European co-ops: A ‘reality check’ for UK public service vision

Students of Spanish, Italian and UK co-operative schools at an international co-operative schools conference

David Cameron has cited Swedish and Spanish co-operative schools as models for public service mutuals in this country. But a new report from Co-operatives UK finds we have a long way to go to mirror international experiences of public service delivery by co-operatives.

Time to Get Serious: International Lessons for Developing Public Service Mutuals examines the experience of public service delivery by co-operatives in Spain, Italy and Sweden. In each of these countries mutuals have played a key role in the delivery of a range of public services since at least the 1980s. With the UK’s coalition government predicting that one in six public sector employees could be working in new mutual enterprises delivering public services by 2015, the report offers lessons for the emergent sector in the UK.

In all three countries the key ingredient for the success of the mutual approach to public service delivery is an enabling environment for co-ops to develop. This includes a clear and legal organisational model, specialist business support and favourable government policies.

But perhaps the most significant factor in the development of mutuals is time. Each of the case studies outlined has seen its mutual movement build slowly over a period of up to thirty years, supported by incentivising policies. Will mutuals in the UK be similarly nurtured?

SPAIN
In Spain co-operatives are considered an essential part of democracy and have flourished in line with country’s transition from dictatorship. Following the demise of General Franco in 1975 the new Spanish constitution recognised the positive role that co-operatives have in encouraging democratic participation and subsequent government policies have continued to support and strengthen the sector.

There are now 25,000 co-operatives in Spain, employing nearly 318,000 people, with agricultural and retail models particularly well-developed. But it is Spain’s co-operative schools that have caught the attention of prime minister Cameron.

Of the 550 co-operative schools in the country the majority are based on employee-led models. Many were set up to cater for a particular local need – i.e to teach in the local native tongues in areas such as the Basque Country – or to provide for children with special needs.

Lesson 1. Access to finance
The report identifies a number of reasons for the success of co-operative schools in Spain, top of its list of which is the supportive fiscal and policy environment provided for their development. Since the 1970s co-ops have been encouraged through favourable tax rates and the ‘pago unico’ policy, which allows unemployed people to receive their unemployment benefit in the form of a lump sum to finance new co-operative ventures.

Access to capital is a vital ingredient in successful co-ops. Fiscal incentives played a key role in the development of both the Italian and Spanish co-operative sectors, encouraging investment in co-ops and incentivising the establishment of reserves that mean co-ops have sufficient working capital. Members are a very significant source of finance, both employees and investor members such as local authorities.

The Co-operativesUK report calls for a review of sources of finance for public service mutuals in this country, including an analysis of how suitable the current sources of finance available are and whether they can provide for the start-up and growth of a new wave of co-ops.

ITALY
Italy is home to arguably the most extensive and successful programme of mutualisation anywhere in the world. An enabling framework, including a clearly defined legal structure and positive partnerships between co-operatives and local authorities has helped develop the sector from just 650 social co-operatives in 1985 to 7000 today.

Their growth began following the demise of the traditional role of families and the church in providing social care. The mutual approach was seen as an improvement on other care models, not least in the south, where it is viewed as an approach less open to corruption and to the involvement of organised crime.

Lesson 2. A clearly defined legal framework

In Italy a law giving co-ops a clear legal structure within which to operate has been a powerful facilitator for growth. It is flexible and allows co-ops to benefit from tax and other incentives that recognise the social impact that accrues from this type of organisation.

Likewise, in each Spanish region there are specific laws setting the framework for how co-operatives operate and regional governments fund promotional activities and training programmes as well as offering start-up grants and loans.

Such a clear legal framework is missing in the UK which, the report warns, could suffer from the array of models available. Core elements of being a mutual or co-op could be watered down or lost in favour of quasi-mutual private enterprises, it says, and adds that there is still work to do to make it more straightforward to form a co-op or mutual in this country.

SWEDEN
The Swedish model of mutual pre-school day care began in the 1989s when huge demand for children’s day care meant parents began to organize themselves and set up co-operative pre-schools. The first day care co-operatives were parent-led, but recently there has been a growth in employee-owned co-ops.

Lesson 3. Specialist business support
Key to Sweden’s success in mutuals has been the help and advice given by specialist co-operative development agencies, the Coompanion network, financed by the Swedish government. The government recognized that conventional business support providers did not have the knowledge or experience help those wishing to set up co-operatives and made a decision to finance specialist support. These agencies grew up in different ways in different part of Sweden and then federated into a national support body, now called Coompanion. The network is funded centrally by the Swedish government, with funding distributed to the regions and matched with regional funding and other sources of finance.

In Italy co-ops are organized into consortia, which allow them greater strength in the market place and also play a key role in the strategic growth of co-ops, supporting, advising and participating in the development of new business opportunities. In turn the consortia are linked in national federative bodies which represent members and also develop practical initiatives such as trad marks.

In Spain, co-operatives are supported and developed through links to a broader, successful co-operative business sector. Coops support each other through regional bodies for worker’s co-operatives such as FVECTA in Valencia, which in turn is connected to a regional federation for co-ops and a national body for the social economy.

Such networks have proved vital in nurturing new co-operatives and helping share and develop know-how in co-operative management for example. Co-operatives UK calls for a funded programme of high quality specialist business support to all would-be public service mutuals.

Lesson 4. Positive approaches to commissioning and procurement
The ways that services are contracted out is a fundamental factor in the success or failure of co-ops.

Italian law gives co-ops the status of preferred providers in the procurement of local authority contract and social co-ops enjoy good relations with local authorities, with many involved in the joint planning of services.

In Spain new co-operative schools are now emerging where the land is transferred as an asset, the co-operative finances the construction of the school and can then be awarded contracts for up to forty years.

The importance of providing the right conditions for the nurturing of co-operatives was illustrated by the demise of mutual enterprises in the Spanish elderly care home sector following a change of policy. Co-operatives in this sector expanded from the mid 1990s, boosted by local authority contracts to manage services. But 15 years on, only one business remains following a shift in policy to combine service contracts with the construction of new care homes.

In the UK there have been some effort to open up commissioning and procurement to the social sector but the approach around spin-offs has been less developed and needs further exploration. What are the options for long-term transition contracts and models that have characteristics that can be recognized explicitly in procurement?

Lesson 5: Successful organisational models
Italy’s strong organisational model, which allows the involvement of different categories of members and the use of consortia, has been fundamental to their success.  Their culture and governance is highly participative and that engagement is used to promote higher efficiency and productivity than state or private providers.

In the UK, while there is a very well established retail co-operative sector, there is relatively little experience of employee-led co-operatives operating in public service markets. There is a fear that restricting the mutual model to employee-only risks restricting the growth of the sector. The report recommends that public service mutuals recognise the opportunity for mixed models with employee and user ownership and user-led models that employ staff as well as the current focus on employee-owned co-ops. It also urges an exploration of the potential to develop rapid and effective consortia-based models of growth.

So, the UK has a long way to go before it has a flourishing public service mutual sector along the lines of Spain, Italy and Sweden. Co-operativesUK calls for an urgent debate around the lessons outlined above and further analysis of the critical success factors and risks involved in the promotion of co-operative public service models in the UK.

While recognizing that it is early days for the new programme it calls for the experience from other countries to provide the starting point for action.

‘The UK policy context does not emerge particularly well from the comparison with these pioneer countries and this must form something of a reality check.’