TURNING THE TIDE TOWARDS A MUTUALIST PHILOSOPHY AND POLITICS FOR LABOR AND THE LEFT.

Part I Understanding Mutualism: The Desjardins and Mondragon Experiences

Mutualism

The Labour Movement is sometimes said to have stemmed more from Methodism than from Marx. In reality, Labour owes less to either Methodism or Marx than to Robert Owen. Owen endowed the early Labour Movement with a guiding philosophy -- a philosophy which energised and inspired its adherents, and enabled them to overcome immense obstacles and, at a later date, gave rise to the Labor Party. Its name was mutualism.(1)

The founders of the Labour Movement -- driven as for the most part they had been from the land by the enclosures and clearances, and reduced in the new industrial towns to extremes of poverty, destitution and degradation such as are today all but unimaginable -- embraced mutualism as an alternative to the rampant freemarket capitalism of their day. Mutualism was expressive of the fundamental Labour Movement truth, that more by far can be achieved by working together for common objectives than in isolation from one another. It was encapsulated in that greatest of all Labour Movement rallying cries `one for all and all for one'.

Practical, hands-on mutualism became the means whereby the oppressed and excluded -- in Franz Fanon's stark phrase `the wretched of the earth' -- obtained through self-help the necessities of life which otherwise would have been unavailable or higher priced. For example, the Rochdale Pioneers -- the twenty-eight poor cotton weavers who established their co-operative store in Rochdale near Manchester in 1844 -- were responding to an urgent community need for affordable household requisites such as food and fuel.

Credit co-operatives were a response to the need for affordable carry-on loans for smallholder farmers and later for affordable household credit. Friendly societies were initially a response to the need for funeral benefits, and, later, for unemployment benefits, sickness benefits and medical and hospital care. Access to affordable life assurance was offered by mutual life assurance societies, as was access to affordable home loans by building societies.

Agricultural processing and marketing co-operatives met a pressing need on the part of farmers to capture value added to their produce beyond the farm gate. Worker co-operatives responded to the need on the part of workers for secure employment by enabling them to own their workplaces and jobs. Trade unions were originally mutualist bodies or co-operatives formed by employees in response to a pressing need to obtain better working conditions and a just price for their labour.

State Socialism 

Side by side with the creation of these great mutualist institutions, mutualism also gave rise to new political philosophies. Gripped as Labour's pioneers found themselves by an intense revulsion and agony of conscience over the persistence of poverty, deprivation and inequality in the presence of wealth and abundance, they were not afraid to challenge politically the shibboleths and sacred cows of unfettered competition and free-market ideology.

Nor were they afraid to think radically about the remedies. Mutualism was a rich source of perceived new possibilities for overcoming entrenched inequities and injustices. What key schools of reformist thought had in common was, in the words of the great Polish social-democratic philosopher, Leszak Kolakowski, `... an obstinate will to erode by inches the conditions which produce avoidable suffering, oppression, wars, racial and national greed and vindictive envy'.

The issue which divided the reformers most fundamentally was whether, as many on honourable grounds concluded, the suffering of the dispossessed could not be relieved more rapidly and with greatest certainty through state socialism -- through socialism on the model of the command economy and the statutory corporation? Or could not change be effective only if it was from the bottom up? If the state socialist model has proved to be flawed -- if its performance has fallen tragically short of its promise -- that in no way makes less admirable the selfless dedication to the advancement of the dispossessed which so largely motivated its advocates.

It as much honours the motives of the state socialists as it acknowledges their failure, to address now the new question of whether, as Francis Fukuyama so famously suggests, we are not now at the end of history, and neo-liberalist capitalism -- whether the rampant free-market economy is not now the only game in town? Or are there not also older reformist traditions centring on mutualist, associative, and communitarian thought, which state socialism in its day overshadowed? Should not this rich reformist inheritance now be re-visited, re-assessed and reclaimed? Outstanding examples of the achievements and on-going relevance of mutualism and mutualist bodies which cry out for attention include -- to name only two -- Canada's Desjardins credit unions and the great complex of manufacturing, retail, financial service and support co-operatives at Mondragon in the Basque region of Spain.

Desjardins

The Mouvement des Caisses Desjardins began in Levis in Quebec in 1900, at the instigation of Alphonse Desjardins. Desjardins -- a committed Catholic and advocate of social Catholicism -- was a Hansard reporter for the Quebec provincial parliament from 1879 to 1891, and later Clerk Reporting of the Canadian parliament in Ottawa between 1892 and 1917. His conscience was aroused by the poverty and unemployment which were driving away large numbers of his fellow citizens to the United States in search of work. He was appalled also by the inability of working people and farmers to borrow at interest rates which were within their means. His original caisse or credit union -- La Caisse Populaire De Levis -- was seen by him as `putting the savings of the people at the service of the people'.

As in all credit unions, members pooled their savings, and took turns for affordable loans. The first transactions were conducted on 23 January, 1901, at Desjardins' home, which remained the nerve-centre of the movement until his death in 1920, and is now preserved in his memory as a museum by La Societe Historique Alphonse-Desjardins. Credit union members, Desjardins believed, would be encouraged to practise thrift and financial responsibility. Christian and humane values would be fostered. Usury would be discouraged. In time, credit unions would form federations, and a great movement would emerge.

Desjardins' dream is now a reality. The movement which bears his name numbers some 1,254 community credit unions (`caisses populaires') and industrial credit unions (caisses d'economie), with 5.5 million members and assets totalling C$76.7 billion. The Desjardins credit unions are now the largest financial intermediary in Quebec and the sixth largest in Canada. Their collective market share within Quebec totals 41.2 per cent of all farm loans, 38.4 per cent of residential mortgage loans, 31.9 per cent of consumer loans and 21.1 per cent of loans for commercial and industrial purposes.(2)

The outstanding commercial success of the Desjardins credit unions reflects their commitment to continuous reinvention -- to constantly adapting their objectives and structure in the face of changing needs and circumstances. As the long-serving former president of the Confederation, Claude Beland, has stated in a message for its 1998 Annual Report:

The Mouvement des caisses Desjardins is continuing go rein vent itself in order to remain the preferred financial institution of most Quebecers, as well as their natural partner in collective projects at the local, regional and provincial levels.(3)

Structurally, Desjardins community credit unions within Quebec are grouped at present on a regional basis in 10 federations. There is a separate federation for the industrial credit unions, and three auxiliary federations for credit unions outside Quebec. The functions of the federations are to promote the effectiveness, growth and development of their affiliated credit unions, and provide joint services such as communications, technical support, training and human resources management. The federations in their turn comprise La Confederation des caisses populaires et d'economie du Quebec.

