Joint Committee on Jobs, Enterprise and Innovation debate -
Tuesday, 4 Sep 2012

Worker-Owner Co-operatives: Discussion with Workers Co-operative Network

Vice Chairman

I welcome Mr. Bill Kelly of the Workers Co-operative Network and his colleagues, who are here today to discuss worker-owner co-operatives in the industrial and service sectors. I look forward to hearing from them. There are many guests in the Gallery today also.

Before beginning I will read a note regarding privilege to members and guests. Members are reminded of the long-standing parliamentary practice to the effect that they should not comment upon, criticise or make charges against a person outside the Houses or any official either by name or in such a way as to make him or her identifiable. By virtue of section 17(2)(l) of the Defamation Act 2009, witnesses are protected by absolute privilege in respect of their evidence to this committee. However, if you are directed by the committee to cease giving evidence on a particular matter and you continue to so do, you are entitled thereafter only to a qualified privilege in respect of your evidence. You are directed that only evidence connected with the subject matter of these proceedings is to be given and you are asked to respect the parliamentary practice to the effect that, where possible, you should not criticise or make charges against any persons or entity by name or in such a way as to make him, her or it identifiable. This sounds very scary but people are familiar with it.

I ask Mr. Kelly to make his presentation to the committee. Members have received the executive summary and a quite detailed report. After the presentation there will be time for some questions and answers. The meeting can run up to 3 p.m. but there are some commitments for members beyond that.

Mr. Bill Kelly

I thank the Vice Chairman, Deputies and Senators for the opportunity to make today's presentation. I will first introduce our team. Professor Kathleen Lynch is head of the school of equality studies in UCD and Dr. Stephen Nolan is from Trademark in Belfast. Trademark is a social justice co-operative addressing sectarianism and injustice; as part of that remit it also encourages the development of interface co-operatives in the North. Mr. Michael Gavin is founder member of the Bridge Street Co-operative in Kenmare and managing director at Gavin & Co. accounting services. I am with Meitheal Mid-West, which is based in Limerick and was set up just over a year ago to promote the worker co-operative model not just for economic benefit, but for social benefits as well.

On 17 June we set up the Workers Co-operative Network to promote worker co-operatives in the North and South of Ireland. That first meeting took place in Belfast. However, events were put in train almost 12 months ago to bring this about and the process began when we invited representatives of MONDRAGON to Limerick. MONDRAGON is the world's largest industrial workers' co-operative.

It commenced in 1955 with five engineers assembling paraffin heaters. They set up the first co-operative and it has transitioned today to a federation or corporation of 120 co-operatives, with a turnover of €15 billion and more than 80,000 worker-owners. It is competitive, innovative and profitable. Mikal Lezamiz, its director of co-operative dissemination, spent four days with us in Limerick, and on foot of that, we organised a field trip to Mondragón. Kathleen Lynch and Stephen Nolan accompanied me and 17 others on the trip to Mondragón to see the operation at first hand.

When we returned, we put together the INTERREG bid, Co-operatives for Growth, and submitted it to the EU. We hope to get a decision on that shortly. However, whether we win, lose or draw with it, the benefits of it are already tangible. We have been able to strengthen our relationship with MONDRAGON and with co-operatives throughout the UK and in mainland Europe. The Co-operatives for Growth initiative involved universities, development agencies, local authorities and co-operatives in Ireland, England, Scotland, Wales, France and the Netherlands as well as MONDRAGON in Spain coming together to pool resources.

In May, we invited David Erdal to give a keynote presentation on alternative economic development models. David Erdal is the recently retired chairman of Tullis Russell, Scotland's largest wholly employee-owned company. It has 520 owner-workers. He explained how it transitioned from a purely private company to a worker-owned company. It was profitable as a private, family-owned company but is even more profitable and sustainable as a worker-owned company.

In June, we established the Workers Co-operative Network and in July we had our first meeting with the Northern Ireland Co-operative Forum. At the end of this month, on 29 September, we will hold a workers co-operative seminar in Limerick, at which many of the worker co-operatives from the UK will tell us how they pulled themselves up by their bootstraps.

We promote worker co-operatives not just for their economic value but also for their social value. We look at Spain, Italy and France and the contribution worker co-operatives make in generating wealth and sustainable jobs. They make a significant contribution in those economies, so why can that not happen in Ireland? We have, for the first time, identified what is required to enable the model to work in Ireland. Emilia-Romagna in Italy is one of the top ten most prosperous regions in Europe and 40% of its businesses are co-operatives. Why not have that here? We have identified the items required for that to happen here. Legislative change is the first requirement. We need a supportive legislative framework which can give rise to an enabling environment. There are a number of other matters after that, but that is the crucial one.

If we are serious about stopping the tide of involuntary emigration and the slide into poverty and subsistence, which is obvious from the Central Statistics Office, CSO, reports that are detailed in our submission, this is a no-brainer, if I may use that term. It is self-evident that it is something we should be doing. It can co-exist with the existing foreign direct investment, FDI, model. In fact, as the FDI model comes under increasing threat, we should hedge our bets and pursue the worker co-operative model with vigour. I read about a meeting this committee held with representatives of the IDA at which the IDA representatives acknowledged that their competitors are upping their game.

There is no downside for the State in pursuing this avenue. Consider the Spanish example. The MONDRAGON co-operative is now the largest single employer in the Basque region in Spain. It is the seventh largest conglomerate in Spain and is in the top 50 in Europe. The Basque region, according to Standard & Poor's most recent report, is now two points ahead of the Spanish sovereign in terms of its credit rating. That is particularly due to the sustainable structures in its environment. There is everything to play for, so we welcome questions from members of the committee.

