A triumph for cooperatives: customer-owned Swiss banks are thriving while their shareholder-owned rivals lick their wounds in disgrace

Though the Swiss seem to have a special knack for running cooperatives, there is new interest in this form of organisation in communities all over the world. Photograph by Amita Chatterjee

Everyone writing off cooperatives as impractical — or as artefacts of misguided ‘hippie’ idealism – will please read the article below, re-published with the permission of Swissinfo.ch, a section of Switzerland’s equivalent of the BBC.

The Swiss see cooperatives as building blocks of democracy. They are rightly proud of their own ‘extreme’ or ‘direct’ democracy — the subject of an earlier post here – based on the rigorous implementation of proportional representation, and are apt to shake their heads despairingly about the ‘winner-takes-all’ version of the system of government in other western democracies.

The Economist – which has a habit of sniffily referring to cooperative banks as ‘dull but safe’ – has cited two authorities confirming the wisdom of coops:

A 2009 study by the Bundesbank, Germany’s central bank, into the connection between financial stability and bank ownership also found that co-operative banks were much less likely to fail than those owned by private shareholders. That fits with earlier work done by staff at the IMF in 2007, who argued in a working paper that co-operative banks were more stable than their commercial counterparts.

23 March 2012 

Crisis gives new life to cooperative banks

 by Armando Mombelli, swissinfo.ch 


Sometimes seen as an old-fashioned business model, cooperative banks have succeeded in strengthening their position since the crisis in the financial sector.

The three main cooperative banks in Switzerland – the Raiffeisen, Migros and Coop banks – have been enjoying strong growth in the past few years. 

“Until recent times, the banks had a stabilising effect on the economy. But in the past few years they have turned out to be a destabilising factor,” said Florian Wettstein, who teaches business ethics at St Gallen University. 

“Growing international competition and pressure from shareholders have led to a logic of short-term profit with very negative consequences,” said Wettstein. 

“We no longer talk about growth. What we want is bigger growth than last year’s or last quarter’s. At a certain point, this attempt defeats itself and we get speculative bubbles which burst sooner or later.” 

The last such speculative bubble that burst in 2008 threw the financial sector into crisis and forced many countries to exert huge efforts to save banks in difficulty. 

Even Switzerland was not spared: UBS, the number one Swiss bank, just missed going under thanks to massive intervention by the federal government and the country’s central bank. 

“It is interesting to note that Swiss banks, in particular UBS, were not just caught up in this trend. They played a very active role on the international scene, throwing their traditional culture of caution to the winds,” noted Wettstein. 

New management models 

The crisis in the financial sector spread to the “real” economy and it is still negatively impacting on growth around the world. Governments have been studying new models of management and regulation of banking to avoid another major financial crisis. 

Forbidding high-risk speculative ventures, separating investment banking from deposit management, limiting bonuses and various other measures have been examined by the Swiss government as well as others. 

Government and parliament here have approved an increase in equity capital requirements for banks, higher than those enforced by other European countries. This measure has still been regarded as insufficient by many experts. 

On the other hand, a business model that is sustainable and crisis-proof has existed for quite some time: it is the model of cooperative banks securely anchored in the local economy. 

Since 2008, Raiffeisen, Migros and Coop bank have attracted thousands of customers and billions of francs away from the “big two”, UBS and Credit Suisse, whose credibility nosedived after the losses they took on the American market. 

Last January, Raiffeisen almost completely took over Wegelin Bank, which had to shut down its activities when it found itself under investigation in the United States along with ten other Swiss banks accused of having helped thousands of American customers to evade taxes. 

In February, Raiffeisen became the first bank to guarantee transparent financing of political parties and indicate it was in favour of the introduction of automatic exchange of information on bank deposits with European countries. 

Several advantages 

In difficult times for the financial services industry, this cooperative bank is showing itself particularly dynamic and willing to break with taboos like banking secrecy which no longer seem to have much of a future. 

In the International Year of Cooperatives proclaimed by the UN, this fact may serve to renew interest in a business model often dismissed as old-fashioned – almost all the big cooperatives were founded more than half a century ago. 

“Cooperative banks actually offer several advantages,” said the economist Hans Kissling. 