The Confederation sets objectives for the movement as a whole, after extensive consultation with the credit unions and their members. It is also a service provider for the credit unions and federations, in part through wholly-owned subsidiary companies. For example, credit unions are able to source their credit card and information technology services directly from the Confederation. Direct clearing within the Canadian payments system and at the Bank of Canada is made available through La Caisse Centrale Desjardins du Quebec. The Desjardins-Laurentian Financial Corporation has majority holdings in four intermediary companies, with subsidiaries offering general insurance, life assurance, trust and investment management services and corporate financing services. A liquidity and mutual aid fund is operated through Fonds de securite Desjardins. A secure delivery service for cash and other valuables is provided indirectly from a Confederation subsidiary, Secur, as is an automated system of authorisation and payment for pharmaceutical services by a subsidiary of the Desjardins-Laurentian Life Assurance Company (DLLA), Centre d'Autorisation at de Paiement des Services de Sante.

However, be the Mouvement's current structures as comprehensive and sophisticated as they may, they have in no sense ceased to evolve. Nor is the Mouvement now resting on its laurels. On the contrary, further major changes in its structure are to take effect on 1 July, 2001. As from that date, the current regional federations will merge with the Confederation to form a single entity. At the same time, the service functions of the federations will transfer to eighteen regional service centres. Their political functions will transfer to a new regional assembly with a regional council member whose president who will become a member of the board of the Confederation. At a grassroots level, mergers are expected to reduce the number of smaller credit unions to around 600.

Additionally, impressive as has been the capacity of the credit unions for structural change, what has been far more impressive is the continuous up-dating and expansion of their objectives. As the 1998 Annual Report affirms: `Job creation and support are major concerns for Desjardins'.(4) What was conceived originally by Alphonse Desjardins as a means of combatting usury and providing affordable consumer credit for working-class households is now also a driving force for regional and local economic development.

The key elements of the Mouvement's involvement in economic development are plain. The development function is vested in part in a holding company, Investissement Desjardins (ID). ID supports the development of industrial and commercial enterprises and participates actively in Quebec's economic growth. It is tasked:

a. to support the development of Regional Investment Funds;

b. to support high-tech businesses, in industries such as communications, electronics, health care and the environment;

c. To assist businesses associated with the Desjardins movement in gaining access to international markets; and d. to act as a consultant to regional federations on investment in businesses within their regions.

Other ID objectives include, in the first instance, seeking out entrepreneurs who have proven records for making their businesses grow and become profitable, and who need additional strategic and financial support for acquisition, expansion or diversification projects; and, secondly, acquiring or maintaining majority or preponderant shareholdings in large companies which are actual or potential leaders in their sectors and should be owned in Quebec.

At the regional level, ID has so far established five of a projected ten wholly owned regional investment funds. The funds reflect an explicit recognition by Desjardins that venture capital is often an essential ingredient for local businesses to succeed. For example:

Investissement Desjardins recorded a first by joining forces with a federation, the Federation du Saguenay-Lac-Saint-Jean, to launch a new venture capital fund with capitalisation in excess of $6 million. Through this partnership, the region's companies are able to draw on the expertise of Investissement Desjardins advisors, have access to capital tailored to their requirements, and receive strategic support to ensure their growth. The Fonds d'investissement Desjardins du Lac-St-Jean makes investments of $50,000 to $500,000.(5)

In addition, many of the Mouvement's regional federations and their individual credit union affiliates participate in some 284 other local and regional investment funds with assets totalling C$3.5 billion. ID also supplements credit union capital and enhances development within Quebec from overseas sources. Its international thrust is seen as being `to find foreign investors to become partners in Quebec businesses, open foreign doors to Quebec businesses and stimulate foreign investment in Quebec'.

As of 1999, ID was associated, either directly or through its funds, with some 74 small and medium-sized businesses that were either starting up or expanding their activities, thereby helping to maintain or create close to 15,000 jobs in Quebec. Its strategy was to focus increasingly on the technology sector -- on the computer software, telecommunications, health and multimedia industries -- where its portfolio included some twenty businesses, many of which were said in the Annual Report to be `just starting up and looked very promising'.(6)

Nor, finally, is Desjardins indifferent to the uses of development along explicitly mutualist and co-operative lines. It also invests directly in the creation of new mutualist and co-operative businesses through both individual credit unions and Desjardins-Laurentian Life Assurance. A notable example is services for older people. As the 1998 Annual Report records:

An aging population led several caisses to participate in setting up co-operatives offering home services, and DLLA is especially active in this Field, giving Financial support to the start-up and growth of co-operatives and the federation which groups them.(7)

That mutualist enterprises should be fostered along these lines is consistent with the Mouvement's overall unflinching adherence to mutualist values and principles.

In Claude Beland's eloquent and stirring words: For the Desjardins credit unions, developing stronger business relationships with their members and promoting the co-operative way of life in the communities they serve will remain priority areas of involvement for many years to come.(8) The social and economic disturbances currently affecting almost every society around the world make the co-operative Formula all the more relevant today, as communities seek ways to. improve their lives in the midst of turmoil. In such an environment, our extensive network of financial co-operatives here in Quebec is not only an invaluable asset for Quebecers, but also a model for the world.(9)

Mondragon

Mondragon is likewise a model for the world. The essentials of the Mondragon story are simple. Like the Desjardins credit unions, Mondragon was founded by a committed adherent of social Catholicism, the Basque priest Don Jose Maria Arizmendiarrieta. The Basques were on the losing side in the Spanish Civil War. In Arizmendiarrieta's words, `We lost the Civil War, and became an occupied region'.(10) Appalled by the widespread destitution in the aftermath of the defeat, Arizmendiarrieta set out to rebuild the local economy in Mondragon, along with the confidence and self-esteem of his parishioners.

