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< Previous | Contents | Next > CO-OPERATIVE DEVELOPMENT AGENCY Consultation PaperSECTION A - The Co-operative Context2. Background 2.1 The Framework for Economic Development in Scotland (June 2000) set out our vision for raising the quality of life of the Scottish people through increased economic opportunities for all on a socially and environmentally sustainable basis. A Smart, Successful Scotland (January 2001) set out our strategy for enterprise in the medium to long term. It provides direction to the Enterprise Networks (Scottish Enterprise and Highlands and Islands Enterprise) who are key partners in delivering this vision. 2.2 Following the 2003 election, A Partnership for a Better Scotland (May 2003 - the Partnership Agreement) highlighted economic growth as the top priority, and underlined the Executive's commitment to ensuring sustainable development is at the heart of everything that we do. In particular, it includes a specific commitment to establish a Co-operative Development Agency, following consultation. 2.3 We intend the Co-operative Development Agency to be an integral part of A Smart, Successful Scotland. Therefore we wish to ensure that the issues are considered alongside the three main themes of that strategy - growing businesses; skills and training; and global connections. 2.4 The formation of a Co-operative Development Agency will help ensure this form of business structure is an option for some businesses, while also forming an element of our ambitious plans for the economic and social regeneration of Scotland and its communities. 2.5 A central element of the Scottish Ministers' commitment to Closing the Opportunity Gap for the most disadvantaged people and communities in Scotland involves ensuring that people benefit from better public services. The Executive's work on developing the social economy is central to this agenda and we intend that the Co-operative Development Agency will have a role in helping to expand the Co-operative Movement's engagement in this area. 3. What is a Co-operative? There are many different types of co-op in the UK. However, they all share common values and principles, originally outlined by the Rochdale Pioneers in 1844 and most recently summarised by the International Co-operative Alliance at its centennial congress in 1995. The statement adopted then defined a co-op as: "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". 3.1 Values It went on to say: "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". 3.2 Principles Co-operative principles are guidelines by which co-operatives put their values into practice. There are seven co-operative principles: 1. 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. 2. 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 co-operatives members have equal voting rights (one member, one vote) and co-operatives at other levels are also organised in a democratic manner. 3. 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 co-operative. Members usually receive 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 setting up reserves, part of which at least would be indivisible; benefiting members in proportion to their transactions with the co-operative and supporting other activities approved by the membership. 4. 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. 5. 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 opinion leaders - about the nature and benefits of co-operation. 6. Co-operation among co-operatives - Co-operatives serve their members most effectively and strengthen the Co-operative Movement by working together through local, national, regional and international structures. 7. Concern for community - Co-operatives work for the sustainable development of their communities through policies approved by their members. 3.3 Co-operative forms Co-operatives are sustainable businesses aiming to make a profit (which will usually be primarily reinvested in the business, but with additional provision for some distribution to members and/or for community and social purposes). The co-operative model is used by many different types of business to engage with one or more stakeholder groups. Some of the most common types of co-op are: A) Consumer (retail) co-operatives owned by their customers. Examples in Scotland are:
B) Worker co-operatives/employee-owned businesses - owned and controlled by their employees. Examples in Scotland are:
C) Community co-operatives - Businesses-owned, controlled and run for the benefit of those who live in a certain area or have a common area of interest. Examples in Scotland are:
Other co-operatives In addition, other types of co-operative also to be found in Scotland are: Secondary co-operatives - co-operatives may also be formed as secondary Multi-stakeholder co-ops - it is also possible for co-operatives to incorporate more than one stakeholder group (e.g. employees and service users, as in some care co-operatives) in what are known as multi-stakeholder co-ops. This model is still rare in the UK, although beginning to attract more interest. Housing Co-operatives - there are various types ranging from "fully mutual" (where the only members are tenants) through community-based organisations to tenant management co-ops (where the stock may still be in local authority ownership). Supporters' Trusts - the Executive has made funding available to allow Supporters Direct in Scotland to continue its work in helping responsible groups of supporters establish Supporters' Trusts, the majority of which are on the basis of Industrial and Provident Societies. The