 “The main one is that they are not exposed to pressure from owners or shareholders, and so they do not go for big risks and excesses. Rather they pursue a long-term strategy in the interest of their members, who are also their customers.” 

“Once shares are not involved, there is no danger of things like insider trading. Nor is there a danger of public takeover bids at their expense: attempted takeovers by other companies have to be approved by the members,” added Kissling, who is a former board member of a cooperative. 

“And last but not least, capital does not drain from the company through payments of  exorbitant dividends or salaries. It stays in the cooperative and gets used for new investments or to strengthen its equity.” 

Democracy and solidarity 

Tending as they do to democracy and solidarity, cooperatives almost always come out on top of the rankings for companies that enjoy the trust of the ordinary public. 

This has not in itself been enough to stimulate growth in the sector: every year thousands of limited companies are founded in Switzerland, but only a handful of cooperatives are set up. 

“The government should introduce tax breaks or create a special fund to promote the conversion of family businesses into cooperatives, for example on the death of the owner. Another option might be to introduce share certificates without the right to vote, which would encourage the capitalisation of cooperatives,” said Kissling. 

In the Swiss banking sector, most of the potential for this kind of development would come from the cantonal banks, which several cantons hope to privatise eventually. Conversion of these into cooperatives instead of limited companies would help safeguard their original mandate. 

In this way, almost half of the 20 principal Swiss banks could one day become cooperatives. 

“Promotion of cooperatives should above all be anchored in the constitution, as it is in Italy,” maintained Kissling. 

“This would not only serve to acknowledge the economic and social importance of cooperatives, but also to emphasise the long Swiss tradition of solidarity, which goes right back to the country’s roots.” 

He recalls that the Swiss Confederation is called in German “Eidgenossenschaft”, which literally means “a cooperative of sworn allies”. 

Armando Mombelli, swissinfo.ch

(Translated from Italian by Terence MacNamee)

[ Of course cooperatives -- being creations of imperfect human beings -- also have their flaws, and these are considered in a swissinfo.ch briefing on the topic. ]

Micro-funded advances for artists is good news: micropayments for finished work — like paying for mobile apps — would be better

The tall droid was originally a female bimbo. Photograph: http://www.zazzle.com/starwarselection

Creativity needs flexibility, as I was reminded through the demise of someone who had a hand in creating robots who inhabit a patch of my dreams.

R2D2 is the fictional character of the last hundred years I would choose to give the run of my house – in an eye-blink – although I would settle for his Star Wars comrade, C3PO.  A domestic cleaner-robot with charm is my only hope of indoor snow – of experiencing inside my house the supreme happiness of watching frozen H2O blanket everything messy and unsightly in a landscape and turn it into a serene Japanese garden. Yes, reader, untidiness is one of my besetting sins. I like the idea of being pandered to by a droid whose raison d’être is serving humans, and it hardly matters that Threepio’s responsibilities in the George Lucas series are protocol, etiquette and translation (from ‘six million forms of communication’ – really, just look up his wiki). He is programmable. He is sophisticated. Being so much more intelligent, he would sail over the hurdle before which I always collapse – I mean, work out how to de-clutter my existence without hobbling my attempts to do the few things that justify it. He would strap his frilly apron in place and get on with it, expecting me to do no more than keep his antivirus software up-to-date.

But Threepio might never have found his way onto cinema screens. If not for a sort of creative miscarriage, he would not have been born, and this relates to a question I have been weighing since last week’s post about micropayments. Could crowd-funding art with cash advances amassed from micropayments be less helpful than getting artists decent compensation from micropayments collected for finished work?

Let me explain.

You can pay a carpenter an advance on a set of kitchen shelves, agree on a design and choice of wood, and receive more or less what you thought you would. Though the best carpenters are unquestionably artists of a kind, they rarely derail expectations comprehensively – delivering, say, a four-poster bed in pine instead of the birch shelving grid promised for your heirloom pots and pans. Things are rather less predictable in the arts – even in the most extroverted and collaborative branches, like film-making for mass audiences. Capricious flitting about is of the essence of imagining.

