Mutuality

Introduction:

a) examine some features of the 'de-mutualisation' debate; and

b) ask what is the point of the debate?

Some of you will have heard me in 1997 asking that AFSA and the Friendly Society community take its heritage more seriously, by, among other means, putting some money into its collection, preservation and storage. I still believe in the need to do that, and today's paper has flowed from my research into that heritage, but my intention here is only to assist in clarifying what has become pretty murky.

My involvement with Grand United has undergone a great change since I addressed you last, and it is relevant to say that recently Grand United rejected the de-mutualisation path. My paper today is a development of a presentation I made at GU's last Board Strategy Meeting where I argued that the first and very necessary step was to get clear just what we mean by the words 'mutual' and 'de-mutualisation.' It seems to me that if we are to get the answer right we must get the question right, and to get the question right means two things:

a) being clear about the history of those things we call 'mutuals', while

b) not getting bogged down in false history.

I know there is a great deal of apprehension about 'history'. History is seen as irrelevant, and when concepts like 'the community' are added shivers go up and down spines - 'community' history is 'feel good' history and soft - soft in the head, soft in the heart and of not the slightest use to hard- headed, practical decision making. I share some of that apprehension because a lot of what passes for 'history' is very soft and of little use. I'm an historian who sympathises with the people of ASIC and other 'hard heads' grappling with these 'mutual' concepts. It is for just these reasons that I insist that we must be clear on what we are talking about, and that the real, the 'hard' history of friendly societies can be ignored no longer.

So, What Is Mutuality? and What Do Others Think It Is?

A Sydney Morning Herald article by leading journalist Paul Sheehan on the National Roads and Motorists Association's (NRMA) attempts to 'de-mutualise' began with a history lesson. Sheehan attempted to make a contrast between Australia's alleged 'gentler' past and a future without 'mutuals.'

This 'history lesson' is total bunkum.

• Neither Birrell nor Race Mathews, the quoted historians has done any primary research, rather they've read a lot of other people's books which were of course based on yet other people's books. Mathews, in particular, bases his conclusions mostly on what's known as the Mondragon example from the Basque area of Spain. There has been almost no primary research done on Australian 'mutuals' and I guess that's why I'm standing here now.

• Australia was never 'a co-operative society' nor 'a nation of co-ops'. It has had a number of co-ops, mainly in industrial centres, including 'The Store' in Newcastle which was the largest retail co-op in the Southern Hemisphere.

• The list of supposed 'mutuals'/'co-ops' provided by Sheehan is a nonsensical grab-bag of mostly volunteer-run, not- for-profit organisations.

• Being not-for-profit might be a gentler form of organisation than a ruthless, profit-at-all-costs form but this sort of generalisation doesn't help understanding.

• Birrell and Mathews, in this piece, rattle on about 'community participation', 'community ownership' and 'community trust' which are the sort of useless 'feel good' statements that give history and sociology a bad name.

• Co-ops did, on occasion, help non-shareholders out, or provide credit to unemployed shareholders, but they were not designed to do so nor expected to do so.

• Retail co-ops were set up by idealists, but their membership was made up of 'share-holders' interested in minimising personal costs, that is the shares in co-ops were designed to reward selfishness, not mutuality.

• Rural co-ops (wholesale in the main) were designed to reduce costs by having joint handling facilities and joint marketing and administration. They never operated as 'mutuals', either. They were not intended to.

• So, if by 'mutual' you mean 'mutual aid societies', you're not talking co-ops.

• The SMH piece talks about that bit of the NRMA which won't be 'de-mutualised' as 'a mutual association funded by annual membership fees.' If you mean by 'de-mutualisation' shifting from an association funded by members to one funded by share-holders who are not members, you may be clear about the process but neither side of that shift, nor the shift itself tells us anything about mutuality, or about co-operation, either.

• If by 'mutual' you mean a pooling of resources to benefit more than just yourself, then companies listed on the stock exchange are 'mutuals.' Pooling resources, by itself, doesn't mean 'members' act for one another, rather than against one another.

• Sheehan refers to co-ops being 'tribal'. Familiarity (ie, based on 'family') and local control through small size of organisation come in here, as does the emphasis on 'community ownership' and the like, but neither of these tells us what lines of decision-making are in place. Here, I think we get closer to the point, but the point is not the one Sheehan is struggling to make since small, familial clans or tribes can be the most vicious patriarchies, totally opposed to 'mutuality.'

Let's get a little more serious. 'Mutual' and 'mutuality' are concepts which boil down to 'helping one another', ie they have as their essence 'mutual aid', but we must not confuse the aim with the method. 'Mutual aid' is a goal, the means by which we obtain it involves us in politics, that is, the method is a question of decision-making power.

