A comparative institutional approach to co-operative self-finance: locked assets, divisible and indivisible reserves

Ermanno C., Tortia (2018): A comparative institutional approach to co-operative self-finance: locked assets, divisible and indivisible reserves.

Abstract

This paper approaches from a law and economics perspective the problem of self-financed accumulation of capital in co-operative enterprises. Different existing and past institutional systems are discussed and lessons drawn on how to improve existing institutional structures. Divisibility and indivisibility of self-financed capital reserves, as they can pave the way to improved systematic solutions, in co-operatives are used as heuristic ports of entry in the discussion. In this, institutional evolution is interpreted as a trial and error and open-ended process. National and regional institutional systems (especially the Italian, the Spanish and the former Yugoslav ones) are considered and evaluated in terms of strengths and weaknesses to extrapolate new institutional solutions that would allow to overcome well-known weaknesses in co-operatives’ financial structure. A nested system of self-financed divisible and indivisible reserves of capital is proposed. Different typologies of reserves would serve different aims and functions in the working of the capital structure of the co-operative enterprise, especially balancing patrimonial stability, allocative efficiency, members’ financial involvement and performance. Correct legal regulation plays a fundamental role in steering the survival and reproduction potential of the co-operative system.

• Item Type: MPRA Paper
• Language: English
• Keywords: co-operative enterprises; accumulation of capital; divisible reserves; indivisible reserves; horizon problem; open-ended institutional evolution
• Subjects: B - History of Economic Thought, Methodology, and Heterodox Approaches > B5 - Current Heterodox Approaches > B51 - Socialist ; Marxian ; Sraffian; B - History of Economic Thought, Methodology, and Heterodox Approaches > B5 - Current Heterodox Approaches > B52 - Institutional ; Evolutionary; J - Labor and Demographic Economics > J5 - Labor-Management Relations, Trade Unions, and Collective Bargaining > J54 - Producer Cooperatives ; Labor Managed Firms ; Employee Ownership; P - Economic Systems > P2 - Socialist Systems and Transitional Economies > P26 - Political Economy ; Property Rights; P - Economic Systems > P3 - Socialist Institutions and Their Transitions > P34 - Financial Economics

References

Albanese, M. (2003), Le difficoltà di finanziamento delle labour-managed firms e il razionamento del credito. Economia Politica, 20(3): 303-334.

Berg, N. (2008). Simplicity in Institutional Design. In Sandra Batie , Nicholas Mercuro (2008) (eds). Alternative Institutional Structures: Evolution and impact. The Economics of Legal Relationships. London: Routledge, pp. 140-164.

Bartlett, W., Cable, J., Estrin, S., Jones, D. Smith, S., 1992, Labor managed cooperatives and private firms in North Central Italy: an empirical comparison, Industrial and Labor Relations Review 46(1), 03–118.

Bonin, J.P., D.C. Jones and L. Putterman, Theoretical and empirical studies of producer cooperatives: will ever the twain meet? Jounal of Economic Literature 31(1993) 1290-320.

Borzaga, C. and Fontanari, E. (2018). Impresa sociale e finanza: più ricerca e meno narrazioni. Come le cooperative sociali hanno gestito il loro fabbisogno di mezzi finanziari. Paper presented at the IRIS (Italian Network for Social Enterprises) Colloquium on Social Enterprises, 25-26 May, University of Trento.

Borzaga, C. and Tortia, E. C. (2017). Co-operation as coordination mechanism: A new approach to the economics of co-operative enterprises. In Michie, J., Blasi, J., Borzaga, C., (Eds.), The Oxford Handbook of Mutual, Co-Operative, and Co-Owned Business. Oxford, UK: Oxford University Press, pp. 55–75.

Burdín, G. (2014). Are worker-managed firms more likely to fail than conventional enterprises? Evidence from Uruguay. Industrial and Labor Relation Review, 67(1), 202-238.

Carini, C. and Borzaga, C. (2017). Did cooperatives protect jobs during the crisis? Evidence from the Italian case. Paper presented at the ICA Research Conference. University of Stirling, June 2017.