Vice Chairman

Before taking questions, do the other witnesses wish to add their comments? Obviously, when questions are asked, all witnesses are free to respond, but they are free to make additional comments now.

Professor Kathleen Lynch

Globally, the International Co-operative Association has employed 916 million people. This is a global phenomenon, not just a European one. The other observation I wish to make, on foot of what Mr. Kelly said about legislation, is that the Anglo-zone countries have not had a tradition of legislation to facilitate worker-owner co-operatives, unlike in Emilia-Romagna, France and Canada. In Canada, the Desjardins group in the financial sector is the 26th most secure financial institution in the world. It is a financial co-operative in Quebec and almost everybody in Quebec is a worker-owner or an owner in some way of that co-operative.

It is a global phenomenon and has great potential to provide secure and sustainable employment. I will explain why, if the members ask me later.

Dr. Stephen Nolan

I will give one brief example to support what Mr. Kelly said about MONDRAGON. It is difficult to always draw many examples from one place but the bank that runs the MONDRAGON Corporation, the Caja Laboral, is one of the banks that are not part of the bailout system in Spain. The reason is that it is owned by its workers and members and it did not lend foolishly in the past ten to 15 years. When we met the chief executive of Caja Laboral he was asked how much he earned. He said he earned €150,000 per year. Somebody asked him why he did not move to another bank and his reply was: "Why would I?" The culture in the Basque country is of very profitable capitalist enterprises competing on the world market, but they do it in a way whereby the jobs and the institutions they fund survive. They have been there for 50 or 60 years and they are not going anywhere. We have a great deal to learn from them.

Mr. Michael Gavin

I am involved in a workers co-operative in Ireland. We have discussed big models with 85,000 workers but I am involved in a co-operative in south Kerry that has created ten part-time jobs from a standing start three years ago in a business that is growing annually in the current environment. If all goes well, we expect to double our membership within the next three years.

Vice Chairman

I will call the Opposition spokespersons first before calling other members. I call Senator Cullinane.

Senator David Cullinane

I welcome the witnesses. I and my party support co-operatives and my party colleague, Deputy Peadar Tóibín, would have met the representatives previously. This year is the International Year of Co-operatives so it is timely that we are having this discussion.

The culture and mindset in Ireland regarding co-operatives is very poor and that must change across the board, from elected representatives to State bodies and agencies such as Enterprise Ireland, in respect of the merit of co-operatives. That is the big challenge for us, but it is an important one if we wish to ensure co-operatives are successful. A number of examples were given of very big co-operatives that were successful. There was a major financial crisis in Argentina in 2001, with a devaluation of the currency and massive unemployment. Since then, however, more than 200 failing businesses in Argentina have been re-established as co-operatives. There are many examples in this country of where there was potential for a worker buy-out but it did not materialise. I believe that is due to the prejudice in Ireland against co-operatives. Waterford Crystal is a good example. There was huge expertise among the workforce. The workforce was the company and it supported the brand, but the company was bought by a venture capitalist firm that eventually ensured the crystal was made elsewhere.

We could give many other examples. We could refer to some of the bigger co-operatives in Ireland. Kerrygold, for example, was initially a co-operative and is now one of the most successful companies in the world. Such an example shows that co-operatives can be socially and economically successful.

I support almost all of the initiatives and recommendations that have been made by Mr. Kelly and his organisation. I will not speak about all of them because they can be examined in the presentation that has been submitted to us.

The enterprise agencies need to change their policies. That cannot happen without a change in Government policy on co-operatives. I suggest there is a need for special initiatives. There must be an acceptance within the agencies that co-operatives are a good idea. It strikes me that when people approach Enterprise Ireland with business ideas, they are not directed towards exploring the option of the establishment of a co-operative. They are advised to set up their own businesses by taking the PLC route. The thought process within those agencies does not seem to involve exploring the co-operative option.

I would like to conclude by speaking about two sectors, namely, crafts and horticulture, that would benefit from the involvement of co-operatives. I could give two examples of initiatives that have worked in my own area of Waterford. Many horticulture projects are being rolled out through FÁS at FETAC levels 5 and 6. Those who are involved in lots of good work in their communities are doing courses, learning how to grow crops and vegetables and building community gardens, etc. There is significant potential for co-operatives to work in the horticulture and crafts sectors. It is obvious that the latter sector is ripe for the involvement of co-operatives. I am aware that the all-Ireland potential of co-operatives was covered in the network's submission. This worthwhile initiative has to be supported. That will not happen to any great degree without involvement at national level from the enterprise agencies and unless there is a change in this country's poor mindset with regard to co-operatives. I would be interested in hearing the witnesses' views on that issue.

Mr. Bill Kelly

I would like to pick up on a couple of points the Senator made. We need to reflect on what we should do with the agencies. I have asked myself whether we should force them to do something they do not want to do. Senator Cullinane was quite right to suggest that when one walks into Enterprise Ireland or an enterprise board, one will be looked at as if one has two heads if one mentions the possibility of establishing a co-operative. If one submits a good business plan relating to a good business idea, the agency in question will be keen to help one if it is supportive and excited about it. If one then says that one would prefer to bring it to market as a co-operative, one's arm will be twisted to encourage one to take the conventional route.

That is why I keep coming back to the legislation. The Bill that will be published at the end of this year will amend and modernise the Industrial and Provident Societies Act, which dates from the 1800s. The existing legislation defines approximately 30 different types of co-operative in areas like wood-cutting and turf-cutting. It does not mention workers' co-operatives. Perhaps such co-operatives could be mentioned in legislation as a first step. That would unleash such potential around the country that one could then say to people that it is legitimate to aggregate in groups and drive forward. It would make it much more difficult for agencies that are not enamoured with the idea of co-operatives to stand in the way of them. At the moment, individuals who wish to aggregate together on a collective basis to start a co-operative face an uphill struggle. We have met representatives of a co-operative development group in Scotland to discuss how they operate. The group in question is a subsection of Scottish Enterprise, which is Scotland's equivalent of Enterprise Ireland. They got a group of individuals who were committed to employee ownership and worker co-operatives and let them loose with a plan. They are thriving. They review their progress every three years.