C3PO, you see, was originally a woman – not just an anyone with breasts, but ‘a tall, elegant, expression-less Art Decoesque golden female robot’. I made this discovery a few days ago in a New York Times obituary for Ralph McQuarrie,  an artist who served as a sort of medium for directors of science-fiction and fantasy films. He rendered in gouache detailed externalisations, through  interpretation, of their vague imaginative stirrings about characters – a skill he acquired as a technical illustrator and from some years spent at an animation company. The obituary records that his help was crucial to the success of George Lucas’s quest for the financial backing he needed to make Star Wars – to

… persuading the board of directors of 20th Century Fox to finance the first film in the series, and to distribute the others …

“These paintings helped George get the movie approved by Fox because it gave them something to visualize, instead of just a script,” said Steve Sansweet, the author of 16 “Star Wars” books and until recently the director of fan relations for Lucasfilm.

Now, I reckon that those producers made no fuss about a sex-change operation on what is, for some of us, one of the most endearing characters in the series (not Luke Skywalker, Princess Leia or Darth Vader, who are merely archetypes of the hero, heroine and villain as old as mankind). Hollywood has always worked the way small towns do – like publishing does in London or New York. Those producers would have known quite a lot about George Lucas before they invested in him. I could be mistaken, but am guessing that clubbiness would have given him the creative license of a friend who was once so well-connected in literary New York that her publisher made no protest when she used the advance paid for a non-fiction book about wild animals giving birth to submit, instead, a romantic novel involving safaris and social justice.

A cautiously optimistic report last Saturday by Patricia Cohen, an author and arts & culture editor at the NYT, noted surging interest in online backing for artistic projects by small-scale investors being given credit for betting on and supporting talent. Many – if not most of these actual or prospective micro-investors — do not seem to know the artists they are helping.

Some consequences and implications of this particular route to aiding struggling artists are bothering me:

● Seeking and accepting money in advance can constrain creativity. Anticipating prospective backers’ anxiety about squandering even small sums on inconsequential, pig-in-a-poke projects, artists are puffing up their planned works and divulging details of visions that have yet to meet the challenge of execution. How much room for creative manoeuvring and play – or simply changing their minds – will they have when, to reward their micro-investors’ trust, they feel that they must treat proposals as promises?

● Whereas George Lucas had Ralph McQuarrie toiling over the supply of his mock-ups, artists are being diverted from their own work to create elaborate sales pitches – like the multi-media presentations of a bold new British book-funding and publishing site, Unbound. (See, for instance, this lively appeal by five women historians for their planned collaboration on Our Reigning Queens.)

● The clarity and precision required to design and deliver an investment pitch do not fit the fuzzy, dreamlike state that neuroscience is revealing to be ideal for creativity – as Jonah Lehrer has shown in his new book on the subject.  Yes, the fund-raising part of a creator’s life can be separated more or less from doing the actual work, but there is arguably too much inimical to the right frame of mind claiming our attention already — even for people keeping their distance from social media. As Lehrer puts it, ‘… we live in an age that worships focus—we are always forcing ourselves to concentrate, chugging caffeine’, even though this bias of the zeitgeist ‘can inhibit the imagination’.

● People are confusing micro-advances for art and literature with micropayments for  work that has been completed independently and put up for sale – like the small sums that authors of short e-books or long e-essays have begun to ask for, both independently and through conventional publishers.

Of course payments ‘upfront’ and for finished work are not mutually exclusive. But transferring the balance of cash-gathering sweat to work that has yet to be done is surely a bad idea.

There is some danger that disappointment with microfunding could lead to disenchantment with micropayments of every kind. That could delay the shift from conventional ways of selling art (through publishers, galleries and so on) to the liberating alternatives that new technological inventions have begun to bring us.

I am thinking once again of Threepio’s trans-gender leap. What if one of George Lucas’s backers for a Star Wars script financed by micro-investors had been an ardent feminist who contributed $500 for the pleasure of introducing audiences to a female robot in a key supporting role – and then had to confront  the horror – oh, the horror!  — of a gender re-programming?

… I say, let’s focus on using micropayments to make it easy for painters, film-makers, sculptors, writers, musicians and their kin to be paid for their ‘products’ — as easy as for developers of software apps for our portable electrovices. ( Sorry, that was meant to read, electronic devices.)

