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  1. Politics
1 July 2015

From medieval Europe to modern day austerity, we need to rethink business ownership

From the Middle Ages to the modern day: co-operativism works. 

By Ed Mayo

If you picture the Rhine, the great European river that flows from the Alps to the North Sea, you might picture a river with regular, beautiful castles. And you would be right.

During the Middle Ages the Rhine was a great European trading route, protected by the Holy Roman Emperor. Merchant ships, plying their trade, paid a toll and their passage was assured.

But after the Empire started to weaken, over the 13th century, this changed. German barons – the original robber barons – built castles along the Rhine, and started to levy their own illegal tolls, sometimes stretching iron chains across the river from the castle bank. The castles represented a business, selling rights of passage.

Today, those ruined castles are perfect for tourism, strung along the river, close enough to walk between. Back then, they served to kill trade. Not only did the barons levy tolls, but they would steal ships and one, the Baron of Reitberg, even kidnapped the Queen of Holland from her ship in 1254.

The kidnapping led to the formation of the Rheinischer Bund, the Rhine League – a co-operative venture with cities, princes and knights as members. They freed the Queen, deposed four of the robber barons and closed ten or more toll castles.

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But knights were costly and neighbouring towns failed to chip in. As Michael Heller, author of The Gridlock Economy, a compelling view of ownership over time, reports “when the league collapsed, the robber barons proliferated anew, and rive traffic shrunk. More than five hundred years passed with gridlock on the Rhine.”

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It was only after Waterloo in 1815, that the great European powers finally collaborated to remove the offending toll collectors – just decades indeed before railways emerged as an alternative for traders. The Rhine had long been the greatest trade course in Western Europe, but its contribution to the common good had been shackled and hampered by the lack of consistent co-operation.

Fast forward two centuries, and alongside the anniversary reminders of Waterloo, recent economic debate in the UK on productivity and the long-run impact of austerity reflects some of the fate of the Rhine, with the risk that in the move to a new settlement after the emergency actions in the follow up to the Credit Crunch, private competition will win out over common good: a win/lose, or perhaps even a lose/lose, economic fate.

The search is on therefore for a new approach for economic success. One ingredient for this could be to harness innovation trends that are encouraging a far stronger dose of economic collaboration. I call this the co-operative advantage – co-operating in order to compete.

The economy is increasingly organised around the creation of knowledge and the use of information. In that context, success comes to those who can engage people and mobilise resources in an agile way, adapting to a changing environment and anticipating emerging needs.

According to leading businesses across Europe, in data for the 2015 World Economic Forum, co-operative innovation of this form will account for over a quarter of their total revenues by 2030.

Co-operative Advantage is a book new out that is based on research I led over three years with co-operative business experts, advised by Professor Michael Best, University of Massachusetts Lowell, an internationally recognised authority on innovation.

The research analyses growth sectors around which the co-operative model has an edge and a fit that offers a competitive advantage – identifying 50 potential innovations that dovetail with emerging trends in technology and markets. The total economic value of the sectors that we look at add up to 61 per cent of overall GDP and account for 64 per cent of total employment in the UK.

The research uncovers a robust base of evidence that more effective co-operation can be good for the economy:

  • Productivity: the potential boost from co-operation to the UK economy in terms of higher employee engagement is estimated to be a minimum of £59.4bn.
  • Innovation: innovation accounts for 70 per cent of long-term economic growth in the UK and the most common sources of innovation are from employees and from customers.
  • Entrepreneurship: data on growth businesses across a dozen countries including the UK shows that entrepreneurs are motivated to “build businesses and create change through co-operative relationships” rather than acting as lone entrepreneurs.

So how far could this go? The UK at present has at most around two per cent of GDP generated through co-operative models. What is interesting is what emerges with a fivefold increase, drawing from experience elsewhere.

The impact of having 10 per cent of GDP generated through co-operative activity has a significant set of wider social and economic benefits – with higher employment and lower carbon intensity. An example of the ‘co-operative effect’ is around Bologna and the surrounding Emilia Romagna province. This has the highest density of co-operatives in Europe, generating close to 40 per cent of GDP and is the region of Europe with the lowest social-economic inequality between the rich and the poor.

Famously, Harvard Professor Robert Putnam coined the phrase ‘social capital’ from his time in Italy to describe the ways in which the embedded social relations in civic and business life can overlap for the wider benefit of the region, in personal, social and economic terms. Over 90 out of 100 Italians say that they know someone they could turn to and rely on in a time of need, a higher level than for counterpart countries.

We need to move the framing of economic policy away from austerity, given that this does little more than look backwards from the narrow frame of state expenditure, to one about co-operation and innovation. For years, economic policy focused on competition and the powers for competition authorities that have emerged over the last two decades have been of genuine and positive benefit. Now, we need to talk economic co-operation and imagine a new toolkit and balance for new forms of co-operative advantage.

 

Co-operative Advantage: innovation, co-operation and why sharing business ownership is good for Britain is edited by Ed Mayo and published by New Internationalist.