DR FRANCESCA GAGLIARDI

The Political Economy of Cooperative Firms
Historical and Comparative Perspectives
POLITICAL ECONOMY RESEARCH FELLOW: OCTOBER 2018 – JULY 2019

Francesca Gagliardi is a Reader in Institutional Economics at the University of Hertfordshire (UK). Her research programme revolves around the application of the principles of comparative institutional analysis, specifically the relatively recent institutional complementarities approach, to the study of the impact of financial institutions and intermediation on the entry, growth, performance and survival of SMEs and social enterprises, particularly cooperatives. Francesca has published in several international academic journals. In 2008 she was awarded the Horvat-Vanek prize by the International Association for the Economics of Participation. She is currently under contract with Edward Elgar Publishing for a research monograph on Varieties of Capitalism and Firm Performance: The Institutional Context of Economic Organisation.

Her ISRF-funded project develops an interdisciplinary historical and comparative perspective on the political economy of cooperative firms, with inputs drawn from institutional economics, political science and economic sociology. The concept of institutional complementarity provides the backbone of the analytical framework which is used to evaluate the evidence gathered from three country-based case studies of the evolution of the cooperative sector, chosen to represent the variety of capitalist regimes: the United Kingdom, a liberal market economy; the Netherlands, a coordinated market economy; and Italy, a Mediterranean type of capitalism. The findings will provide valuable insights for policy makers and cooperative sector organisations, but also for scholars working on alternative organisational forms, as well as those involved in curriculum design.

Abstract

Cooperative firms are a successful organisational form in a number of countries and economic sectors. Recent figures report that the total turnover of the top 300 cooperatives worldwide exceeded US$ 2.1 trillion in 2015 (WCM, 2017) and that cooperatives account for 12% of total employment in G20 countries (ICA, 2015). These are not negligible figures. However, commonplace conceptions, largely promoted by economists since the late 1950s, see cooperatives as marginal and inefficient business structures, with limited survival prospects in capitalist environments. This research aims to show that this argument does not necessarily hold once the conditions prevailing in the socio-economic context in which cooperatives operate are considered. While a body of empirical studies support the International Cooperative Alliance’s recognition that societal aspects are correlated with a robust cooperative economy (ICA, 2017), a sound conceptual framework, able to elucidate why cooperatives flourish in certain contexts but not in others and thereby guide empirical research, is currently lacking. The project develops an interdisciplinary historical and comparative perspective on the political economy of cooperative firms, with inputs drawn from institutional economics, political science and economic sociology. The concept of institutional complementarity provides the backbone of the analytical framework which is used to evaluate the evidence gathered from three country-based case studies of the evolution of the cooperative sector, chosen to represent the variety of capitalist regimes (Hall and Soskice, 2001): the United Kingdom, a liberal market economy; the Netherlands, a coordinated market economy; and Italy, a Mediterranean type of capitalism. The findings should provide valuable insights to policy makers and cooperative sector organisations, but also to scholars working on alternative organisational forms and those involved in curriculum design. The project would therefore advance the ISRF’s goal of promoting interdisciplinary research that develops new knowledge and solves contemporary theoretical and practical problems.

The Research Idea

Economists argue that the property rights structure of cooperative firms means that they are undermined by inefficient free-riding and are unable to survive long-run competition in capitalist systems (Ward, 1958; Furubotn and Pejovich, 1972; Jensen and Meckling, 1979). Other scholars claim instead that the development of the cooperative sector requires an appropriate cultural and financial climate, as well as organisations that support the creation and development of cooperatives, coordinate their activities and provide finance (Horvat, 1982; Hodgson, 1999; Dow, 2003). A large body of empirical evidence shows that in certain sectors and institutional contexts cooperatives are a long-lasting phenomenon and that their performance profile can be superior to that of capitalist firms (Gagliardi, 2009a,b; Cracogna et al, 2013; Burdin, 2014; Gagliardi, 2018). This highlights inadequacies in the conventional analysis of cooperative firms. The project’s innovative thesis is that an interdisciplinary political economy approach that builds on history and incorporates social, cultural and institutional contexts, sheds a useful light on the currently puzzling divergence between conventional economic theory, non-mainstream accounts and available empirical evidence. The project reorients scholarship on cooperatives by building a framework which relies on the concept of institutional complementarity. This framework will be used to systematically analyse, both qualitatively and quantitatively, the evidence gathered through comparative case studies of the UK, the Netherlands and Italy. The project will show that an institutional complementarities framework can explain the varying fortunes of the cooperative sector across different countries.

Background

Two main research reference points inform this project. First, a large body of literature, mainly based in economics, that sees the cooperative firm as a marginal and inefficient business type, doomed to fail in capitalist contexts due to problems arising from its property rights structure (Alchian and Demsetz, 1972; Williamson, 1980). The second reference point is the body of empirical studies that for over three decades has focused on multiple countries and industrial sectors, using a range of methods to analyse the behaviour and performance of different types of cooperatives (Craig and Pencavel, 1992; Arando et al, 2015). The latter reference point provides overwhelming evidence that cooperatives are pervasive where dedicated financial support is available and umbrella organisations promote the cooperative sector. Nevertheless, the view that cooperatives generally offer a limited contribution to economic activity continues to be widely held among scholars and policy makers. This may be due to the fact that, despite the limitations of the formal analysis and its ahistorical character, the conventional economic analysis of cooperatives is set within a unified analytical framework, that of mainstream economics, and that this is what is missing in the extant empirical research. The main thrust of this project is to fill this gap by providing a novel interdisciplinary approach to the analytical and empirical study of cooperatives that builds on the concept of institutional complementarity to overcome the shortcomings of much of the conventional economics literature on cooperative firms while at the same time offering policy relevant insights.