The market for apps has been booming. Why should someone who can afford to pay €3.47 — or its equivalent — for an electronic game app not part as readily with the same amount for a short story by an up-and-coming Gabriel Garcia Marquez, and be drawn inexorably, blissfully and unforgettably into an opening like this one, for GGM’s ‘Maria Dos Prazeres’:

The man from the undertaking establishment was so punctual that Maria dos Prazeres was still in her bathrobe, with her hair in curlers, and she just had time to put a red rose behind her ear to keep from looking as unattractive as she felt …

Do we need a campaign for micropayments to support ‘lyric perception’?

Photograph by MIL22

This helpless thing, lyric perception, is an authentic response to the world’s impossible contradictions which seem to resolve themselves, finally, as beauty. In fact, I believe that lyricism represents a form of courage, for it is the only response as thoroughly vulnerable as the jeopardized world itself is.

Patricia Hampl,  Spillville,  1987

'1 2 3 4 QUARTETTO b' MIL22

As more writers and artists without formal qualifications but with undeniable gifts find audiences for their work on the net, will micropayments finally take off?

By micropayments I mean fractions of €10 or $10 notes – or their equivalent – paid through a transactional service like Kachingle or Flattr to look at an image or video, read a text, or listen to a musical performance or composition. These are payments so minuscule that they barely register with our pocketbooks, but do earn their creators some measurable income in the aggregate.

Popular writers and artists would still far out-earn rivals who cater to more specialised tastes, but some of those appreciated by smaller audiences might be able to retain more of the earnings that they must give away, at present, to middlemen they cannot really afford to pay at all – intermediaries who rarely have the time or inclination to spend much time promoting their work.

So far, so-called Millennials – the generation in their twenties and early thirties now shaping our experience of the net — have shown little enthusiasm for micro-transactions. Their complaints about feeling cheated by corporate middlemen in the music business, when obliged to pay for the pleasure of  ‘sharing’ a song, are not completely incomprehensible.

But why are they so unenthusiastic about experimenting with micropayments — direct transactions between buyers and sellers?

Many ardent campaigners for the so-called ‘Freemium’ economy willingly pay small ransoms for the latest gadgets – even when these are only minor improvements or enhancements of last year’s versions, and are designed to fatten the profits of the hated capitalists. Few of them learn to cook simple meals from scratch: they are happy to pay huge mark-ups for bland microwaveable fare cooked and packaged by giant corporations, or to patronise  fast-food chains.

Why is it seemingly only art that turns them into Scrooges?

If more Millennials come to see themselves as artists, writers and musicians in years to come – using the democratic new publishing tools – will they become less unsympathetic?

Now, net-shunning Private Eye outranks even The Economist as Britain’s most popular current affairs magazine

Ian Hislop, who has been Private Eye's editor since 1986

Private Eye cover, 12 April 2008

All hail Private Eye, whose circulation grew by more than ten per cent last year, when so many famous names linked to old media were — are — howling about print meeting its doom.

All hail Private Eye, not least because, as far as I can tell, no one in mainstream media has, on this occasion. There have been no laurel wreaths from its rivals, no adulatory editorials or delving into the reasons for its astonishing success since the Audit Bureau of Circulations released the latest figures in mid-February – although the media section of one broadsheet did carry brief news items on the subject.

All hail Private Eye because, in spite of its (affectionate) marginalisation as a ‘satirical magazine,’ it looks as if it could be becoming Britons’ most reliable source of printed information about what is happening in the UK — or close to that. The trade publication Media Week anointed it ‘the leading news and current affairs magazine by issue in the country, nearly 18,000 copies ahead of The Economist,’ with the minor qualifier that ‘its rival title is published weekly.’ (That qualifier is probably meaningless, since I reckon that most subscribers would be delighted to buy it once a week.)

There is no reason to disagree with the Eye’s managing director, Sheila Molnar, who explained two years ago that ‘People always turn to us in times of trouble because they trust us. With the MPs’ expenses row and the banks, people trust Private Eye and what they read in it.’

