SOCIAL AND ETHICAL INVESTMENT IN COMMUNITY BUILDING

Keynote Address by the Hon. Dr. Race Mathews at the Maleny Credit Union/Foresters ANA Friendly Society Conference on Community Capital, Maleny, 11 April, 2002.

Social Capital

Let me at the outset salute the Maleny Credit Union and the Foresters ANA Friendly Society for their initiative in convening this wholly positive and productive conference on Community Capital. Let me also salute them on their wider initiative in launching the Community Capital Project of which the conference is but one part. Few if any of the challenges confronting Australia are of greater importance then re-empowering communities and regions to become masters of their own destinies.

That the Maleny Credit Union and the Foresters ANA Friendly Society are taking up the challenge – that they are seeking to engage more closely with the communities and regions that conventional financial intermediaries such as the banks are so flagrantly deserting – is admirable. Their members and office-bearers are entitled to be fiercely proud of them. As a nation we are endebted to them for their truly inspirational example.

I take as my theme today social or community capital in both its wider and its narrow meaning - in its wider sense as referring to the attributes of communities, and more narrowly as community savings. That remarkable American scholar and recent visitor to Queensland, Robert Putnam, defines the core idea of social capital in the wider sense as being ‘that social networks have value’. He writes ‘Just as a screwdriver (physical capital) or a college education (human capital) can increase productivity (both individual and collective), so too social contacts affect the productivity of individuals and groups’.[1]

Nor is the term ‘social capital’ – much less its meaning and substance – in any sense new. As Putnam documents, the term was first used in the United States by West Virginian state supervisor of rural schools, L.J. Hanifan, in 1916. Hanifan wrote that ‘The individual is helpless socially, if left to himself’:

If he comes into contact with his neighbour, and they with other neighbours, there will be an accumulation of social capital, which may immediately satisfy his social needs and which may bear a social potentiality sufficient to the substantial improvement of living conditions in the whole community.[2]

Putnam credits subsequent re-discoveries of the idea to a succession of scholars, culminating with the sociologist, James Coleman, who finally re-instated it on the intellectual agenda in the late 1980s.

Coleman saw social capital as comprising the ability of people to work together for common purposes. A summary of his argument by Putnam’s fellow US scholar, Francis Fukuyama, reads:

In addition to skills and knowledge, a distinct portion of human capital has to do with people’s ability to associate with each other, that is critical not only to economic life but to virtually every other aspect of social existence as well. The ability to associate depends, in turn, on the degree to which communities share norms and values are able to subordinate individual interests to those of larger groups. Out of such shared values comes trust, and trust … has a large and measurable economic value.[3]

Like Coleman and Putnam, Fukuyama believes that the importance of social capital, and the trust that so largely gives rise to it, cannot be over-stated.

It may be that the great economist, John Maynard Keynes, had in mind, at least in part, the future outcomes of greater social capital, when he foresaw a time where:

I see us free, therefore, to return to some of the most sure and certain principles of religion and traditional virtue – that avarice is a vice, that the exaction of usury is a misdemeanour, and that the love of money is detestable, that those walk most truly in the paths of virtue and sane wisdom who take least thought for the morrow. We shall once more value ends above means and prefer the good to the useful. We shall honour those who teach us how to pluck the hour and the day virtuously and well, the delightful people who are capable of taking direct enjoyment in things, the lilies of the field who toil not, neither do they spin.[4]

Motived on these or other lines as Keynes may have been, it follows that Australia is poorly served by those whose actions destroy trust and thereby diminish social capital.

Mutuals and Mutualism

Correspondingly, Australia has been well-served by those institutions which exemplify the primacy of associating with one another for common objectives, of shared norms and values, and of subordinating individual interests to larger groups. In particular, attributes conducive to the creation of social capital are nowhere more effectively enhanced than by the mutualist organizations whose values both the Maleny Credit Union and the Foresters ANA Friendly Society so triumphantly exemplify.

Mutualism is expressive of the core social capital truth that more can be achieved by working together for common objectives than in isolation from one another. What all mutuals have in common with one another is that they are established in response to pressing social needs, which cannot readily be satisfied from any other source. For example, the Rochdale Pioneers – the twenty-eight poor cotton weavers who established their co-operative store in Toad Lane in Rochester near Manchester in 1848 and thereby gave rise to the worldwide consumer co-operative movement – were responding to an urgent social need for affordable household necessities such as food and fuel.

