Seanad Éireann debate -
Wednesday, 2 Dec 1987

Vol. 117 No. 17

Sixth Report of the Joint Committee on Small Businesses — The Development and Management of Small Business Co-Operatives: Motion (Resumed).

Debate resumed on the following motion:

That Seanad Éireann takes note of the Sixth Report of the Joint Committee on Small Businesses — The Development and Management of Small Business Co-operatives.

—(Senator Hussey.)

Mr. J. Daly

The Joint Committee on Small Businesses published this report in July of last year. It might seem a curious topic for such a committee to investigate. After all, co-operatives are certainly not part of the small business mainstream in Ireland today. Why did we choose this topic? As a committee we were conscious always of our responsibility to address business issues relevant to increasing overall employment, whether by way of removing unnecessary restraints or by exploring new prospects. There was a feeling among us that the small business co-operatives were an issue worth addressing in the employment context. We were aware, as stated on page 32 of our report, that the numbers employed in EC small business co-operatives nearly doubled from 290,000 to 540,000 and the number of co-operatives from 6,500 to 13,900 during the period 1978 to 1983.

Co-operative growth in Europe has been very much a response to high and endemic unemployment throughout the EC. If something positive was happening in other EC countries in regard to this type of co-operative, why could it not happen here? In other sectors, particularly agricultural co-operatives and credit unions, Ireland has quite a successful co-operative movement. Why should we not have the same in the small business sector, both manufacturing and services? In our report we set out to answer these questions. We looked at the major issues we saw as relevant to the development of small business co-operatives. Our recommendations provide the framework for positive development in this area, provided these recommendations are strictly acted upon.

In the report we examined the issues affecting small business development under the following headings. On page 19 of the report we state:

The most striking fact about the legal framework for co-operatives in Ireland is that there is no legal definition of a co-operative although the Credit Union Act, 1966, uses the expression "co-operative societies" to describe credit unions.

In practice co-operatives are legally incorporated under the Industrial and Provident Societies Acts 1893-1978, which are administered by the Registrar of Friendly Societies, for whom the Minister for Industry and Commerce has statutory responsibility. The main piece of legislation is still the 1893 Act.

Any type of business may be registered under these Acts. On registration, a society becomes a body corporate with limited liability which conveys the power to enter into contracts and to obtain and give security for credit.

We believe also that the co-operative movement, particularly in agriculture, is already of such significance within the economy as to justify specific co-operative legislation. Within the legislation there should be specific provisions for industrial services. Since the foundation of the State successive Governments have given commitments to bring in a new co-operative Bill to give a proper legal definition of a co-operative together with a proper legal framework. Successive Governments have done nothing to implement that commitment.

As a Senator from County Kerry, which has one of the largest co-operatives in the country, I find it incredible that co-operatives are incorporated under antiquated legislation, not really designed for co-operative purposes. It is up to the Minister to produce some action on this front. Finding finance for co-operatives is not an easy matter. If you remember that many co-operatives arise out of factory closures, you can understand how difficult it can be. Facilities are available from State agencies but, if the essence of a co-operative is self help, the State should not be relied upon for everything. Now, more than ever there is a severe limit to what the State can afford. There is an onus on those organisations, whether co-operative bodies or trade unions, who advocate co-operatives to ensure that more funds and properly structured funds are available to provide adequate shares and long term loan capital for viable co-operative propositions.

On the whole question of management development for co-operatives, we are unambiguous in the strength of our conviction that this area is critical as we said on pages 25 and 26 of the report:

In all of our sectoral reports we highlighted the critical importance of good management to the success of any small firm. We said in our report on manufacturing industry "all research and business success and business failure reaches a universal conclusion that effective management is the key ingredient of success and weak or inadequate management is the primary cause of failure".

Although management weaknesses are a feature of Irish small firms generally the problem in small co-operative is relatively greater.

The basis on which many of these co-operatives are established, either as a community response to unemployment or as an employee response to a factory closure, means there is usually little or no management expertise within the initial co-operative grouping. Although there may be production management skills within a workers co-operative venture, the general body of management skills must either be built within the co-operatives of brought in.