Četković, Predrag (2015). The Role of Banks in Economic Development in the Former SFR Yugoslavia. The wiiw Balkan Observatory. Working Papers|114|. Online: https://wiiw.ac.at/the-role-of-banks-in-economic-development-in-the-former-sfr-yugoslavia-dlp-3896.pdf [Accessed 01 June 2018]

Commons, John R. (1931). "Institutional Economics". American Economic Review, 21(Dec.): 648–657.

Craig, B., & Pencavel, J. (1995). Participation and Productivity: a Comparison of Worker Cooperatives and Conventional Firms in the Plywood Industry (Brookings Papers on Economic Activity No. 212-160). Online: http://www.sciencedirect.com/science/article/pii/S0147596783710279 [Accessed 17 September 2018]

Dow, G.K. (2003). Governing the Firm. Workers’ Control in Theory and Practice; Cambridge, MA Cambridge University Press.

Dow, G.K. (2018). The Labor-Managed Firm. Theoretical Foundations. Cambridge, MA Cambridge University Press.

Cracogna, Dante, Antonio Fici, and Hagen Henrÿ (Eds.) (2013). International Handbook of Cooperative Law. Heidelberg, DE: Springer.

Ellerman, David P. (1986). Horizon Problems and Property Rights in Labor-Managed Firms. Journal of Comparative Economics, 10(1): 62-78.

Ellerman, David P. (2018). On some alleged ‘problems’ and alleged ‘solutions’ in the labor-managed firm literature. Paper presented at Biannual IAFEP (International Ass. For the Economics of Participation) conference. University of Ljubljana, Slovenia, July.

Euricse (2015). Economia Cooperativa. Rilevanza, evoluzione e nuove frontiere della cooperazione italiana. Trento: Euricse. Online: http://www.euricse.eu/wp-content/uploads/2015/09/00-ECONOMIA-COOPERATIVA.pdf [Accessed 18 September 2018]

Fici, Antonio 2013. 'Cooperative Identity and the Law'. European Business Law Review, 24(1): 37–64.

Furubotn E. G. (1976). The Long Run Analysis of the Labour Managed Firm: An Alternative Interpretation, The American Economic Review, vol. 66, no. 1, pp. 104-123.

Furubotn E. G. (1978), The Long Run Analysis of the Labour Managed Firm: Reply, The American Economic Review vol. 68, no. 4, pp. 706-709.

Furubotn E. G. (1980a), The Socialist Labor Managed Firm and Bank-Financed Investments: Some Theoretical Issues, The Journal of Comparative Economics, vol. 4, pp. 184-191.

Furubotn E. G. (1980b), Bank Credit and the Labor-Managed Firm: Reply, The American Economic Review, vol. 70, no. 4, pp. 800-804.

Furubotn E. G. - Pejovich S. (1970), Property Rights and the Behaviour of the Firm in Socialist State: The Example of Yugoslavia, Zeitschrift für Nationalökonomie, vol. 30, no. 5, pp. 431-454.

Hodgson, Geoffrey, M. (2002). The Evolution of Institutions: An Agenda for Future Theoretical Research. Constitutional Political Economy, 13, 111– 127.

ICA (2017), Co-operative identity, values & principles. Online: http://ica.coop/en/whats-co-op/co-operative-identity-values-principles [Accessed January 9th, 2017]

Jossa, Bruno (2012). Cooperative firms as a new mode of production. Review of Political Economy, 24(3), 399–416.

Jossa, Bruno (2014). Producer Cooperatives as a New Mode of Production. Abingdon, UK: Routledge.

Jossa B. and Cuomo G. (1997). The Economic Theory of Socialism and the Labour-Managed Firm. Cheltenham: Edward Elgar Publishers.

