New Internationalist

The Crippled Giants

Issue 106

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COMMUNITY ACTION [image, unknown] Britain's industrial experiments

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The crippled giants
The brave new experiments of large industrial cooperatives established by Britain’s Labour government in the 1970s have dribbled away into the footnotes of textbooks. Why did they fail? Christopher Hird answers the hard questions and argues that the experience of the Tony Benn cooper¬atives could provide valuable lessons.


THE THREE WORKERS’ co-operatives set up under the aegis of Tony Benn, when Britain’s Industry Minister, are not the only examples of co-operative enterprise in the country. Their failure — only one survives, and with difficulty — should not therefore be taken as a judgment on the co-operative ideal. However these co-operatives attract and deserve special attention they are the only recent examples of attempts to establish large enterprises on a co-operative basis. So long as workers’ self-management is part of a political programme in any country, the experience of these co-operatives is important. For those who oppose the idea of workers controlling the direction of enterprises the co-operatives are valuable ammunition; for those who support such ideas, they are an embarrassing inconvenience.

That is why it is important to try and understand why they failed and who was responsible. This is not an easy matter. Nonetheless, there are some obvious features which the co-ops have in common: they all started business seriously undercapitalised. They all started in very risky businesses. And they all started without clear ideas of how to resolve the conflict between management and workers — which is so effectively institutionalised in the industrial relations set-up of conventional companies. These failings were a direct result of the circumstances surrounding the co-operatives’ birth. Still, there were those around at the time who could have provided leadership but didn’t; and there were those who offered advice, to have it refused. Even allowing for all these problems, there is plenty of evidence that as the months went by the attitude of both politicians and civil servants — who devoted disproportionate amounts of time to the ventures — became hostile to the point of destructiveness.

All three co-operatives came into existence because the previous private sector owners decided to close. Their decisions were not simple caprice. In Glasgow, Beaverbrook’s Scottish Daily Express was competing with several other newspapers and had been losing money handsomely for years, partly because of the very high fixed costs of conventional newspaper production. None of the five previous owners of Fisher Bendix (which became Kirby Manufacturing and Engineering) had made a trading profit from the factory. The last owner was a fast-talking asset-stripper who had no experience of running anything as big before. Meriden was the fag-end of a text-book example of the deindustrialisation of Britain. The British motor-cycle industry had, in its complacency, seriously underestimated the threat from Japan. As Japan motor-bikes came to Britain, local manufacturers either went out of business or specialised more and more in expensive bikes. The specialisation was an error the British could never match the financial resources of the large Japanese trading houses. For Honda, Suzuki and Yamaha had the profits from a massive motor-cycle industry to pay for the capital investment in the very top end of the market where the ailing British companies were trying to specialise.

All the evidence suggests that very few connected with the co-operative ventures realised the importance of such matters. Heavy optimism in the new form of ownership was frequently a substitute for a dispassionate examination of the financial realities imposed on the enterprises by their place in the market and the availability of finance.

For example take the Scottish Daily News — see box. In many senses the economics of newspapers are simple. There is a short period of time between the purchase of raw materials — such as paper — and the sale of the product. There is also ample scope for adjusting costs and prices, because the paper is produced every day. This does not make the business any less risky, but it makes the financial outcome more easily predictable.

On the figures prepared before the paper started, it was reasonably clear that the average daily sale needed to be 200,000 for the concem to break even. The feasibility study at Strathelyde University management section concluded that the venture just could not work, given the costs (much reduced from Beaverbrook’s day) and the expected level of sales. The government’s advisory Industrial Development Unit was sceptical that the paper could sell as many as 120,000 copies a day. It is possible that the paper could have achieved a break-even sale given more time. But after all the capital costs, the company only started with £950,000 (£1 is approximately US$2) — a relatively small amount to launch a new paper — especially in the well-served market of Scotland.

Short on capital, long on hopes

Despite the cuts in wages and reduction in work-force, the Scottish Daily News still had high costs — for it occupied a building which was too big even when it had housed three newspapers. Kirby Manufacturing and Engineering had a very similar problem: the Kirkby factory was built in the boom years of the 1960s and could employ 3,000 workers. By the mid-1970s the market for their products — night storage radiators, central heating radiators and — unbelievably — fruit juice was very gloomy. So for their venture to make sense, the workers had to assume a 60 per cent sales increase within two years. Yet the company did not have the experienced marketing or commercial people needed even to begin this gigantic task. Finally, on optimistic assumptions the factory still needed $13 million (£6.5 million) to get started: in the event they got only $7.8 million (£3.9) million.

