It will feed, fund or bury us, but the Co-op can't look after itself

The community-minded movement ticks a lot of boxes but its virtues have been squandered

In the 1950s, the Co-operative movement controlled 30 per cent of the British grocery market and produced more than 50 per cent of the milk. More than half a century on, it is hard to conceive of what a profoundly important part of the social fabric it was, and had been for most of its history – seemingly as indelible as the NHS or the BBC are today. "At the turn of the century, you could really live your whole life through the Co-op," says Lawrence Black, professor of modern British history at York University and co-editor of a book about the movement. "They were the lynchpin of the industrial northern towns. If you needed it they provided everything, cradle to grave."

Things are not so rosy any more. Last week, Lord Myners, the man charged with reforming the organisation's troubled governance, resigned from the board, following chief executive Euan Sutherland out of the door; Myners had already bemoaned the past leadership as "reckless" and "breathtakingly value-destructive", and Sutherland has claimed that the Co-op is "ungovernable".

Then, on Friday, its troubled bank announced losses of £1.3bn. It is not much consolation that the catastrophic figure was in line with expectations. And it is hard to imagine that, back when the Rochdale Pioneers opened a store selling butter, sugar, flour, candles and oatmeal in 1844, they foresaw that the leader of their movement would one day be paid £3.5m a year. You can feel pretty confident that they would not have predicted Paul Flowers's personal travails, either.

It can be hard, within that awful context, to remember the point of the enterprise. Outside a north London branch of The Co-operative Food on Friday, Steven Hobbs, a 32-year-old bar worker, sounded a bit vague about all the philosophical underpinnings of the place where he had just bought his groceries – now capturing a mere 5 per cent of the market. "Do they share the money out? I know it's ethical," he said doubtfully. "They do a lot of fair trade and free range and all that. Then again, I mean, it's just the supermarket. They all say that, don't they?"

Mr Hobbs slightly underrates what makes the Co-op distinctive. Membership still means something more profound than a Tesco Clubcard. But if you walk around one of its supermarkets, it is easy to see why you might not know it. The signage and slogans are all designed to transmit friendliness and sound principles, but these days there are probably arms dealers who boast of their ethical sourcing policies. In all the special offers and boasts about the origins of the produce, you would be hard pressed to find a phrase that sounds like something more than marketing; and you might transplant this store to another street in another city and not notice the difference.

There seems little doubt that the Co-op's management structure is not fit for purpose. Its incompetent pursuit of greater commercial success has led to overreach and financial catastrophe; The Little Engine That Could is not a parable with universal applications. "They just decided: let's go for it," says Lord Monks, the former general secretary of the TUC who chaired a commission asked to investigate the movement's strategy and structure in 2000.

"There was a sense of being behind the times, and they were determined to shed that image. They went for growth, they gambled, and the gamble did not come off."

As well as that, though, I wonder if the Co-op doesn't face a deeper problem, one which will remain a critical impediment even if it resolves its calamitous failures of management. In the 1950s, when the movement was so extraordinarily successful, working-class identity was a much more distinctive and protected concept. The country was still getting back on its feet after the war; the aspirational urge that Margaret Thatcher eventually harnessed had hardly been articulated. But when the scope of people's ambitions began to change, the Co-op did not change with them. "When people started getting a little bit wealthier, and wanting things like cars and stereos, the Co-op thought those things weren't essential for working-class life," says Professor Black. "That's when it started to lose its market position, but also that sense of being an intimate part of the community."

The terrible irony, which I fear may one day prove mortal, is this: in a more materialistic world, the Co-op's founding values are more resonant than ever. They speak to something that millions of people hanker after – a world where you know the farmer who produced your vegetables, where your shopkeeper and your banker (and your travel agent and your pharmacist and your undertaker) are all part of your community.

That should give the Co-op a powerful point of difference – but it doesn't, because all its competitors have noticed the same thing. The language and principles of co-operation have been hijacked by brand consultants. Tesco tells us "every little helps", McDonald's offers "ethical options", TSB welcomes us "back to local banking". Even when the promise of moral goodness isn't explicit, the tone is the same: the ad featuring the frail acoustic cover version, the cutesy "wackaging" that tells us about "nasty stuff" and promises to make your "tummy yummy". It's all about authenticity. And it's all fake.

What the Co-op does, actually, is not fake. But its chances of standing out from the imitating corporate crowd have been critically endangered by the scandals and crises of the last few years. (That's why the bank, now mostly owned by hedge funds anyway, would do the rest of the movement a huge favour if it were to change its name.) We thirst for what's on offer. But we can't believe it's real. "Fair trade and free range and all that," Steven Hobbs called it outside the supermarket. He didn't sound convinced.

Are there any reasons for optimism? Not everyone at that north London branch of The Co-operative Food was so dubious about the meaning of the movement. Josephine Burns, a semi-retired arts administrator, has been a member for years; she shops there whenever feasible.

"There are loads of people who would rather be ethical if they can," she says. "I don't know if it's any longer possible. But I'd like to believe that it is."

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