Mutuality & capitalism

Last updated: May 2009


Even with the recent demise of the Dunfermline Building Society, it is widely accepted that mutual building societies generally have weathered the credit crunch better than banks.  Rob Harrison asks to what extent mutuality offers a solution to the broader crisis of capitalism.


It hasn’t gone unnoticed that the UK building societies which chose to convert into banks have ended up failing while those that didn’t convert are faring better.  Whilst no financial institution has been unscathed, Northern Rock, Bradford & Bingley, Halifax and earlier Abbey National all appear to have made more wrong decisions than most.

Unsurprisingly, this has led for calls for the government to open up a route for re-mutualisation of some newly nationalised assets. And there are serious practical discussion taking place around how this might work for Northern Rock particularly.1 Whilst these refections on how to rebuild a more secure financial sector are important, they do miss out on the bigger picture.


Short termism

As commentators such as BankWatch (see p22) and the New Economics Foundation have pointed out, the current crisis is not just fnancial.  It is a ‘triple crunch’ of fnancial crisis, climate change and peak oil. Shareholder-owned businesses and proft-seeking markets have not just proven unable to manage a stable fnancial system, but they have also failed to deliver on the even more vital tasks of protecting the biosphere and delivering sustainable energy solutions.

At Ethical Consumer we have noticed that not only have mutual fnancial organisations proven more stable, but mutuals generally tend to deliver more ethical business behaviour.  Many building societies, for example, did not take up opportunities to begin some limited business lending when the rules changed in 1986.  The lack of stability and ethics at high street banks is clearly infuenced by the short-termism characteristic of shareholder institutions.  The drive for quarterly profts that became the downfall of the greedier banks is almost always the same drive that is ignoring ethical issues whatever the long term cost to the planet.


The downside?

No effective case can be made for mutuality without being open about its limitations.  First, the stability of mutual fnancial institutions is not just explained by the lack of shareholders, it is require building societies to hold a less risky mix of assets.  Pretty much everyone agrees that rebuilding the fnancial system is going to require a raft of new regulations – not just different business structures.

Second, mutuality is no guarantee against foolish business decisions. Despite the tighter regulations, the Cheshire (sub-prime), Derbyshire (sub-prime), Barnsley (Icelandic Banks) and Dunfermline (sub-prime) building societies have all been left holding the wrong type of investments in the last year and needed rescuing.

Third, mutuality is no guarantee of ethical behaviour.  For example, a New Zealand mutual was recently embroiled in the scandal surrounding milk products tainted with melamine in China.2

Fourth, as the 1970s book ‘Building Societies – the myth of mutuality’ pointed out, sometimes the reality of meeting their members’ interests (rather than managers’), and the levels of actual member participation and quality of customer service have often been some way behind the rhetoric. Like democracy itself, it may be a case of mutuality being the least worst governance system we know.


Not a monoculture

One economist has drawn attention to how the global credit crunch was exacerbated by a ‘monoculture’ amongst banks who all acted and made decisions in the same way.  “Just as relying on only one seed strain leaves agriculture at risk of catastrophic crop failure” so the banking system was at risk when the monoculture started absorbing innovative fnancial products.3 

One clear beneft of mutuals then is that they are a different strain that helps to make our human societies more resilient.And this particular strain – in a survival of the fttest sort of way – is becoming increasingly popular as people notice its difference.  In February, the Britannia noted how 140,000 new savings accounts had been opened in the previous three months.4

And the newest subspecies, a mutual that allies itself explicitly with ethical values, is perhaps the most interesting yet.  This is what the Co-operative Group has done recently in a model across a whole range of businesses that has brought both fnancial success and ethical acclaim.  This is surely the kind of organisation, coupled with some decent regulation, that getting through the ‘triple crunch’ will require.


1 Save our Building Societies Remutualise Guardian 21/12/08 
2 viewed 1/4/09 
3 Richard Bronk in the Guardian 21 March 2009 
4 viewed 1/4/09 The Britannia’s merger with the Co-op Group (CFS) was seeking fnal approval in the last week of March, so does not feature in our reports