How co-operatives can contribute to the social economy
With a mission to shape the British economy into something more equal, transparent and sustainable, a new voice is pushing a social economy agenda.
The Social Economy Alliance – spearheaded by 24 organisations, including Co-operative Energy, Co-operatives UK and the Wales Co-operative Centre – is drafting up proposals to encourage political parties to include a more social outlook in its manifestos for the 2015 general election.
Find out more about its mission in this video:
Here, Co-operative News presents an overview of six policy papers, which will be refined with inputs from across the UK.
Give feedback, alternative ideas or provide evidence on these policy ideas: http://s.coop/1u6ro
Take part in the Open Mic Event and have your say in Manchester on 25th March, between 2.30pm–4.30pm at GMCVO, Ardwick Green, Manchester. More details online: http://s.coop/1u6rq
1. Crisis of capitalism: Our economy is driven by business
Government protect us, while charities, citizens and neighbourhoods help communities – but it is business that feeds us, clothes us, delivers heat and light, creates jobs, pays wages, pays taxes and keeps the wheels of the economy turning. The relationship between business and society is interdependent.
But short-termism is rife with business leaders and shareholders incentivised to think only in terms of months, weeks or even days – alongside quarterly profit statements or share prices. This affects employment practices, environmental side effects and impacts on communities.
Capitalism must be rejuvenated with an injection of greater social and environmental responsibility if it is to avoid further crises.
Annual government subsidies (energy: £5bn, rail: £6bn, farming: £3bn) keep the private sector ticking – and is too often without conditions requiring wider support for society or protection for the environment.
Public trust in business can be rebuilt. This is an opportunity for business to reclaim its place as the key driver of a successful society and a positive force.
Businesses need to be more social. They need connections with people who work with them, buy from then and supply them. They can be better corporate citizens by paying their fair share of the tax burden, creating more jobs, practicing fairer employment and causing less damage to the world around us.
Evidence shows that more sustainable firms outstrip traditional firms in terms of both stock market and accounting performance.
Social, co-operative and mutual models are also commercially advantageous, as well as more socially and environmentally responsible.
What can government do?
- Legislate for greater and more proportionate transparency, disclosure and accountability of business activities across the private sector, including creation of environmental and social value.
- Review existing legislation to ensure it does not unintentionally restrict the positive environmental and social impact of business activity, or is interpreted as doing so.
- Establish new mechanisms for private businesses to demonstrate their commitment to social and environmental impact.
- Use the tax system to incentivise more socially and environmentally responsible business models and operations.
- Extend the Community Right to Buy to businesses of community interest as well as assets, enabling communities, staff and customers time to develop a bid to buy it, or part of it.
- Harness the tens of billions of pounds of government subsidies for business to maximise the environmental and social impact of the private sector, demanding greater transparency and responsibility from recipients.
2. Investment after the financial crisis
Following public outrage since 2008, new models of greater competition, effectiveness and transparency are needed in financial services.
Institutions are still too big to fail, with the banking industry in the UK dominated by the few.
Beyond the banks, the picture isn’t much healthier – returns in the UK venture capital industry average around zero since the dotcom bubble.
To keep this system ‘working’, the state provides an unprecedented array of subsidies and support. The major banks are still supported and implicitly guaranteed by the state.
Billions of pounds are directed at the established models, blue chip firms and financial services for the rich. Regulators are overly suspicious of social lenders and new models – barriers to entry are high.
Social investment, co-operative and community finance and peer-to-peer models can help address the challenge of restoring credibility, transparency, stability, sustainability and trust to the financial system.
Proper competition is needed for a market that works. More banks and regional banks would help, but are not a simple answer – the failed saving banks of Spain (Cajas) are just as relevant here as the successful counterparts in Germany (Sparkassen).
Alternative finance models are, with a human perspective, not really so alternative. They are often built around principles of making genuine connections to communities and real investment in the economy.
Despite the odds, with state support largely bypassing them, these models are successful and growing. The Global Alliance for Banking Values reports that alternative banks are delivering better returns and greater stability. Crowdfunding activity has almost doubled in just twelve months. Community development financial institution (CDFI) lending is growing year on year.
What can government do?
- Transparency is vital. Financial market regulators should ensure banks and other finance providers properly disclose and publish a variety of data sets to allow the FCA or Bank of England to have independent oversight.
