Cooperative Resilience and Impact Worldwide

1. Promoting the Understanding of Cooperatives for a Better WorldCarlo Borzaga, Euricse – University of Trento • “Cooperatives: A Vector of Change in Europe” • Ljubljana, October 16 2012

2. “Cooperative contradiction” • Cooperatives are often regarded as marginal, undercapitalized and less efficient enterprises with difficulties in growing • But • Evidence shows that cooperatives: • surive also in very competitive economies • are relevant in several countries and sectors

3. Lessons from history • Cooperatives have been in existence for about 200 years and have developed all over the world • Historical evidence shows that coops survive crises better than other types of business and they can more successfully balance the effects of crises • Cooperatives are more stable and more resilient than investor-owned enterprises

4. Cooperatives worldwide • Over the last 20 years, coops enterprises have increased in number in many sectors • Cooperatives are important economic actors in many sectors: • Worldwide membership of coops between 800 million and 1 billion people • In Europe agricultural coops have an aggregate market share of about 60% in the processing and marketing of agricultural commodities • Worldwide there are around 53,000 credit cooperatives and credit unions • In 2008 in Italy there were almost 14,000 social coops employing 350,000 workers, 35,000 volunteers • The role of coops has become even more apparent in the wake of the financial and economic crisis

5. Italian Cooperative’s resilience Comparing 8.000 coops and 22.000 investor-owned Italian enterprises between 2006 and 2010: • The coops increased the value added by 24,7% against 6.5% in inv-owned • The coops increased the cost of labour by 29,50% (wages by 28,1%) against 12,7% (22,5% for wages) in inv-owned • Profit decreased by 65,5% in coops against 10,1% in inv-owned

6. The economic impact of coops • Coops have an important role in reducing market failures and strengthening the competitiveness of markets • Coops contribute to keeping the production of goods and services close to the needs of people • Coops tend to adopt a long-term perspective • Coops contribute to a more fair distribution of income

7. The social impact of coops (1) • Coops have been since their very beginning institutions explicitly committed to addressing social problems affecting local communities or stakeholders in need, often privileging the most disadvantaged • Cooperatives are not necessarily member oriented organizations: they can also be pursue collective interests solving problems that would otherwise be in charge of public policies (as the recent experience of social cooperatives shows) • Coops contribute to enhancing social capital

8. Why are cooperatives overlooked? • Several obstacles prevent the understanding and development of cooperatives • cultural and psychological factors • restrictive legislation • inadequate management • predominance of a restrictive interpretation of the functioning of the economic systems

9. Obstacles to coops development • Cultural and psychological obstacles: • negative perception of entrepreneurship • cooperatives are often perceived as an out-of-date ownership form • poor propensity of citizens to self-organize • low stocks of social capital

10. Obstacles to coops development • Legislation: unlike the regulation of investor-owned (conventional) enterprises, coop legislation varies greatly across countries • in some countries legislation is missing altogether • In several countries, legislation tends to be restrictive and not enabling • Very few countries have a good legislation on coops

11. Obstacles to coops development • Market regulations: sometimes prevent the full exploitation of coops’ competitive advantages • The regulation of markets hinders the development of coops especially in the credit and public utilities sectors where anti-trust authorities impose on coops regulations designed for conventional enterprises, • Cooperatives often can not rely on the same sources of financial means of the investor-owned enterprises

12. Obstacles to coops development • Support policies: are often contradictory • sometimes deny the full status of enterprise to coops • often do not recognize to coops the same benefits that are awarded to conventional enterprises • in countries strongly relying on market competition, coops are seldom not entitled to take advantage of fiscal benefits that would be justified by their social and inter-generational goals (for ex. when cooperative assets are looked)

13. Obstacles to coops development • Management and governance practices: coops often imitate the investor-owned and adopt management and accounting practices, as well as governance structures that do not reflect their specificities. • the adoption of inadequate practices and tools: • induces isomorphic behaviors • prevents coops from exploiting some of their key advantages • stimulates demutualization

14. Obstacles to coop development • Obstacles to coop development can be ascribed also to the predominance of inconsistent theoretical interpretations not only of the coop forms but, more in general, of the functioning of our economic systems (market fundamentalism) • Despite these interpretations are contradicted by the significant diffusion of coops worldwide