It should be relatively easy to get basic legislation in place now that a Bill is being prepared. We need to start with basic recognition. We could roll on from something like that to something like the Basevi law in Italy, to which we referred in our submission. That ensures that as a company starts to grow, it has a mandatory indivisible reserve that cannot be taken out of the company. A certain minimum amount has to go back into each company, which gives rise to those companies being very well capitalised. We could go further by introducing a law like the Marcora law in Italy. We could give individuals who are facing redundancy three years' worth of their entitlement when a co-operative is being capitalised, on the condition that if one's co-operative fails, one is out in the cold. That would be budget-neutral from the perspective of the Exchequer, while encouraging people to go forward and be entrepreneurial.

I take Senator Cullinane's point that the horticulture and crafts sectors are wide open for this type of initiative. We should not limit ourselves to those sectors, however. I keep harking back to MONDRAGON because it is the example I know best. The co-operative businesses in the Emilia-Romagna region of Italy are smaller, by and large. MONDRAGON is working with creative and inventive university and college students at master's and PhD levels who are commercialising intellectual property. Their default route to market is via co-operatives. If one comes up with something interesting in a third level college in Ireland, one is automatically referred to the venture capitalist model by default. As a result, the value of that leaves the country, by and large, or at least leaves the local area. In many of these cases, the intellectual property is very sexy - excuse my language - and it goes outside the country altogether and the downstream jobs from it are gone.

MONDRAGON shows that intellectual property can be rooted in the workforce, the factories and the colleges. That strengthens communities and is mutually reinforcing. This area is wide open. I suggest that a carrot and stick approach needs to be used when tackling the agencies.

Professor Kathleen Lynch

I would like to speak about education and culture. Education and investment in research are among the defining features of large and small co-operatives that are successful. I would compare the Irish credit unions with the massive Desjardins Group in Canada, which has moved into the business area. Every town in Quebec has a caisse. The group has an independent research institute - it is not a vested interest - which is funded from the group's reserves. The same is true in the case of MONDRAGON.

Ireland has a major problem with regard to getting people to use the infrastructure we have for innovation. For example, when we held our conference on alternative economic models in UCD, it was striking to hear that most business schools do not teach people about the establishment of worker-owned co-operatives. There is no tradition of such education. If we want innovation, we have to educate. That means taking on ideas and learning from people like those in Emilia-Romagna, which was one of the poorest areas in Italy after the Second World War but is now one of the wealthiest. As Mr. Kelly said, it is important for us to learn from the initiatives in other European countries that have succeeded. They are not always big. Many of them in Emilia-Romagna are very small.

I would like to mention a huge issue in the services area that really exercises me. I wonder whether those who have introduced for-profit health care in this country to provide services to older people have read the research literature on for-profit health care. In the United States, for-profit health care is known to be a disaster in the long term. When people are accruing profits, the share price is always the bottom line. The need to focus on the share price always results, over time, in the hiring of part-time, temporary, contract and casual workers. That is the bottom line. Vulnerable people, in particular, need continuity, consistency and familiarity of care. We are saying that this issue does not relate merely to the areas of industry and agriculture - it also relates to the services area. The Quebec region of Canada has exemplary co-operative child care structures at local community level. There are local protections and plenty of regulations to make sure the system is operated carefully.

That is a very big issue. Why can we not view the co-operative model as an alternative economic model given that we know it works in other countries?

Research shows that child care and health care are major issues for people. A person with two children in Dublin will pay nearly €2,000 per month for a crèche. Who can afford that? Why do we not have community co-operative support systems for crèches and care for older people, as is the case with community hospitals? The model we are presented with, namely, having businesses run such services, is antithetical to the ethic of care which is about the person as opposed to making money. A considerable amount of research in the United States shows that the least favoured form of care among older people is long-term care that is profit-led.

Senator Deirdre Clune

I apologise for interrupting earlier but I was curious to discover the type of industry Mr. Gavin is involved with in County Kerry.

Mr. Michael Gavin

We run a wholefood grocery store, café and bookshop and act as a shopfront for local producers. We sell the produce of any local producer who is growing vegetables or producing food and add a margin of roughly 20% to cover our costs. Many of the smaller producers who previously went to farmers' markets in the Kenmare region no longer need to do so because we have a shopfront they can use six days per week from 9 a.m. to 6 p.m.

Senator Deirdre Clune

While we are all familiar with credit unions and agricultural co-operatives, Professor Lynch outlined the role of co-operatives in health care and child care, which are areas I had not considered.

Mr. Michael Gavin

On health care, a group in the south west is examining the possibility of delivering home care and home help as a worker co-operative. While this is at an early stage, it would mean that those delivering the care would be one group of shareholders while the clients, the older people, would also be stakeholders. This multi-stakeholder model is being explored.

Senator Deirdre Clune

It is interesting to note the variety of sectors that could be covered by the co-operative model. I thank our guests for their most interesting and stimulating presentations.

The Minister has indicated he will introduce the legislation to which Mr. Gavin referred. Our guests appear to have greater knowledge of its contents than I have. A Forfás report on social enterprise, including co-operatives, is being prepared and I hope its recommendations will influence the legislation. I look forward to the report's publication. The Government, in its action plan for jobs, recognises the role of co-operatives in the Mondragón region and the potential to develop co-operatives here.

