THE Co-op was formed in the middle of the 19th Century when little groups of workers in their local communities clubbed together to run shops and share the profits.

Surely, then, as we stand on the dawn of the 21st Century age of globalisation which will be run by multi-national corporations maximizing their profits at all costs, this quaint high-minded socialist enterprise is doomed.

A report to be published this morning suggests otherwise. It has been a year in the making by distinguished figures like John Monks, the head of the TUC, Lord Simon, the former head of BP, and Alan Donnelly, the former North-East MEP, and it has the support of the Prime Minister.

The report lays out how the Co-op can prosper in the future, although in the North-East there are already signs that its renaissance is beginning. In the last 18 months, the Co-op has made the strategic decision to withdraw from hypermarkets and concentrate on local shops in the smaller communities that don't interest the likes of Asda, Tesco or Sainsburys. The fierce cost-cutting war between Morrisons and Safeway caused the Darlington hypermarket to close, but down the road in Newton Aycliffe, the smaller store was being reborn as the first Co-op Welcome.

"We've changed the internal lay-out, extending the store, introducing new merchandise so it is more modern and brighter," says Steve Warren, the North-East regional secretary. Sales at Aycliffe immediately increased by 30 per cent, and the Welcome look is being rolled out across the North-East. Cockfield was refurbished before Christmas and its first month sales increased by 40 per cent. One villager was so impressed by the change that he posted letters through every door urging the people to "shop local" - an old-fashioned idea, but one that the Co-op and the communities it serves need to use in the future.

The report says that the Co-op should plunder its past to find its way forward. The North-East Co-op is one of 47 across the country, and they are being told to club together to form one big buying network. The bank and the insurance company should also be drawn under the umbrella.

"There was historically a decline in the Co-op from its heyday from 1900-1940," says Mr Warren. "The Co-op was extremely strong but it lost ground during the 1950s and 1960s because each of the societies acted independently. In 1970, the North-East was the first region where the societies joined together."

About 130 Co-ops have merged since then, including the region's earliest ones: Bishop Auckland (formed 1860), Durham (1861), Barnard Castle (1862), Whitby, Tow Law (both 1865) Middlesbrough (1867) and Darlington (1868).

The very first Co-op in the North-East was the Governor and Company's Teesdale Workmen's Corn Association formed in 1842. The London Lead Company and its workers clubbed together in Middleton-in-Teesdale to buy cheap flour. By the end of the 19th Century there were at least 150, mostly based in mining communities where they fulfilled their members' basic needs with bakeries and dairies, and also included libraries, insurance, dentists, opticians and even piano tuners.

Practically all are now under the North-East umbrella - only Stanhope and Weardale, Grosmont and Seaton Valley remain outside. The North-East umbrella itself shelters among 46 Co-ops from other parts of the country in the national organisation. Together they employ 105,000 people and manage 4,643 shops. They conduct 80,000 funerals a year and look after 85,000 acres of farmland. They deliver milk to more than one million doorsteps a day.

Mr Monks, who chaired the Commission that wrote the report, believes the the historic and unique nature of the co-op will prove its best selling point.

"Its ethos can tap into the public's disillusionment with corporate greed and lack of ethical standards displayed by parts of the private sector," he says. In a sector renowned for its callousness, the Co-op Bank, and its internet version, smile, is especially renowned for its ethical standards.

The Co-op's shops, its funeral services (which buried 12,000 people in the region last year) and probably its bank, are an established part of the North-East way of life, but Mr Monks is looking for new businesses.

"Out of the success of the existing Co-ops can come new territory," he says. "For example, credit unions embracing people who don't normally get access to banks and so go to loan sharks. Then, there are elderly people and childcare - a lot of people are worried about the lack of provision in these areas where there has been a clear market failure and the state has limited control." Opportunities, he feels, for the Co-op to expand profitably while benefitting its communities.

The report also looks at how the Co-op can give back to those communities. As well as the divi paid to members, the Co-op gives grants to worthwhile projects. But all the individual Co-ops have their own charitable strategies, and the report advises that they form a Co-op Foundation so that there is a national view of how best to assist local projects.

But the most important part of the Co-op is its members - all 500,000 of them in the North-East. The report wants more, urging a recruitment drive, and it wants them used more. The Co-op is uniquely democratic among businesses in that its members elect people to run it. In future, they should be consulted more widely and have wider-reaching roles - one of them, suggests the report, should even join the regional development agency.

That, though, will require Government co-operation. But the "social economy" is a major part of Tony Blair's "third way". Indeed, the strengthening of the Co-op in communities where banks, post offices and shops are declining could play a major role in fulfilling the Government's promises on rural affairs.

Ministers have taken a close interest in setting up the Co-op Commission. Cabinet Office minister Ian McCartney is publishing the report, entitled The Co-operative Advantage, in London this morning, and last night at No 10 Downing Street, Tony Blair hosted a gathering of Co-op leaders from the around the country.

He told them that, for this organisation born in the 19th Century there was a valuable place in the 21st Century.

"It is important to the development of a strong social economy that the Co-operative Movement continues to prosper in the new century," he said. "The values that made the Co-op great in the last century are now the key to its future prosperity."

A series of meetings will be held across the UK so that members - or co-operators - can discuss the Commission's report, and it will then be presented to the Co-operative Congress in Birmingham at the end of May.