established Trusts will be looking at ways of working with the local community for the betterment of their club, with continued support from Supporters Direct. Credit unions - financial (savings and loans) co-operatives owned and managed by the members who use them. Membership is usually based upon a common bond such as people living in a certain area or working for a certain employer. Credit unions are mutual societies and are registered through the Financial Services Authority. Local Exchange Trading Systems - Local Exchange Trading Systems are an innovative and co-operative way of satisfying members' needs and doing business without the use of conventional money. They are not-for-profit organisations involving members in the same community exchanging skills or goods and services and either using the local currency to pay for them or doing something in return. LETSLINK UK is a national LETS development agency and network which operates a national advice line, provides training, best practice guidelines and back-up materials for UK LETS. TimeBanks - organisations in which participants "deposit" their time in the bank by giving practical help and support to others and are then able to "withdraw" their time when they need something done themselves. This may include activities such as DIY or shopping. TimeBanks UK is a network organisation supporting the growth and development of Time Banking in the UK by providing training and raising awareness, promoting best practice, and distributing a Time Banking manual and free starter pack. It is envisaged that the main emphasis of a CDA in Scotland would be to support and assist the above types of co-operative (apart from agricultural co-ops, which already have their own support organisation in SAOS). 3.4 Existing legal framework for co-ops There is not a single, specific legal form for a co-operative. The actual form of the legal structure a co-operative can adopt is varied. The first decision for those wanting to register a co-operative is whether to register as a private company, an industrial and provident society, or as a partnership. Following the recent merger between two principal co-operative promotional bodies - the Co-operative Union and Industrial Common Ownership Movement - a range of model rules are now available from the new body Co-operativesUK. These aim to speed up the process of registering co-operatives and to reduce the cost. Co-operativesUK also provides the following guidance to which legal structure would be most appropriate: Private Company or Industrial and Provident Society? Private companies are corporate bodies registered under the Companies Acts 1985 and 1989. Co-operatives can register as either a private company limited by guarantee (the most common form of incorporation for co-operatives) or as a private company limited by shares. It is relatively cheap, easy and quick to register a limited company. A minimum of two members is normally required to form a co-operative company under Co-operativesUK rules. Industrial & Provident Societies (IPSs) are corporate bodies registered under the Industrial & Provident Societies Acts 1965-78 (IPSA). A minimum of three members is required to register and maintain an IPS, unless all members are themselves IPSs in which case the minimum is two. Model rules have a particular significance for IPSs as they command lower registration fees. There are two types of society that can be registered under the IPSA 1965 Act:
To qualify for registration as a co-operative a body must show it is a "bona-fide co-operative". (Keeping it Legal 2003) Common Ownership or Joint Ownership Common ownership means that although surpluses generated in a financial year may be distributed amongst members, the assets are the property of the co-operative and may never be divided amongst members. Upon winding up, assets will be donated to another common ownership co-operative. Joint ownership co-operatives allow for the division of assets amongst members. Mutual Trading Status (MTS) Mutuals are financial organisations which are owned by, and for, the benefit of their members (savers and borrowers), with no shareholders. Mutual Trading Status is an option that is open to some co-operative consortia, and means that the co-operative may be exempt from paying corporation tax on surpluses. In order to be eligible for Mutual Trading Status, the co-operative must show that it only trades with its members and no one else. Some of the model rules have been drafted so that co-operatives registered with that model will be eligible to apply - however, each case is examined by the Inland Revenue on its merits, and adoption of the rules will not guarantee success. Many building societies were originally formed as mutuals, as were some insurance and investment companies. However, in recent years there has been a move by some to demutualise, with members voting to turn the business into a public company floated on the stock market. Recent legislation, the Co-operatives and Community Benefit Societies Act 2003, aims to reduce the amount of time mutual and community benefit societies spend dealing with regulation, and increase the scope of their activities, and provides specific clauses to safeguard their assets. 