On Co-op, modern management and mutualism

One of the most difficult questions in organising capitalism is what types of management would be best for society. The conventional answer is that one involving citizens and communities to a large degree in decision making also benefit them most. This ‘empowerment’ ideology dominates much of the current discourse on economic equality (austerity driven by narrow shareholder values versus public service largesse underpinned by public interests). 

Yet the crisis at the Co-op clearly undermines this simple binary narrative. As the former (Labour) City Minister Myners has expressed his desperation with existing governance structures at the Co-op (loosely based on mutualism) that make the company close to ‘ungovernable’ due to the cacophony of voices on its management board, the Co-op should be a paragon of community virtue if the conventional narrative is anything to go by. 

The Observer today reports, however, that this does not even come close to the truth. Instead of considering community interests during its latest offloading of company segments to the wider market, those organising the sale of Co-op farms at the Co-op management board have made it clear that they are not interested in community buy outs. They, so The Observer reports, are keen to see a hedge fund or a Chinese investor to take over the farms, including the 44,000 acres of land attached. 

If this was a public service, the outcry on the left would be noisy and sustained. After all, the farms have been financed by Co-op members throughout their existence and their profits have been re-invested rather than creamed off by the members in line with the principles of mutualism, the Co-ops founding tenet. Now, the board is likely to offload those very farms to the very financial behemoths they were supposed to resist. 

What does it tell us about the relationship between management and community interests? It appears that there is little direct linkage between how effectively community interests can be served through specific management structures, in particular through mutualism. As the Co-op fights for its survival, modern highly leveraged capitalism appears to be the only guide for action. 

How not to tackle crony capitalism

In the public debate there are largely two different types of arguments about how to tame ‘rampant capitalism’. Both approaches share the same diagnosis of capitalism's main problem: a managerial class taking more than their fair share of rewards while socialising the risks of entrepreneurial activity. Banks are an often cited example, but other large quasi-monopolistic service providers such as water, power and gas suppliers have come in for criticism too. 

The two arguments essentially run like this. For one class of observers and commentators, the excesses of capitalism are a symptom of poor regulation, insufficient oversight and lack of transparency in company governance structures which make it difficult for shareholders to exercise control over managerial decisions and pay. This type of argument is cumbersome, complex and not very sexy. 

The other argument offers a more simplistic account of the economy and the ills of capitalism. It goes like this. Large companies are run by a clique of evil selfish managers promoting their own narrow interests, are motivated by greed and ride roughshot over societies and communities.  Ed Miliband’s intemperate word about the ‘energy companies ripping off ordinary people’ is in this vein. 

Who is right? Essentially the opposing arguments offer differing interpretations or perspectives on the same phenomenon, a dysfunctional, insufficiently regulated capitalism that seemed to have produced considerably disparate results for honest work across the world. So in the battle between interpretations, observing the results of actual economic policies may help us to adjudicate. 

Argentina offers just such a case. In a unashamedly populist move, Argentina’s president Kirchner, suggested to push legislation through parliament that will allow her to nationalise a controlling share in YPF, the oil production company of Argentina, without compensating the Spanish shareholder, Repsol. 

The initial reactions across the world was condemnation on the right and widespread applause on the left. If Kirchner will get her way, this is the first large scale nationalisation of an oil company since the 1970s. 

The initial approval on the left has now however given way to some more balanced assessments and some serious reservations about Kirchner’s policies. The Observer’s Will Hutton, while broadly supportive of the move, calls it ‘clumsy and unfair’. 

However, the most significant hesitation about this re-nationalisation is articulated in between the lines in a different article the same edition of the Observer. Outlining the reasons for the original privatisation of the national company in the 1990s, Uki Goni writes that Argentina's ‘national economy was largely closed to the outside world and all utilities were state-owned, inefficient and overstaffed.’ Following privatisation, many jobs were lost as companies had to become competitive and eventually Argentina entered a boom phase. Year later and with the economy booming, Argentina started to engage in public spending largesse under the government of Kirchner’s husband, financed by government debt. Now Argentina faces the consequences of this profligacy, trying to rid herself of public debt by driving up inflation. 

In this context, Kirchner’s policy of nationalising YPF can only lead to disaster. Putting herself and some close advisers in charge of the oil company will allow her to avoid the difficult choices she refused to make so far. No doubt, she will now expand the number of employees on the government’s payroll, trying to alleviate the impact of mis-management and rocketing government debt. 

