Democratic Business series: The Question of Scale

Spring 2023 #41
written by
Co-ops UK, GMCA, Power to Change, Co-operative Party
illustration by
Carl Godfrey

The question of scale is ubiquitous in efforts to make the UK economy more democratic and inclusive. Is the local scale more inherently democratic than the national economy? Is the national level the only possible scale to create really meaningful change? Are local first efforts – often accused of municipal protectionism – really compatible with reducing widespread economic inequalities?

These debates and tensions have characterised the last decade of policy development efforts to democratise business and the economy, but they still feel underdeveloped in terms of how action in different parts of our economies – from local to national – can reinforce and support each other.

In this interview, we speak to a range of advocates in local government, business federations, foundations, and think tanks to get their perspective on the question of scale within their efforts to create a democratic economy.

1. How do you think about the question of scale within your efforts to support democratic ownership in business and the economy?

James Wright—Co-operatives UK: 

While there are challenges in maintaining impactful economic democracy in larger-scale organisations and networks, these are certainly not insurmountable. There are many large co-operatives in the UK and around the world that prove this point. Careful attention to the evolution of governance, the nurturing of culture, and practices such as federation, can all help. The potential for digital solutions to enable co-operation at scale is really exciting.

Of course, purpose, democracy, and ownership all make scale-up in the co-operative economy qualitatively and quantitatively different to scale-up in investor-owned enterprises. Co-operatives need to be clear on how and to what extent scale will help them deliver on their purpose (i.e. member value, community benefit) and so need purposeful growth strategies.

Some co-operatives may reach a point when they can scale their impact more through supporting the proliferation of similar, like-minded co-operatives, rather than growing any bigger themselves. There are some great examples of intentional proliferation via replication around the world, which I’d love to see in the UK.

I tell policy makers they need to support co-operative scale-up as well as formation, but they need to cater to these co-operative differences. Investor-led approaches to scale up won’t help.

Greater Manchester Combined Authority—Anne Lythgoe

In Greater Manchester, the Local Industrial Strategy recognises the role of co-operatives, social enterprises and other inclusively owned businesses in terms of their ‘social impact’, provision of good jobs and being leaders in innovation. The Strategy also sets out a principle to create the optimum conditions for these organisations to thrive, which has guided Combined Authority activity since 2019.

Having established that GMCA would want these organisations to thrive, a key consideration in our approach to achieving this is the nature of our role in the economy. The report of the Greater Manchester Co-operative Commission, for example, noted a need for increased political leadership, new approaches to public sector procurement, and legal reform if co-operative enterprises are to thrive in Greater Manchester.

However, the Commission also noted that changing the operation of a Combined Authority would not be successful on its own, recommending that GM Partners from across all sectors should come together to “enable an increase in community-led, placed based approaches to co-operation, community ownership, and economic development”. Our GM Independent Inequalities Commission also noted the need for community-driven business support services, encouraging a local first effort in building community wealth.

Our approach to ‘scale’, therefore, is one of using the powers and levers available to us at a GM footprint, which will support the creation of an operating environment in which inclusive ownership of business is recognised for its value, and appropriately supported, acknowledging that many of these businesses are small and operate within specific geographical or cultural communities.

Power to Change—Susie Finlayson

We believe that a lot needs to change in the policy and fund- ing environment, to enable more democratic ownership of businesses (like community businesses) and relatedly of assets, as asset ownership underpins a lot in our economy. Over the years we have directly helped many individual community businesses to grow and to take on assets. We believe it is important to work at the neighbourhood level, to support those who are at the vanguard of creating a fairer society and economy. But we also recognise that structural and policy change are needed to achieve scale, so it is important for organisations like ours to also work at the regional and national level, influencing funding and policy and creating opportunities for community businesses that are more developed to share tools, resources, and knowledge.