Credit co-operatives were a response to the need for affordable carry-on loans for smallholder farmers, and later for affordable household credit. Friendly societies were initially a response to the need for funeral benefits, and, later, for unemployment benefits, sickness benefits and medical and hospital care. Access to affordable life assurance was offered by mutual life assurance societies, as was access to affordable home loans by building societies.

Agricultural processing and marketing co-operatives met a pressing need on the part of farmers to capture value added to their produce beyond the farm gate. Worker co-operatives responded to the need on the part of workers for secure employment by enabling them to own their workplaces and jobs. Trade unions were originally mutualist bodies or co-operatives, formed by employees in response to a pressing need to obtain better working conditions and a just price for their labour. [5]

Obstacles, Obstructionism and Incomprehension

Even so, for all their great past and potential contribution to the creation of social capital, mutuals have been denied understanding and support from parties of all political persuasions. For example, Australia still lacks uniform national co-operatives legislation such as would enable co-operatives to optimise their competitive advantage on a national basis. As recent demutualisations such as of the AMP and NRMA Insurance so clearly demonstrate, current laws provide no protection for mutuals against predatory demutualisers.[6]

Template financial institutions legislation at the federal and state levels effectively blocks the establishment of new credit unions and forces current ones to merge with one another to the detriment of their members and local and regional communities. In summary, political parties including my own have been as uncomprehending of the social capital advantages of mutuals they are obstructive of the further development of mutuals.

Nor have the actions of mutuals themselves necessarily been to their own advantage. Credit unions are a case in point. Australia’s hitherto triumphantly successful credit unions find themselves confronted with decline and possible extinction for reasons largely of their own making. The modern credit union movement dates from the late 1940s and early 1950s, when credit unions were established in response to the pressing social need on the part of new households to access affordable consumer finance, and thereby free themselves from the exactions of rapacious hire purchase companies. So acute was the need and so appropriate the remedy that credit unions now number more than three million members – one in three of Australia’s population – and have assets of more than $23 billion.[7]

However, the interest rates credit unions now charge their members for loans, or pay them for deposits, are now generally no more favourable than those of innumerable other financial intermediaries including banks and finance companies. The needs which prompted Australians to form or join credit unions have largely ceased to be relevant, and the credit unions have largely neglected to re-invent themselves in response to new needs such as for regional economic development and the creation of new jobs.[8]

One credit union – Queensland’s Sunstate Credit Union – has already succumbed to demutualisation, and others are likely to follow shortly. It is entirely possible that, within no more than a decade, credit unions will not only have vanished, but – like Australia’s once great network of consumer co-operatives before them - be forgotten as completely as if they had never existed.[9]

The Mondragon Co-operative Experience

My sense of loss as regards Australia’s credit unions is the greater when considering community capital in the narrower sense of community savings. That credit unions are an ideal means of harnessing community capital for community purposes, including economic development, is richly evident from the example of the great complex of manufacturing, retail, financial, civil engineering, service and support co-operatives – now the Mondragon Co-operative Corporation (MCC) - at Mondragon in the Basque region of Spain.

Thanks largely to a credit union, the Caja Laboral Popular (CLP), the Mondragon co-operatives have been able to develop from a standing start in the 1950s to the point where they now provide jobs for some 60,000 workers. Half the output of the manufacturing co-operatives is now exported. It is expected that, by the end of this year, their overseas subsidiaries will have more than doubled in number, from twenty-two to fifty-five. The co-operatives are now the largest business group in the Basque region of Spain, the seventh largest business group in Spain and a major competitor in European and global marketplaces.

The retail co-operatives are Spain’s largest and fastest-growing retail chain, with some 47 hypermarkets, 796 supermarkets, 569 self-service and franchised stores and a range of other specialist outlets. The Mondragon financial co-operatives – the CLP and the Lagun-Aro social insurance co-operative – are among Spain’s larger financial intermediaries.