• Dictionary definitions of 'mutual' and related words speak about every member of a group standing in the same relation to everyone else, ie, there's no inner circle and no outsiders, no power bloc such as majority shareholders, and so on - an even playing field perhaps.

• A co-op, in theory, allows all shareholders to contribute equivalently (via a single share) but also at will (through purchases or production); and to receive dividends at will (dependent on amount of purchases or production); and to have one vote per shareholder at Society meetings. In practice, co-ops were, and are, run by 'the Board' with the single-unit shareholders noisily milling around the edges. Some smaller co-ops have come closer to the theory of each shareholder having an equivalent influence on decisions, but unless their constitutions insisted on a concensus decision-making process, their membership usually only agreed on the need to minimise costs and the advantages of speaking with a single voice, leaving the detail to the executive.

• 'Societies' which set out deliberately to practise mutual aid, such as friendly societies, involved each member having compulsory, equivalent in-puts and potentially equivalent benefits. Note that their structure deliberately provided that aid would go to those in need, that those not in need missed out. That is, everyone did not get the same amount out, and they did not necessarily get out what they put in.

• Another element of the 'mutual' mix is, therefore, the strong helping the weak, which is where the notion of 'aid' entered into the 'mutual aid' equation.

• 'Friendlies' were closer to being democracies than co-ops because their structure, the lodge, deliberately provided that decisions were to be talked through by all the people involved in the issue, including the rank-and-file. Co-ops did not use a lodge structure.

• Unfortunately, lodge democracy, as we know it, was not what we might call 'mutual democracy', the circle, but it was a 19th century view of democracy which deliberately entrenched hierarchies, i.e. it was possible for a member from the most humble background to become Grand Master, but the whole point about being GM was that when you spoke, everyone was supposed to listen and then go along. As the organisation expanded, and delegates to annual conference replaced direct, all member voting, ie, as the 'friendlies' got closer to what we now call representative democracy, the hierarchy became steeper and more entrenched. Thus, even in a 'friendly' the dictionary definition of 'mutual' never applied, in theory or in practice.

  The NRMA Demutualisation debate

Mutual organisations grew out of a belief that a group of people can act more efficiently through co-operation for their mutual benefit than if they act alone. (p.17)

Now, this is true, but as a statement it's just about meaningless since it could apply to a gang of bank-robbers. The implication from the text is that by 'mutual' they mean that the NRMA's customers were its members and vice versa. On page 24 there is the following definition:

A mutual is an enterprise owned by its members, providing a variety of services to the members for their benefit.

This is probably what's meant by most people in the current debate but no, it won't do. The obvious flaw is with that word 'owned' - 'ownership' tells us nothing about how decisions are made or why, ie on what principles.

Section 2 of the NRMA document, 'Why the Proposal is Being Put to Members' is by far the most relevant part. There, we can find a number of arguments which appear to flesh out what Nicholas Whitlam and others are not prepared or not able to put into words. For example, we find:

'Mutuals can better manage the conflict between owners and customers ...'

'Mutual organisations are, generally, most successful where: members have the same product and service needs ...'

' the business of the mutual does not require substantial amounts of initial capital.' (p.17)

Here we start to see that the strongest motivations behind the push for de-mutualisation are ones rarely mentioned. Reading the NRMA booklet carefully reveals the following line of reasoning:

• Mutuals have lower costs because they are not for profit organisations.
• Mutuals are (therefore) less capital-intensive, and more labour-intensive.
• Mutuals are restricted in their capacity to raise equity. Mutuals find change difficult.
• Mutuals draw their administration from a limited pool. Mutuals decision-making power is diffused.

  THEREFORE

• A de-mutualised organisation will be able to:
  • ..adapt more quickly, more appropriately
  • ..raise more capital, more easily
  • ..attract more skilful, better qualified administrators
  • ..centralise control in a smaller, better-equipped group.

  AND AS A RESULT

  • ..deliver higher profits to the new 'owners.'

This line of argument bears out my contention that the debate about 'mutual' vs 'de-mutualise' is principally about the location of decision-making power, in general terms, whether it is to be dispersed or centralised. Just in passing I note that 'mutuals' have always been interested in making profits. Being not-for-profit is not a defining characteristic of a 'mutual'.

The NRMA publicity emphasises the message - 'The Future is in Your Hands'. The Board appear to have been counting on an attitude they believed defined a 'mutual' to deny itself, ie, to vote to hand over control to some other group who won't believe in 'mutuality', indeed will actively oppose 'mutuality'. We have seen that the strategy has worked - Why? I assume because the alleged 'mutual' members have recognised that self-interest is superior to what they currently have. The members know that what they have is a Clayton's 'mutual' where they don't have any real say, in practice.

