Robb on Cooperation
The global financial crisis and mutuality
The rapidly escalating crisis in world financial markets comes as no surprise, but that is because Economic History was a compulsory part of my commerce studies, and for the last five years I’ve been teaching a course on understanding financial statements and seeing through creative accounting.
In the words of JK Galbraith, a celebrated economist and financial commentator, how is it that people can be so willing to get caught up in the mania of speculation when history tells us that a collapse is almost sure to follow?
Two aphorisms provide an answer. The only lesson we learn from history is that we don’t learn from history. And those who do not know their history are doomed to repeat the lessons of the past.
In A Short History of Financial Euphoria (Penguin, 1990) Galbraith reviews the major speculative episodes of the past three centuries.
He notes that there is a reluctance to accept controls over markets because of a dogmatic belief that markets are neutral and perfect when “free”.
He makes the point that all financial innovation involves in one form or another the creation of debt secured in greater or lesser adequacy by real assets.
He concludes that only in the financial world are there so many opportunities for concealing (through “creative accounting”) what in time will be revealed as self- and general delusion.
All that Galbraith writes is relevant to the present scene.
What underlies Galbraith’s excellent analysis is the implicit acceptance that the main driver of financial speculation leading to collapse is total self interest, or an absence of interest in others.
This absence of concern for others was most clearly enunciated by George Soros, the billionaire currency speculator.
When asked about the havoc his currency speculation caused to far eastern economies in the crash of 1997, Soros replied “As a market participant, I don’t need to be concerned with the consequences of my actions.”
What has this to do with cooperatives?
Cooperatives arose in the laissez faire (free market) economy of the nineteenth century when the interests of capital predominated over all else.
Labour was a cost to be minimised.
Employers opposed employees combining to negotiate for fair wages.
Regulation of health and safety in employment was opposed because it would increase costs and make the country uncompetitive.
Food was diluted or adulterated with additives to increase profitability.
Only by recognising strength through mutual action were employees, consumers and trades people able to secure fair wages, safe and affordable goods, and viable work.
Accountability was practised by cooperatives publishing audited quarterly reports to members at a time when investors in companies were denied even annual financial data.
A concern for others was arguably no less important than a concern for self from the earliest days of cooperatives.
Mutuality made possible what was absent when financial capital was more important than human capital.
Back to the future
I believe that we are seeing a return to similar thinking today.
The uncertainty in the global economy is causing many to question the stability and fairness of investor-oriented structures which ignore the interests of local employees and consumers.
Financiers who have structured international deals through tax havens so that their tax bill is minimised or eliminated now call for bailouts from taxpayers.
What double standards they employ! How can they hope to attract support from ordinary citizens?
I recently spoke at a Probus Club meeting. In the business section which preceded my talk it was reported that the Club had changed its bank from one of the (overseas owned) big banks to SBS (which is mutually owned) because “members wanted to support a New Zealand organisation rather than contribute to the dividends of overseas shareholders”.
Mutuality clearly paid a big part in their decision.
Incidentally, the President of the club reported that it had taken only 10 minutes for the SBS to attend to all the paperwork involved in opening the new account but it had taken over 45 minutes for the Australian-owned bank to close the account!
During the tea break I heard a number of members say that they would be following suit and changing their accounts too.
The global financial crisis provides an opportunity for all co-ops and mutuals to promote the benefits of transacting locally with people you know and can trust.
It also makes good sense for all co-ops and mutuals to look at their own activities to see whether they too are transacting with other co-ops and mutuals at every opportunity.●
– from the October/November 2008 Cooperatives News
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