These other skills include financial management and marketing, which are fundamental to the successful operation of a modern business.

Any external support for co-operatives, including grants, must have management development as a central objective. Indeed management development for co-operatives is as much a key issue as finance.

They are firm words but they are the absolute truth. Our recommendations are designed to ensure that any State support for co-operatives gives absolute priority to effective management development. To do otherwise would be to throw good money after bad. In our reports we described the three principal non State bodies concerned with the development of small business co-operatives; (1) ICOS, which assists with the development of small co-operatives but is primarily focused on the larger agricultural co-operatives; (2) the Co-operative Development Society, that is CDS, which was established 30 years ago, to foster and support small industrial and service co-operatives but which has no full time staff or other necessary facilities; (3) the ICTU which, although not a representative body, advocates the development of a network of worker co-operatives.

There is need for a representative body for small business co-operatives and as we say on page 52 of the report:

It is incumbent on the various bodies to come together and devise a suitable structure. The maximum cooperation between those groups that most advocate support for co-operatives should be automatically assumed.

The report was a bit critical of State agencies and their perception that they were offering a single service, a perception not always shared by their clients. We came to the conclusion that there was an element of confusion among the public with regard to State support services for co-operatives.

We said, and I quote from pages 53 and 54 of the report:

We feel that the State support for small business co-operatives needs a single focal point, particularly at the start-up stage. The principal focus for project assessment should be the prospect of viability. Considerations such as the age of the participants, whether it is being started in a community context or by unemployed workers or as a "phoenix" situation, should be secondary.

We feel that there is a need for a Co-operative Development Centre within or allied to the State structure which could provide a feasibility study and central information service to prospective co-operative groups.

Moverover, we would see this Centre as the central processing and grant approval unit, on an agency basis, for all start-up or stage one business co-operative projects, and as the co-ordinating unit for the State agency aftercare.

We feel that the Irish Productivity Centre with its broad representation of Employers and Unions, and its consultancy and business development services, including worker participation, should be responsible for this unit.

We believe that this type of setting for the provision of State support in a co-ordinated way to start-up business co-operatives would lead to a new emphasis on project and management appraisal and development.

The Government response to the issue is on page 36 of the Programme for National Recovery which was published in October this year. I am extremely sceptical with regard to this programme; many of its targets are unattainable pie in the sky. However, the commitment to request FÁS to consider urgent proposals for a co-operative development council is welcome and I look forward to positive results.

Whether a business is a co-operative or any other sort of business, the cold hard fact at the end of the day is that cash coming in must exceed cash going out of the business. In other words, you cannot keep taking money out of the bank without putting anything in. I know a bit about that, as a small businessman. I am in business and can testify to the truth of that statement. I am a little concerned that some of those who advocate co-operative development are influenced more by woolly idealism than by the hard realities of daily business. If all those involved with co-operatives approach the subject in a practical and businesslike way, we will have a useful addition to the economy.

Finally, I appeal to the Minister for the second time. I appealed to the Leader of the House and I was promised that a committee on small business would be set up. When the Government set up about six committees I questioned Senator Lanigan and he promised that this committee would follow on the others. The Joint Committee on Small Businesses has doubtedly proved to be the best of all the committees, because it issued more reports than all the other committees combined. I would like to see that committee re-established. I know the Minister has other things on his plate at present but I ask him to take note of it and do what he can in his own good time to help to re-establish this committee.

Professor Hillery

I would like to compliment the joint committee on their comprehensive report on the Development and Management of Small Business Co-operatives. Ireland has a long established co-operative movement. We have a highly developed system of agricultural co-operatives which are now, in fact, big business. In the industrial and services sector, however, as the Minister has pointed out in his opening statement, co-ops are not nearly as well developed, and they are viewed as a minor form of organisation compared with the public sector or with the more popular capitalist forms of organisation in the private sector.

