On Wednesday January 29th, we held a meeting at The Warehouse on waste and recycling, led by Birmingham Friends of the Earth waste campaigner John Newson. We ended up having a really interesting discussion on waste as a resource, and how we can extract the most value out of it while keeping emissions low.
If you would like to catch up on the discussion, we created a Storify of the discussion, including background information and supporting data. You can find it here.
Workers’ Cooperatives – We can learn from Spain
by William Franklin and Andrew Coulson
There was no shortage of publicity in November 2013 when the Cooperative Bank got into difficulties and survived by selling a majority of its shares to two American hedge funds. At almost the same time, and hardly reported, but almost certainly of greater significance for the future of worker-owned businesses, was the receivership of the Spanish cooperative Fagor.
Fagor (under its earlier name Ulgor) was the founding member of the Mondragon Cooperatives, a group of cooperatives and companies which began in 1956 in the Basque country, in the Western foothills of the Pyrenees. Mondragon grew to become the 7th largest business group in Spain, with 120 member cooperatives, 83,000 worker members, and subsidiary companies in many other countries including the UK, China, Brazil, Mexico and Poland.
The loss of Fagor will not be the end of Mondragon. Indeed many might say that a company manufacturing cookers, microwave ovens, refrigerators and pressure cookers, and faced with competition at one extreme from Bosch with its huge research budgets and marketing expertise, and at the other by cheap labour in China and elsewhere, did well to survive as long as it did. But it does send a dark shadow across that part of Spain, and demonstrates that even the biggest and best supported cooperatives can only hold out for so long against adverse market forces.
There were manufacturing cooperatives in the Basque country in the 1920s. In the 1930s the area was one of the main theatres of the Spanish Civil War. In 1941 a politically motivated Catholic priest was appointed to the parish in Mondragon, a manufacturing centre in a narrow valley. One of his initiatives, to help unemployed young people get jobs, was to found a small technical training college. Five of its early graduates were the founders of Fagor. They fundraised locally and used the money to purchase a small engineering works, making paraffin stoves. They diversified, and expanded, at first by copying, later through licensing agreements and their own R&D. They created legal and financial structures which enabled them to spin off new cooperatives, while keeping worker ownership and involvement.
Each worker member purchases an interest in their cooperative enterprise over the first five years of work – currently for € 15,000. He or she accumulates a share of the profits, which are paid out on retirement or leaving the cooperative, and receives dividends on the accumulated sum (which provides a useful source of capital for further cooperative investment). The sums are not massive by the standards of UK executive compensation and vary with each individual’s earnings but for an average employee could be quite meaningful: before the recession the average member retiring could hope to receive around € 130,000, accumulated over a working career.
The individual cooperatives are in a similar position to subsidiaries in a large conglomerate, other than that they are answerable to worker members rather than shareholders, who elect a board which appoints managers. Legally, worker members are self-employed. As such they do not qualify for many of Spain’s social welfare payments, such as sick pay or redundancy pay, so alternative provisions have to be funded and provided through the cooperatives. They are not unionised.
Mondragon’s first period of rapid expansion was in the 1960s and early 1970s. Franco died in 1975 and the years that followed were very unstable, especially in the Basque country, where the ETA resistance was fighting for independence. This period ended in 1982. Spain and Portugal joined the European Union in 1986, leading to the second period of extremely rapid expansion in the last 20 years. This included creating or purchasing companies in many other parts of the world, though most of these are conventional companies not cooperatives, which means that the group now has two very different kinds of governance structure.
From the start the cooperatives were committed to innovation. 14 are research centres, employing 1885 scientists and engineers in 2011, and having created 716 patents. The original technical college grew to become a technical university, with a modern business school, but also teacher training and a specialism in Basque cooking. It is one of the best endowed universities in Spain. So these are not cooperatives taking over failing manufacturing businesses. They are at the cutting edge of manufacturing technologies.
The University runs a 3-year degree in entrepreneurship, taught in English. The first six months is concentrated academic study. After that each student is expected to create a viable business. They get technical and financial support, and mentoring, but if at the end of three years the business (cooperative or other) is not viable they do not get the qualification.