Many of the community businesses we support consider scale through the lens of their neighbourhood. So they will scale through delivering more activities and services and taking on more assets within their neighbourhood as opposed to increasing the geographic scale at which they operate. Those at the vanguard are adept at navigating the economic and policy system which frequently puts barriers in their way. Part of our role is to support them and to influence change at a national level to address these challenges for others.

We believe that there are opportunities to increase access to finance – one of the main barriers to scale for community business – at a regional level as well as a national level. We have worked or are working intensively with three combined authorities, helping them to develop and deliver strategies to grow the social economy in their areas. In Liverpool City Region, this resulted in the development of Kindred, an independent CIC run by and for Socially Trading Organisations in Liverpool City Region. It was co-founded and incubated by Power To Change and is backed by money from the Combined Authority and Power to Change. However, it was developed by and with over 150 socially-trading organisations (STOs) across LCR. It offers new kinds of money and support, not previously available in the region. Kindred loans money at 0% interest. Organisations may also have the option to repay money partly in social value: STOs want their ‘double dividend’ – financial and social impact – recognised. Kindred recognises that existing social investment is not always accessible – particularly to community-led organisations at the smaller end of the scale. It offers bespoke, hands-on, peer-to-peer support and learning delivered by trusted, local, peer practitioners. The integration of the support is key and goes hand in hand with the process for allocating money. The way money is allocated is unique: it is collaborative rather than through competitive applications, which has resulted in more collaboration in the sector.

At a national level, we have advocated for funding for democratically owned assets, and were pleased to see the Community Ownership Fund delivered, a fund that we had been making the case for prior to its adoption in the 2019 Conservative party manifesto. We continue to call for more funding to support democratic ownership, such as our High Street Buyout Fund which would get more vacant high street properties into community ownership. And we are working with others to propose policy changes such as the Community Right to Buy and the Community Power Act. This year, ahead of a general election, we will be calling on both main parties to back community businesses and the social economy.

Daniel Monaghan—Co-operative Party

The Co-operative Party believes it is essential to grow the scale of democratic business throughout the UK. While the democratic business sector contains many high street staples, including The Co-op Group, Nationwide and Richer Sounds, and is worth £40bn to the UK economy, it still is comparatively small when compared to other nations. For instance, the Netherlands and France both have a co-operative sector which makes up 18% of their economy, while New Zealand’s co-operative sector comprises 20%.

Action is required to develop the democratic and co-operative business sector, so it can bring the benefits of the model to people, communities, and local economies across the UK. Co-operatives have been shown to be more productive and more resilient than other forms of business ownership, with co-operatives twice as likely to survive the first five years of trading than private firms.

With the John Lewis Partnership now being threatened by demutualisation, it is crucial we modernise the legislative, regulatory, and financial environment in which democratic businesses operate. This should include new legislation to ensure asset locks and indivisible shares to protect against demutualisation. New financial mechanisms will also be required to enable patient capital raising for democratic business expansion.

The Co-operative Party is committed to doubling the size of the co-operative sector under the next Labour and Co-operative Government. This would be a numerical growth from 7,000 to 14,000 co-operatives across the UK. This will require a commitment to delivering greater co-operative development capacity in all regions and nations of the UK.

2. Where do you see realistic opportunities for more strategic collaboration between local initiatives, regional action, and the national agenda?

Power to Change—Susie Finlayson

Power to Change is working with Combined Authorities to identify how regional interventions can support the growth of the social economy. We hope that through piloting and demonstrating support for the social economy at a regional level we can make the case at the national level for supporting this part of the economy as a route to creating social and economic impact. We are also piloting new models of place governance (Community Improvement Districts) in seven places, with a view to developing national recommendations for how communities can best shape their local area.

We also see opportunities for more strategic collaboration between democratically owned businesses operating in similar sectors. For instance, we have supported a number of communities of practice in community technology and community-led social care provision. This peer learning enables democratically owned businesses to support one another, and for infrastructure and funding organisations to build on that learning to influence regionally and nationally.