The Focus

This project brings historical and comparative perspectives into the analysis of the political economy of cooperative firms. In doing so it uses the notion of institutional complementarity as a conceptual tool for dealing with the puzzle that surrounds the performance of cooperative firms across countries and time. Specifically, there is a discrepancy between the conclusions put forward by most economics literature on the inefficient and unsustainable behaviour and performance of cooperative firms vis-à-vis capitalist business structures, and the widespread empirical evidence indicating that, at least in certain countries, cooperatives can perform as well as capitalist firms. The missing piece, this research argues, is the role played by the web of institutional complementarities that become established in different domains and at varying levels of a socio-economic system. With this novel analytical approach, the project intends to offer a better understanding of the behaviour and performance of a specific type of real-world business organisation, the cooperative firm, and specifically of the ways in which and reasons why this has evolved in certain ways in different countries. It is anticipated that the findings from the three planned comparative case studies should provide valuable insights to policy makers but also to cooperative sector organisations, as well as scholars working in this field of research and those involved in the design of academic curriculum.

Theoretical Novelty

The research offers an interdisciplinary historical and comparative perspective on the political economy of cooperative firms, with inputs drawn from institutional economics, political science and economic sociology. The project’s conceptual innovation is the inclusion of the role played by the broader institutional framework in the analysis of the behaviour and performance of cooperative firms and, specifically, the interplay between institutions operating both at different levels of a socio-economic system and across countries. This innovation is achieved through the concept of institutional complementarity, which refers to situations in which interdependence among institutions occurs, so that the functionality of an institutional form is conditioned by other institutions. Institutional complementarity implies that the performance of a configuration depends on the specific properties of its elements (Aoki, 2001). By dissecting the qualitative and quantitative data gathered for the three countries that form the basis of the comparative case study analysis, the research is able to extrapolate historical and contemporary trends that could help gain a deeper understanding of the current structure and performance of the cooperative sector in these countries, and also of the key cross-country differences that this sector displays. The core hypothesis is that differences in the history of each country, coupled with the variety of institutional arrangements that prevail in the socio-political, economic, financial and legal domains, help explain the current diversity in their cooperative sectors and the ways in which these have evolved over time.

Methodology

The institutional complementarity approach will be used to systematically analyse, both qualitatively and quantitatively, the evidence gathered through the three comparative country-based case studies that this project will develop. The case studies reconstruct the history of the cooperative sector in the United Kingdom, the Netherlands and Italy, mapping its evolution in relation to key phases in the national socio-economic contexts under examination, along with key moments in the political sphere and the legal environment. Publicly available data on cooperative firms are also collected in order to compile a database that is used to analyse the performance of the cooperative sector in the chosen three countries over the last decade. Throughout the qualitative and quantitative analyses an interdisciplinary perspective is used to analyse the political economy of cooperative firms, with inputs drawn from institutional economics, political science and economic sociology. With its focus on the role of institutions in influencing economic behaviour, institutional economics sees the broader institutional context as a key factor shaping firm behaviour and performance (Gagliardi, 2008, 2018; Hodgson, 2000). Economic sociology brings in the idea that organisational performance is the result of a complex and multidimensional social process (Lazega and Favereau, 2002), while political science emphasises how systems of governance emerge, develop and endure often through a series of contingencies that create lock-in and are then maintained through positive feedback mechanisms (Greener, 2005). This interdisciplinary perspective enables the operationalisation of the institutional complementarity approach in the interpretation of the qualitative and quantitative data gathered in the project.

Work Plan

The theoretical framework that underpins this project builds on over ten-years of research on cooperative firms, and a number of publications in specialist international journals, as well as working papers. Consequently, the time covered by this project is spent developing three original comparative country-based case studies (i.e. Italy, the United Kingdom and the Netherlands), preparing two journal articles and a policy paper. The work schedule is organised as follows. Phase one (months 1-3) focuses on evidence and data collection for the three case studies, as well as key reading. In phase two (months 4-5) the qualitative and quantitative data gathered are analysed and the findings are extrapolated and systematised. Finally, in phase three (months 6-10) outputs are developed and finalised. The outputs consist of two articles submitted to the following high ranking journals: Socio-Economic Review, on the synthesis of the three comparative case studies and their implications for policy and scholarship; Journal of Institutional Economics, on the content of an interdisciplinary political economy approach to the analysis of the cooperative firm that is centred around the notion of institutional complementarity and its implications for scholarly enquiry. In order to reach out to policy makers and cooperative sector support organisations, a third output arising from the project is a policy paper summarizing the main findings from the case studies and formulating key lessons to be learned from those case findings to promote the development of cooperative firms.

Outcome

This project is part of a longer-term research agenda aimed at shifting the commonplace view that sees cooperatives as economically marginal and socially unimportant business structures to a view in which the cooperative firm is considered  an organisational form that can be at least as viable as its capitalist counterpart. To this end, the case studies developed in this project could constitute the pilot work for an extended research programme designed to empirically explore the different ways in which cooperative firms have developed across countries, in different historical periods and institutional contexts. The case studies included in the recently published Oxford Handbook of Mutual, Co-operative and Co-owned Business (2017) provide some useful insights in this respect but lack a unifying analytical framework. A sustained effort to produce work that applies the theoretical framework proposed in this project to comparative case studies of cooperative sector in different areas of the world would significantly advance our understanding of the conditions that make the cooperative firm a viable and sustainable organisational form in certain contexts but not in others. Such a research programme would benefit from the contribution of sociologists, economists, political scientists, historians, economic historians and legal scholars. The interdisciplinary features of this programme, as well as its large scale, would make it suitable for a major research grant bid funded, for example, by an ESRC grant or a Horizon 2020 grant.