The advantages of the Mondragon approach are its flexibility, its culture of sharing rather than competition and secrecy, its avoidance of excessive salaries, and the loyalty and commitment it engenders. But even that is put under pressure by a prolonged recession. The Centre assisted Fagor as much as it could, but once it realised that it could not trade out of recession there was no alternative but to take the hard business decision and allow the pride and joy of the group to go into receivership.
There are many possible lessons from this, although what is possible in one place may not work so well elsewhere, and the Basque country is special and different, and a suitable territory for cooperative activities. Mondragon shows that from small beginnings a group of cooperatives can grow extremely fast, to become a force on the world stage, and that the cooperative form can be adapted to allow for innovation and a period of low profit before an investment comes good. It fosters something we largely lack: cooperative entrepreneurs. It shows how cooperatives can generate surpluses which can be used for investment. Its concept of accumulating bonuses, and earning interest on them, but only receiving them on retirement or on leaving, is a big improvement on the UK type of bonus culture. It is also significant that when it comes to votes on important issues such as whether the company should be taken over it is strictly one person one vote; in contrast to our situation where employees who have received large bonuses in shares and other shareholders can use these to vote through takeovers which will give them great capital receipts but not necessarily be in the best long term interests of the company and its employees as a whole.
However, the receivership of Fagor, like the troubles at the Cooperative Bank here, shows that nothing should be taken for granted. It will test the model to the limit – not least the distinction between the different kinds of enterprises in the Mondragon Group and the different consequences if these are closed down or sold on. Both Fagor and the Cooperative Bank demonstrate the need for professional competence, marketing and finance skills, and above all auditing and holding to account. But if these are in place there is little that workers’ cooperatives cannot do.
A final thought: does any UK university in an area with a history of manufacturing have the courage to create a Department of Cooperative Entrepreneurship running post-graduate degrees on the Mondragon model, for individuals who would like to set up in business? The University would encourage mentors from business to be involved, and break down the barriers between business and the academic world. It would take minority shares in the companies so created, both to protect them, but also to allow some of the benefit to be transferred to future cooperatives if at any stage they were sold. If this country is serious in wanting to recreate manufacturing, that is the kind of initiative, and confidence, it will need.
William Franklin, a chartered accountant and Partner of Pett Franklin, a law firm with a specialism in employee ownership and sher schemes, visited Mondragon in April 2013. Andrew Coulson is a development economist at the University of Birmingham.
Summary of a Labour Campaign for International Development (LCID)/ Birmingham Fabian Society Meeting, 29th October 2013
International development was one of the success stories of the last Labour Government and the next Labour government will want to put poverty reduction back at the top of the priority list.
The development of agriculture and the rural economy in Africa is highly relevant because all over the continent land is being purchased or otherwise obtained by large-scale farmers sometimes promising to farm tens of thousands of acres. Ownership is often taken into the hands of large external corporations producing for rapidly fluctuating export markets. It sometimes seems as if Governments and aid agencies have given up on small-scale farming. Yet the track record of large-scale agriculture in Africa is very poor indeed and has not led to reductions in poverty and in enhanced rural livelihoods. This note draws from a presentation to a LCID / Fabian Society discussion meeting held in October 2013 and the paper presented at this event by Dr Andrew Coulson focussing on rural development in Tanzania.
Economists from the Marxist left (such as Henry Bernstein) and from the pro-market right (such as Paul Collier) have emphasised a commitment to the development of large-scale commercial agriculture as a way forward for development. Land is being acquired at a rapid pace as a result of a wide variety of pressures and is now well documented e.g. Fred Pearce The Land Grabbers (2012). This process is being driven by worldwide high prices for food; by moves to bio-fuels in the US; by increased demands in China and other countries; by stalling of green revolutions e.g. in India and are all compounded by speculation in world markets and global warming. In addition, Middle East and Asian countries such as Korea, Qatar and Saudi Arabia are trying to get land to grow rice to feed their populations. The Department for International Development (DFID) is under strong pressure from commercial interests to support large scale agriculture. Yet much of the evidence questions the benefits of these trends in the context of development objectives. This needs to be considered when setting Labour’s development priorities for post 2015.