His approach reflected a unique amalgam of ideas. Influenced as was Arizmendiarrieta primarily by his social Catholicism, he also drew freely on a rich and disparate range of other traditions including Rochdale co-operativism, Raiffeisenian credit unionism, social-democracy, Christian socialism and Bellocian distributism. Mondragon co-operativism and the triumphant success of the co-operatives which embody it is his enduring memorial.(11)

From a standing start in 1956, the Mondragon co-operatives have grown to the point where they are now the largest business group in the Basque region of Spain, the ninth largest business group in Spain and a major competitor in European and global marketplaces. What began forty-four years ago as a handful of workers in a disused factory, using hand tools and sheet to make oil-fired heaters and cookers, has now become a massive conglomerate of some 160 manufacturing, retail, financial, service and support co-operatives. Annual sales are now approaching -- and will shortly exceed -- $US7 billion.

The Mondragon Corporacion Cooperativa (MCC) report for 1998 shows that sales of manufactured goods were up on 1997 by 13.8 per cent, assets by 25.9 per cent and profits by 31.7 per cent. All told, the MCC provides jobs for roughly 3 per cent of the Basque region's 1,000,000 workers. While the region has lost 150,000 jobs since 1975, and the level of unemployment is currently around 20 per cent, employment in the co-operatives increased between 1997 and 1998 from 34,397 to 42,129. Export sales of MCC products in 1998 were up on 1997 by 18 per cent, to 47 per cent.(12) The MCC is Spain's largest exporter of machine tools and largest manufacturer of white goods such as refrigerators, stoves, washing machines and dishwashers. It is also the third largest supplier of automotive components in Europe -- designated by General Motors in 1992 as `European Component Supplier of the Year' -- and a leading supplier of components for domestic appliances.

Whole factories are designed and fabricated to order in Mondragon, for buyers overseas. In addition, subsidiaries operated by the MCC in conjunction with overseas partners manufacture -- for example -- semi-conductors in Thailand, white goods components in Mexico, refrigerators in Morocco and luxury motor coach bodies in China. MCC construction co-operatives carry out major civil engineering and building projects at home and abroad, the building of key facilities for events such as the Barcelona Olympic Games. The steel structure for the new Guggenheim Museum in Bilbao -- a building comparable in stature to the Sydney Opera House -- was fabricated by a Mondragon co-operative.

The MCC also includes Spain's fastest-growing retail chain -- Eroski -- which currently operates 37 Eroski and Maxi hypermarkets, 211 Consum supermarkets, 419 self-service and franchise stores and 333 travel agency branches. The MCC financial co-operatives -- the Caja Laboral Popular credit union (CLP) and the Lagun-Aro social insurance co-operative -- are among Spain's larger financial intermediaries.

The basic building blocks of the MCC are its manufacturing, retail, financial and service co-operatives, otherwise known as primary co-operatives. The primary co-operatives embody and exemplify the key values and principles of mutualism. Each primary co-operative is governed by a General Assembly. General Assembly meetings are held at least annually to receive reports and determine policy. The Assembly in turn elects by and from its members a Governing Council, ranging from three to twelve members. The Council steers the affairs of the co-operative between Assembly meetings. Governing Council members hold office for staggered four-year terms, with elections at two year-intervals.

There is also an Audit or Watchdog Committee to independently monitor the co-operative's financial performance and its compliance with its formally established policies and procedures. The Governing Council holds regular consultative meetings with a Management Council consisting of the Chief Executive Officer and the senior executives. Independent of the Assembly and its offshoots, workplace groups within the co-operative elect a Social Council, which has a quasi-trade union function, with responsibility for areas such as job evaluation and industrial health and safety. Recent years have seen an increasing emphasis on industrial democracy -- on participation and consultation at the shopfloor level -- within many of the co-operatives.

Individual co-operatives are linked in co-operative groups. Originally, the groups had a geographical basis. However, with the establishment of the MCC in 1991 -- with the replacing of Mondragon Mark I by the current Mark Il model -- they have been re-constituted along functional lines. There is a Financial Group, a Retail Group and an Industrial Group, with the Industrial Group in turn split into seven sub-groups. The aim is for the co-operatives within each group to engage in in-depth and continuous strategic planning, to identify and exploit economies of scale and business synergies, and to operate within an agreed overall strategy.

A further and final level of linkage is afforded by the peak bodies of the MCC: the MCC Congress, the General Council and the Standing Committee. The key role of the Congress is setting the overall policy and direction of the co-operatives. The General Council is responsible for drawing up and applying overall corporate strategies and co-ordinating the activities of the co-operatives and co-operative groups. The Standing Committee monitors the performance of the Committee and the groups, and sees that the decisions of the Congress are implemented.

To what then are the achievements of the MCC attributable? Firstly, the success of the co-operatives stems from the fact that every permanent worker is an equal co owner of the employing co-operative, with an equal say on a one-member-one-vote basis in the governance of the co-operative and an equal proportionate share in its profits or, on occasion, losses. Each worker has an individual capital account which is credited annually with his share of the co-operative's profits and enables him to maintain an on-going appraisal of the performance of the co-operative and its management and his fellow members. In the words of a recent CEO of the MCC, Javier Mongelos, `The workers who own these co-operatives know their future depends on making profits'.(13) The upshot is -- among other things -- a reduction in the agency costs the co-operatives incur, and a corresponding increase in their competitive advantage.(14)

Secondly, the primary co-operatives are serviced on a mutualist basis by a unique system of secondary support co-operatives. Arizmendiarrieta became aware at an early stage of the development of the co-operatives of the need for them to be self-sufficient. The support co-operatives were his answer. Capital is now sourced by the primary co-operatives from a support co-operative, the Caja Laboral Popular credit union (CLP), as is -- for example -- superannuation and other benefits from the Lagun-Aro social insurance co-operative, research and development services from the Ikerlan and Ideko research and development co-operatives and technical skilling from the university of technology co-operative. The structure of the support co-operatives differs from the primary co-operatives, in that they are owned and governed jointly by their workers together with their primary co-operative clients. Profits distributed to workers in the secondary support co-operatives are linked to those of the primary co-operatives.

