Why democratic ownership must be at the heart of Labour’s agenda

The modern co-operative movement began life in 1844 in Rochdale, when a group of ordinary working people came together to create the world’s first successful co-operative. Motivated by their frustration at the inequality and injustice at the heart of everyday life at the time, they opened the first co-operative shop to sell unadulterated food at fair prices.

The Rochdale Pioneers knew what we know today – that ownership matters. They could see in their community the stark reality that who owns a business dictates in whose interests it is run.

That is why the Co-operative Party champions the potential of common ownership, and why it is genuinely exciting that the Labour Party is putting ownership at the heart of its political agenda for government.

Where do we find ourselves today? Who owns the British economy and in whose interests is it being run?

Statistics from Co-operatives UK and ResPublica show that the number of individual shareholders on the London Stock Exchange has halved since 1985. Ownership is getting concentrated, with fewer and fewer big companies at the top.

Meanwhile, IPPR have projected that by 2030 CEO pay in FTSE 100 companies will be an average of £9.5m – 350 times the median annual household income. Productivity and real wages have become uncoupled. Even in sectors where productivity has grown in recent years, this has not been reflected in wage rises.

Research from the Bank of England shows that in the last two decades the share of the economy that has gone to workers – known as labour’s share – has begun to decline.  Since the financial crisis, real wages have fallen faster than UK productivity. The labour share of national income has fallen from 58 per cent to 52 per cent. In other words, a larger share of GDP has gone to those who own rather than to those who work. Plus, stagnating wages are contributing significantly to the rise in inequality.

What does this feel like?  Polling shows:

• 58 per cent believe they have no influence in the workplace
• 59 per cent feel they have no influence over big business
• 58 per cent feel they have no influence over the economy as a whole

This is why Labour is absolutely right to make the case that the economy is not working in the interests of ordinary working people and that radical change is needed. An ownership revolution is necessary to ensure that the rewards of future economic growth do not flow purely into the pockets of the few. We’re thrilled with Labour’s commitment to doubling the co-operative sector and to changing the way our economy works.

Where better to start than in our public utilities and public transport?

Our energy, water and railways are owned by a consortium of investors, motivated by profit margin rather than public interest. The promise when they were privatised was a “Tell Sid” share-owning economy, where Sid and any other ordinary Brit could buy their slice of British business.

On day one of the sale of British Gas, it should have been obvious that Thatcher’s vision of a share-owning economy would not be realised. Although millions signed up for the new shares, many simply sold them on at the end of the first day’s trading for a quick profit.

But it was too late. By the time of Thatcher’s departure in 1990, more than 40 state-owned businesses, employing 600,000 workers, had been privatised. In the decades since, this “Tell Sid” fallacy has further fallen apart. Share ownership by individuals has plummeted from 53 per cent in 1963 to just 10 per cent in 2012. Big international companies – banks, hedge funds, sovereign wealth funds – have bought up bigger and bigger stakes in our utilities and transport.

These sectors are unrecognisable now. Mergers and acquisitions have created energy monoliths, while most water companies have become wholly owned overseas, taken off the stock market all together. No chance Sid would get a look in today.

Privatisation came with the promise that competitive markets would mean lower prices, greater efficiency and better services for customers. In the 1980s, complex regulatory structures were designed to mimic this competition and prevent companies from exploiting their monopoly positions.

In rail, a lack of competition for franchises sees the same big companies running railways regardless of their performance. Passengers endure poor service and rising ticket prices, and employees are overworked because the structure of the franchise agreement deliberately understaffs services. Meanwhile, the promised private investment has, two decades later, still failed to materialise. The main sources of funding remain ticket purchases and taxpayer subsidy.

In many water companies, profits leaving the system as shareholder dividends frequently exceed the organisations’ pre-tax profits – while bills have risen by about 40% above inflation since 1989. And when we talk about pre-tax profits, we should be clear that their tax bill is nowhere near what it should be. Thames Water, for example, is owned via a complicated string of holding companies headquartered in sunnier climes like the Cayman Islands.

Energy customers, meanwhile, experience price hikes every winter as the Big Six plead poverty and rising wholesale costs. But when wholesale costs go down, savings are slow to be passed on.

The Co-operative Party strongly believes that there are some services that must be publicly owned and run.