Sadly, Kirchner is not alone in thinking that nationalisation somehow permits her to escape the harsh realities of economic laws. Ed Miliband argues along similar lines in the UK. The fact is however that state companies, operating as monopolies in utility markets, are the worst of all worlds for customers and societies. 

Nationalisation means that governments arrogate an enormous amount of economic power in their hands, strengthening clientelistic (or outright corrupt) ties between government officials and company directors, and reducing transparency and independent oversight. As state owned companies expand their workforce at the behest of government officials who want to bring down unemployment, creating phantom jobs, prices for utilities actually increase, driving up inflation and exacerbating poverty and deprivation for the lowest paid in society. 

Will Hutton hints at his doubts about this policy as he dubs the nationalisation programme of Kircher ‘a move form crony capitalism to crony statism’. Or, to put it more bluntly, sexy solutions to complex problems are rarely the right ones. 

Should the state get involved in entrepreneurial risk sharing?

The economic crisis engendered a vibrant discussion about the best model of capitalism. British observers in particular find much at fault at the moment with the Anglo-American model of laissez-faire. Although I doubt that these purist models make much sense in the real world, there may be some milage in distinguishing between different approaches to do business. I have previously argued here that boosting manufacturing output requires a holistic approach that involves reform of the apprenticeship and vocational system, bringing Britain closer to the dual German system of vocational training in company placements. 

Will Hutton has once again contributed to this debate and spelled out some interesting thoughts about how to create a sustainable economy in the wake of the crisis of 2008. While his article makes a whole series of observations, the main point seems to be that in the UK investment risks are not sufficiently shared. Hutton argues that individual companies cannot shoulder the burden of risks anymore given the complexities of international industrial interconnectedness and volatility of financial markets.

There is much to be said for this point of view. Research and development costs have rocketed in some industries. Yet Hutton's suggestion that the state should adopt a critical role in accepting risks in the industrial and development cycle of products strikes me a odd given the latest crisis. Even 4 years after the collapse of the world economy, governments all across the world are still trying to extricate themselves from a string of disastrous involvements in the economy. 


Wasn't the indemnity that the US government provided for sub-prime mortgages peddled through firms such as Fannie Mae and Freddie Mac the cause of the problem? And what about the issue of moral hazard? Taking away from businesses the risks of investing in new solutions and techniques looks a lot like reducing the moral hazard in the banking sector by underwriting their debts. 

It seems to me that we should be skeptical about the long term benefits of sharing risks between business and governments in the economy. The last two decades do not provide us with the best record for governmental involvement in market economies.

Is the Occupy movement finished?

Remember the media circus about the Occupy movement? As protesters camped outside St Paul's and the Church of England tore itself apart in debates about how to deal with them, capitalism was marching on. The outrage about bonuses and a banking sector unable to sustain long term economic growth in the Western world was supposed to power the protests, yet the demands of the campaigners drew heavy criticism from those who wished for a clearer alternative vision to be set out. 


While a lot of ink has already been spilled on the movement, much of what has been said was a form of reminiscing on supposed parallels to previous reform movements. Comparisons were even made with the civil rights movement in the US. The hyperbolism of these overdrawn similes fell quickly apart as the camp's protesters receded back into their ordinary lives. But the question remains: why didn't it take off as a social movement? 


In a recent book review in The Observer, Michael Sayeau points to a fascinating fact. While disenchantment with capitalism and the mismatch between economic and political power may have fueled the protesters' determination for reform, their social origin may be a clue to why their protest ultimately dissipated. Sayeau writes that the 'core constituency is overeducated, but underpaid and underemployed, despite having ticked all the boxes of late-capitalist ascent'. In other words, their grievance with the capitalist system centred on the impression that, while they were playing by the rules, others who were not reaped the rewards. 


The main impetus of the camps was hence the desire to re-constitute the meritocratic principles which lay at the heart of a capitalist market economy. Essentially, the thrust of their reform was correction, rather than revolution. As the US and other economies move to introduce the much needed changes to their banking system, re-establishing the linkage between individual effort and reward, the campaign was bound to diminish in its fervour. 


The contribution of the Occupy Movement to these reforms will simply be to have articulated the need for changes with a poignant rhetoric. So, despite some illusions of revolutionary grandeur amongst some campaigners to the contrary, the great advantage of a free market democracy over all its alternatives remains its ability to change for the better. 

The blind spot in Marx's notion of capitalism

The most fascinating aspect of the current debate about capitalism is the general lack of ideas about any alternative. I have previously in this blog talked about why this may be the case. However, one interesting detail of the debate has so far escaped my attention. It is the view that, as Tristam Hunt pointed out in a Newsnight debate, 'capitalism can never be moral'. 