Given our very serious unemployment problem and the urgent need to create more jobs, all forms of job creating activity must be examined and, as necessary, promoted. In this context, various types of co-operatives are indeed deserving of attention. The Minister in his opening speech, which was both stimulating and comprehensive, refers to the recent growth of small business co-ops. I think it is very interesting to note that there are some 60 trading co-operatives employing almost 600 people at this time.

The high level of unemployment to which I have already referred is acting as a stimulus to some unemployed people to find a means of getting a job in their own localities. This springs from a desire for self help as opposed to relying on dole or other forms of State support and it is certainly to be welcomed. It is also worthy of note that a similar response from the unemployed is evident in European and other countries. The State has a role in supporting these initiatives. It is important, however, that State help should not supplant self help. For too long in this country there has been over reliance on the State and its various agencies for financial assistance and a whole range of other supports. Co-operatives can be helped and, indeed, should be helped in certain respects, for example by State supported specialised advice and training.

I welcome, therefore, the decision of the IDA to appoint an officer with overall responsibility for the development and promotion of co-operatives. The competition for international mobile investment is extremely keen and, one might add, in short supply for some time past. We need, therefore — and I am glad to see the IDA have a role in this — to focus more sharply and more urgently on the creation of jobs from indigenous sources. The development of co-operatives locally based and staffed normally by local people provides an excellent example of what we need to achieve in present circumstances. Not alone that, but the creation of jobs through co-operatives enhances the prospects of making local communities more viable both socially and economically.

It is only right and proper that in the interests of developing strong co-operatives, the IDA will set certain conditions for grant-aided enterprises. That leads me, of course to the management of co-operatives. The conditions laid down by the IDA for grant-aid will relate to matters like professional and experienced management of the co-ops, in-company training and the appointment of experienced local directors to co-operative management committees. This focus through the IDA officer will lead to a better understanding of the knowledge and skills required for the running of a co-op along business lines. The quality of management, as Senator Daly has pointed out, is critical to all forms of organisation.

In the case of co-ops it is particularly important that executive management who run the business on a day-to-day basis should conduct their duties separate from the democratic policy making structure. In other words, the executive management must be allowed to carry out the running of the business within broad policy, but without unnecessary obstruction by the co-op members. Education and training can contribute to an appreciation and understanding of this requirement. For co-operatives to succeed, well trained managers must be available with the freedom to carry out their managerial functions.

In the course of this brief contribution, I want to focus for a little while on worker co-operatives. This type of co-operative holds out considerable promise. We already have examples, as the Minister pointed out, of such co-operatives in furniture, clothing, footwear and pottery and in the services sector in, for example, videos and catering. Trade unions are committed to the co-operative concept. Indeed, they are now taking a closer look at worker co-operatives as a means of responding to their declining membership. A few statistics will help to illustrate the pressure on trade unions at the present time. These statistics are drawn from a research project on trade union membership which is under way in my own Department at UCD.

In 1980, for example, some 55 per cent of the workforce were trade union members. By 1985 this percentage had dropped to 46 per cent. This 9 per cent drop in membership between 1980 and 1985, which amounts to a loss of 51,000 members, is clearly a source of ongoing concern to the trade union movement. The decline in membership is due to a variety of factors including, unemployment, new technology, the decline in traditional trade union industrial strongholds, the move to temporary employees and contracting out arrangements. Like many other countries there has been a move in this country from industrial employment to service industries, where units are smaller and there is no substantial trade union tradition.

In fact, not only in Ireland but in many other countries there is a deindustrialisation taking place in terms of the numbers actually employed in industry. The Irish Congress of Trade Unions published a report on worker co-operatives in November 1985. Another very interesting response to declining trade union membership and unemployment was made, as the joint committee point out in their report, by the Federated Workers' Union of Ireland. From January 1986 this union levied 10p per week on each member for a three year period "to make available to the union a fund to assist the objectives of the union with particular regard to building a link to its unemployed members". The levy is projected to raise £750,000 over three years and the fund will make grants, provide loans and take shares in the enterprises it supports.