Mr. Bill Kelly

We invited the Department and Forfás to join our field trip to Mondragón. We were delighted the latter accepted the invitation and travelled with us and we have maintained an ongoing relationship with Forfás. We will meet representatives of the organisation later today.

I will pose a question from the perspective of the shop floor and dole queue. If the Legislature can pass legislation to save the banks in a hurry, can it not pass through the House very quickly legislation amending the Industrial and Provident Societies Act to have worker co-operatives recognised in order that we stem the flow of people out of the country? The Workers Co-operative Network would prefer to be much more closely engaged with the Department on the Bill. I hope we will move a step closer to achieving that objective as a result of this meeting.

A group of committed individuals could establish a company as a co-operative tomorrow. However, if the business started to generate revenue and achieve growth, the individuals in question would have to be very careful about people they bring into the business. They can bring people in two ways, namely, as employees, in which case the company would cease to be a co-operative, or as employees with a transition path to worker-owner status. If they were to choose the latter option, they would need some form of legislative underpinning to protect the work that had already gone into the business and the philosophy behind it. Mr. Gavin and his group in County Kerry will discover this as their companies grow. We detail in the report some of the companies that were up and running. Crannóg, for example, did fine work for a while but it was swimming against the tide and did not have any legislative support structure. Action needs to be taken quickly in this regard.

I left Dell a good ten years ago. If the Dell workers who were made redundant several years ago had been aware that an option was available to aggregate together as worker co-operatives, there is no knowing what would have been unleashed in terms of job creation. Typically, a person who is made redundant at the age of 50 years will have no idea that co-operatives such as those in Mondragón exist. People who look for an alternative and read about the Mondragón region on the Internet will conclude that it could not possibly exist and it must be a spoof. We invited people from Mondragón to Limerick and, to our surprise, they accepted. A few months later, we visited Mondragón where we walked around co-operatives and spoke to the second, third and fourth generation employees of co-operatives. We met engineers who attended co-operative crèches, primary schools, secondary schools and universities, did summer work in co-operative factories and are now managers of co-operatives. They could command salaries in conventional businesses which would be several times higher than their current earnings, but instead they elect to remain in their communities. It is an eye opener for people of my age to realise this sort of thing exists.

The co-operative model operates in Mondragón, Emilia-Romagna, a region of Italy where 40% of industrial capacity is generated by co-operatives, Spain, France, Quebec and elsewhere. If we were to put the alternative in front of people, they would jump at it. The work would be done for them in a sense and they would leave the agencies in a cloud of dust behind them.

Senator Feargal Quinn

I am delighted to hear this story about which I spoke with Mr. Bill Kelly yesterday. I was interested to hear Mr. Gavin's comments on retail. My first job was in a co-operative grocery shop in Dún Laoghaire in the 1950s. We learned all about Rochdale and the origins of co-operatives. Why have co-operatives not succeeded in distribution and retail? The John Lewis partnership in Britain is a co-operative. The company was started by John Lewis who later handed it over to his employees. Mr. Bewley in this city started Bewleys as a co-operative. Two centuries ago, Sir Horace Plunkett started farmers co-operatives which blossomed and were extremely successful. I do not understand the reason this success came to a halt. Can steps be taken other than those suggested by our guests?

Ten, 20 or 30 years ago - I am not sure of the precise period - co-operatives were not required to pay tax. The position changed - understandably - because some business people and slick financiers discovered that it was a way of circumventing the need to pay tax. Can steps be taken to change the entire culture and enable us to achieve something similar to that achieved in Mondragón? Clearly, there is something in the Irish psyche which prevents the co-operative model from succeeding. I do not know the reason but I believe certain steps could be taken on this issue. Perhaps the proposed legislation is the way forward.

Mr. Michael Gavin

The Senator referred to the co-operative culture.

There is no co-operative culture in Ireland. We have close on 2.9 million credit union members and probably everybody in this room is a member of a co-op, but if people are asked what it is to be a member, they are not aware of the responsibilities, rights and rewards. On a personal level, I believe existing co-operatives and credit unions have taken their eye off the ball as regards educating their members and creating that culture. As someone who is also involved in credit unions, I am concerned that without a change in culture, there are huge challenges ahead to get people involved in both the credit union and other co-operative sectors. We face a huge challenge in creating that culture.

As an accountant, I went through college and exams without ever coming across co-operatives, but one way I believe the culture can be created is to bring it in at primary and secondary level and then on into third level. A very good programme is being run from the co-operative college in Manchester. It runs a programme for children to set up co-ops within their schools. This programme is being run in approximately 180 schools in the UK and I am in negotiation with our local school in Kenmare to run it as a pilot with transition year students. The school is considering it at the moment, but has not come back to us. A programme like that will teach children conventional ways of doing business but will also instil in them co-operative values that will benefit not just business but society in general.

We are here in the Houses of the Oireachtas. In a co-operative people debate and argue their point and that process educates children and people to get involved not just in business but even in politics. They learn to debate and engage with their peers and others. Outside of legislation, we need education and the creation of a culture. This will not happen overnight but will be a long road. With 2.9 million credit members and the like of ICOS representing some of the biggest businesses in the country, the resources are there. They just need to be channelled.

Senator Michael Mullins

I welcome our visitors. This is an interesting and stimulating discussion. At a time when we have so many people unemployed, we should explore all possibilities and this is an area that merits consideration. I come from a rural constituency where in the 1960s and 1970s the local mart, the local piggery and the local creamery were established as co-operative organisations. However, apart from the mart, the others subsequently became PLCs and the co-operative element seemed to disappear.