Though the Eye has no digital edition and is virtually ignoring the internet, its pages are saturated with the fearless, irreverent, outsider ethos of the web and blogging world – most obvious in its ‘Street of Shame’ column. There, as its editor Ian Hislop told Lord Justice Leveson in January at the official Inquiry into press culture and standards, his writers concentrate on the foibles of the 4th Estate — on

… stories about

journalists misbehaving. It tends to be anything from

making up stories, drunkenness, stealing stories from

each other, printing things that are totally and utterly

untrue, promoting each other for reasons that aren’t

terribly ethical, sucking up to their proprietors, being

told what to do by their proprietors, running stories

because their proprietors insist on it, marshalling the

facts towards a conclusion that they’ve already decided


Private Eye’s robustness confirms these suspicions at post-Gutenberg about the secrets of media thriving in the transition to the 5th Estate – in its case, with only token contributions to its operating budget from advertisers, which is why it cannot afford to give away its contents on the net:

It is strictly non-partisan

The political left, right and centre are all flayed with equal relish. As noted here last month, highly-placed apologists for a worrying shift in 4th Estate practices feel that there is nothing wrong with abandoning political neutrality – but a reader poll on the site of The Economist shows that this is, overwhelmingly, the very opposite of what the public wants.

It is – without fear or favour – supplying the uncomfortable, true facts indispensable to government by the people, or what we call democracy

It might just as well be called The Whistleblower Wire. It tackles malfeasance as no other publication does, across a staggering breadth of public life. A small sample: ‘Called to Ordure’ (parliamentary proceedings); ‘Medicine Balls’ (mainly, the National Health Service); ‘Signal Failures’ (the railway network); ‘The Agri Brigade’ (farming and food policies); ‘Rotten Boroughs’ (local government); ‘Music and Musicians’; ‘Keeping the Lights On’ (the law and lawyers); ‘Books and Bookmen’ (cronyism in book publishing).

It relies on its readers for its peerless investigative reporting

… and did so long before the internet came along with its promise of building reader ‘communities’.  As Ian Hislop said in his Leveson evidence, his magazine

operates as a sort of club where people not only buy the

magazine, they write a lot of it, which is the principle

we work on. Broadly, the sources come from people

inside their professions, so the medical column, the

column about energy, the pieces in the back, a lot of

those are given by people directly involved.

None of its content is influenced by advertising

As it does not run on the advertising-centred business model for publishing — unlike virtually every other great name in print journalism — it has no need to court or bow to corporate panjandrums and satraps, and its articles are not distorted by their manipulations.

Its success underlines the undesirability of concentrated media ownership, as it has the extreme editorial independence only possible when a publication is not beholden to any single media mogul or proprietor trading favours, buying influence, or vulnerable to manipulation or blackmail

In some ways, Private Eye can be seen as an early prototype of the ‘keiretsu-cooperative,’ a model for post-Gutenberg publishing  in which sites are co-owned with clubs of reader-contributors. Its Wikipedia entry lists no fewer than seventeen shareholders, and says that the magazine has never disclosed exactly who has contributed what to its capitalization and upkeep.

What is an instance of this magazine’s uniqueness and indispensability? The other day, when all the broadsheets reported that the education secretary, Michael Gove, had condemned the Leveson Inquiry for its ‘chilling effect’ on the media, they failed to explain why he was complaining so bitterly about an investigation initiated by his own leader, David Cameron, and in the same tirade, lauding Rupert’s Murdoch’s launch of the Sun on Sunday. They also offered not a single example of what noble journalism the Inquiry has supposedly been inhibiting — just as he failed to do.

Mystification over all that was beginning to make me feel mildly unhinged when the latest Eye arrived. There I discovered that the education secretary is married to  — well, well, well, a journalist on the Times. And who owns the Times? Let us say, a certain Australian-born media mogul.

And, returning briefly to the subject of ownership … As diligent use of both inductive and deductive logic has yet to yield incontrovertible proof of his existence, I must reluctantly dismiss as speculation all hints to the effect that Private Eye does in fact have a proprietor — a reclusive individual writing occasionally under the rubric, ‘A Message From Lord Gnome’. The same goes for any suggestion that he is simply too shy or coy to (a) scotch rumours that his life’s ambition is to be more elusive than the putative Higgs boson particle, and (b), admit that he has no help from ghostwriters in recording his sublime meditations, as on the subject of the recent fate of bankers:

[W]here, we must ask, will this witchhunt end? Which other leading figures in the economic life of our country will be next to be hunted down, to be publicly humiliated, as their names are execrated across the land?