Establishment of a Co-operative Development Agency - Conclusions and Next Steps
Introduction
The establishment of a Co-operative Development Agency (CDA) is a Partnership Agreement Commitment as detailed in A Partnership for a Better Scotland, www.scotland.gov.uk/library5/government/pfbs-00.asp. Lead policy responsibility was allocated to the Enterprise, Transport and Lifelong Learning Department and a clear economic dimension will be consistent with the Executive's overarching objective of growing Scotland's economy. The Consultation document - Co-operative Development Agency - was launched in March 2004 and covered the potential key role, objectives and structure of the Agency.
We are grateful to all who took time to respond to the consultation paper. 53 responses were received from a variety of organisations and individuals. The responses were analysed by the Department's Analytical Services and Business Growth and Innovation Divisions.
The analysis can be found at www.scotland.gov.uk/00020044. The consultation responses indicated widespread support for the establishment of an Agency, particularly from the key stakeholders in the Co-operative Movement.
Benefits of Co-operatives
In the consultation document it was recognised that co-operatives can make a particular contribution to both economic and social development in a number of ways, which can differ from some business models. Examples include:
- Providing an attractive option to start-up for people whose capital, experience or confidence is limited. By pooling their resources and experience they can share the responsibilities and risks that might make working on a self-employed basis unviable;
- Fostering entrepreneurial skills and leading to potential future spin-offs;
- Securing wealth, employment and other benefits for local communities, since co-operatives cannot easily be bought up or closed arbitrarily;
- Increasing employee motivation and thus a more productive workforce;
- Using the loyalty of members to build up knowledge and thus a competitive advantage.
Size and Growth of sector
A recurring issue, when researching this area, was the lack of statistics on co-operatives. There are no comprehensive figures available for Scotland that covers co-operatives as a business type. Statistics on enterprise ownership are not recorded by a business's values and principles.
International perspective
In some overseas countries the development of the co-operative movement has grown over time and now makes a considerable contribution to many economies. For example, the National Cooperative Business Association in the United States reports that there are some 48,000 co-operatives in the US - and according to figures released in October 2004 by the National Cooperative Bank the top 100 co-operatives in the US reported revenues of over $117 billion in 2003. Co-operatives in the US exist in a number of industries including agriculture, grocery, hardware & lumber, finance, energy and housing.
Within Europe, the European Commission believes that the potential of co-operatives has not been fully utilised and that their image should be improved at National and European levels. The Commission acknowledges that the particular nature of co-operative enterprises calls for tailored business support services and that the networking at European level of agencies offering specialised advice to co-operatives would enable beneficial exchanges of experience.
UK perspective
In the UK, Co-operatives UK is the umbrella organisation for co-operative enterprise, working in partnership with a number of Regional Development Agencies throughout England, the Social Economy Agency Northern Ireland and also the Wales Co- operative Centre, to promote co-operative advice and support services and to build a strong and successful co-operative movement. The Wales Co-operative Centre has an additional remit and focus on social enterprises and is less relevant in direct comparison. In England, there are 29 Centres where co-operative advice, information and support services are readily available.
Rationale for Public Sector Support
It has long been accepted that the public sector has a role in providing support to small businesses, in order to help redress or ameliorate market failures, for example in capital and equity markets or in access to information. Various forms of intervention have been developed to respond to these market failures primarily through provision of information and advice, for example on financial management, raising external finance, recruitment, workforce development, new product development etc.
Co-operative businesses are affected by the same sort of market failures as other small businesses, but may need to have support delivered in ways that acknowledge their differences. Co-operatives are unlike other businesses in a number of ways - in their social values, in their governance and in how they approach the distribution of trading surplus.
It has been recognised by bodies responsible for economic development in other regions that delivering support to co-operatives can require an agency that has expertise and specialist knowledge on the formation, operation and growth of this type of enterprise. In the 1970s the Scottish Development Agency established the Scottish Co-operative Development Committee Ltd - a publicly funded company, limited by guarantee to promote the growth of worker co-operatives in Scotland. An evaluation of the performance of the CDC carried out in 1988 reaffirmed that there was a case for specialist advice and support. CDC later became Employee Ownership Scotland (EOS) which evolved into a private consultancy responsible for helping to establish producer co-ops and other forms of employee owned firms.
The consultation exercise revealed a fairly widely held view that the existing forms of intervention through public sector business support were not adequately serving co-operative businesses. It would appear to be the case that people working in public sector business support structure are not very familiar with the co-operative business model.