I've heard it said that having thousands of shareholders, even thousands of customers is a return to 'mutual democracy' since these 'equity partners' are the new owners who are involved directly in the decision-making process through their share activity or by their using or refusing the company's products. This argument has been heard most recently with regard to the Internet. As Bill Gates will testify, despite his little setback recently, the power to influence decisions, or to actually take a decision, is not equivalently spread. This myth of a new mass democracy only highlights the really significant change in the demutualisation process which is the centralising of power into the board room. Here again history helps since this process of centralisation didn't start with the NRMA Board, it began over 200 years ago and directly involves 'mutuals.'

My History Lesson....

My history lesson begins with the mediaeval guilds, let's say 1000 years ago. Then, a 'mutual' had 5 aspects or functions and it was not possible to be a 'mutual' unless you had all 5. That is, a 'mutual' was simultaneously a drinking society, a trade union, a religious fraternity, a secret brotherhood, and a benefit society.

Much later, the British Parliament passed the first piece of legislation recognising 'friendly societies'. Just over 200 years ago, the 1793 Rose Act is the first legislative use of the word 'mutual' that I know of. It defined a 'friendly' as:

a society of good fellowship for the purpose of raising from time to time, by voluntary contributions, a stock or fund for the mutual relief and maintenance of all and every the members thereof, in old age, sickness, and infirmity, or for the relief of widows and children of deceased members.

Friendly Societies had not just been invented, so why was the Government of 1793 recognising them? Three reasons - firstly, it was a period of upheavals and dislocation brought on by the industrial revolution and by that other revolution, the French Revolution in full swing just across the Channel. Secondly, because of these revolutions there was a great deal of hardship and anger among the working people. On the one hand, Britain was a Free Trade nation and economic rationalism was king. Adam Smith was spreading the message of his The Wealth of Nations and those with money wanted to reduce taxes and shrink the size of government. But on the other, this was just when sedition and republican rumblings were abroad and an army and a navy had to be paid for to go to war with Napoleon. A stroppy working class was the last thing the government wanted. In other words Cabinet was more concerned with the secret society aspect of 'mutuals' than with the other 4. Some of the unemployed could be recruited to fight but the rest had to be prevented from plotting to raise wages or improve working conditions. The third reason, then, was that government wanted to encourage 'good worker' combinations but discourage 'bad worker' combinations.

For the government at that time, a 'bad worker' combination was one which had affiliated branches connected to a head office, in other words had a federal structure and a Grand Lodge. A 'bad worker' combination was also one which used its members' contributions to maintain workers who were out of work. 'Mutual aid' was OK as long as it didn't mean that there were networks passing people or information from one lodge to another or from one town to the next and as long as it didn't mean that workers could refuse wages and conditions set by employers by existing on benefits. Of course, at that time those two elements, unemployment benefit and a tramping allowance, were essential parts of any decent 'mutual'. Neither of them appear in the 'official' definition. So, defining what constituted a 'friendly society' and thereby establishing a benchmark for what was 'good' allowed the government to separate out the others, the 'bad' combinations which could then be targeted. Because it was infringement of trade which was the real target, this was made a defining characteristic of the 'bad' group, now called 'trade unions'.

It's not usually recognised that the intervention that the government made at that time was the beginning of what we now call 'the Welfare State'. We here really only know the 'Welfare State' because it peaked in the 20th century and has dominated our lives, but the current surge back into free market economics is the result of a swing of a pendulum, firstly away from free trade now back again, a swing which has taken 200 years.

During that 200 years government interference has been one of the two major causes for the crippling of 'mutual aid'. Governments have not set out deliberately to destroy 'mutual aid'. Firstly, they were concerned about anti-trade and disloyal activities but their constantly increasing surveillance, measurement and regulation has continually tightened the definition and squeezed much of the life out of mutuality which requires room for spontaneity and innovation. The Rose Act of 1793 included the first provisions for societies to register their Rules and office bearers.

Unfortunately, in the year 2000, although trade is again supposed to be free, and the market is again supposed to determine outcomes, the government remains convinced that it alone knows what will make benefit societies viable, and, further, that it has a responsibility to see that they are viable. It simply can't stop itself from interfering.

Perhaps they are still afraid of working people getting together. As in 1793, a rare legislative hybrid has appeared - 'mutual obligation'- which supposedly requires that welfare recipients have an equal responsibility in their 'welfare contract' as the government has when it supplies the benefit. There is a lot that could be said here but I'll just say that the power to impose sanctions is all on one side, so it's hardly a 'mutual' arrangement.