There is no doubt that this a widespread view amongst socialists. Capitalism, they maintain, is all about the generation of profit. Whether this happens within a tightly regulated environment and whether or not tax revenue from profits are used to alleviate some of the ills of capitalism, does not alter the fundamentally amoral quality of the capitalist market system, so the story goes. 

Although we often speak of the failure of the vision of Marxism, the paradox is that this opinion, that capitalism is fundamentally amoral, echoes Marx' view. In a sense then, even those who defend capitalism yet concur that capitalism is amoral express nothing less than a Marxian view. 

The curious result is that the debate about capitalism is actually fought on a premise that is profoundly Marxist, and, so I would say, profoundly false. 

How did Marx arrive at the thesis that capitalism is amoral? Famously, he turned Hegel upside down, or, as he said himself, 'turned Hegel's view from standing on its head back to its feet again'. What did he do? 

Marx argued that there is a clear distinction between the economic sphere (the substructure of society) and its social and political dimensions (the superstructure). The former, so he maintained, determined the nature of the latter. He endorsed nothing short of economic determinism. The separation between these two spheres allowed him to extricate the questions of morality and ethics from the actual moral constitution of societies. In essence, he superimposed on his economic and political analysis a simplistic moral framework that rested on the notions of exploitation (immoral) and equality (moral). How did this represent a change to Hegel's notion of society? 

Hegel's notion of society offered a far more complex and sophisticated account than Marx's. For Hegel, morality was an aspect of human interaction which manifested itself in the development of human freedom. One critical aspect of personal freedom, according to Hegel, was to engage in economic exchanges, or what he called 'civil society'. 

So, in contrast to Marx, entering an economic relationship with somebody to exchange goods represents a fundamental aspect of being free. Today we would say, the market therefore presents people with the opportunity to realise their personal freedom in society. Capitalism hence is an essential expression of personal freedom. As we engage with others in economic activities, we not only manifest the extent of our personal freedom, but also establish the ethical quality of society. Capitalism is moral, as long as it permits us to engage freely in economic exchanges. 

This demonstrates how much we have accepted an arguably skewed picture of capitalism that originates in Marx's analysis, rather than in Hegel's liberalism. We should always bear in mind, that Marx never accepted the economy as an arena of personal freedom. How wrong he was. 

Why market critics still have questions to answer

The protesters outside St Paul’s couldn’t be more clear: it’s the market that has ruined this country. Or, more accurately, the belief that the market dominates our lives. The charge is not new, yet the pitch of those claims has reached dizzying heights after the financial crisis and the economic downturn of 2008. 

There are two things that are conspicuously missing from the criticism of the market. One is a good analysis of what markets are for. The other, the articulation of a viable alternative. Here are some comments on how to fill this blind spot. 

Public debate often conflates free market with un-regulated market. In fact, as Hayek made clear many decades ago, these concepts are not exchangeable. The lack of regulation in the market place means nothing else but the absence of freedom. The freedom to sell and buy is conditional on the application of strict rules that allow people to chose in an un-coerced manner. Where monopolies develop and price cartels emerge, the freedom to chose is significantly curtailed. Hence a functioning market requires good regulation. A free market is only one that is effectively regulated. 

The critics of the market often think that the play of market forces gives rise to social and economic inequalities. That may be so, and it raises some important moral issues about how we mitigate the effects of the market in a modern society. What critics assume in the wake of this argument, however, is that this renders the market an unacceptable and morally repugnant vehicle to exchange goods. 

Yet this means holding the market to standards it is by no means supposed to meet. The moral aspect of markets hinges on the ability of individuals to operate freely and fairly within the regulative framework that exists at any given time and which applies to everyone without exception. It’s the potential of the market to offer a space for individual self-fulfillment and self-determination that speaks to its moral dimension. Whether this leads to unacceptable inequalities in society is a question of political import, not something for which we can find the answer in any philosophy of the market itself. 

Downscaling the expectations of what markets can and cannot do opens up a more plausible perspective on what markets are for, the aspect that the critics at St Paul’s have so far failed to address. 

Markets are not primarily means to make money or enrich some at the expense of the few. Markets are mainly the most suitable mechanism to establish the value of things in society. This is not so because everything is ‘marketable’ but because markets allow us to accumulate a myriad of pieces of information that we otherwise would not be able to obtain. This is where Hayek made his most important contribution to the debate on markets and society, something that is echoed in the thinking of even left-leaning liberals such as Surowiecki (see his book ‘The Wisdom of Crowds’). 

