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for Australian Friendly Society Association's (AFSA)
NATIONAL CONFERENCE, Coffs Harbour, May 2000.
(Dr) Bob James
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In this Paper I intend to

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:

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.

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.

Some of you will have assumed from what I've said so far that 'mutuality' implies 'democracy' - one person, one vote and all that.

The NRMA's administration recently issued a 158-page booklet to explain 'de-mutualisation.' The history lesson it contains is very coy, not referring to itself as a 'mutual' anywhere. In one place it says :

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:

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':

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:

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