Small-scale farmers have found many ways to survive on a sustainable basis which can be verified through scientific assessment. For example, use of fallow periods, multiple or mixed cropping, use of many small plots, seed selection – for taste and drought – uses of trees and famine crops and also risk avoidance – especially with innovations. Large commercial farms, often externally owned and oriented to global markets, start out with a number of short term advantages such as the choice of very good soils/locations, use of protection against soil erosion, use of high-yielding varieties and efficient marketing and/or processing which in some cases small farmers cannot match . But they have very high fixed costs and are often inflexible in responding to changing environmental and economic conditions. They frequently do not contribute to sustainable development or provide locally produced food required in the case of many countries for the needs of growing urban populations.
At current world prices, small farms in Africa can produce food surpluses and so feed the growing cities if the conditions are right. Crucial to DFID development objectives under a future Labour government should be small-farm improvement as the only way that will also reduce poverty in the medium term. In order to develop practical tools for intervention and support, we need appropriate, farmer based, research. We need to focus on marketing and farm prices and extension to support market forces. Farmers often have logic (and science) on their side, so aid agencies and their agents should make sure they listen to farmers and address problems through their eyes. Appropriate and effective delivery mechanisms are needed to ensure that the cost of delivery and the unit costs of inputs do not prevent support of small farmers in favour of large producers.
Awareness and understanding of these issues is needed amongst politicians, experts and officials in the UK and other donor countries and bodies but also in the relevant Ministries within the countries concerned.
A meeting of Birmingham Fabian Society, Wednesday 27 November, at 7.00pm
Venue: Priory Rooms Conference Centre, Bull Street, Birmingham B4 6AF.
This meeting is one of a series organised by Birmingham Fabian Society on Planning for Power 2015.
Tim Brighouse is coming back to Birmingham – to introduce a discussion about what the Labour Party – or anyone else who wins power in 2015 – should do to improve our education so that it gives all children the start in life which they deserve.
Tim is the charismatic educationalist who transformed Birmingham’s education in the late 1990s.
By the time he left, the city schools were getting results far better than those predicted by its social class composition. Much of his legacy has survived – especially the importance of what happens in children’s early years, the value of groups of schools working together to solve problems and lift each other up, and for teachers to be empowered and trusted. Those who worked with him have not forgotten this supposed bureaucrat who was interested in visiting schools, talking to teachers, giving a stream of practical advice.
Before he came to Birmingham Tim was a professor of education at Keele, and before that Director of Education for Oxfordshire. He is widely admired for his contributions and advice, both academic and practical, around the country and the world, as well as for his consultancy.
Not long after he left Birmingham Tim was advising London Councils. Surprise, surprise, their results started improving. London schools now have some of the best results in the country.
Tim has not been back to Birmingham often. This meeting will give him an opportunity to share what he learnt here and developed subsequently, and to get a message across about what political parties and governments can do to improve schools – and what they should not do.
His talk will be followed by an open discussion, from which we will draw conclusions for (especially) Tristram Hunt, the new Shadow Spokesperson for Education.
This meeting, like all Fabian meetings, is open to all people of goodwill.
For more information see birminghamfabiansociety.org.uk/
It is free for members of Birmingham Fabian Society – non-members are invited to pay £2.50 to help cover the costs of room hire. We hope that you can come – and look forward to an extremely lively meeting.
If you want to get in touch, or would like more information, please email: email@example.com
A meeting of Birmingham Fabian Society and the Labour Party Campaign for International Development, Tuesday 29 October, at 7.00pm
Venue: Priory Rooms Conference Centre, Bull Street, Birmingham B4 6AF.
This meeting is one of a series organised by Birmingham Fabian Society on Preparing for Power 2015.
With world prices high for food grains, and countries like China and India becoming importers, there is a rush to grab land in Africa to produce food.
So much so that it sometimes seems as if Governments and aid agencies have given up on small scale farming. Yet the track record of large scale agriculture in Africa is very poor indeed.
So what policies should Labour adopt if it wins power in 2015?
The discussion will be introduced by
Andrew Coulson who for many years worked on rural development in Tanzania, and is currently advising AGRA, the Alliance for a Green Revolution in Africa, on its policies towards small farmers. His book Tanzania: A Political Economy has just been re-published by Oxford University Press.
Dave Jepson of the Labour Party Campaign for International Development.
This meeting, like all Fabian meetings, is open to all people of goodwill.
It is free for members of Birmingham Fabian Society – non-members are invited to pay £2.50 to help cover the costs of room hire.
There will be plenty of time for discussion.
So come if you can – and encourage any friends involved in or interested in the topic to come too.