Third -- and finally -- the Mondragon credit union, the Caja Laboral Popular, has been much more than simply a source of capital for expanding current co-operatives or creating new ones. In the phase of rapid expansion which preceded the maturing of the co-operatives as signalled by the establishment of the MCC, what was then the Empresarial or Entrepreneurship Division of the CLP offered a uniquely comprehensive and effective service for incubating co-operatives and ensuring their success. Groups seeking to establish co-operatives were initially assigned a mentor or `godfather' to work with them in the preparation of their application for a loan. Once loans were secured, the mentors remained with the co-operatives in order to assist them in the setting up of their business and enabling them to operate profitably.

As a condition of its loan, a new business entered into a Contract of Association with the CLP which specified -- among other things -- the mutualist structure and processes it should adopt. It was likewise a condition of the contract that specified performance and financial data should be reported to the CLP on a regular basis. Thanks to regular and comprehensive reporting, the CLP could count on receiving early warning where co-operatives experienced difficulties, and provide added specialist support through an Intervention Group within its Empresarial Division.

So effective was the Entrepreneurial Division that only a handful of the co-operatives have failed to become going concerns. Consequent on the establishment of the MCC -- on the move of the co-operatives from the Mark I to the Mark II stage of their development -- the functions of the Empresarial Division have now been re-assigned, with some elements being incorporated within the MCC and others in new management consultancy support cooperatives. Mondragon's on-going expansion is now much less through establishing new co-operatives, and more through strategic acquisitions and alliances.

Part II Reinvigorating Mutualism: What Is To Be Done?

Mutuals and Social-Democracy

Needless to say, nothing about the Desjardins nor the Mondragon examples means that mutualism can achieve its potential other than as part of a wider social-democratic agenda for social reform. Mutualism is not a sufficient condition for social-democracy, but it is an essential ingredient. Mutuals can neither be a substitute for the wider fabric of social-democratic legislative and regulatory measures nor survive in their absence. A wealth of experience from the US savings and loans debacle through the collapse of the Pyramid building society to the recent rash of demutualisations of mutual insurers and building societies demonstrates that, failing an adequate rule of law, mutuals are as vulnerable to abuse as other businesses.

What mutuals can do is provide social-democracy with a credible response to the dominant free-market paradigm -- an alternative vision of how civil society should function and its citizens relate to one another. Mutualism can re-energise social-democrats with the sense of hope and purpose which currently are so conspicuous by their absence.

How then can mutualism be reinstated at the heart of the social-democratic agenda for Australia and a regeneration of Australian mutuals be achieved? What needs to be appreciated at the outset is the current magnitude of the membership and assets of our mutuals, and the capacity of mutuals to re-invent themselves in response to changing needs and circumstances.

Demutualised as have been almost all Australia's mutual, insurance societies and all but twenty per cent of our building societies -- looted as have been these entities by predatory demutualisers of capital in excess of $25 billion and assets under management of more than $150 billion -- our remaining mutuals retain even today the loyalty of millions of members and the custody of billions of dollars of community wealth.

For example, credit unions alone have more than three million members -- one in every six of our population -- and assets totalling more than $22 billion. Credit unions -- along with such other immensely successful mutualist financial intermediaries as Holland's Rabobank, Britain's Co-operative Bank, and the co-operative agricultural banks of Germany and Austria -- comprehensively contradict the slur that financial mutuals have larger problems, or are less likely to succeed, than their conventional counterparts.

Reinventions

Nor is the capacity of mutuals of all kinds to re-invent themselves in response to changing needs and circumstances less plain. For example, a notable American co-operative -- Co-operative Services Inc. of Detroit in Michigan -- was established in the early 1940s, in response to a pressing local need for affordable, hygienic home milk deliveries. When the corporate dairies moved into the market with a comparable product at a comparable price, the co-operative re-invented itself so that the community capital it had accumulated was applied to meeting the need for affordable optometrical testing and the supply of spectacles.

When this function in turn was taken up by the optometrical services corporations -- the OPSMs of the world -- a further reinvention of the co-operative took place. The co-operative then re-tasked itself to meet a pressing need for affordable accommodation and support services for older people. It now operates some 4000 apartments in twenty-five housing co-operatives spread out from Massachusetts to California, with more being developed. Each co-operative is now an autonomous entity in its own right, within the over-arching structure of the parent body.

An example closer to home is the Foresters-ANA Friendly Society in Queensland. What was originally the Australian Natives' Association (ANA) Friendly Society -- a federal body with affiliates in every state and territory -- was established in Victoria in 1871. By 1990, when the federal body amalgamated with the Manchester Unity friendly society to form Australian Unity as a mainly funds management business, the Queensland branch had declined to about 1000 members, mostly aged in the their late sixties and seventies.

All but two of the sub-branches had been closed and activity was effectively limited to the operation of a funeral fund. The current chairman recalls that the then directors -- themselves all aged in their seventies -- were `frustrated that mutual aid didn't seem to have a place in Australian society anymore, and intently conscious that their small organisation was being circled by financial predators'.(15) Even so, the branch opted to retain its independence. Younger directors were recruited, and the new entity has successfully re-invented itself.

The friendly society now sees its objectives as being social justice, environmental sustainability and human rights. Its constituencies are defined as being community groups which share these objectives, along with low to middle income people who need support in order to improve their social and economic situations. Services currently offered include savings and loan circles, micro-finance, community capital formation, a funeral fund, an eco fund, a community investment fund, an ethical bond, ethical superannuation accounts and a charitable trust.

The guiding philosophy of the society is exemplified by its Ethical Bond Fund. The fund -- established in 1990 -- aims to enable people to direct their money into ethical investment projects such as co-operative housing or conservation projects, while at the same time enjoying secure and equitable returns. Investments of from $500 to $50,000 are accepted, and the society recoups its costs from a 2 per cent establishment fee and an annual management fee of 1 per cent of the average balance of the fund. investment proposals are assessed on their likely contribution to `care for the earth, care for people and care for the community'(16) The fund charges just rates of interest, thereby ensuring that investors will benefit and also be properly rewarded while they facilitate social change.