Moreover, the CLP has been much more than simply a source of capital for expanding current co-operatives or creating new ones. In the phase of rapid expansion, which preceded the maturing of the co-operatives as signalled by the establishment of the MCC, what was then the Empresarial or Entrepreneurship Division of the CLP offered a uniquely comprehensive and effective service for incubating new co-operatives and ensuring their success.

Groups seeking to establish co-operatives were initially assigned a mentor or ‘godfather’ to work with them in the preparation of their business plans and loan applications. Once loans were secured, the mentors remained with the co-operatives in order to assist them in the setting up of their businesses and enabling them to operate profitably.

As a condition of its loan, a new business was required to enter into a Contract of Association with the CLP which specified – among other things – its structure and processes. It was likewise a condition of the contract that specified performance and financial data should be reported to the CLP on a regular basis. Thanks to regular and comprehensive reporting, the CLP could count on receiving early earning where co-operatives were experiencing difficulties, and thereby provide added specialist support through an Intervention Group within its Empresarial Division.[10]

So effective was the Empresarial Division that only a handful of co-operatives have failed to become going concerns. As the World Bank economist David Ellerman has written, ‘Just as the systematised innovation of the modern scientific research laboratory represented a major advance over the garage laboratory, so the institutionalisation of entrepreneurship in the Empresarial Division of the CLP represented a quantum leap over the isolated and unorganised small business entrepreneurs of the capitalist world’.[11]

That Australian political parties and credit unions have to date comprehensively ignored our need as a nation to note the Mondragon experience, or learn from it such lessons as may be applicable to our own circumstances and culture, is in my view an authentic national tragedy. I am reminded that in the face of similar blind resistance to growth and change a century and more ago in Britain, reformers of the day whom I deeply admire, and have been a lifelong inspiration to me, issued a call for action under the banner ‘To Your Tents, O Israel’.

To Your Tents, O Israel

Let me rather today urge action on the part of those who have at heart the well-being of mutuals and mutualism and their potential, to contribute to the growth of social capital in both the wide and narrower senses. Plainly, it is not enough, as some have supposed, for efforts to be confined to establishing and growing mutuals at the grassroots level when, by reason of political and institutional incomprehension and inertia, the odds are stacked so heavily against them. Let us today resolve today on a mission – a crusade - to reclaim the credit unions of which we are already members, or which we immediately join, for the values and principles that inspired their founders and prompted their inception.

Let us solemnly undertake to one another that we will each and every one of us be present at the next annual general meetings of our credit unions and available there to stand up and be counted for re-inventing them in the light of Australia’s changed circumstances and social capital requirements. Let us agree that wherever possible we will be willing to offer ourselves for election to the boards of our credit unions so that the task of re-invention will be honoured, on-going and effective.

Let us also resolve that we will not allow ourselves to be deterred from the exercise of our rights as citizens, or from participation in the democratic process as members of political parties, by the disrepute into which politics, politicians and political parties has been brought. The most effective way of ensuring that political parties adopt policies supportive of mutuals and mutualism is to have those policies advocated consistently and vigorously from within them. In politics as in so many other spheres of public life, there is no substitute for being present - no prizes for those who absent themselves.

This is in no sense a narrowly partisan party point. Mutuals and mutualism are compatible alike with the Liberal Party, National Party, Labor Party, Australian Democrats and Greens. What is required is for that compatibility to be made apparent forcefully and consistently to all of them, from within their own ranks. Let us then resolve that we will be members of the parties of our choice, play an active part in their affairs and argue forcibly within them the case for mutuals and mutualism.

Hope

In my darker moments, I am reminded of passages from two writers whose work I greatly admire. G.K.Chesterton wrote memorably in his epic poem The Ballad of the White Horse:

I tell you nought for your comfort,

Nay, nought for your desire,

Save that the sky grows darker yet,

And the sea rises higher.

Tolkein put the matter more succinctly. Galadriel in Tolkein’s The Lord of the Rings grieves ‘I have fought the long defeat’.

It is indeed hard sometimes not to feel defeated. Who would have thought as recently as a few years ago that Australia would be operating concentration camps in locations deliberately chosen to frustrate public scrutiny? Who would have thought that Australians would today be turning away those seeking asylum from the murderous regimes of the Middle East, as resolutely as an earlier generation turned away Jews fleeing from Hitler’s executioners and the Holocaust?