In almost 30 years of my time as a practitioner, tax has never been so much in the headlines as it is now. Following Sol Picottio’s very interesting article in the last edition, I do not want to focus on individual cases nor on where the line between acceptable tax avoidance and unacceptable tax avoidance may lie. I want to look at the overall global tax system and ask two questions. Firstly, is there a case for change, and secondly, if so, what are the merits of the Unitary taxation proposal versus other options for ensuring that the tax system is fit for purpose.
As Sol says, the basic global tax system has been in place for many years, while trading patterns have changed beyond all recognition in this period. For example, who could have predicted that so much trade would be done over the internet even a decade ago? There is also a mismatch in that multinational business is done on a global basis whereas tax is levied and collected on a country by country basis with little co-operation in practice between countries. For tax payers, the tax system is complicated and provides multi-layers of taxation – and there is incidence of both double taxation and no taxation due to mismatches between different tax systems. What multi-nationals look for in the global tax system is clarity, consistency and as much certainty as can be achieved. So more co-operation between fiscal authorities, and consistency in application of the tax rules would be beneficial, and one has to hope that the desire to do this expressed at the G8 actually delivers some action.
Transfer pricing regulations have become increasingly important over the past 20 years as a key tool used by the tax authorities to combat anti-avoidance, and over this period the number of countries with an effective transfer pricing regime requiring documentation to support intercompany pricing has increased considerably. However, as Sol rightly says, the divergent methods used by different countries have created complexity, inconsistency and confusion for taxpayers. Much greater Global standardisation of the transfer pricing rules would be beneficial to jurisdictions and multi-nationals alike and would be more effective in ensuring a fair allocation of tax between countries and would provide more clarity, consistency and certainty. Changing the global tax system in this way would also be consistent with existing international law obligations arising from double tax treaties.
An alternative to achieving greater consistency in the global tax system is the Unitary Taxation proposal which Sols sets out in his paper. I think it is fair to say that this proposal involves much more wholesale change to the international tax system than standardising transfer pricing regulations. However, it could, subject to how it was implemented, provide many advantages for multinationals not least in providing more clarity, consistency and certainty to taxpayers. In addition, it would provide the ability to have the offset of losses against income on a global basis.
However such a system would require substantial global agreement for it to be workable.
Firstly, the proposal requires agreement to implement by a significant proportion of countries to avoid the problems involved in having two systems operating side by side. Two completely different systems operating side by side would create even more confusion in the global tax system than is present today, would result in a significant increase in compliance for tax payers, which would have a negative impact on investment activity, and there would be much more incidence of either double or non taxation of transactions.
Secondly, the proposal requires agreement by a significant proportion of countries on some of the key terms so that implementation would be consistent from country to country.
These key terms include:-
-Appropriate formula to be used in allocating profits between jurisdictions.
-Definition of “Unitary business” (for which profits should be aggregated)
-The basis on which profits are calculated (ie common accounting standards)
-Functional currency to be used.
Without agreement on these key terms, taxpayers would not be paying tax on their overall actual profits, but on a very different figure based on the different calculations of different countries. There would be mismatches between jurisdictions, and, for taxpayers, risks of double taxation as well as opportunities for zero taxation. The US experience , where a huge range of approaches is used between States in the Unitary system there, is not encouraging.
Many questions arise on how Unitary Taxation would work in practice.
One key question is what would be a fair and reasonable apportionment of profits? To the extent that it is partly based on employee numbers, there is a risk that this could reward inefficiency and also invites the question as to how to take into account outsourcing. To the extent that it is based on total costs, this could again reward inefficiency. Also, with wages/property costs higher in richer countries, such richer countries could potentially be able to tax a greater proportion of profits and developing countries therefore a lesser proportion. Also, as taxpayers can relocate staff, it would be open to manipulation. The exclusion of intangibles from the formula would likely provide a disincentive for innovation and investment as no there would be no effective tax relief on the expenditure.
A further question arising is how will the tax authorities of a particular country be able to carry out a tax audit of a taxpayer when the tax base is not actual profits earned in that country but a proportion of global profits.
There would clearly be some global winners and losers amongst nations with the adoption of the Unitary Taxation proposal, so in a world of sovereign nation states, which countries set the rules and how will they be enforced?