In 1999, the ANA Friendly Society (Qld) merged with the Foresters Friendly Society -- established in Queensland in 1885 -- as the Foresters-ANA Friendly Society. The net worth of the society has increased since 1990, from $750,000 to $6 million. What many dismissed as a social dinosaur is proving to be more in the nature of a phoenix. As the authors of a study of initial stages of the reinvention of the society conclude, `The stories of the longstanding members of the ANA Friendly Society in Queensland have encouraged and empowered us. We trust the telling of the story of this institution and our reflection on that story will empower others'.(17)

Role of Governments

What then needs to occur in order for mutuals to achieve their full potential? The answer lies jointly with the governments which define the environment in which mutuals operate and with the mutuals themselves. As regards governments, the ALP in particular should incorporate in its platforms at both the state and federal levels an explicit commitment to mutualism -- a new charter for mutualism and mutuals.

Firstly, the charter should acknowledge and celebrate the mutualist difference -- how mutuals differ from shareholder-owned businesses. As Mark Sibree of the leading friendly society, Australian Unity sees the society's relationship with its members: `We are not in a position to rip them off; there's no purpose. The same people who are our customers can turn up at the annual general meeting and vote'.(18) In the words of a leading British insurance mutual executive: `There is a difference between a business run for the benefit of policy holders and a business run for the benefit of shareholders. You put a different person first'.(19)

Secondly, the charter should recognise the extent and gravity of the damage which over-regulation and inappropriate regulation have inflicted on credit unions and credit unionism. Panic consequent on the collapse of a bogus mutual -- the so-called Pyramid Building Society -- in the early 1990s prompted the mainly Labor governments of the day to enact financial institutions legislation which has for all practical purposes blocked the further' development of financial mutuals. Subsequent to the enactment of the financial institutions legislation, all but three of innumerable attempts to create new credit unions have been unsuccessful. At the same time, regulatory burdens have been nudging current credit unions to amalgamate with one another and thereby reduce their local identities and accountability.

The charter should explicitly acknowledge the need for governments to get out of the way of mutuals, get off their backs and allow them to carry on their work on behalf of the community with the least possible interference. This means -- for example -- getting rid as much as possible of the statutory and regulatory requirements which are blocking the establishment of new credit unions, cramping the development of current credit unions or inhibiting them from striking out in new directions in response to new needs.

It involves, among other things, recognising that one size does not fit all, and smaller credit unions and other mutuals differ in their regulatory requirements from larger ones. It involves striking off such legislative and regulatory shackles as might impede or discourage Australia's credit unions and other mutuals from involving themselves in local and regional economic development and job creation along lines similar to their Desjardins and Mondragon counterparts.

Third, legislation is needed urgently in order to protect mutuals against demutualisation, as much from within -- as witness the recent NRMA Insurance experience(20) -- as by external predators. Ideally, legislation would be expressive of the fundamental characteristic of all mutuals including credit unions, namely, that each generation of their members adds to their assets in the expectation that they will be retained for the benefit of others still to come -- that current members are trustees in effect for the intentions of the dead and the inheritance of the unborn.

At the very least, there should be statutory safeguards against perverse incentives to demutualisation. For example, recent Canadian legislation requires that directors, managers and staff of demutualising mutual assurance societies should not receive benefits other than those available to all policy-holders. Ideally, a definition of benefits for the purposes of the legislation would include overall remuneration increases (including stock option allocations) accruing to directors and senior managers for -- say -- a five-year period following any demutualisation. Ideally, Australia would adopt legislation on the Spanish model, which requires that, where co-operatives are wound up, their assets must be a paid to a revolving fund for expanding the activities of current co-operatives or establishing new ones.

Meanwhile, pending proper statutory safeguards, mutuals should be encouraged to adopt rule changes to guard themselves against demutualisation, such as have been adopted by some building societies in Britain. These societies now require, as a condition of admission, an undertaking from new members that any windfall gains to which they may become entitled consequent on a demutualisation will be paid to an agreed charity.

Fourth, there should be national co-operatives legislation, such as would enable co-operatives to -- among other things -- trade freely across state boundaries. Fifth, the development sections of the state registries of co-operatives should be re-established and their resourcing restored, until the movement is again strong enough to resume responsibility for its own development.

Sixth -- and finally -- there should be an open public inquiry into mutuals, including credit unions, by a select or standing committee of the national parliament, along the lines of the recent inquiry by the House of Representatives Standing Committee on Employment, Education and Workplace Relations into employee share ownership.(21) Like royal commissions and judicial inquiries, parliamentary inquiries are a useful means of obtaining information which would otherwise be unavailable, of drawing to public attention facts which would otherwise be neglected, and of reconciling points of view which otherwise would remain opposed. An inquiry would serve among other things to alert public opinion not only to the capacity of mutuals and credit unions to enhance economic productivity and community well-being, but to the high and often hidden costs of demutualisation.

Currently, in Britain, a Co-operatives Commission established by the co-operative movement with support from Tony Blair's Labour government is reviewing all aspects of consumer co-operatives and co-operation. The Commission's brief is to:

1. Review and measure the success of the Consumer Cooperative in meeting its commercial and social goals.

2. Review and make recommendations on the structures for the ownership, control and management of the Consumer Co-operative Movement for the future.

3. Review and make recommendations for a structure that will ensure a substantial and continuing contribution by the Co-operative to its wider goals.

4. Propose a realistic course of action to improve the effectiveness, performance and contribution to society of the Co-operative Movements, with suggested avenues for commercial strategy development.

A statement by Britain's Prime Minister, Tony Blair, on the occasion of the launch of the Commission reads: `The Co-operative Movement represents a vital part of UK business: not publicly, not privately, but co-operatively owned and controlled by its members to ensure that its commercial and community interests go hand in hand. I am pleased to be supporting this Commission. It will identify new opportunities to foster a strong and successful Co-operative Movement for future generations'.(22)

The Credit Union Experience

As organisations offering self-help to others, mutuals must also be prepared to help themselves. Credit unions are a case in point. While there have been financial co-operatives in Australia for more than a century, the credit union movement in its modern form had its inception in the early 1950s.(23) Couples who were marrying at the time could get home loans at fixed interest rates of around 3 per cent over thirty-year periods.

However, furniture and other consumer durables such as refrigerators and washing machines had to be bought on hire purchase at interest rates which were exorbitantly higher. What followed was that families in outer-suburban Catholic parishes got together around card tables after Mass, pooled such savings as they had and took turns to borrow from the pool at interest rates which they could afford.