Professor Lynch spoke about co-operative home care and child care possibilities. There are huge opportunities in that area. There is a representative of Roscommon Home Services in our audience today and this group provides a wonderful care service in my area and employs 465 people in three counties. I am delighted Veronica Barrett is here today representing an organisation that is living proof that a not-for-profit organisation can provide much needed employment in rural communities. It also provides a high level of care to the elderly and helps keep them in their homes for as long as possible. This is important, particularly at a time when we are debating cuts in health services and how we can provide good services with fewer resources. Roscommon Home Services is a good example of how this can work.

Mr. Kelly said he was anxious to see the legislation enacted as quickly as possible. I have seen a letter the Minister, Deputy Bruton, sent to the Minister for Finance, in which he indicated he hoped to publish the legislation by the end of the year and that the legislation would be aimed at easing the regulatory burden on co-operative societies and making it easier to start up and run a co-operative as an alternative form of enterprise. The letter seemed to offer strong support to the concept of the co-operative. The purpose of this meeting is, I suppose, to ensure that this committee keeps the pressure on the Minister to come through with the legislation as a matter of urgency.

I like the concept that people who are made redundant would have the possibility to invest part of their redundancy payments in a co-operative. We must ensure the legislation is in place to enable that to happen.

I look forward to working closely with our witnesses on bringing about the objective they have put before us today. They have given us plenty of food for thought and I will certainly do some further research on some of the co-ops operating successfully in other countries. On my next visit to Kenmare, I will take the opportunity to see how things are working out for Mr. Gavin and his co-operative society.

Dr. Stephen Nolan

I will respond briefly on the issue of Waterford Crystal which was mentioned by Mr. Kelly and by Senator Cullinane. There is a similar problem now at Avalon Guitars, a craft industry in Newtownards which makes one of the best guitars in the world. We were contacted by the workers there asking whether there was any chance they could buy out the company. There is no way they can buy out the company because even in the North, the legislative structure does not exist to help them do that.

We are doing some research - our researcher is present - on co-operative conversions in France. In France, this is part of the way they do business and when a business is in trouble, or not, such as if it is a succession issue and someone wants to sell up the family business or retire, the French business structure is set up so that the trade unions, the local government and the state come in and do some forensic accountancy on the books and decide whether it is a viable business. If so, the question is whether the workers can buy it out. All the structures kick in for that, in terms of providing capital, training, accountancy and other services and special courses the workers need. The presentation provided by Mr. Kelly gives some information on what is done in France. That is the way they do business.

Recent research in Great Britain conducted by Co-operatives UK suggested that 35% of all SMEs that go out of business are viable businesses. In the middle of an economic crisis we cannot afford to lose 35% of businesses. I do not know if the situation is the same in Ireland, but I am sure it is similar. We cannot afford to lose any jobs and the idea should be to set up the correct legal and financial structures to keep jobs. There is nothing harder than creating a job. I know this because we are involved in setting up co-ops.

It is very tough setting up a business in this environment. The fact existing businesses are being let go under is stupid. In France, that is not allowed to happen. Germany and Italy have similar structures to those in France and they go in and save businesses from going under. Mr. Kelly's report shows the percentages in this regard, where private sector businesses are compared with co-operative conversions. Co-operative conversions survive, rather than businesses sold on to another venture capitalist, which are usually stripped and done away with. There are huge opportunities in Ireland not just to create co-operatives, but to save jobs by converting businesses into co-operatives. It makes sense to investigate that properly and is stupid not to do so or not to put this further up the list of priorities in terms of creating jobs and innovation, both North and South.

Professor Kathleen Lynch

It is important to follow on from what Dr. Nolan said. In Italy, Cooperazione Finanza Impresa, the organisation for co-operatives, is the only financing impress or co-operative financial institution. Its purpose is not just to do what Dr. Nolan said, but also to save businesses and create jobs and since early this century it has been given legislative powers to fund innovations in the co-operative area. I believe that having a mechanism for innovation is vital. Not alone are all of my generation in the credit union, but we all see our children emigrating.

Some of the best people in the country are leaving the country every day of the week. Nothing is happening to bring the innovative powers and capabilities of these people to an alternative economic model. I have spoken in many public fora on education in Mayo recently. I am from Clare and I know rural Ireland very well. I know a lot. My father was a founder of the co-operative marts. I know of all the problems and how they de-mutualised. I know the whole story but there is nothing in the Irish mindset that cannot change. We were told once that we were poor and ignorant and that we would never be educated. I wish to put on record a comment about the 1960 report of the commission on education. It took ten years to report. In 1960 the commission stated that the majority of people in Ireland would never benefit from second level education. What a load of nonsense.

Of course we can change and innovate. It would help if we had an innovation programme like the CFI in Italy. It need not be a vast fortune. It could be operated through the infrastructure of Enterprise Ireland and local authorities and through setting up in every town so that there is somewhere for these young, qualified people to go with their inventive ideas rather than servicing Germany, France and Australia. It is important to have a financial as well as a legal infrastructure.

There is an idea in Ireland that is so fatalistic but there is no Irish mindset or at least we can change the Irish mindset and educate people. As an educationalist what interested me about Mondragón was the primary schools and second level schools there. They were like what a previous contributor referred to in England but they have the system institutionalised. There are books on learning to co-operate and the whole concept that they will work together rather than simply make money for themselves.

All the universities here have innovation units but the system beggars belief. The public sector gives money to and finances what are mostly science ventures to create new products. It does not finance my field much. Eventually if these companies succeed, they create patents. Who owns the patents? Generally, it is the individuals. What do they do? They create a successful company and if they own it, they get the private dividend. There is a massive public investment but there is no public ownership of the patent, and that is unbelievable. Moreover, in some cases it is sold on for millions of euro when it becomes officially profitable. That is fine but what kind of a model for development is that for a country? I cannot comprehend why we cannot have different models like those elsewhere where there are strong reserves, an emphasis on the co-operative model and a stipulation that one cannot spend all the money and that it should be kept and re-invested.