Of course, 'friendlies' have been well aware for a long time that the concentration of power needed guarding against. The GU ritual, for example, cautions the incoming Grand Master not to be too haughty or overbearing lest his good work be undone or lest his constituents move against him. However, being made up of nothing better than humanity and being inseparable from their community, as Western civilisation moved so did the friendlies - towards more centralised control and more managerial administration. The hierarchy of decision-making power has simply kept on getting steeper and steeper.

A very recent document, Draft ASIC Regulations (IPR 147), has asserted that two elements are, in ASIC's view, 'critical to mutuality' - namely 'members rights to reserves and the principle of one man/one vote.I(P.4) This document pointed to a previous AFIC Prudential Note and Standard which had proposed the following 'principles' to indicate the 'mutual character of a company':

a) members are sovereign
b) members control eligibility for membership
c) one member/one vote
d) only members can acquire ownership rights; and
e) only members can be customers.

ASIC has commented that a) 'is not readily expressed in legal terms' and that its 'application is unclear'. I agree. ASIC also asserts that b) and c) overlap. Well, I'd suggest that in one important sense they are in conflict. How did friendly society members control membership? By blackballing candidates they didn't like, a situation which meant that a single vote could carry more influence than all the others put together.

The reason for ASIC's interest is, I suspect, a negative one - they are charged with the task of regulating corporations, in other words, non-mutuals. 'Mutuals', for ASIC, are a residue, and drawing a line around them makes it easier to spot the non- mutuals. But why would GU want to retain the label 'mutual'?

Well - because in general terms, the word continues to 'have a good press' and because GU, like many other 'friendlies', continues to believe that 'mutuality' is a social good worth preserving. The problem as it has been for 200 years is to work out how to marry the concept to the current fiduciary/legislative regimes.

The answer lies in distinguishing the Society's members from the shareholders of a de-mutual in a manner which re-thinks the often unspoken contract existing between fraternal members 'in the good old days'. It's perfectly reasonable to argue that keeping 40,000+ members in lodge regalia, ritual books, lodge furniture, etc is, today, not cost effective, while also arguing that badge loyalty, which is really what the 'friendlies' were about, can be achieved in other ways, and that to develop what we might call a Membership Rewards Program could be a very useful marketing strategy.

To Conclude....

To conclude: the debate about 'mutuality' has confused aims with methods. Firstly, the aim is an abstraction, something that idealistic people claim to protect or to strive for, but rarely if ever achieve while claiming that it did exist somewhere, everywhere in a past 'Golden Age'. Achievement of the ideal has been constantly prevented, partly by human nature it has to be said, but in the main by legislators (the State). Alongside the ideal in the debate, there is the practical reality of what's achievable, which determine the method, and realpeople have to take into account what citizens are permitted to do, and that includes what I'll call the 'official' definition of 'mutuality', what the legislators and other key players say it is.

The definition of 'mutuality' that refers to the members 'owning' the enterprise is a good example. 'Owning' a mutual for the idealists is like owning Australia is to the Aboriginals - a foriegn concept introduced by the newcomers to rationalise their interference.

Attempting to re-invent this particular wheel, the 'mutual' form of democracy is necessarily going to involve new words, some of which the old-style members will probably not recognise. That's OK with me since the words expressing 'mutuality' have already changed many times. Some usages I would argue have been inappropriate, and it may even be too late to prevent the word being overwhelmed by its own ambiguities. But the idea of 'mutuality' will not die, since people could not exist in groups without it.

So, keeping in mind that I'm an historian and that my chief concern has been to distinguish goals from methods, my definition would be as follows:

Mutual/mutuality refers to a contractual arrangement,
which may be unspoken,
between a group of people, as few as 2,
• wherein it is understood that no member of the group stands in a superior position to any other in terms of voting power, ownership rights or accrued benefits,
• no matter what the legally sanctioned position held by any individual within the group might be,
• no matter what the length or kind of membership or contribution of any member might be,
• no matter what financial arrangements may be entered into to raise capital, and
• no matter what administrative arrangements may be entered into to enhance expertise of the group.

Into this definition could then be inserted the aims of the 'mutual', eg, mutual aid, mutual insurance, mutual admiration.

Relevant Links

• Recovering Our Roots: Mutualism, Mutuals and the ALP by Dr. Race Mathews
  Paper delivered at the Australian Fabian Society/Pluto Press Conference "Unchain My Mind: New Social-Democratic Ideas for Labor in Government", Melbourne, 27 July, 2000.

• The Tragedy of Labour History by Dr. Bob James
  Bob presents some provocative facts to challenge the Labour History orthodoxy. Includes information on secret societies, Benefit Societies and Freemasons as strategies for survival by working people, neglected in Labour History.