Worker co-operatives are an interesting concept and hold out considerable potential. Often a worker co-operative is formed after the failure of an enterprise in which the members formerly worked as employees. These former employees become shareholders under the co-operative arrangement but again, as the Minister has underlined, they have difficulty in appreciating that they are both workers and shareholders in the co-operative and they are not in the former boss-subordinate or "them and us" situation. This adjustment in attitude can obviously be helped by continuing educational programmes for all involved.

The prospects for a conflict-free work situation are enhanced in the case of worker co-ops. Since the workers are also the owners, the progress and success of the worker co-operatives is of immediate relevance to those involved. They are key stakeholders and this should provide the necessary incentive for success. The example of the Dublin Milk Producers who formed a co-operative into Premier Dairies represents an interesting example of self-regulation. They imposed a sanction, a 28 per cent price cut, on members who supplied milk that was not up to the required standard. This had the effect of drastically reducing the bacterial level in the milk, making it cleaner. Co-operatives can exercise a type of authority over their members to reach higher standards than perhaps is possible in the normal form of industrial organisation.

I agree with the Minister that the promotion and establishment of strong co-operatives which will not need successive injections of State aid is highly desirable. I would point out that such co-operatives need not be large in order to meet the criteria the Minister has in mind. In Germany, for example, small co-operatives act as suppliers to larger co-operatives. Such an arrangement is probably feasible in Ireland, and indeed I might refer to a parallel in the industrial sector here in this country, a number of former employees of multinational subsidiaries in Ireland have now set up their own indigenous companies and act as suppliers to the larger multinational subsidiaries which were formerly their employers. This linkage between the smaller unit and the larger unit is probably feasible in the co-op context as well.

I want to conclude this brief contribution by making a point that affects all small businesses, including small co-operatives. The plethora of forms and the volume of official paperwork which afflict small businesses, who are trying to employ people, constitute a serious disincentive. Could I make a plea to the Minister to use his good offices to reduce and simplify the volume of paperwork that is swamping small businesses? This debate is primarily concerned with means of promoting job creation through small co-operatives. The Minister could help and I hope he will contribute to a process to achieve this objective by reducing red tape where at all possible thereby releasing valuable time to people engaged in small business generally, so that they can get on with their important central work.

Mr. Mulroy

I am very happy indeed to have an opportunity to express some views on this report. As a businessman involved in running a small business, I recognise the great importance and the great contribution of such a study on small businesses. It will help in no small way in the management and the running of small businesses. In the first instance, I congratulate the committee on their work. To say it is timely and badly needed is an understatement. Any effort which can be made by any group in these difficult times for our country is important.

Indeed, if one reads the opening pages of the sixth report in which is recorded the brief under which the joint committee worked, one, could say here is a perscription for examination and activity of many matters applying not just to the small business co-operatives, but to many wider and more important aspects of the need for the better economic development and management of our country. The committee's brief talks about the financing of small businesses, the provision of finance for innovation, research and development, export financing and many other things. They are relevant, of course, not only to small businesses, as I have said, but to a far wider sphere of economic activity.

In former times and, indeed, not so long ago, one heard frequently that, with one or two exceptions, the co-operative movement was not successful in Ireland. The exceptions relate to the agricultural industry where for many generations there has been a very effective co-operative movement in the milk sector. However, more recent developments as set out in this report show that housing co-operatives and other co-operatives, given the need and the will, have a possibility for development as successful co-operative enterprises. As the Minister said, this is recognised in the Government's Programme for National Recovery. In paragraph 33 of the programme the Government state:

The Government will, therefore, request FÁS to consider urgently proposals for the establishment of a Co-operative Development Council. The Minister for Labour is, at present, considering plans for a pilot operation that would help emerging co-operative businesses with specialised advice in advance of the establishment of FÁS.

That, I think, is very satisfactory because it recognises that at present, with low economic activity in many sectors and very high unemployment, all possible avenues to improve our economic situation must be explored and action taken where there are reasonable possibilities of success.