Katalenac, Juraj (2013). Yugoslav Self-Management: Capitalism Under the Red Banner. Insurgent Notes, 9. Online: http://insurgentnotes.com/2013/10/yugoslav-self-management-capitalism-under-the-red-banner/ [Accessed 2 June 2018]

Kruse, Douglas L., Freeman, Richard B. and Blasi, Joseph R. (2008). Do Workers Gain by Sharing? Employee Outcomes under Employee Ownership, Profit Sharing, and Broad-based Stock Options. NBER Working Paper No. 14233. Online: http://www.nber.org/papers/w14233 [Accessed 20 August 2018]

Kruse, D.L.; Blasi, J.R.; Park, R. (2010) Shared capitalism in the U.S. economy: Prevalence, characteristics, and employee views of financial participation in enterprises. In Kruse, D.L., Freeman, R.B., Blasi, J.R., (Eds.), Shared Capitalism at Work: Employee Ownership, Profit and Gain Sharing, and Broad-based Stock Options. Chicago: University of Chicago Press: IL, USA, 2010: pp. 41–75.

Lawrence, Thomas B. and Roy Suddaby. (2013) Institutions and Institutional Work. In Stewart R Clegg , Cynthia Hardy , Thomas B. Lawrence , Walter R. Nord . Handbook of Organization Studies, 2nd Edition. London: Sage, pp. 215.254.

Lawrence, Thomas and Suddaby, B. Roy. (2006) Institutions and Institutional work. In Stewart R. Clegg, Cynthia Hardy, Thomas B. Lawrence and Walter R. Nord (Eds.) Sage Handbook of Organization Studies, 2nd Edition: 215-254. London: Sage.

Lebowitz, Michael. 2010. The Socialist Alternative: Real Human Development. New York: Monthly Review Press.

Lewis, Orion A. and Steinmo, Sven (2012). How Institutions Evolve: Evolutionary Theory and Institutional Change. Online: https://core.ac.uk/download/pdf/45682012.pdf [Accessed 19 September 2018]

Lindblom, Charles E. 1977. Politics and Markets. New York: Basic Books, Inc.

Major, Guy (1996). Solving the Underinvestment and Degeneration Problem of Workers' Cooperatives: Non‐voting and vote‐weighted value‐added residual‐sharing renewable shares (NOVARRS and VOWVARRS). Annals of Public and Co-operative Economics. 67(4): 545-601.

Meade J. E. (1972), The Theory of Labour-Managed Firms and Profit-Sharing, Economic Journal, vol. 82, March, Supplement, pp. 402-428.

Meade J. E. (1980), Labour Co-operatives, Participation and Value-Added Sharing, in Clayre A. (eds.), The Political Economy of Co-operation and Participation. A Third Sector, Oxford, Oxford University Press, pp. 88-108.

Meade J. E. (1995), Full Employment Regained. An Agathotopian Dream, Cambridge, Cambridge University Press.

Murrell, Peter (2017). Design and evolution in institutional development: The insignificance of the English Bill of Rights. Journal of Comparative Economics 45(1): 36–55.

Mercuro, Nicholas (Ed.) (1989). Law and Economics. Boston: Kluwer Academic Publishers.

Navarra, C. (2011). Profit reinvestment in Italian worker cooperatives as a contribution to a common good: An empirical analysis on workers' perception and motivation. Advances in the Economic Analysis of Participatory and Labor-Managed Firms, 12: 199-229.

Navarra, C. 2016. Employment stabilization inside firms: an empirical investigation on worker cooperatives. Annals of Public and Cooperative Economics, 87(4): 563-585.

Nelson, Richard R. and Winter, Sidney G. (2002). Evolutionary Theorizing in Economics. Journal of Economic Perspectives, 16(2): 23-46.

North, Douglass C. (2005). Understanding the Process of Economic Change. Princeton, NJ: Princeton University Press.

Ostrom, E. (1990). Governing the Commons. The Evolution of Institutions for Collective Action. Cambridge, UK: Cambridge University Press.

Pavlowitch, Stevan K. (2002). Serbia. The History behind the Name. London: Hurst & Company.

Pencavel, John (2001). Worker participation. Lessons from the worker co-ops of the Pacific Northwest. New York, NY: Russel Sage.