When their neighbours of other faiths or none at all saw what was going on and wanted to join in, what had initially been parish credit unions became community credit unions. Later again, trade unions recognised that the workplaces where their members were employed were also communities, and industrial credit unions began to be established. Even so, for all the apparent strength of the credit unions -- for all their three million members and $22 billion in assets -- their position is precarious.

Affordable personal loans are now available from a wide range of other financial intermediaries. By and large the interest rates credit unions pay on members' deposits is no higher than those of other intermediaries, nor are their loan rates lower. Australia's credit unions have mostly failed to re-invent themselves in the face of new needs such as for harnessing local and regional capital for regional economic development and job creation and the provision of affordable rental housing, and accordingly are known technically as `frozen' mutuals. As the mutual insurers and building societies experiences so plainly demonstrate, `frozen' mutuals are dangerously vulnerable to demutualisation.

The Minimum Change Option

What credit unions can do to help themselves can be summarised broadly as involving four options. These are a do-nothing option -- untenable because effectively it betrays all that credit unions and credit unionism stand for and thereby delivers them into the hands of the demutualisers -- together with options respectively for minimum, intermediate and maximum change. None of these options require that credit unions should in any sense diminish their current role as consumer and housing loan providers. Each successive option retains the functions of those before it.

A minimum change option for credit unions would involve less embracing new policies than acting on one which has already been adopted but not so far put into effect. Australia's peak credit union body -- Credit Union Services Corporation of Australia Ltd. (CUSCAL) -- has for some years acknowledged that there needs to be a loan syndication mechanism whereby credit unions can participate in the larger Commercial loans which they are too small to fund individually. In this way, credit unions would be enabled to fully pull their weight in bringing about local and regional economic development -- could adopt and be seen to adopt a strategic profile in the communities and environments in which they operate.

What is now required in order for all this to happen is for CUSCAL to employ specialist staff with skills -- including risk evaluation skills -- such as would enable them to properly assess and document commercial loans. Under a loan syndication program, the lead credit union would do the preliminary analysis of the lending proposition, and then submit the documentation to CUSCAL for approval. The lead credit union would remain the interface with CUSCAL, but might itself commit to no more than -- say -- 10 per cent of the amount approved.

The rest of the loan would be offered by CUSCAL to other participating credit unions, so that the loan might ultimately be funded by nine or ten credit unions. A syndicated loan would have an allocated security, so that each credit union would own that proportion of the asset against which the loan was raised. In other words, if the overall loan was 10 per cent equity provided by the borrower, and 90 per cent borrowed, each of the securities would retain the same ratio. Loans could in some instances be syndicated more widely, so as to involve, in addition to credit unions, other funding sources such as regional development authorities, pooled development funds and -- perhaps -- industry superannuation funds.

Syndicated loans are a regularly used mechanism within the Australian financial community, and most larger loans are funded through syndication. CUSCAL would simply be taking a sound concept and making it available for credit unions for loans of a much lesser magnitude, between -- say -- $10 million and $50 million. Nonetheless, the facility would be profitable for credit unions and enable them to retain the loyalty of the members to whose most pressing current needs they would be seen to be responding.(24)

The Intermediate Change Option

An intermediate change option for credit unions would be for CUSCAL to supplement an in-house facility for syndicated commercial lending, through the establishment of a subsidiary in the Investissement Desjardins (ID) mould, specifically tasked to undertake funding for local and regional economic development. The purpose of a CUSCAL subsidiary along these lines would be to enable credit unions to participate in the provision of equity as well as debt finance, and also to partner more effectively the regional development funds and pooled development funds which so largely focus on equity. As has been seen, ID has already established no fewer than five of ten projected regional development funds of its own. There are also partnerships between individual Desjardins credit unions and federations and what is in all some 284 community investment funds currently operating in Quebec.

The Maximum Change Option

A maximum change option for credit unions would be one whereby, in addition to the functions already discussed, there is a specific commitment -- as in Mondragon -- to helping businesses which adopt mutualist or employee-ownership structures, with corresponding reductions in their agency costs and increases in their competitive advantage. In this option, the CUSCAL subsidiary would have incubator and business support functions akin to those of Empresarial Division of the Mondragon credit union, the Caja Laboral Popular, in the Mark I phase of Mondragon.(25) There would be specific encouragement for co-operation between businesses along Mondragon lines, and -- perhaps -- secondary support entities such as in Mondragon would be established.

Alternatively, collaborative support services on the model of those in the Emelia Romagna region of Italy n-fight be preferred. The point here is that Australian credit unions are not limited to any one model for involving themselves in regional economic development. The accumulated experience of credit unions and other mutuals, over time and on a worldwide basis, is crying out for us to avail ourselves of it. In Australia as in Mondragon, the guiding principle should be in Arizmendiarrieta's much-quoted phrase: `We build the road as we travel'.(26)

Objections

It will be objected by some that Australians are now lacking in the community spirit and sense of shared purpose which made credit unions and other mutualist bodies possible. That the assertion is false is apparent from the Bendigo Bank experience. The Bendigo Bank -- a one time permanent building society -- has to date franchised shareholder-owned community banks in conjunction with some twenty-five local communities in Victoria, New South Wales, South Australia and Western Australia, and received inquiries from a further 500 communities. A further twenty-five community banks are expected to follow by 2002. Shareholders in participating communities are required to raise upfront capital -- initially $250,000, but now $325,000 -- and meet branch running costs, and profits are divided between the bank and the community on an agreed basis.

The pity of all this is that so much energy is going into the establishment of community banks which are a second best solution. While community banks are better by far than the major banks which are so ruthlessly withdrawing their services from regional and rural Australia and downgrading their responsibilities to other than `high net worth' customers, they are a poor substitute for credit unions. As has been seen, businesses owned by their customers necessarily differ from those owned by shareholders, in that they put the customer first. In addition, it remains to be seen what will become of the community banks when, as seems inevitable, the Bendigo Bank is swallowed up by one or other of the major banks, whose indifference to rural and regional interests and needs have been made so brutally and blatantly apparent.