As with all business enterprises, whether they be private or co-operative, success and failure will depend on a number of basic things. There must first of all be a prospect of success in the business venture that is being undertaken. There must be a sufficiency of resources available to the company to enable it to get over the initial period while the business is being built up and before profits begin to flow back. There must, above all, be a commitment to making the business a success. Finally, in the whole management and worker approach to the business there must be a realisation that only the best will do and that failure to attain these necessary requirements will result only in the failure of the business. I do not wish to sound offputting; I do not wish to sound pessimistic. I simply want to emphasise that a hard business sense is as necessary in a co-operative as it is in private business.

In making these points I am simply repeating, a Leas-Chathaoirligh, what has been said in the sixth report with which we are dealing. The report puts the position very favourably when it states that:

It can be said, on the basis of evidence from some European countries, that properly funded and well managed small co-operatives can be an important extra dimension in both job and wealth creation.

This is very encouraging, and further on in the report there are accounts of very successful co-operatives in other European countries. The co-operative venture at Mondragon in Spain was the most outstanding example we have had in recent times of co-operative success. I am not suggesting that success of this kind can be easily achieved. I would not like to fall into the trap of picking one highly successful operation and asking why this cannot be repeated whenever the need arises. I refer to this successful venture because, while great achievements are not always possible, at least they show what can be done given the right circumstances and, above all, the right attitude of mind on the part of the people involved.

I started by referring to page 7 of the report where mention was made of the evidence of successful co-operatives in Europe but it is also necessary to move on to page 8 where there is a very firm statement by the committee and I quote:

We remain to be convinced, in the absence of data with regard to track record or failure rate, that co-operatives can generally be as successful as private small firms.

This is a firm statement. It could, perhaps, be criticised for being a statement which to some extent makes a judgment in advance of all the evidence being produced. I can quite understand the statement because we have had unfortunately, too much evidence of firms, some co-operatives and some not, in the co-operative sector which for one reason or another have not been successful. That is not to say, however, that given the proper attitude and the proper circumstances and, above all, a realistic approach a co-operative cannot be a success. If a co-operative founded on a realistic assessment of the business situation, and provided there is sound management and acceptance by all members of the co-operative from the manager down to the most junior worker, understands what membership of a co-operative means, then success is possible.

I stress from manager down to the most junior worker because one of the great problems we have had in Irish industry over many years is the "them and us" situation. I do not wish to start a debate here as to why industrial disputes have been so prominent in this country as they have been over many years. I am not proposing to lay the blame at the door of anybody but I believe many people would agree with me that these disputes, for whatever reason, have done far more damage than good to everybody concerned. At least within a co-operative business structure and given the right attitude of mind by everybody involved the "them and us" situation should not arise. This in itself is not a recipe for success overall. At least such an attitude would remove what has been for many people in industry, employers and workers alike, a continuous deterrent to progress in the right direction.

The report deals with export experience. Senator Hillery stated that one of the greatest problems facing the success of small businesses is all the unnecessary paperwork that the small businessman has to cope with. The future role of the small business co-operative will be very important in the continued creation of new jobs in the industrial sector. Since 1980 the numbers directly employed in the manufacturing industry have declined. Job losses have outpaced new job creation. This raises fundamental questions about the overall effectiveness of our industrial policy. However, the review of industrial performance published recently by the Department of Industry and Commerce indicates that, while all other sized categories of firms lost more than 40,000 jobs in that period, the small industrial sector, defined by the IDA as employing up to 50 people, was the only one to show a net increase even though it was marginal. What is most significant, however, is that the entire increase is attributable to those firms with fewer than 20 employees. That report has identified the potential strength in the industrial sector and is one on which we must build.

While these results have to be welcomed we must get much more in terms of output and employment growth from this sector. That report indicates that the growth is confined mainly to new businesses starting up. The worrying feature is that the new firms created are not continuing to grow. This points to the need for a partial redirection of State assistance away from the start-up phase to providing help of a more directly operational nature.

The operational constraints often arise for Irish industry simply because of the size of the domestic market. This means that expansion minded firms have got to export at a much earlier stage than similar firms in larger economies. Given the high overheads of moving into markets such as distribution, market research, advertising and the establishment of a sales team abroad, this can accentuate the need for finance at a time when it is most scarce.