4. Brief History of Co-operatives Co-operatives have their roots in the late 18th/early 19th century during the industrial revolution, with some of the first known being in Scotland (Fenwick 1769, Govan 1777). The ideas of the social reformer Robert Owen (1771-1858), best known for his experiment at New Lanark, were also very influential. The co-operative venture launched by the Rochdale Pioneers in 1844 is generally seen as a turning point in the growth of the Co-operative Movement. The radical changes that occurred in that period led to people recognising that joining together was a way they could achieve shared goals. Principles developed at that time are still accepted today as the foundations upon which all co-ops are based. The Co-operative Wholesale Society (CWS) - now the Co-operative Group - was set up as a supply organisation by Rochdale and other retail societies in 1863, and the Scottish CWS followed in 1868. The Society began to manufacture products for sale in co-op stores, developed the Co-op brand, and founded the country's only co-operative insurer - CIS - as well as The Co-operative Bank. A federal body for all co-ops, the Co-operative Union (now Co-operatives UK) was established in 1869. In 1895 the International Co-operative Alliance was established to support the development of co-operation around the world. Today, there are more than 700 million Co-operators in over 100 countries. (Euro Coop 2004). The USA alone has over 47,000 co-ops, with 120 million members - around 40% of the population. (http://www.cooponline.coop/about-international.html) European dimension Likewise in Europe, a recent European Union draft paper on "Co-operatives in Enterprise Europe" (2001) noted: "The performance of co-operatives has a major impact on the lives of their 83.5 million members by delivering wellbeing to their citizens and wealth to nations and by promoting entrepreneurship and participation." Statistics show that in 1996, the market share of co-operatives in agriculture was 83% in Netherlands, 79% in Finland and 55% in Italy; in 1999, the market share for co-operatives in milk production was 99% in Sweden, 97% in Denmark and Finland; in 2001 in Norway, dairy co-operatives are responsible for 99% of the milk production, forestry co-operatives for 76% of timber and 1.5 million people of the 4.5 million Norwegians are members of co-operatives. Specifically, the Mondragon Co-operative Corporation (MCC), in the Basque region
of Spain, is an example of how effective and innovative the co-operative business
model Mondragon began in 1956 with 24 workers making paraffin stoves in one small factory. Today MCC employs more than 70,000 people, and is the largest employer in the Basque region (and the seventh largest in Spain). It also has its own bank, social security system, and a recently established co-operative university with 4,000 students. Discussion has already taken place with Mondragon about the possibility of joint projects in Scotland, and it is anticipated that a CDA could help to consolidate such links with co-ops overseas. For more information see www.mcc.coop. Recently all the Member States agreed to adopt a Regulation allowing the creation of European Co-operative Societies (see IP/03/1071). A further Communication has just been adopted by the Commission to promote co-operatives in Europe. The Communication sets out steps which may encourage the wider use of co-operatives across Europe. They focus on increased visibility, further improvement of national laws on co-operatives, and enhancement of co-operatives' contribution to community policy. The Communication can be found at: http://europa.eu.int/comm/enterprise/entrepreneurship/coop/social-cmaf-agenda/social-cmaf-cooperatives.htm 4.1 The Advantages and Benefits of Co-operatives It is recognised that co-operatives can make a particular contribution to both economic and social development in a number of ways, which can differ from some business models. Examples include:
4.2 Co-operatives in the UK Co-operatives UK is the apex organisation for co-operative enterprise in the UK, promoting co-operative and mutual solutions and working in partnership with their members to build a strong and successful co-operative movement. The Industrial Common Ownership Movement (ICOM), which has recently become part of Co-operatives UK, is the UK federation of worker co-operatives and employee-owned businesses. It promotes the principles of democratic employee ownership. Industrial Common Ownership Finance Ltd (ICOF), the sister organisation of ICOM, was established in 1973 to encourage successful common ownerships to lend money to ICOF which could then be lent on to new co-operative ventures. They have been providing loan finance to co-operatives, employee owned businesses and social enterprises for over 30 years. ICOF is regulated by the Financial Services Authority (FSA) in the conduct of investment business. ICOF manage several separate funds, one of which is the Industrial Common Ownership Fund PLC which began in 1987 when it was a pioneer of co-operative shares. ICOF will be managing the lending arm of Co-operative Action, a new Co-op Foundation launched in 2002 that supports the development of new forms of co-operative and mutual enterprises. ICOF is on the board of Community Development Finance Association (CDFA), a trade association formed in 2002 to bring together the UK Community Development Finance Initiatives (CDFIs) - sustainable independent organisations that provide capital in under-invested communities and markets allowing enterprises to grow. Co-operative Action supports the development of both new and existing forms
of 4.3 Co-operatives in Scotland Scottish Co-operatives Development Committee Ltd In 1977 the Scottish Co-operatives Development Committee Ltd (SCDC) was established. It played a part in the creation of over 100 workers' co-operatives. In 1988 the Scottish Development Agency commissioned an evaluation of the impact of the Scottish Co-operatives Development Committee Ltd. The purposes of the study were:
The SCDC was found to be an effective vehicle in stimulating the creation of the co-operative sector in Scotland, and it was also found that these businesses would have required some form of business support. However, the SCDC was less clearly effective in helping existing co-operatives grow. 5. Existing Representation of, and Support for, Co-operatives 5.1 Co-operation and Mutuality Scotland (CMS) Co-operation and Mutuality Scotland (CMS) is a new organisation formed in 2003 by the merger of the Scottish Co-operative and Mutual Forum and the Scottish Sectional Board of the Co-ops, bringing together all the different types of co-operative and mutual in Scotland. Its purpose is to develop and extend co-operation and mutuality in Scotland's communities, with a vision to be:
As the representative organisation for the sector, CMS will clearly be a key partner in the establishment of a CDA in Scotland. 5.2 Employee Ownership Scotland (EOS) EOS was originally established as the Scottish Co-operatives Development Committee in 1978 in order to develop and support worker co-operatives. At one time it received substantial funding from local authorities, although this was often tied to urban regeneration objectives rather than business support and development as such. In the 1990s its work became more focused on employee buy-outs and succession, where it has had some success despite limited resources and long-term funding. It is envisaged that the CDA's remit would probably incorporate employee ownership businesses within its range of activities. 5.3 Scottish Agricultural Organisation Society (SAOS) The Scottish Agricultural Organisation Society (SAOS), the membership organisation of "Farmer Controlled Businesses" and rural co-operatives in Scotland, has been promoting and advising co-operative business in farming, food and related rural industries for nearly 100 years. They are grant-aided by the Scottish Executive's Environment and Rural Affairs Department and have assisted the Department to implement the Forward Strategy for Scottish Agriculture. They have also worked closely with Scottish Enterprise in the implementation of the Strategy for the Food and Drink Industry in Scotland. They receive more than half their income from other sources, mainly from consultancy and members fees. While there has been no independent evaluation on the impact or success of this organisation, the material produced and advice given are reputed to be of a high professional standard. SAOS aims to strengthen the profitability, competitiveness and sustainability of Scotland's farming, food and rural industries, through the development of co-operation and joint activity, by:
SAOS employs five full-time Project Managers throughout Scotland, and has its headquarters at the Rural Centre, Ingliston. The role and influence of SAOS continue to grow as the role of co-operation in Scotland's food, farming and rural economy grows. Their memorandum of articles restricts their sectoral remit to the extent that it is "rural". 5.4 Other Organisations Housing Co-operatives Housing co-operatives in Scotland have an established history, and currently receive some support via the Scottish Community Ownership Housing Forum (SCOHF) of the Scottish Federation of Housing Associations (SFHA) and Communities Scotland. As a group that already has a representative organisation and operates within a supportive and well-regulated sector, any further increase in support and advice is best channelled through the existing framework - although there should be a link with the CDA. Credit Unions It is also important that consideration is given to the interaction of the
CDA with other 5.5 Enterprise networks Under the Enterprise and New Towns Act (Scotland) 1990, Scottish Enterprise
has a specific remit to "assist the establishment or growth of community enterprises
or co-operative enterprise". Highlands & Islands Enterprise also have a
focus under their Strengthening Communities remit. Despite this, there has been
a lack of specific business support for The establishment of a CDA will be the first time that there has been a one-stop agency in Scotland to promote the major forms of co-operative enterprise. 6. Current Numbers of Co-operatives in Scotland A recurring issue, when researching this area, has been the lack of statistics on co-operatives. There are no comprehensive figures available for Scotland that cover co-operatives as a business structure. Statistics on small firm ownership are not recorded by a business's values and principles, and statistics are only held for enterprises that are VAT registered or employ staff. Using the most up-to-date information on named co-operatives available from co-operative support agencies, a basic analysis was carried out excluding credit unions (see Annex A). The figures are correct for the sample that was drawn from the Inter-Departmental Business Register (IDBR), but the sample is not representative of the whole co-op sector in Scotland and is skewed by housing co-operatives. Although the figures cannot be said to be representative, they are the closest we have to show the size and growth of co-operatives in Scotland in recent years. The actual number of co-operatives currently active in Scotland is likely to be higher than the figures used. Excluding the housing co-operatives, from the figures we can say that most co-operatives did not grow, a third grew, and five grew substantially. This is not an unusual distribution for small firms in general.
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