- Tax incentives and public investment and guarantees should direct the flow of finance toward economically productive, socially useful and environmentally responsible sectors of the economy.
- Regulation of social investment models should be better joined-up as well as more proportionate and appropriate.
- Competition can be created through opening the doors to emerging finance models by raising awareness, and by providing financial support for those working to develop and strengthen new and responsible models of finance.
3. Services for the public?
Demographic and societal changes are putting severe pressure on public services. Local authorities’ entire budgets could be swallowed within a decade by the demands of social care alone.
Where the state still delivers services for the public, critics attack waste and perverse incentives, vested interests against reform, bureaucracy, endless reorganisations, a lack of innovation and services driven by the interests of staff (not users), short-termism and narrow empire-building, a lack of focus on outcomes, prevention and managing demand. Public monopolies don’t appear capable of responding to the challenge the country faces.
Yet where the private sector has been ushered in to enable reform, the consequences are often no better. The outsourcing market is now worth somewhere in the region of £100bn per year as successive administrations outsource services such as waste management, children’s homes and prisons, sometimes with terrible consequences.
Public service reform driven by more localised, democratic and participatory models, genuine mutuality of multi-stakeholder ownership, co-production and social innovation can help align interests between taxpayers, public servants and public service users.
There is not one ideal model. But the best providers often share common principles and may particularly embody one or more, such as a mission in the public interest; independence from the state; a significant degree of employee ownership; or community ownership and transparency.
Social enterprises, co-operatives and community-owned public service providers which tend to embody these principles are already delivering effective local services, which provide value for money for the taxpayer and reduce demands on public finances.
But the answer is not just on the supply side. The public sector needs to take on greater responsibility as a market-shaper and market steward to ensure more joined-up services, better contract management, services on a more human scale and greater diversity in the market.
What can government do?
- Freedom of information should be extended to public service providers; open book accounting should be rolled out for all public sector contracts worth more than £250,000; and public bodies should release data to providers in a variety of areas, from contracts and coverage of services to financial flows.
- Government can be a more effective market steward by developing a market of more socially-responsible public service providers.
- Government should help enable a shift towards more preventative models, radical innovation, co-creation and collaboration, and governance arrangements in the community interest.
- A Public Service Users Bill should give people a voice and more power in decisions on public services.
4. The bare necessities: Making markets work
The cost of basic daily essentials is too high. Electricity bills, heating, transport and other living costs have risen and show no sign of coming down.
Instead of a diverse range of medium-sized business – which are seen in Germany and in economic textbooks – there is instead an ‘egg timer’ economy, with a few big players controlling the flow of power.
In energy, the ‘big 6’ dominate both retail and wholesale markets, meaning there isn’t really a functioning market at all between those who generate energy and those who sell it.
In food, with large and increasing numbers of people forced to go to food banks, it is clear that some people have been priced out of the food market altogether.
Finally, prices in many of these markets are too high because of unnecessarily high demand, pushed up by waste and inefficient models of consumption.
This is about a market failure and a political opportunity. Short-term deals with the big providers or short-term price caps are not long-term solutions.
But a future government could transform the balance of power in these markets, extending greater choice to voters as consumers, increasing competition, diversifying ownership and rebalancing critical markets. The next government could hand people the power to deliver their own solutions and, in energy for example, turn the big 6 into the big 6,000 or 60,000.
Social, co-operative, mutual and community owned enterprises are the key to the solution, sidestepping the struggle between statist intervention and private profiteering through real people power. This is good old-fashioned entrepreneurship grounded in a genuine connection and commitment to the community.
What can government do?
- There needs to be a new, stronger model for competition policy, rooted in an understanding of markets in practice, and more decisive and timely in terms of action to correct market weaknesses.
- Competition economics that underpin policy action should recognise the role of social and environmental externalities in distorting patterns of competition, such as the social costs of carbon emissions, rather than assume that these can be set aside, or costed at zero.
- The next government must clear the path for social economy ‘Challengers’ across a range of sectors, including, for example, support for the development of consumer-owned energy retail co-operatives.
- New and existing infrastructure of these critical markets should be made more open through new models of community buy-outs, community financed infrastructure and public-social partnerships.