Pejovich, Svetozar (1966). The Market-Planned Economy of Yugoslavia. Minneapolis, MN: University of Minnesota Press.

Pejovich, Svetozar (1990). The Economics of Property Rights: Towards a Theory of Comparative Economic Systems. Berlin: Springer-Verlag.

Pérotin, V. (2013). Worker co-operatives: Good, sustainable jobs in the community. Journal of Entrepreneurial and Organizational Diversity, 2(2): 34–47.

Podivinsky, J.M. and Stewart, G. (2006). Why is labour-managed firm entry so rare? An analysis of UK manufacturing data. Journal of Economic Behavior and Organization, 56(2), 239–262.

Schmid, Allan A. (1994). Institutional Law and Economics. European Journal of Law and Economics, 1(1):33-51.

Schubert, Christian (2014). “Generalized Darwinism” and the quest for an evolutionary theory of policy-making. Journal of Evolutionary Economics, 24(3): 479-513.

Singleton, F., and Carter, B. (1982). The Economy of Yugoslavia. London: Croom Helm.

Slavikova, Lenka (2013). From Cost-Benefit to Institutional Analysis in The Economics of the Environment original article. Contemporary Economics, 7(2): 67-75. DOI: 10.5709/ce.1897-9254.83

Scholz-Wäckerle, Manuel (2015). The Foundations of Evolutionary Institutional Economics Paperback. London: Routledge.

Thoenig, Jean–Claude (2012). 'Institutional Theories and Public Institutions: New Agendas and Appropriateness', in B. Guy Peters and Jon Pierre (eds), The Handbook of Public Administration. London: Sage, 169–179.

Thomas, Henk and Chris Logan (1982). Mondragon: An Economic Analysis. London: Allen and Unwin.

Tortia, E.C. (2003). Distribution of value added, and accumulation of capital in labour managed firms. Economia Politica, 19(2): 251–286.

Tortia, E.C. (2007). Self-Financing in labour-managed firms: Individual capital accounts and bonds. In Novkovic, S., Sena, V., Eds.; Cooperative Firms in Global Markets. Bingley, UK, Emerald: Volume 10, pp. 233–261.

Tortia, E.C. (2018). The Firm as a Common. Non-Divided Ownership, Patrimonial Stability and Longevity of Co-Operative Enterprises. Sustainability, 10, 1023.

Uvalić, Milica (2018), The rise and fall of market socialism in Yugoslavia. Paper presented at Biannual IAFEP (International Ass. For the Economics of Participation) conference. University of Ljubljana, Slovenia, July. Online: https://doc-research.org/2018/03/rise-fall-market-socialism-yugoslavia/ [Accessed 21 September 2018]

Vanberg, Viktor (1996). Institutional Evolution Within Constraints. Journal of Institutional and Theoretical Economics (JITE) / Zeitschrift für die gesamte Staatswissenschaft, 152(4): 690-696.

Vanberg, VJ (2006). Human intentionality and design in cultural evolution. In: Schubert C and von Wangenheim G (Eds) Evolution and design of institutions. Routledge, London, pp 197–212.

Vanek, J. (1970). The General Theory of Labour Managed Market Economies. Ithaca, NY: Cornell University Press.

Vanek, J. (1977). The Labor-managed Economy: Essays. Ithaca, NY: Cornell University Press.

Witt, Ulrich (2007). Heuristic Twists and Ontological Creeds – A Road Map for Evolutionary Economics. Accessed 17 May 2018 from: https://pdfs.semanticscholar.org/34bf/4ac3a34c668ae0ebfe9bdd83137ac6328682.pdf

Zafiris N. (1982), Appropriability Rules, Capital Maintenance, and the Efficiency of Cooperative Investment", Journal of Comparative Economic, 6(1): 55-74.

Zevi A. (1984), Diritti patrimoniali dei soci e comportamento dell'impresa cooperativa di produzione e lavoro nella disciplina vigente e nelle proposte di riforma, Rivista della cooperazione, vol. 21, pp. 284-308.