashioned lefty idea which has had its time.

“A fault also lies with the co-ops themselves. My interpretation is that the co-operative movement has lost faith in its own identity.

“If you don’t take pride in the fact you’re a co-op, you don’t tell other people and therefore people don’t know who you are or what you stand for. If you don’t have faith in yourself, why should other people take you seriously?

“I think that’s the trouble. There is an identity crisis.”

Chang explains this is a problem because, although the economy needs more businesses motivated by long-term interests, co-operatives are not the only way to encourage long-term thinking.

“By changing the tax incentives of shareholders you can make them behave differently. For example, if you said that by holding on to the company share for longer you would get exponentially more votes, or if you say you hold a share for five years your capital gains tax will be lower, a lot of shareholders would hold on.”

He also highlights the German model of ‘co-determination’, which requires large businesses of national significance to have a two-tier board structure. “They have the management board,” he says, “which is like any other board, but also a supervisory board, where there is an equal split between the members appointed by the employers and the members appointed by the workers. The chairman has the casting vote on who is appointed by the employers.

“The goal is for those making big corporate decisions to make them in a way that is more sustainable in the long run, not just looking for the next quarter’s profit. There are many different ways of achieving that. Co-operatives and mutuals can be one of those vehicles.”

But they are the not the only ones. Co-operatives need to prove their relevance.

What does Ha-Joon Chang suggest that co-operatives do to demonstrate this relevance? He points to two areas that co-operatives need to act on. Firstly, a definition of of their priorities.

“The biggest question is how to reconcile the tension between being a membership organisation (and therefore serving the interests of the members) and considerations for broader social issues,” he says.

This is a tension that he sees very clearly at Mondragon Corporation, the large Spanish worker co-operative. Referring to stories in the news that, although it protects its members’ jobs and wages in Spain, it has a number of subsidiaries staffed by non-members that do not enjoy the same conditions. “Controversies such as Mondragon using non-member subsidiaries make people ask ‘what’s the difference?’” he says. “It doesn’t really stand for anything bigger, so why should we take it seriously?”

He explains that Mondragon has these subsidiaries in order to compete. “The inherent challenge is how you run a large democratic and egalitarian organisation in a capitalist economy, where everyone else is doing things in a non-democratic and in-egalitarian way.

“If you asked Mondragon why it has so many non-member subsidiaries, they would say that otherwise they wouldn’t survive, and by surviving they at least serve some purpose. It is better to do those things and not get destroyed. I totally buy that argument.

“But you have to be clear about your objectives. People are not stupid. If you explain to them that this is the reality, this is the limit and this is what we do, people will understand. If you don’t say this, then when people do find out, they think you are just the same as non-co-operative organisations, and people lose faith in you.”

First, then, co-operatives need to define and communicate what they stand for: do they exist to serve their members or do they have a wider social purpose?

Secondly, Chang believes co-operatives need to demonstrate their relevance. He points out that people are unaware of the number of co-operatives, while high profile co-operatives “have done things that you wouldn’t normally associate with being a co-op” and businesses like Waitrose “don’t shout about being a co-op”. Quite simply, “co-ops haven’t kept up”.

“The co-op movement needs to redefine its identity, to rebrand, to try to preserve the values it has allegedly stood for, and update the ways in which it delivers those values,” he argues.

He highlights the issue of executive pay and pay ratios as one that is damaging for the reputation of co-operatives.

“I’m not against people getting paid a lot,” he says, “as long as their contribution is commensurate. I think a 3 to 1 [ratio between the highest and lowest paid] is probably too low, as is 9 to 1. On the other hand, 160 to 1? That doesn’t sound right. So, what would be right? You need to do some soul-searching and at least try to come up with some semi-objective measure of people’s contribution and try to redefine what being relatively egalitarian in this particular time means.”

Similarly, Chang points out that “people do participate in co-operative schemes like Groupon and other fly-by-night co-ops. Given people’s excitement with that kind of thing, why do you not invent some new word for co-op and try to redefine your identity, updated with the change of time?”

Ha-Joon ends apologetically. He doesn’t want to be critical of co-operatives or be seen as an imposter.

He sees them playing an important role in the economy, putting the long-term interests of people before short-term profits – but he wants co-operatives to wake up, to be clear what they stand for and to promote that identity in a modern, relevant way.

The International Co-operative Alliance’s research conference takes place from 25 to 28 June in Pula, Croatia. www.ica2014.coop


Ha-Joon Chang on what the co-operative movement must do now

  • Reconcile the tension between being a membership organisation serving the interests of the members and considerations for broader social issues.
  • Be clear about who you are and what you want. If you don’t have that, you don’t know where to draw the line. Decide what your priorities should be.
  • Redefine your identity, updated with the change of time.
  • Preserve the values you have allegedly stood for, and update the ways in which you deliver those values.

Ha-Joon Chang on the economy

Reasons for pessimism

  • “We have had one of the most pathetic recoveries in human history. You [the UK] are going to get a ‘lost decade’ even worse than Japan’s ‘lost decade’, which is the by-word for failure.”
  • “To make it worse you have all these huge bubbles growing – the housing market, the stock market. The stock market index price is basically the same as we had in autumn 2007.”
  • “We have learned so few lessons from this crisis. There has been some marginal tinkering – prudential lending requirements for banks and so on – but basically it’s the same game again. It makes me very pessimistic.”

Reasons for optimism

  • “Students are acutely aware that the kind of economics they are taught is largely useless, if not actively distorting in explaining in reality. Unfortunately the teachers still have to wake up to it. Seriously, which subject has a nationwide open revolt by students?”
  • “My professional colleagues, most of them are so arrogant, they say ‘these students, they don’t know what they are talking about.”
  • “In the end my colleagues will have to answer to the market that they so love. The customers are saying what you are giving us is shoddy.”
  • “This is one thing that makes me a bit hopeful. The young generations are finally saying enough is enough; we have to do things differently.”

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About Giles Simon

Giles Simon is the Strategic Development Manager for Co-operative News