Leading Article: Changing times for our mutual friends

LLOYDS BANK'S takeover of the Cheltenham & Gloucester Building Society represents a further step in the decline of mutual organisations owned by their customers. The movement started in the 18th century with mutual life assurance societies. In these, a group of people decided to save collectively for their own futures, entrusting others to administer their funds prudently. The movement led to life assurance being more deep-rooted in this country than in virtually any other. Profits that accrued were shared among policy owners, a principle later emulated by non-mutual life companies.

Building societies and co-operative shops and other enterprises followed in the 19th century, along the same lines. The former, with their millions of borrowers and depositors, gave Britain a higher proportion of home-owners than most other developed countries: not an unqualified boon, since it discouraged the mobility of labour. Retailing co-operatives, which paid dividends to customers in proportion to their spending, flourished through to the Seventies. They have since been heavily reduced by the superior marketing skills of the supermarket behemoths.

There are two sound arguments against mutual enterprises. Because their ownership is fragmented into tiny holdings, the management tends to grow arrogant and complacent. So mutuals often become less rather than more democratic than listed companies that have to cope with large shareholders. Second, their structure prevents them from rapidly raising new capital.

The first building society to break the mould was the Abbey National, which in 1989 became a public limited company and, in effect, a bank. The passing of the C & G, one of the best-managed, bodes ill for the future of building societies as a whole.

Their passing would diminish the diversity of commercial life. Quoted joint stock companies owned by shareholders are a wonderful invention. But the concept of mutual ownership of an enterprise by its customers is too valuable to lose. Rather than attempting to imitate banks, building societies should seek to return to the principle of mutual self-help that made their movement so powerful. A new legal framework to make them at once more accountable and flexible should be provided.