Again, the government’s Industrial Development Unit advised against the venture. Their advice was treated most suspiciously by the co-op and the Labour industry minister Tony Benn as it clearly came from a clutch of private sector businessmen opposed to the co-operative idea.

The serious underfunding of the Kirby co-op was partly due to the very high price they were paying for the assets of their bankrupt former owner. In total they paid £1.8 million for assets which had cost £50,000 and which were valued, on a forced sale basis, at just over £1 million. The Public Accounts Committee of the House of Commons concluded that the plant and buildings bought by the Meriden motor-bike co-op were worth nearer £1 million, compared with the £2.8 million they paid. The Scottish Daily News paid some £200,000 over the odds.

In 1979 I asked Tony Benn about the underfunding of Kirby and it was clear that he barely grasped its seriousness. The civil servants did grasp the point, but saw it as a problem which could stop the co-op starting rather than as a problem which could be overcome.

This was to be a recurrent theme as Kirby went back to the government for help. When Benn was replaced by Varley they had also to cope to with a minister who was hostile to the idea. In 1978 this was of critical importance: by then the co-op had learnt much from its own mistakes. It realised the need to reduce the labour force and to have professional management. But also at that time the demand for the main products — central heating radiators — was strong. An extremely good case was made for supporting the co-op towards financial self-sufficiency by management consultants, who offered to run the plant With no political support, the application for funds was refused. This opened the way for the civil servants to try and find a private sector buyer willing to take over.

The preference of civil servants and politicians for conventional owners and enterprise structures runs through all the co-ops histories. And such feelings were undoubtedly reinforced by the failure of Kirby and the Scottish Daily News in particular to devise effective decision-making processes which balanced the democratic needs of the enterprise with managerial functions.

With hindsight, it is all too easy to see the errors of the co-ops but some of the dangers should have been perceived at the beginning. The co-ops offered a new form of ownership within an unchanged world. To succeed they had to sell in a market place which was no different from that which faced the failed private owners. And had far fewer resources than they needed to do this: shortage of money and of commercial skills in particular.

However, there is some evidence that the lesson has been learned. Earlier this year, the forty or so employees of the London weekly magazine, Time Out, started their own paper City Limits. Although a much smaller venture than any of the three Benn co-ops, it is likely to be a bigger business than, for example, the New Statesman. City Limits have been able to devise a properly capitalised business with structure in which expert publishing expertise is used to establish and guide the business, whilst remaining under the control of the staff. To some extent this has been possible because the failure of the co-ops has provided people with a valuable learning tool: they have provoked an interest in the dynamics of business which the collapse of conventional concerns does not. But by the same token, almost a precondition of launching a co-operative venture is that all the workforce are sufficiently familiar with the financial aspects of the business to be both free of optimistic simplicity and pessimistic ignorance.

Christopher Hird is Deputy Editor of the Insight section on London’s Sunday Times. He is also author of Your Employer’s Profits: a worker’s guide to company accounts, Pluto Press.

 

BRIEF LIVES

Scottish Daily News
Glasgow paper formed by 500 of the 1,900 workers made redundant when Lord Beaverbrook closed the Scottish Daily Express. Original capital: Government loan of £1,200,000 (£1 is approx $2); £725,000 of ‘loans’ from Beaverbrook representing part payment for the assets of the old paper share capital of £630,000, subscribed by the workers (with their redundancy money) and other private investors, including Beaverbrook and ex-Labour MP, Robert Maxwell, owner of Pergamon Press. Started publication in May 1975; closed down in October 1975 with a deficit of around £1.2 million.

Kirby Manufacturing and Engineering
Liverpool manufacturing plant making, among other things, central heating radiators. Born from the ruins of Fisher Bendix, started trading in January 1975 with around 950 employees. Entirely funded by a government grant of £3.9 million, a further grant of £860,000 made in 1977. The money ran out towards the end of 1978. Following a favourable report from PA Management Consultants the co-op applied for government money but was refused. Frantic efforts to find a private buyer failed and the Conservative election victory effectively ensured the end of the co-op.

Meriden
Motorcycle company born from the wreckage of Norton Villers Triumph — all that was left of the British motor cycle industry in March 1975. Backed with government money of £4.95 million, 300 of the 1800 ex-NVT workers started the new co-op, and recruited a further 350 or so. In subsequent years the government put in additional money as loans and waived interest payments. In 1980 £9 million of debts to the government were wiped out. Still in business, the co-operative has 172 employees.


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