CTT marketing schemes and programmes were designed to address this problem but the indications are that the response of indigenous companies to these initiatives has been unsuccessful. I would like to speak briefly on my own experience as regards marketing. I believe that the co-operative movement is not active enough in marketing its products abroad. CTT are providing a very important service by the way of travel grants and helping to arrange necessary visas to visit foreign countries. In my own case we could not have penetrated the Middle East market, an area where we have been very successful, without support from CTT and other State bodies. This support should be continued in particular in the co-operative area.

Marketing abroad is difficult but it can be achieved. For example, the working week in the Middle East countries is a six day week from from Saturday to Thursday; rest day, the Moslem holy day, is Friday. With careful planning the company executive can get a full day's work at home on a Friday, fly out from Dublin on a Friday evening, arrive early on a Saturday morning and start marketing straightaway because that is the beginning of the week in the Middle East markets. It is possible, if you plan your trip to coincide with a bank holiday weekend in Ireland, to depart from Dublin on a Friday evening and return the following Thursday week and achieve nine full days marketing at the expense or loss of four working days at home. There are problems in the Middle East. The climate is an alien climate with temperatures ranging up to 52 degrees centigrade and the relative humidity is between 35 and 95 per cent.

There are advantages in trading with these countries in so far as all business is done on a credit basis. If you fill in all the necessary documentation, which is very onerous, you can negotiate the matter of credit within 21 working days which can give the company a very good cash flow. More support should be given to small co-operatives starting up to exploit these lucrative markets. In a small industry, whether it is in the agricultural or industrial sector, the co-operatives must be given support and new technology because many companies go to these distant markets simply because they are not competitive enough to sell in the more accessible UK and European markets. They go to far distant places because people are interested. We must give our small industries technology and the most modern machinery to enable them to manufacture a high quality, competitive priced product which will sell on the more accessible European market which has been opened up by the ratification of the Single European Act. It is a market in excess of 320 million people and the possibilities in these areas are enormous.

I welcome the report. It is a very useful basis for further discussion. It is most useful in the light of the Government's decision to promote the establishment of workers' co-operatives. I wish all the efforts to set up such co-operatives well, but I would like to stress the hard facts of business life whether privately owned or a co-operative. Idealism and the will to do good are great things and they have been responsible for many great developments in this country and elsewhere in the past. However, by themselves they are not good enough. While they must be there for real progress we must never forget that there is no substitute for good management and commitment to work. You will not last very long in the business world unless you have identified your market and then supplied it with good quality articles, the supply of which you can guarantee whenever they are needed and at a price which will return to you the cost of your raw material, wages and the necessary provision for replacement of plant and equipment.

I studied the report and the very helpful statement by the Minister of State with responsibility for Trade and Marketing, at the end of his speech where he said:

It is in all our interests that the co-operative movement should develop as a genuine third force in employment maintenance and creation.

The Minister put his finger on the problem when he went on to say:

The fulfilment of this objective demands the promotion and establishment of strong, viable co-operatives which will not need successive injections of State aid.

Any business whether private or co-operative which is in need of successive injections of State aid is, in my view, a waste of taxpayers' money and also a threat to the viability of competing firms which, without State aid, are endeavouring to survive in difficult circumstances.

In conclusion, I would like to congratulate all of the people involved in compiling this report.

Minister of State at the Department of Industry and Commerce (Mr. S. Brennan)

I thank Senators for their contributions. This is not a Government matter so it is not necessary that I respond to it but I should like to comment briefly on a number of the points made because Senators will expect that.

In regard to the report I refer Senators to my opening address which covered the general Government reaction to it. I will ensure that the Government are fully aware of all of the points made by Senators today. There are a few things I want to say in the few minutes available to me on some of the points which have been made. I appreciate the sense of realism which most Senators showed. That realism is very well expressed on pages 8 and 9 of the report. I will quote from page 8:

The formation of a co-operative can often be a well intentioned but poorly defined response to a local unemployment situation. The lack of clear objectives, an understanding of the skills of the level of commitment required and the necessary organisational skills, often result in no tangible achievements and may in the end actually add to frustration within a community.