In energy, water and rail, we should be ready to hit the ground running with a plan to reverse the damage that privatisation has brought to our infrastructure and services. We are clear, though, that public ownership doesn’t have to mean a distant department in Whitehall either. In rail and utility markets characterised by monopolistic structures, we should pursue opportunities to enable the conversion of monopolies into organisations owned and controlled by their stakeholders along mutual lines.

Changing the way they are owned and governed would ensure that their interests are aligned with those of their members, rather than being in competition with them. Because along with the scandal of profit extracted from our system, there is an accountability deficit at the heart of the way these services are owned and run.

Workers and customers are disempowered – with no mechanism to have their say on the utilities and transport that they rely on every day. Our economy has a democratic deficit.

In developing our thinking on public ownership in these sectors, we have been looking at the Co-operative Party’s policy platform from way back in the 1950s, reflecting on the experience of the ’45 government’s return of industries to public ownership. The party then, as it does now, believed in and championed public ownership. But in understanding what we mean by this, the Party’s policy writers in the 1950s made an important point:

“Political democracy has to be supplemented by economic democracy, if either was permanently to survive, and it is a poor tribute to democracy if the people of Britain are judged incapable of devising suitable forms of organisation to make democracy effective in industrial as in political life.”

Soon we will be publishing our report on how this might work for public ownership in the 21^st century – a blueprint, if you like, for what our next Labour and Co-operative Government could implement for energy, water and rail from day one.

We are calling for a co-operative approach, where ownership and participation in decision-making by workers and consumers creates truly democratic, accountable structures. Instead of profits being siphoned off for private shareholder dividends, they are either reinvested in the service or shared out fairly through dividends.

This is a big task, and a significant step up from those co-operative shops in Rochdale over a hundred years ago in terms of scale and ambition. But it isn’t unrealistic.

Co-operative approaches to energy, water and rail have succeeded elsewhere.

In New Zealand, when electric power boards were restructured, all consumers were deemed to own them by virtue of paying for their existence and operation through their bills. As a result, a large number of consumer- or community-trust owned companies were established such as Vector and Electricity Ashburton (EA) networks.

Looking at EA Networks as an example, it is co-operatively owned. The district council owns some shares, and the rest are owned by customers, each of whom holds 100 shares. Consumer shareholders can elect executive committee members on a one-member-one-vote basis.

Vector have a similar approach but a slightly different model. It is 75.1 per cent owned by a consumer trust, which all customers can be a member of. The trust provides the company with two of its seven board members. All consumers receive dividends – in 2009 each received USD 203.

Closer to home in Wales, Dwr Cymru Welsh Water also has a not-for-profit model, organised along mutual lines. As a company limited by guarantee rather than shares, it has no shareholders.

In 2000, Welsh Water’s current not-for-profit owner Glas Cymru was created as a “people’s bid” to take over Welsh Water, based on a belief that water is a public commodity, not a private enterprise. The not-for-profit structure sought to save money and reduce bills through:

• not paying dividends to shareholders
• an ownership model which meant it always operates in the interests of its customers
• changing the way they raise finance to reduce the cost of credit

Glas Cymru is governed by members drawn from across the supply area and with a range of backgrounds, skills and experiences. There is an AGM to appoint the directors and auditors, and to challenge the company on remuneration and governance.

Welsh Water now have the strongest credit ratings in the water industry, reducing their financing costs and enabling them to spend money on improving infrastructure and services, or reducing customer bills.

And it’s working. Customer bills have steadily reduced, having so far returned around £180m to customers in the form of “customer dividends”. In addition, they have provided over £10m of support for vulnerable and low-income customers through social tariffs (reduced tariffs for customers struggling to pay) and an assistance fund.

At the Co-operative Party, we are excited that now may be a historic opportunity to build on this economic democracy and bring democratic public ownership to life in every region of the UK.

We reject the idea that it is inevitable that economic growth will be created by a handful of entrepreneurs overseas, that wealth is inevitably concentrated in just one corner of the country, or that the only governments that should be able to own and run parts of our critical infrastructure are foreign governments.

We are excited about the new, accountable, participatory future that comes next. Key to building a new economy is unleashing the power of common ownership. The co-operative movement, and these experiences in places like New Zealand and Wales, are living examples that another way is possible.

We’ll be publishing our ideas for what this looks like in energy, water and rail soon – we hope these will provide an interesting contribution to a wider policy debate on the practical steps that a future Labour and Co-operative government can take, a contribution to the debate on public ownership that has co-operative values and principles at its heart.

Anna Birley is policy officer at the Co-operative Party.