Greater Manchester Combined Authority—Anne Lythgoe

GMCA benefits from the formal devolution or delegation of powers around employment and skills, around planning and housing or policing, for example. We also have an ability to raise funding and investment for local priorities. These have been enhanced through the recent announcement of a Trailblazer Devolution Deal which will see greater control over post-16 technical education, new responsibilities over transport, housing and regeneration, devolution of £150M brownfield funding and a single funding settlement – similar to Scotland and Wales – giving Greater Manchester much greater flexibility to focus on local priorities, including supporting inclusive business ownership in the economy.

But GMCA also has soft powers – enabling collaboration over key issues such as Net Zero and Early Years delivery, or encouraging others to take co-ordinated action – around the Real Living Wage or cost of living crisis. The Mayor and CA can also influence upwards through writing to or meeting with Ministers and Government departments.

As an illustration of how convening and collaboration can work in action, GMCA is creating a ‘Community Wealth Hub’ as part of our response to a recommendation made by the Independent Inequalities Commission. GMCA convened a series of co-design workshops with an independent facilitator, used the GM Consult platform to reach a wider audience, and held stakeholder meetings with specific organisations or stakeholder groups, including disabled people and racially minoritised communities. Over 150 individual people and around 70 different organisations took part, representing local authorities, co-operative and VCSE organisations and networks, business support providers, health and social care, universities, housing providers, funders and investors, as well as a range of employee-owned or private businesses. We now have a concept model for an ‘Inclusive Ownership Platform’ that could help individual social entrepreneurs and business leaders connect with the support to develop, scale, and grow their inclusively owned enterprise, and believe that the result from this collaboration will lead to better policy and outcomes.

Attempts to amass a countervailing transnational force, to challenge the global power of capital, are more important now than ever.

James Wright—Co-operatives UK

National and transnational corporations have a huge impact on our economy. But don’t under-estimate how much the ‘national picture’ is made up of lots of small, local, activity. Most people work in local SMEs. So the more we make those small impressionist dots democratic, the better the national picture will become.

Contrary to common perceptions, co-operatives already have a greater propensity to scale than most businesses, with average turnover and number of employees seven times larger in co-operatives than in businesses generally. People achieve more together than they do working alone. Yes, most co-ops are small, but most enterprises are much smaller, and much less impactful. A proliferation of smaller, local co-operatives will achieve a regional or national impact more quickly than we might expect. Especially if we get replication, federation, and scale-up right, too.

Attempts to amass a countervailing transnational force, to challenge the global power of capital, are more important than ever. We must consciously combine what we do individually and in our communities with similar action in other regions and other continents.

Politics and the state are critical variables in this. Bold local leaders can do a lot to encourage a more democratic economy in their regions. Look at what’s starting to happen in places like South Yorkshire, Greater London and North of Tyne. But we need these city-regional endeavours to connect and combine. And we need complementary policy at the national level, particularly on things like investment, tax, and the laws that govern the economy.

Daniel Monaghan—Co-operative Party

To achieve a doubling of the size of the co-operative sector across the UK, the Westminster Government will need to work with authorities across the UK, including the devolved nations, metro mayors, and local authorities.

This will mean building co-operative development capacity in all areas of the country, so that all communities can access co-operative start-up and growth advice. There are already many good examples of existing co-operative development organisations, operating at different scales, ranging from single London boroughs to national agencies in Scotland and Wales.

Co-operative development support has been of critical importance in expanding the co-operative sector. Independent evaluation found Co-operative Development Scotland produced a sixfold return for every one pound of public money invested, while Cwmpas helped to grow the democratic business sector in Wales by 34% between 2016 and 2018.

A Labour and Co-operative government will need to work with co-operative development agencies, exist- ing co-ops, and other forms of democratic business to strengthen the sector. New initiatives will be required to ensure greater awareness of the co-operative model and the benefits it can bring to members and com- munities. This will need to be delivered at all different scales to ensure effective action – locally, regionally, and nationally.

Spring 2023 #41

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