It goes on to say:

The justification must be that a proposed co-operative has a good prospect of success by being fully capable of remunerating the main factors of production, particularly capital and labour.

There is a sentence here which I heartily endorse. It says:

There is a danger that the main motivation behind a decision to establish a co-operative may be one of idealism or of a simplistic notion of pure democracy within the workplace. A business formed on this basis will almost inevitably fail.

I notice the same trends going through the contributions of all the Senators. It is a trend I should highlight. If a business is a bad business, whether it is run by a co-operative, a limited company, a sole trader or a multinational it still remains a bad business. The important thing I should like to underline is that it is the fundamentals of the business that are important as to whether that business has a chance of succeeding, not so much the corporate structure. If corporate structures alone made successful businesses we would have a very easy solution to our unemployment problem which would be to simply change the corporate structures. In talking about co-operatives it is important that we consider questions such as: Is there a business there? Is there a market there? Is there a product? If the co-op happens to be the best way to organise that, then so be it, but there are other forms of organisation which one can look at.

Senator Daly suggested that credit unions should be asked to get involved in the financing of small businesses. I appreciate that suggestion but I would be slow to ask the credit union movement to extend itself into being financers of business for all sorts of reasons which I think the Senator would agree with if he reflected on it. I am prepared to ask the Credit Union Advisory Committee, which was set up specifically to advise me in relation to credit unions, to examine this suggestion to see whether there is anything they could do or if there is any role they could follow on that. We must be careful about pushing credit unions into financing businesses because that is not their role at the end of the day.

I was asked also about the Joint Committee on Small Businesses. All I can say on that at the moment is that I will certainly ensure that the Government are aware of Senators' demands and requests in that regard.

I agree with Senator Mulroy when he says that co-ops must be businesslike. I think I made that point earlier. A co-op has to be run as a professional business, or it is not there at all. Senator Hillery talked quite rightly about the plethora of papers involved in small companies. The Minister, Deputy Reynolds, has discussed this matter already with the small business associations and we are very concerned about it. I had occasion last week to launch a new export document called the SAD — the Single Administrative Document — which is an attempt to replace a number of export documents with one single document. In my work with the internal market council of the ECI notice increasingly that all of the export and import documentation is constantly being reduced. That is a step in the right direction. Once that is launched it will make the lives of exporters much easier as a lot of the documentation is in the small business area. I know the Senator is also thinking about the taxation and statistics areas. We are very conscious of that and we will try to make some progress on it.

A number of Senators referred to the need for planning and the need for better marketing. I have always maintained, and I repeat again, that if you do not have a market you do not have a business. In the Office of Trade and Marketing we have been establishing trading houses. There is a private sector service company and provided it buys Irish manufactured goods and exports them, it will avail of the 10 per cent tax rate and also the business expansion scheme. I hope this will be a major boost to small companies in that they will be able to sell to a trading house as a first step towards exporting. I hope to have these trading houses up and running in the new year. We have run into some EC difficulties with them but I hope we can resolve those very quickly.

A second scheme which I would recommend to small businesses is the scheme which I have agreed with the marketing institute whereby the directors of large companies will make themselves personally available to work with small companies and help those small companies over their business problems generally and not just with their marketing problems. I am glad to say that the marketing institute have told me they have already had 30 or 40 inquiries. They are beginning to make those marriages between directors in large companies and directors in small companies so that they can learn from each other. That scheme is working well.

Senators will also be aware that we have now told the State organisation, CTT, to operate increasingly on a payment by results basis. That means they will share in the success or the failure of individual companies. That will greatly increase the determination of both the company and CTT to earn some export revenue because by doing so they will earn some funds.