Significantly, the Canadian experience has been less of banks displacing credit unions from their rightful role than of credit unions moving into the vacuum which the banks are leaving behind them. Currently, following a pattern established in Alberta, Saskatchewan and Manitoba, thirteen Bank of Montreal branches With 67 employees and assets totalling $560 million are being sold to eleven credit unions in British Columbia. The transaction brings to 64 the total number of Bank of Montreal branches sold to credit unions in Western Canada.(28)

It will also be objected by some that the capital requirements for regional economic development -- for establishing new businesses and expanding existing businesses, and thereby creating local jobs -- are already being fully satisfied by financial intermediaries other than credit unions. Once again, the assertion is contradicted by the Bendigo Bank experience. The Bendigo Bank has recently announced the establishment of a $50 million regional development fund to encourage big superannuation funds to invest in `excellent but cash-strapped regional businesses'.

According to a press statement by the bank's managing director, Rob Hunt:

Fund managers simply do not have the charter, the local connections or the appropriate investment to invest regionally.

Mr Hunt's statement continues that the bank is constantly in touch with `excellent businesses with proven track records and established markets but which are constrained because their principals have exhausted their own capital and cannot prudently take on more debt'.(29) The diversified portfolio of growing businesses in which Mr Hunt envisages his fund investing includes `agribusiness, technology, environmental, manufacturing, tourism/hospitality, media and business services'.(30)

Research in Italy by the American scholar Robert Putnam has demonstrated how civic engagement such as through mutuals lifts both productivity and social well-being. Similarly, as noted by Fukuyama:

Just as liberal democracy works best as a political system when its individualism is moderated by public spirit, so too is capitalism Facilitated when its individualism is balanced by a readiness to associate.

What Australia stands to gain from mutuals and mutualism is social reconstruction and community renewal. It is a reinvigoration of active citizenship and civil society, and the empowering of families and communities to be masters of their own destinies. The gain for the ALP would be a renewal of its heart and conscience -- of the values and principles which Ben Chifley has characterised so memorably as our `light on the hill'.

Endnotes

(1.) For a comprehensive discussion of mutualism and the broader distributist political philosophy to which it is linked, see R. Mathews, Jobs of Our Own: Building a Stakeholder Society, Sydney, Pluto Press, 1999. London, Comerford & Miller, 1999).

(2.) Figures from Le Mouvement des Caisses Desjardins, 1999 Annual Report. See also letters to the author on 17 February and 1 May 2000, from the Vice-presidence Developpement cooperatif of La Confederation des caisses populaires et d'economie Desjardins du Quebec, M. Guy Cameron, whose assistance I gratefully acknowledge.

(3.) Le Mouvement des Caisses Desjardins, 1998 Annual Report, p. 3. M. Beland stepped down from the presidency at the end of 1999, and was replaced by M. Alban D'Amours.

(4.) Ibid., p. 30.

(5.) La Confederation des cuisses populaires et d'economie Desjardins du Quebec, 1998, Desjardins 1998: The Cooperative Network of Financial Services, p. 33

(6.) Le Mouvement des Cuisses Desjardins, 1999 Annual Report, p. 102.

(7.) Ibid, p. 32.

(8.) La Confederation des caisses populaires et d'economie Desjardins du Quebec, 1998, Desjardins 1998: The Cooperative Network of Financial Services, p. 3.

(9.) Le Mouvement des Cuisses Desjardins, 1998 Annual Report, p. 5.

(10.) Quoted in W.F. Whyte & K.K. Whyte, Making Mondragon: The Growth and Dynamics of the Worker Cooperative Complex (Revised Second Edition), Ithaca, New York, ILR Press, 1991, p. 242.

(11.) For the best account of Arizmendiarrieta's thought so far available in English, see G. MacLeod, From Mondragon to America: Experiments in Community Economic Development, Sidney, Nova Scotia, University of Cape Breton Press, 1997. For a more comprehensive account in Spanish see J. Azurmendi, El Hombre Cooperativo: Pensamiento de Arizmendiarrieta, Mondragon, Otalora Institute, 1991.

(12.) Mondragon Corporacion Cooperativa, 1998 Annual Report. Mondragon, MCC.

(13.) J. Mongelos, as quoted in J. N. Parry, `Mondragon Pushed to the Peak of Success', European, 28 October 1994, p. 12.

(14.) For agency costs and competitive advantage in worker-owned businesses, see Mathews, Jobs of Our Own, pp. 10-12.

(15.) M. O'Connor, Community Capital for Social Investments., Nundah, Queensland, Foresters-ANA Friendly Society.

(16.) A. Halladay, M. O'Connor and R. de Simone, Friendly Societies in Today's World: Looking Back, Looking Forward with the ANA Friendly Society (Qld), Nundah, Queensland, Australian Natives Association Friendly Society (Qld), 1994, p. 40.

(17.) Halladay, O'Connor and de Simone, Friendly Societies, p. 233.

(18.) Age, 14 July 1999.

(19.) Financial Times, 11 March 1998.

(20.) See Mathews, `NRMA Insurance Demutualisation', Journal of Australian Political Economy no. 44, December 1999, and R. Mathews, `Looting the Mutuals: The Ethics and Economics of Demutualisation', Dissent, no. 3, Spring/Summer, 2000.

(21.) House of Representatives Standing Committee on Employment, Education and Workplace Relations 2000, Shared Endeavours: An Inquiry into Employee Share Ownership in Australia, Canberra, The Parliament of the Commonwealth of Australia.

(22.) Co-operative Commission press release 24 February 2000.

(23.) For the history of credit unions in Australia, see G. Lewis, People Before Profit: the Credit Union Movement in Australia, Kent Town, South Australia, Wakefield Press, 1996.

(24.) See letter to the author, 24 March 1998, from the General Manager (Subsidiary Operations and Third Party Relationships) of CUSCAL, Mr. R.J. Fowler, whose assistance I gratefully acknowledge.

(25.) See Mathews, Jobs of Our Own, Chapter Ten.

(26.) See R. Morrison, We Build the Road as We Travel, Philadelphia, New Society Press, 1991.

(27.) Age, 8 August 2000.

(28.) The Credit Union Chronicle, Spring 2000, vol. 4, no. 2, p. 7.

(29.) Age, 26 June 2000.