In conclusion, there should be a competitive tax system that supports business and where everybody pays their fair share. It is widely recognised that the global tax system needs to constantly evolve to keep pace with trading and the system we have today is too complex. Taxpayers and authorities alike would benefit from a global tax system that is simpler, more consistent and provides more certainty for tax payers. Further development, as well as standardisation, of the transfer pricing would involve less wholesale change and be more consistent with existing legal obligations. The Unitary Taxation proposal merits serious consideration, but there are many questions on the detail and its workability requires significant global agreement to firstly implement and secondly on the application of the key terms. What is clear though, is that whichever way forward is selected, there needs a substantial number of countries working together, otherwise the global tax system will continue to evolve slowly and inconsistently, with all the complexity and uncertainty which is present today.
The Birmingham Fabian Society in partnership with the Methodist Tax Justice Network are hosting a debate on the highly topical issue of international business tax reform and whether a fairer and more efficient basis of taxing multinational business is possible.
The speakers will include:
Professor Sol Picciotto is a former Law Professor at Warwick University. He is one of the leading academic thinkers on the taxation of multinational corporations. He will present ideas for radical reform of the system by moving to a unitary basis of taxation of multinational businesses.
David Price is an independent international tax consultant and former Big 4 tax partner with 25 years experience of advising multinationals particularly in Russia and the Far East. David will assess the practical feasibility of Sol’s ideas and also comment on them from a political perspective as he is on the Conservative Party’s candidate list for the European Parliament.
Andy Harrop leads the national Fabian Society and has close links with the Labour leadership. He will consider the likelihood of a future Labour government implementing change.
The event will be chaired by Claire Spencer.
The event will be held at the Priory Conference Centre on Bull Street in Birmingham city centre, and is free for paid-up members of the Birmingham Fabians, the Methodist Tax Justice Network and Jubilee Debt Campaign. For all other attendees there will be a small charge of £5.00 to cover costs.
To register for this event, please go here to do so. If you are having trouble with the form, please email firstname.lastname@example.org for assistance.
This event is sponsored by the Birmingham-based leading employee share scheme advisors Pett, Franklin& Co.LLP
I wanted to make sure that you all have October’s meeting in your diaries: ‘The future of education in Birmingham’, will feature Councillor Brigid Jones (Cabinet Member for Children, Young People & Families) and Selina Stewart, former Assistant Principal at Joseph Chamberlain College and an educational consultant.
Birmingham’s response to the raft of reforms from the government has been really interesting, so this is a great opportunity to discuss that response, and have a wider debate on what needs to change so that no student is failed by their school years.
The meeting will be held at the Birmingham & Midland Institute on Margaret Street in the city centre on Tuesday October 30th, 7-9pm. If you could also bring the year’s membership to the meeting (£12), or a small contribution to the room hire if you are still making up your mind, that would be much appreciated.
Our next meeting, which will be on the devolution of housing services (led by Councillor Lisa Trickett) will be held at the same venue on Tuesday November 27th, 7-9pm.
We now meet on the last Tuesday of the month (no meetings in August and December).
I would like to give you all notice of the Birmingham Fabian Society AGM, which will be taking place on Friday February 25th at 7pm. As usual, we do not charge for meetings – but any donation to room hire will be gratefully accepted.
We are delighted to welcome the brilliant Professor Karen Rowlingson, who will be leading the discussion on ‘The deserving rich?’ Her University of Birmingham website links to some of her work, but I would particularly like to draw your attention to ‘How to defend inheritance tax‘ (£), which she co-wrote for the main Fabian Society. This is definitely a discussion for now – while ordinary people lose their jobs, pay more for less, and see public services decimated, the banks get the equivalent of a tax cut. Now more than ever, the wealthy, particularly those that reaped the largest rewards from the years of unsustainable plenty, ought to be paying their share.
We will also be trying to extend the current Birmingham Fabian executive – so if you fancy taking on a role, do attend and speak up! We will also be examining CLP affiliations.
If you would like to come, fill in the form below to let me know that you are coming:
Also, I would like to draw your attention to the Birmingham Fabian Society Google Calendar. This is for events that we might be interested in attending – so if you’re putting something on, or know of something, email me, and I’ll add it to the calendar.
Please invite anyone who you think would be interested – looking forward to the discussion, and to seeing you all again!