15. How to solve “cooperative contradiction” • Developing a new interpretative framework • Promoting more effective public policies • Adopting adequate management strategies

16. New theoretical developments (1) • New assumption: market and contractual exchanges are just one among the existing coordination mechanisms generating collective benefits • Enterprises: for the modern economic theory enterprises are alternative coordination mechanisms combining authority, contract and cooperation • However, there are various types of enterprises depending on the ownership structure, aim pursued, and mix of contract- authority and cooperation adopted

17. Entrepreneurial pluralism • Investor-owned enterprises: • Owners=investors • Aim=profit • Incentive structure: similar to the market • Cooperative enterprises (social enterprises): • Owners=stakeholders other than investors: consumers, producers, workers • Aim=the satisfaction of a specific need/interest • Incentive structure: mixed, combining monetary and non monetary incentives

18. An interpretative framework • Generally speaking, to survive and develop all enterprises must fulfill two conditions: • They must be sustainable: at least no losses and generation of profits needed to support investments • They must meet a social need (e.g. provision of a good/service demanded by consumers) • Enterprises differ according to the importance paid to both conditions

19. An interpretative framework For profit firms Social enterprises Cooperative firms Economic and financial objectives dominant SOCIAL OBJECTIVES REPRESENT CONSTRAINTS SOCIAL GOALS DOMINANT Economic and financial objectives represent a constraints 19

20. Cooperative competitive advantages • Main situations where coops show competitive advantages: • Monopolistic/monopsonistic markets: coops strengthen the market power of the week participant in the transaction • inter-temporal agreements under conditions of uncertainty: they stabilize the expectations in case of price volatility and allow to exploit the economies of scale while maintaining the family business; • pooling of risks not covered by public welfare systems, when the law of large numbers applies (mutuals and insurance coops), avoiding many problems deriving from information asymmetries and opportunistic behaviours

21. Cooperative competitive advantages • when the free transmission of information among agents is a condition for the full exploitation of innovations with a high social or economic impact (alternative to the privatization of information through patents and copy rights) • provision of goods and services characterized by positive externalities that cannot be internalized through the prize system (social coops)

22. Trends and challenges (1) • The financial and economic crisis • has shed light on the shortcomings of the predominant model of economic organization • has confirmed the inability of the combination of for-profit enterprises and public authorities (The so called Market and State model) alone to ensure wellbeing (as shown by the failure of most privatization processes) • suggests that a possible way out of the crisis is the expansion of new private entrepreneurial forms non profit maximizing, also or mainly socially oriented (social entrepreneurship, shared value theory,…) • among these new entrepreneurial forms cooperatives have an important role to play

23. Trends and challenges (2) • Traditional coops are expected to play a renewed role in traditional sectors: credit, housing; agriculture; job creation; creation of networks of SMEs • Coops have also a great new role to play in the supply of community services, including social, health, education services, the management of cultural services, water, waste disposal, energy from renewable resources, public transportation. There are many experiences around the world but poorly known

24. Implications for action: adequate regulations and support policies (1) • To fully exploit the competitive advantage of coops, • coops should be explicitly recognized as economic and social actors in public strategies and policies (as the EU is doing) • like any other businesses, coops should be recognized as autonomous and independent enterprises • coop law should be kept sufficiently flexible to permit coops to operate in any sector they may prove useful • the regulation of the markets wherein coops are allowed to operate, should be consistent with the nature of coop enterprises

25. Implications for action: adequate regulations and support policies (2) • national policies should ensure that coops have access to all the business support services addressed to enterprises • when coops play an explicit social role, specific actions could include: • helping to start up new coops • supporting established coops • introducing a more favorable fiscal treatment for coops without undermining competition law

26. Implications for action: adequate regulations and support policies (3) • the stabilization of coops should be supported: while providing for special benefits, coop legislation should entail also obligations for coops to avoid demutualization (e.g. asset locks)

27. Implications for action: consistent governance and management practices • coops movements and universities should endeavor to: • Improve the reputation of coops trough supporting a better knowledge of their importance and functioning • develop consistent management practices and governance models • Improve the managerial skills of coop leaders trough innovative training and university courses • strengthen networking practices that allow for the achievement of economies of scale and seize growth opportunities

28. Conclusion There is a lot of work to do for researchers, practitioners and cooperative associations! Thank you for your attention!