In effect, markets are the centre piece of a ‘discovery process’ about the needs of human beings and their ability to engage with each other in economic exchanges. In other words, markets function as a mechanism to aggregate knowledge about those human needs and wants and transmit this knowledge to the producers of goods. Since knowledge about human wants is highly fragmented in society, no central authority can effectively gather this information on a national scale, although we certainly have tried hard to achieve this in the past through nationalisation of industries and economic planning. 

And it is here that the protesters outside St Paul’s still have to develop a viable alternative to markets. If they want to jettison the market as a mechanism revealing human preferences and the value of goods through a free and fair exchange, they need to explain what is to take its place. What has previously been a main candidate for this, a dirigist planned socialist economy is not an option anymore. Some hard thinking is in order on their part. 

On the poverty of anti-capitalist imagination

Europe is in turmoil. The financial system is close to collapse and the watchwords are solidarity, anti-capitalism and greed. You could be forgiven to think that this is a scenario written by Marx and his followers. Yet, the default position of every politician in East and West is repair and reform, not revolution. Why? What happened to the convictions of the left? Where are the radical plans for the social and political transformation of our societies? 

The most striking aspect of the deep political, economic and social convulsions across Europe and America is the almost complete absence of communist, socialist and leftist voices in the debate about how to change our societies for the better. To be clear, there are many who are bearing the anti-capitalist banner. The anger and disillusion with capitalism is real and palpable. Yet prick those anti-capitalist discussions and the hot air escapes instantly, deflating the big balloon of anti-capitalist rhetoric. There is not a single serious proposal for social, economic and political re-structuring that has not been either already adopted by the moderate centre ground (banking reform; taxes) or is itself a beacon of moderation (pension reforms in the public sector). 

What happened to the great ideological struggles, the antagonistic clashes of the past? And where are the socialist blueprints of Jerusalem? After the election of Tony Blair, many commentators complained that the main political parties had become less tribal, crowding together in the centre ground. Has the population followed suit? Are we becoming more moderate in our political convictions? 

There are several factors that may have contributed to the slow death of socialism as a radical political transformative force in developed countries. The first is welfare and the increase in wealth. As a greater section of society becomes better off, those who only have to loose their shackles (Marx) become fewer. The most vocal supporters and campaigners for a left cause are now sons and daughters of the middle and upper middle classes, and you cant help feeling that their convictions have more to do with youthful rebellion against their parents than with their familiarity of the Marxist analysis of the accumulation of capital. 

Another important factor is the decline of labour struggles as manufacturing, and the friction that comes with employment issues, has been exported to China and the emerging economies. In its wake Western societies have become far more adept at developing mechanisms for resolving labour conflicts, while governments have also largely accepted that the spill over effect of prolonged labour disputes into the economy should be avoided. This tempers everyone’s taste for fights on the streets. 

The most important factor however may be something else: a widespread acceptance that communism does not work, a lesson learned across Europe as the legacy of Post-Communist Revolutions makes itself felt. You only have to visit Lithuania, Estonia or Poland to see the remarkable transformations of those societies that have toiled for decades under communism. They are the striking examples of how communism worked under a false premise: that making everyone more equal economically also meant that everyone was better off. Under communism all these countries faced an enormous amount of problems: economic, social, political, and environmental. What killed ‘real existing socialism’ in the end was the inability to change. 

That’s why socialism is so absent from our debates on how to change societies today. Socialism has no answers to the most important question for the survival of any society: how to maintain change. It is essentially a doctrine of stasis, simultaneously failing to demonstrate a path to a better society and, once established, how to keep it alive through constant reform. 

Marx was deeply hostile to the idea of reform and change. He fought many of his philosophical struggles against those who developed a blueprint for gradual change of capitalist society. This lack of thinking about change became the achilles heel of communism. Only radical and sudden revolutions could bring about communism, and once established, there were no plans to evolve in the face of difficulties. It was a recipe for ossification. 

Hence socialist and communist proposals on how to deal with the current crisis are absent. The idea that we simply throw out anything we know and start with a blank sheet on Monday has lost its appeal long time ago. Those who blame capitalism for the latest crisis know this and therefore their shouts for anti-capitalist solutions never advance beyond those words. Regret it or not, he highpoints of our debate on solving the current crisis are provided by Red Tories and Blue Labour philosophers. We have lost a radical critique of capitalism but perhaps we are the better for it.