In general, I thank Senators for their very fine contributions. Some Senators mentioned the question of costs. One area in which I have been trying to get costs down is in the area of insurance because I know this is a major cost to small businesses. Senators will be aware that the Government have announced their intention to bring in a courts Bill which will abolish juries, in certain cases, and will help to reduce insurance costs. Senators will also be aware that, in regard to the legal costs involved in insurance cases, which lead to high claims, there are discussions going on with the Bar Council and the Government and it is hoped in a very short time to reduce the element of legal involvement in insurance cases. I am very hopeful of a satisfactory outcome in that area. Also, in the safety area a number of moves are being made to reduce insurance costs. All in all I expect insurance costs to stabilise next year, and indeed, to be pushed downwards. That is one major cost factor to industry, to small business and to small co-operatives and it will be a great help if this happens.

Senators will also be aware that the Minister for Energy has been trying to push energy costs down for small companies and, indeed, for all companies. The Minister for Transport has been endeavouring to get access costs to and from this island reduced so that the key costs to small businesses — be they energy, transport, insurance or, indeed, interest rates which we know are being reduced — are kept down and pushed down continually and small business can be competitive. I am hopeful that the trading house scheme, when introduced, will ensure that small businesses can get into the exporting business at a very early stage without having to go through the years of preparation which they have had to do up to now.

A piece of advice I would like to offer to small businesses is that the bulk of small businesses — this is true for co-operatives also — tend to be over-geared. Most of them start out in life with perhaps an IDA grant, but certainly with a loan from a bank, probably some of the mother-in-law's money, probably the house is mortgaged, but in general they start out owing a lot of money. A company does not really have a chance when it starts in that way and good ideas are stillborn because the amount of capital available to get that company from phase one to phase two is totally under-estimated. This perhaps, has something to do with our history in that we seem to regard ownership of businesses as being absolutely important and essential. That is not a philosophy that other nations worry about.

In the United States, for example, the average entrepreneur starting up a business will write a business plan and look for 90 per cent or 95 per cent of the money. He or she will settle for 5 per cent or 10 per cent. They will raise the equity to invest in the idea. If you cannot get the equity you must ask if it was a good idea in the first place. While people might say it is a good idea they are obviously not prepared to put their money into it which is the final test. My strong advice to Irish businesses is not to worry about the ownership of companies but please do worry about how they are capitalised and how much equity can be put into them.

One of our most successful companies, which is often put forward as the jewel in the crown is Guinness Peat Aviation. I am aware it is public information and it has been published many times — that the founder of that company who is generally regarded as the owner owns, I think, about 8 per cent of the company. That in no way diminishes the authority that the founder or the "would be owner" has over the company. They have used the other 92 per cent to fund and run the company. Most of the companies that collapse do so in the end when the debt, the PAYE, and so on, runs up and they run out of cash. Owners and entrepreneurs can maintain control of their companies by individual contracts, by service contracts and by all sorts of other legal devices. Therefore, my strongest advice to start-up companies and, indeed, to co-ops is not to get over geared in the early days, not to get into heavy borrowing, but to go out and raise some equity. If they cannot raise the equity then they must consider whether it was such a good business idea in the first place. I know that is cold and is calculating but it is absolutely true.

Finally, the Irish Goods Council have told me that of the £9 billion worth of goods which we imported last year £1 billion could be immediately manufactured in this country. That is a £1 billion market that we do not have to go abroad to find. It is here on our doorsteps because large companies are importing their supplies. I should like to say again to Irish industry that there is a £1 billion market here that is immediately manufacturable and if you can put the package together the Irish Goods Council want to talk to you. Of the £9 billion we import, £1 billion is immediately substitutable. They are basically the inputs of the major companies.

I welcome this report in a sense of realism. A good business idea has to have a market, capital and the determination of some person behind it to make it succeed. There are about 600 people employed in these trading co-operatives that we are talking about here. Quite frankly, I only see scope for major growth provided the fundamentals of every business are applied to it. If it is just an idealistic approach to solving a particular problem, then I would not be overenthusiastic about it in itself. If it is based on solid business principles, I see no reason why it cannot become, as I said at the outset, a third force.

I thank the committee for producing this report. I thank the House for their comments. I hope the response which I have made to the debate is of some assistance to Senators.

Question put and agreed to.