A particular gap was identified in the advice to people setting up in businesses. At present little, if any, encouragement is offered to adopt a co-operative model except in the agricultural sector. Much of the current start-up support has relevance to any new business i.e. financial management and marketing. However, co-operative business will also have other needs and some issues will have to be dealt with in different ways - such as decision making or distribution of profits. The absence of appropriate advice could deter the formation of the business altogether or deflect people from adopting the form that they would prefer.
Rationale for a CDA
Our starting point was that the primary focus of the CDA should be on developing co-operative ventures that have a clear "enterprise" focus and will help maximise the contributions co-operatives can make to growing the economy. The main focus of the CDA will therefore be the formation and growth of sustainable co-operative businesses. The co-operative sector does of course impact on a range of broader social and community development issues. These have been taken fully into account in our deliberations.
Currently, access to business advice and information (technically including co-operatives) is a function of Scottish Enterprise (SEn) and Highlands and Islands Enterprise (HIE), delivered through their Enterprise Networks and in the agriculture sector advice is provided to existing or potential co-ops by Scottish Agricultural Organisation Society (SAOS). However the public consultation highlighted a lack of proactive activity by the Enterprise Networks - either in the general promotion of the co-operative model as a business option or in the provision of advice that is appropriate to the needs of co-operative enterprises.
Conclusions
The Executive concluded that the CDA should operate as a first stop shop for co-operatives seeking to grow or for individuals/groups looking to set up a new business in co-operative form. It would provide a basic level of information, advice and training on co-operative issues but would also have access, through agreed referral mechanisms, to other parts of the Enterprise Networks for support mechanisms relevant to businesses more generally. The key issue is to keep the support structures as a whole clear and consistent - in order to facilitate ease of access for the "customer".
On this basis reciprocal arrangements need to be put in place through the existing enterprise networks support mechanisms (Business Gateway in SEn and the Local Enterprise Companies in HIE) for referrals between the networks and the CDA where this is appropriate. The Agency will also have a key role in helping develop greater knowledge and understanding of the co-operative business model by network business advisers.
Within this framework the key activities of the proposed Agency should comprise:
the promotion of the co-operative model;
the direct provision of advice and information to start up co-ops and others seeking growth opportunities;
the dissemination of best practice in relation to business development (for the co-ops themselves and for the Enterprise Networks and related partners);
the provision of training in co-operative business skills (either directly or via intermediaries);
a source of research and data on the scale and impact of the co-operative enterprise activity in Scotland; and
establishing working level contacts with support structures in the UK and beyond.
In deciding the role and remit of the new Agency, the Executive looked carefully at a number of sector based co-ops such as housing co-operatives, credit unions and supporters' trusts. We recognised that specific considerations apply to these sectors and that the following support structures already exist for assisting co-operative development:
Agriculture, forestry, aquaculture, machinery rings and related rural industries - Scottish Agricultural Organisation Society
Housing Co-operatives - led by Communities Scotland, with a range of other players such as the Scottish Federation of Housing Associations; Scottish Community Ownership Housing Federation; and Employers in Voluntary Housing.
Supporters Trusts - Supporters Direct in Scotland.
Local Exchange Trading Systems (LETS) - LETSlink Scotland
Timebanks - members of Timebanks UK
Credit Unions - Scottish Credit Union Partnership (SCUP) including the 2 main trade associations, the Scottish League of Credit Unions and the Association of British Credit Unions Ltd. Also, Community Enterprise in Strathclyde.
It was considered important to avoid duplication of existing support mechanisms as this would only lead to confusion. Therefore the existing support mechanisms will still continue to be the focal point in their respective areas although in some where there will no doubt be an overlap, the CDA will seek to put in place formal agreements on roles and activity.
Next Steps
In May 2005, Cathy Jamieson, Minister for Justice, announced that the CDA will be created as a subsidiary of Scottish Enterprise - operating Scotland wide. The CDA will have a small Advisory Board (probably including some cross membership with the Scottish Enterprise Board, representation from the HIE area, the wider business community and the co-operative sector).
The establishment of a CDA within the Enterprise Networks structure allows its activities to have a clear "enterprise" focus and will help maximise the contribution co-operatives can make to growing the economy. It will also ensure that the CDA is properly aligned to the broader business support system.
The Executive will directly fund the new Agency by allocating up to £3m for this work over 3 years. The CDA should be operational early 2006.
October 2005