I am pleading for young people as well as for new career services. We must think differently and educate people. I am pleased to report that the business school in UCD will meet at the end of this month with a view to doing something about the education problem in the business area in our university.

Mr. Bill Kelly

I wish to address earlier questions from Senator Mullins and Senator Feargal Quinn. Senator Quinn mentioned John Lewis. Tullis Russell is big as well. It is the largest such company in Scotland and wholly employee-owned. We had David Erdal, the ex-chairman, to visit. When Mr. Erdal was taking it from family ownership to employee ownership, he spent a lot of time with John Lewis. He based his work on that model to a large extent. On both occasions they had to set up complicated trusts for the change to occur. They were almost impregnable trusts and they required the goodwill of the owner of the business as well. David Erdal tells an interesting story. Even five years after they started the process of employee ownership, considerable mistrust still existed on the shop floor. After five years they did not believe the owners were serious about handing it over. It took ten years for that to sink in and for the folks to realise that it was actually their business and that it was up to them how they should run it. When it did sink in, they went from strength to strength. If the legislative environment is not in place, one must go through very complicated trust arrangements and that is not feasible for people who are starting off.

What is in the Irish psyche that does not allow it? Let us consider the smoking ban. Before the smoking ban came in, who would have thought we could have introduced it in this country and that we could be the first to do so? We should put in place a supportive environment for worker co-operatives. I stress that it should be for worker co-operatives because producer co-operatives are already looked after and are up and running and credit unions are up and running as well. This is the message we are keen for the committee to get across to the Minister. If a supportive environment for worker co-operatives is put in place, I do not suggest the thing will grow itself but we will be halfway there.

What can we do? We would like this committee to put friendly pressure on the Minister. I arrived at my current age of 50 years before I realised that the likes of the co-operatives in Mondragón or Emilia-Romagna existed, or that France was organised for co-operatives. Can we not have a Dáil debate on International Labour Organization, ILO, recommendation 193 for the promotion of co-operatives, to which the Government is a signatory? Can the committee imagine if there were a Dáil debate on something like that? It would be the talk of the country. People would begin to wonder and realise they can do things for themselves. Let the Legislature take the lead with a Dáil debate on ILO recommendation 193 for the promotion of co-operatives. I realise it is only a recommendation and not legally binding but if we are trying to find a smoking ban mark 2 for worker co-operatives, what better way to start?

InterTradeIreland is a North-South operation, is EU-funded and is supported by both Governments. It runs seedcorn competitions for start-up businesses. It should be required to put something on the table for worker co-operatives even before any legislation is put in place. If InterTradeIreland was doing something like this and had a mandate to do so, it would start the ball rolling immediately. It is an EU-funded organisation. Europe is going crazy for co-operatives at the moment. Our reports list the various European Commissioners who are doing various things. The State should keep the venture capitalist model because people like it, but it should give those of us who are looking for something more sustainable, innovative, egalitarian and caring a level playing field and we will show the committee how we can knock sparks off, compete and be competitive and innovative.

Deputy Michael Conaghan

I welcome the delegation. We are in a country where the social economy in general is weak. This is the case in Ireland and it is almost an outcome of our legacy. In some ways the co-operative movement is weak because there is no supportive environment. The social economy in Scotland is strong and this creates an environment more conducive to developing the ideas I favour and which the delegation has discussed today.

There is something in the Irish psyche that is dismissive or almost hostile. I believe this comes from certain forms of ownership, including those relating to small individual land holdings and individual modes of ownership rather than collective forms of ownership. That is a strong element in the Irish psyche based on the land structure and the individual activity of farmers. It is isolated and individual rather than collective. I realise it is difficult to quantify and tie these things down but I believe the Irish disposition is generally dismissive towards the idea of co-operating in general.

However, it is timely and there is a more receptive era now because people have moved away from land ownership and become urbanised. Perhaps they have carried that psychological disposition with them. It has been proved that there are so many fluctuating variables in the general economy and vast social and individual costs have been incurred by the way our economy has gone. People are more readily open to new ideas now. That is why this is a timely visit and a good time to lobby and ask Ministers to consider different models of economic activity. The delegation has referred to the great European example in Mondragón. It is a good time for this. I am keen to help and I imagine we are all keen to help in any way in putting forward this idea.

It is a much more civilised and humane way of conducting business. Perhaps people in this country will be more open to that approach in the current circumstances.

Regarding Roscommon, I have heard a little about the success of that key social economy initiative. There must be greater efforts to broadcast that success, so that people know what is involved and what can be done. It is not something that is only applicable to countries in southern Europe, although the southern European temperament and disposition lends itself to that type of co-operative endeavour rather than the individualistic approach.

Professor Kathleen Lynch

For members' information, some 19% of German financing is done through co-operative banks.

Senator Mary M. White

I congratulate the delegates on their presentation. It is a very interesting subject for discussion in the committee. Between the four of us Senators who are members of the committee, we should be able to organise a discussion in the Seanad on the issue of co-operatives and the International Labour Organization's Recommendation 193. Senator Deirdre Clune, as we know, is very influential with the Minister, Deputy Richard Bruton, which should help our cause. It would be a good idea to give the matter air time and discuss the legislative changes that might be required.

It is important to consider the cultural perspective in this discussion. For people of my generation, for example, the most desired positions were those in the public sector. Only very small numbers proceeded to third level education, with the general objective being to secure a permanent, pensionable job. Business and trade were seen as the remit of those who were less intelligent. That was the cultural perception, stupid as it now seems. In time, however, people realised that a public sector job might not allow them to develop their potential as far as they might wish. This led to a change in culture whereby setting up one's own business became a desirable option, for a number of reasons. When I established Lir Chocolates in partnership with Connie Doody, we were subjected to the conventional wisdom that partnerships do not work in this country. It was unusual at that time for two women, in particular, to go into business together.

