Chapter 7: Co-operatives as Entrepreneurial Institutions with Marina Della Giusta
This chapter examines the circumstances under which an entrepreneur would choose to establish a co-operative rather than a conventional firm. The modern institutional theory of the firm analyses a variety of institutional forms, including firms, markets, networks and governments, but fails to take account of the role of the entrepreneur in establishing these institutions and influencing their operations. A standard argument about the benefits of co-operation is that it can improve efficiency by building trust, thereby reducing transaction costs. Participation in the ownership or governance of an institution can raise members’ status and reputation, enhance their non-pecuniary rewards, and strengthen peer-group pressures to perform well. However, performance could be undermined if participation also reduces internal specialization. Different patterns of participation are distinguished, including a neglected form of co-operation involving job rotation. It is argued that co-operation is likely to be undersupplied in a competitive market economy because some of the benefits are external to the co-operative itself. This provides a case for subsidizing cooperatives in order to improve the overall performance of the economy. 7.1 INTRODUCTION Co-operative organization is popularly perceived as an alternative to entrepreneurial organization. The entrepreneur is regarded as the personification of profit-seeking in a private enterprise economy. The entrepreneur’s profits are extracted from the firm at the expense of the employees, critics allege, and the appropriation of profit is therefore a form of exploitation. Historically, this critique of entrepreneurial capitalism was an important motive for early co-operators, such as the Rochdale Pioneers of Victorian Britain. There...
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