Who would have thought that core public utilities such as electricity and gas could be sold off largely without protest to private corporations, and that even water could be at risk of being privatised? Who would have thought that even our nominal current levels of unemployment and under-employment – much less the reals level which official statistics so comprehensively conceal – could be tolerated?

Who would have thought that what was once among the most egalitarian nations in the world could come so rapidly to be numbered among those that are least equal? Who would have thought that selfishness would have come to be admired, and greed elevated to the status of a virtue? To pose these questions signposts but in no sense exhausts the gravity of our predicament

However, for all that such evidence of the long defeat is everywhere evident – for all that the sky is seen to grow darker yet and the seas to rise higher – it seems to me that nothing is so important as hope – nothing so important as that hope should be kept alive even when the justification for it is least evident. For me as for many others here today, hope has come to be exemplified by the philosophy of mutualism – by the promise of the enhancement of social capital, civil society and active citizenship in all their disparate forms. Let us to today commit ourselves to the task of ensuring that these grounds for hope are not denied to the overwhelming majority of Australians, for whom currently hope is in short supply.

Race Mathews is a Senior Research Fellow in the Faculty of Business and Economics at Monash University and an Adjunct Professor in the Faculty of Business and Law at Deakin University. He was previously chief of staff to Gough Whitlam as Leader of the Opposition 1967-72, a federal MP, a state MP and minister, a municipal councillor and a board member and chairman of the Waverley Credit Union. His ministerial portfolios included Minister for the Arts and Minister for Police and Emergency Services1982-87, and Minister for Community Services 1987-88. His Australia's First Fabians: Middle-Class Radicals, Labour Activists and the Early Labour Movement was published by Cambridge University Press in 1994, and his Jobs of Our Own: Building a Stakeholder Society in 1999 by Pluto Press (Australia) and Comerford and Miller (UK). His E-mail address is <race@netspace.net.au>

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[1] Putnam R.D. 2000, Bowling Alone: The Collapse and Revival of American Community, New York, Simon & Schuster, pp. 18-19.

[2] Hanifan L.J. 1916, “The Rural School Community Centre” in Annals of the American Academy of Political and Social Science 67, p. 130, as quoted in Putnam 2000, Op. Cit. p. 19.

[3] Fukuyama F. 1995, Trust: The Social Virtues and the Creation of Prosperity, New York, The Free Press, p. 10.

[4] Keynes J.M. 1963, Essays in Persuasion, New York, W.W. Norton & Co., p. 373.

[5] For a history of co-operatives, see Birchall J. 1997, The International Co-operative Movement, Manchester, Manchester University Press. For mutualism and mutuals in Australia, see Green G. & Cromwell L. 1984, Mutual Aid or Welfare State: Australia’s Friendly Societies, Sydney, George Allen & Unwin.

[6] For example, see Mathews R. 1999, ‘NRMA Insurance Demutualisation’ in Journal of Australian Political Economy, Number 44, December,1999.

[7] For the history of Australia’s credit unions, see Lewis G. 1996, People Before Profit: The Credit Union Movement in Australia, Kent Town SA, Wakefield Press.

[8] For credit unions and regional economic development, see, for example, Mathews R. 2001, ‘Mutuals in Regional Economic Development: Mondragon and Desjardins’ in Birchall D. 2001, The New Mutualism in Public Policy, London, Routledge.

[9] For a definitive account of the rise and decline of consumer co-operation in Australia, see Lewis G. 1992, A Middle Way: Rochdale Co-operation in New South Wales 1859-1986, Sydney, Australian Association of Co-operatives.

[10] For accounts of the Mondragon co-operatives see, for example, Whyte W.F. & Whyte K.K. 1991, Making Mondragon; The Growth and Development of the Worker Co-operative Complex (Revised Edition), Ithaca NY, ILR Press, MacLeod G. 1997, From Mondragon to America: Experiments in Community Economic Development, Sydney, Nova Scotia, University College of Cape Breton Press, and Mathews R. 1999, Jobs of Our Own: Building a Stakeholder Society, Sydney, Pluto Press (Aust.) and London, Comerford & Miller.

[11] Ellerman D. 1982., The Socialisation of Entrepreneurship: The Empresarial Division of the Caja Laboral Popular, Boston, Industrial Co-operative Association, p.4