My sole motivation in taking the leap was to create employment and we received great support from Senator Feargal Quinn at Superquinn. My husband was managing director of IDA Ireland at the time. We were missionaries in many ways. The company came out of a community unemployment group in Dundrum during the last recession in the mid-1980s. As I see it, the same missionary spirit is essential to the establishment of a successful co-operative; it is no different from setting up a sustainable business out of nothing, with many of the same hurdles to be overcome.

The delegates might do well to be a little more diplomatic in terms of their statement that foreign direct investment is not the model for what they are trying to achieve. It is important to bear in mind that there are as many people directly employed in client companies of Enterprise Ireland as there are in IDA Ireland companies - approximately 145,000 in each case. As well as foreign direct investment, this economy is being built by Irish entrepreneurs funded by Enterprise Ireland. I am fully supportive of what the delegates are seeking to do, but they must be diplomatic if they want to convince people. I have learnt that the hard way. I am seeking only to be helpful in offering this advice.

When Ireland is described as a tax haven, we must always remember that whoever is making that claim is simply jealous of this country's success in attracting foreign investment. United States companies would not locate in Ireland on the sole basis of our tax provisions. Other vital factors are the availability of skilled and educated employees, a competitive environment for business and so on. Those who attach the "tax haven" label want to deride us. We all recall that the former French President, Mr. Sarkozy, was at that game for some time in an effort to effect changes to our corporation tax regime. It is an entirely inaccurate label. In fact, a group in the United States - a Government-affiliated group as I recall - had to withdraw its claim to that effect. Ireland's available and highly educated workforce is the main draw for overseas companies.

Small and medium-sized Irish businesses are creating jobs. The main issue with job creation at this time is the lack of availability of credit from the banks. My Seanad colleagues will know that I have a bee in my bonnet on this matter. The Governor of the Central Bank has pointed that out - a view reiterated in the latest report from the Central Bank - as has Mr. John Trethowan of the Credit Review Office. We are second only to Greece in terms of the difficulty experienced by businesses in obtaining credit. Yet it is small Irish businesses, new and expanding, which are creating employment.

As I said, my colleagues and I will be delighted to support and assist the delegates in their endeavours. A debate on the issue would be timely and useful. I am well aware that there is a great entrepreneurial spirit in Galway. I do not know what went wrong in Limerick, but the initiative there did not seem to be as successful. The more we know about what the delegates are proposing the better. It will be our pleasure to persuade colleagues in the Seanad of the importance of such a debate.

Mr. Bill Kelly

I thank the Senator for her constructive criticism. It is very much appreciated. We would be delighted if the issue were debated in the Seanad. I have already referred to ILO 193 and InterTradeIreland. Another important factor is the Statute for a European Co-operative Society, SCE, which allows cross-border co-operatives to operate according to statutes in their own country or in accordance with the European statute. In the high-tech area, for example, I envisage a scenario where we might possibly do a deal with MONDRAGON whereby nascent co-operatives in this country could benefit from that organisation's standards of best practice and track record in the area of co-operatives. That would be very useful. I understand this legislation is coming up for renewal and will be discussed at a meeting in Cyprus in the coming weeks. Ireland's Presidency of the EU offers an ideal opportunity to take the issue forward.

Senator Mary M. White

That is a great idea.

Mr. Bill Kelly

If we do our homework before the end of the year and if we can get the Department of Jobs, Enterprise and Innovation on board, we could be at the vanguard of developments in this area. Such an engagement would also serve to raise awareness at home. With an undertaking to drive the SCE forward, a Seanad and-or Dáil debate on ILO 193 and some level of engagement by InterTradeIreland, who knows what could be unleased in a very short space of time? It is all about letting people know what can be done. We are not inventing anything new here. It is a proven, tried and tested approach which, to me, presents no downside.

Senator Mary M. White

Is Roscommon Home Services a co-operative?

Professor Lynch referred to nursing home care. Who wants to end up in a private nursing home?

Professor Kathleen Lynch

One of the things that it is very important to remember - we did not discuss it because we were focused on employment - is that there is a set of ethics and values underpinning the concept of co-operation. The origins of the concept of co-operation are to be found in the Rochdale principles. What is involved here does not just simply relate to earning a living - of course, people need to earn a living - but to doing so in a sustainable way. There is a very big difference, for example, between creating a stakeholder society as opposed to a shareholder society. Shareholders can move. MONDRAGON is clear on that, as are the other really long-term, sustainable worker-owner co-operatives. Such co-operatives are all owned and completely democratically controlled internally. There are no outside shareholders. That is very important because in local communities people often sell their businesses and move on and that is the end of the matter.

It may be the wrong word to use but many "mistakes" have been made. I attribute this to a lack of education. I have invented something in UCD, which is home to the only school of social justice in Europe at which equality studies are taught. We bring in many international people. I know what it is to invent something and I am aware that one must go against the tide. However, Ireland does not enable one to do this through education. We must begin to think differently and educate people and enable them to do what I am suggesting. We must put in place a financial mechanism to support this. I am not referring here to the provision of vast amounts of money. It is about taking a different approach and creating an ethic which is one of solidarity.