5. Rebalancing the economy
The UK economy is now returning to growth. While this has been welcomed across the political spectrum, many are asking whether this is built on the same foundations that led to the crisis.
Some areas are thriving. GDP per person in the richest area of the UK is over five times the national average and nearly ten times that of the poorest area.
There are no single solutions to these challenges. Those areas with high unemployment in the 1990s are still those suffering today. While social programmes may have alleviated the symptoms of economic disaster for many people, too often money has poured into areas without changing people’s economic prospects.
With the right policies in place at a national level, successive governments may be able to unwind some of these problems and address structural imbalances slowly, without too much of shock to those people in those parts of the country who have feel they have benefited from current models.
Macro-economic policies are needed to rebalance the economic landscape and create the right incentives for value creators. But in the meantime, social economy solutions can help address the challenges of housing, regional inequality, and disadvantaged communities.
People can be the solution to their own problems. There are new models, alternatives and ideas. Some of these models are symptomatic of the problems society faces; they don’t address the root causes but merely help people deal with the hand they have been dealt. That is important too, while the big picture slowly shifts – but other ideas are truly transformative.
A national policy is needed to rebalance the economy. There are many exceptional and inspirational examples – the opportunity now exists to build momentum and grow a movement to the point where such activities become commonplace rather than exceptional.
What can government do?
- Use the tax system to create incentives for landlords to use empty commercial property and land.
- Develop a widespread citizenship stake in neighbourhood assets through incentivisation of community shares.
- Mutualise local enterprise partnerships through a genuine and independent multi-stakeholder partnership model.
- Use the legal and tax system to open up the housing supply from second and third home-owners, empty homes, absent landlords and global property speculators.
- Help people collaborate in the housing market by supporting co-operative development models, custom build, co-housing and other models through the feasibility, planning and development stages.
- Ensure that new garden cities and similar large-scale developments adopt a significant element of community ownership and an approach to planning, development and finance that is people-powered, local and on a human scale.
6. Putting the labour market to work
While 30 million people are now in work, a figure which is higher than ever, almost nine million people in the UK are economically inactive. There is huge untapped potential here and a massive opportunity for the people of this country to lead the economy into sustained, balanced recovery.
Youth unemployment is still at historically high levels of almost one in four. At the other end of the career spectrum, over-50s are more likely than any other age group to be long-term unemployed.
Successive governments’ responses to labour market failures have been inadequate and often ineffective.
The opportunity here is to reduce the economic and social costs to young people, their families, the Exchequer and society, reduce the benefit bill, avoid lost tax revenues and improve the health and wellbeing of citizens and communities across the UK.
The next government can foster an emerging generation of entrepreneurs, social entrepreneurs, start-ups and economic and social value creators. It is these new businesses that will help create a thriving and sustainable economy. Micro, small and medium enterprises dominate the stock of businesses.
And more people than ever want to start a social venture. Around 20% of people who intend to start a business would choose to establish a social enterprise and the figure is even higher among young people.
No political party has yet fully grasped the implications of the on-going shift to self-employment and start-up and the exciting opportunities offered by social entrepreneurship and the social economy.
What can government do?
- The transition from education to work can be better supported through better measures and incentives in educational institutions; young people being given tailored and high quality entrepreneurial taster experiences at primary and secondary school; and social enterprise being enshrined in the national curriculum.
- Government programmes should support enterprise and not just working for established employers. For example, social entrepreneurship should be included within the apprenticeship framework, while the Business Bank should focus on helping entrepreneurs and social entrepreneurs not only to start up, but also to start well.
- Other government interventions can be adjusted and improved to provider greater support for enterprise and access to the job market, such as greater support for social firms in recognition of their work with disabled people who are the most discriminated against in the jobs market.
- An Entrepreneur “L” plate would provide a window of tolerance for start-ups, available only to first time business start-ups, reducing barriers to entering self-employment and social entrepreneurship, which would open up a number of reliefs, discounts and deferments for a determined period of at least one year.
In this article
- community finance
- Economic systems
- Electricity bills
- Ethical banking
- finance models
- Financial services
- food banks
- food market
- Global Alliance for Banking Values
- local services
- long-term solutions
- peer to peer
- Public services
- Social Economy Alliance
- social economy solutions
- Social enterprise
- Socially-responsible investing
- United Kingdom
- Wales Co-operative Centre
- Waste management