(30.) `Bendigo Bank launches $50m regional fund' in Australian Venture Capital Journal, July 2000.

Further Reading

Thomas, H., & Logan, C., Mondragon: An Economic Analysis, London, George Allen & Unwin, 1982.

Whyte, W.F., & Whyte, K.K., Making Mondragon: The Growth and Dynamics of the Worker Co-operative Complex (Revised Second Edition), Ithaca, New York, ILR Press, 1991.

Morrison, R., We Build the Road As We Travel, Philadelphia, New Society Press., 1991

Greenwood, D.J., & Santos, J.L.G., Industrial Democracy as Process: Participatory Action Research in the Fagor Co-operative Group at Mondragon, Assen/Maastricht, Van Gorcum, 1992.

Kasmir, S., The Myth of Mondragon: Cooperatives, Politics and Working-Class Life in a Basque Town, New York, State University of New York Press, 1996.

MacLeod, G., From Mondragon to America: Experiments in Community Economic Development, Sidney, Nova Scotia, University of Cape Breton Press, 1997.

Mathews, R., Jobs of Our Own: Building a Stakeholder Society, Sydney, Pluto Press (Australia) and London, Comerford & Miller, 1999.

Cheney, G., Values at Work: Employee Participation Meets Market Pressure at Mondragon, Ithaca, New York, ILR Press, 1999.

Appendix I

Terms of Reference of the UK Co-operatives Commission

1. Introduction

We believe that the principles first enunciated by the Rochdale pioneers and as subsequently adopted and periodically updated by the International Co-operative Alliance (ICA)(see Appendix II) are an important part of the beliefs of the three wings of the Labour Movement. We believe they have a significant and ongoing contribution to make to the future of the Labour Movement as a whole and to the commercial, political and social life of the country.

We acknowledge that consumer cooperatives are the most established and successful part of the Co-operative Movement in Britain. There is now a growing need and desire for that sector to give active support and encouragement to the newer, innovative co-operative developments in the economy which are assuming a new importance for job creation and social inclusion.

We also recognise that the structure and strategies of the Co-operative Movement must continue to change with the times if it is to apply those principles to the conditions of Britain in the twenty-first century and to make them meaningful for the Labour Movement in the next century. In particular we believe that:

-- Co-operative enterprises must demonstrate their ability to compete in the market place, by delivering products and services as well as the public company sector.

-- Co-operative enterprises should continue to make and, indeed, to increase their contribution to consumer rights, to the communities in which they trade and to political education.

-- Co-operative enterprises have a distinctive role to play in their communities and can do this whilst maintaining high standards in employment and in their relations with stake holders.

We also recognise that partly as a result of modest performance by some cooperatives in recent years, the Movement has been under threat from those who seek to destroy its co-operative structures and to profit from the liquidation of assets built up by prior generations of cooperators. We believe it to be a matter of priority that the Co-operative Movement takes measures to ensure its successful continuation to support and build on its contribution to the Labour Movement.

2. Scope

The Commission will have as its aim the encouragement of conditions and changes which will facilitate the achievement of the goals set out above. In particular, the Commission will:

-- Ensure that consumer co-operation brings its support and experience to bear on the development of the wider cooperative sector of the British economy.

-- Review and measure the success of the Consumer Co-operative Movement in meeting its commercial and social goals.

-- Determine the factors which have influenced its successes and failures, including:

-- Business strategies.

-- Ownership and control.

-- Scope of its activities.

-- Relationships with members and customers.

-- Engagement with communities.

-- Relevance of its contribution to consumer issues and political education.

-- Review and make recommendations on the structures for the ownership, control and management of the Consumer Cooperative Movement for the future.

-- Review and make recommendations for a structure that will ensure a substantial and continuing contribution by the Cooperative Movement to its wider goals.

-- Propose a realistic course of action to improve the effectiveness, performance and contribution to society of the Cooperative Movement, with suggested avenues for commercial strategy development.

-- Involve and, as far as possible, seek the agreement of relevant boards, management and employees to any proposal.

-- Involve and inform members of the thinking and conditions of the Commission.

Appendix II

The ICA Co-operative Alliance Statement on the Co-operative Identity 

Definition

A co-operative is an autonomous association of persons united voluntarily to meet their common economic, social and cultural needs and aspirations through a jointly owned and democratically controlled enterprise.

Values

Co-operatives are based on the values of self-help, self-responsibility, democracy, equality, equity and solidarity. In the tradition of their founders, co-operative members believe in the ethical values of honesty, openness, social responsibility and caring for others.

Principles

The co-operative principles are guidelines by which co-operatives put their values into practice.

1st Principle: Voluntary and Open Membership

Co-operatives are voluntary organisations, open to all persons able to use their services and willing to accept the responsibilities of membership, without gender, social, racial, political or religious discrimination.

2nd Principle: Democratic Member Control

Co-operatives are democratic organisations controlled by their members, who actively participate in setting their policies and making decisions. Men and women serving as elected representatives are accountable to the membership. In primary cooperatives members have equal voting rights (one member, one vote), and cooperatives at other levels are also organised in a democratic manner.

3rd Principle: Member Economic Participation

Members contribute equitably to, and democratically control, the capital of their co-operative. At least part of that capital is usually the common property of the cooperative. Members usually receive a limited compensation if any on capital subscribed as a condition of membership. Members allocate surpluses for any or all of the following purposes: developing their co-operative, possibly by setting up reserves, part of which at least would be indivisible; benefitting members in proportion to their transactions with the co-operative; and supporting other activities approved by the membership.

4th Principle: Autonomy and Independence

Co-operatives are autonomous, self-help organisations controlled by their members. If they enter into agreements with other organisations, including governments, or raise capital from external sources, they do so on terms that ensure democratic control by their members and maintain their co-operative autonomy.

5th Principle: Education, Training and Information

Co-operatives provide education and training for their members, elected representatives, managers and employees so they can contribute effectively to the development of their co-operatives. They inform the general public -- particularly young people and option leaders -- about the nature and benefits of co-operation. 6th Principle: Co-operation Among Cooperatives Co-operatives serve their members most effectively and strengthen the co-operative movement by working together through local, national, regional, and international structures.

7th Principle: Concern for Community Co-operatives work for the sustainable development of their communities through policies approved by their members.