In the context of MONDRAGON, people tend to forget the 5:1 ratio. One of the things which helps to create solidarity is the fact that there are not vast income differentials. That is extremely important. The chief executive model of the neoliberal era, namely, that one should earn 100 times what somebody else earns will not work because it creates incredible jealousies and a massive sense of deprivation. It varies slightly from one sector or one co-operative to another but, amazingly, MONDRAGON has, for over 60 years, maintained a figure of 4.5% to 5%. That is how the chief executive of the bank earns what he earns. What one obtains in return is incredible security. One gets a job for life if one is successful. There is also is interco-operation between the co-operatives. The co-operatives buy from and support each other, particularly when people lose their jobs. Eroski is an enormous supermarket chain in Spain. MONDRAGON bought Eroski at the time of the crisis. What would have happened in most other instances is that the chain would have gone under. That is what befell one of the French chains at the time. Eroski is not yet a full co-operative but MONDRAGON obtained an agreement from the workers to the effect that they would take an 8% reduction in pay in order to maintain their jobs. As a result, the chain has survived.

If those at the bottom do not feel that the individual at the top is earning a vast fortune while they have no security, then there will of course be solidarity. When we visited the Eroski outlets, I was astounded that MONDRAGON had obtained the solidarity to which I refer. It was possible because the workers believed that those who are running the operation are doing so in a way that is in the interest of everyone else. What is involved here is a different ethic of employment and a different ethic of work.

Dr. Stephen Nolan

Senator White referred to the difficulty of raising capital. Co-operatives are labour looking for capital, while most private businesses are capital seeking to employ labour. It is always very difficult for co-operatives to raise the money they need. This is particularly the case at present as a result of the banking situation. One of the benefits of co-operatives and one of the structures we use in the North is that if, as Mr. Gavin, stated, one is involved with local communities in setting up co-operatives - perhaps just members of a co-op and one can also have workers employed in it - it is possible to arrange loan stock. We are in the process of raising tens of thousands of pounds from very working class, marginalised communities. These communities are all buying into the concept of the co-op because those who live in them are aware that members of their families are going to end up being employed in such co-ops. We are raising money from local communities as loan stock. Basically, this is a mortgage and people can decide whether to get back 0%, 1% or 2% on their money over five, ten or 15 years. Most people who invest in local co-operative businesses do not want to make a profit and, as a result, many of them request 0% loan stock certificates. After five years, we pay these people their money back. In the meantime, either they or members of their families are employed within the co-ops.

Co-operatives are not social enterprises, they are private sector businesses that operate on the basis of collective risk and collective benefit. In the midst of a crisis people are willing to take collective risks to establish enterprises as long as there are collective benefits to be had. As Mr. Kelly indicated, co-operatives are more sustainable. They create social solidarity, not just in a democratic workplace but also in the community. In other words, people buy from the business and are loyal to it and this creates greater social stability. In our situation in the North, that is one of the things we need the most. In particular, one of the avenues we are investigating in the context of creating social solidarity across ethnic divisions is that which relates to interface co-operatives.

Mr. Bill Kelly

In the context of MONDRAGON's purchase of Eroski, it is worth pointing out that the former originally owned a number of its own supermarkets in the Basque country. These sold organic produce and were doing very nicely. One of the large supermarket chains in Spain got into difficulty and came on the market. In the normal course of events, it would have been too big for Eroski to buy. However, when they looked at it they realised that if it fell into the wrong hands - namely, those of international interests - the profits that would be generated would drag sub-profits out of the Mondragón region. As a result, MONDRAGON and Eroski jointly decided to purchase this bigger beast. Of course, a great deal of cash was required. They put the matter to the federation of co-operatives and some of those which operate in the area of engineering and which are cash rich put money on the table. The latter were keen to ensure that the wealth would remain in the region and would not be sucked out of it by another operation.

Senator Mary M. White

Would that come from a sense of wanting their own identity?

Mr. Bill Kelly

One could argue that but we must bear in mind what actually happened. They now have supermarkets throughout the length and breadth of Spain in areas where they have not had a presence before. They are giving all of the workers involved the opportunity to transition to worker-owner status. As members will be aware from our submission, under their rules individual co-operatives decide on where portions of their net profits go for social effort in local communities. Even purchasing supermarkets in southern Spain means that the wealth will stay in southern Spain. That is the philosophy. As Professor Lynch stated, there is a high level of interco-operation among the co-operatives. I take the Senator's point that trying to get a new business off the ground is similar to dealing with a new child: attention is required on a 24-7 basis. The people at MONDRAGON will inform one of that fact.

Those of us who have been there are aware that it is hard work. If one is going to do it and if one intends to bring in people when the operation begins to grow and give them the option of taking up worker-owner status, then one needs to know that the philosophy behind the business is protected under legislation. Hence, the mandatory indivisible reserve which not belong to an individual but rather to the co-operative itself. The analysis of French co-operatives that is contained in our submission highlights the fact that a minimum of 25% must be put into the indivisible reserve but that, on average, these co-operatives are investing 45%. Those companies are very well capitalised, particularly when then begin to grow.

It is a good news story we bring the committee today. We are delighted about the support we have received in the Seanad and we look forward to similar support in the debate in the Dáil.

Vice Chairman

I thank Mr. Kelly and his colleagues for their attendance. Most, if not all, of the questions I wished to pose were answered in reply to points raised by members. The discussion that took place at this meeting has thrown a completely different light on the 43-page submission we received, which is fantastic. I have a natural inclination towards that which was outlined by our guests, namely, a more egalitarian way of doing things. The latter would be of benefit to everybody. There is a consensus among members that our guests should remain in contact with us. I am going to request that the clerk set aside time at our next meeting to allow us to discuss some direction with regard to a number of the recommendations put forward by our guests, particularly in the context of the legislation and the Forfás report.

Our next meeting is due to take place at 1.30 p.m. on Thursday, 18 September 2012, when we will hopefully be in a position to agree the final draft of the ICT report and select a date on which to proceed with its publication.

The joint committee adjourned at 3 p.m. until 1.30 p.m. on Thursday, 18 September 2012.