Coops, trust & growth

Here's some important new research:

Cooperative enterprises can create social trust among workers, unlike any other type of enterprise...
The development of cooperative enterprises – and, more generally, of less hierarchical models of governance and of not purely profit maximizing forms of enterprises – may play a crucial role in the diffusion of trust and in the accumulation of social capital.

This matters not merely because trust and social capital are intrinsicially good, but also because trust helps raise long-term economic growth.

Three quick observations:

1. This highlights a fact sometimes forgotten by today's managerialist politicians but understood by classical thinkers such as Tocqueville - that institutions shape culture. And culture, in turn, affects economic growth.

2. Insofar as coops promote trust, they contain a positive externality - because the benefits of trust accrue to everyone and not just coop members. This suggests that relying merely upon private incentives to create coops could result in a suboptimally low supply of them.

3. The "coops create trust which promotes growth" view challenges a conventional approach to growth expressed today by Sam Brittan:

Let governmental authorities concentrate on securing conditions for as near as practicable full employment without inflation and removing distortions at the micro level. Then let the growth rate emerge as a byproduct of the activities of individual citizens.

This overlooks the possibility that hierarchical capitalism itself might be a barrier to growth.

Comments

[Neil]

I guess 'trust' includes not being overjoyed when all your hard work is bundled up and sold off to some dodgy, over-leveraged overseas company and subsequently used to prop up their ailing business when the inevitable happens.

Who'd want to work hard to achieve *that*?

(I only mention this because it happened)

[Cockles]

These are good points you make, it would appear that organisations whereby all members have a vested interest and can make a positive contribution will exude this quality to those outside of it.

A hierarchical structure may benefit something like the military but is it really the best for businesses trying to earn customer support and invest in it's staff? I'm not so sure, despite being the norm.

If you give your staff the trust, investment and means to do their own job (and for them to accept responsibility for this) then I'd guess that in the majority of instances they'd perform better and this would benefit the economy as a whole. These types of organisations seem to be in the minority but there are successful examples - Valve Software/Distribution's structure scared the hell out of me when I first read about it but they seem to have an incredible level of trust from their customers and are massively successful, in theory there are no "managers" and everyone is free to choose their own projects.

I guess it depends on the values of the company at it's inception and whether those values continue to stay at the core, I'd prefer to live in a society where there was more choice to work in a co-op or something similar that challenged the common company structure.

By the way, the article you link/wrote from investors Chronicle doesn't ring true with me. I don't disagree with the point that you make in this article make but I'm not convinced from your investor's chronicle one (I think it's yours???) There may be some truth in the study that shows some regulation causes distrust in the market (although the link to study no longer exists) but in the example of banking that is used, I'd wager that less regulation has caused us massive financial problems that we are experiencing now, including the subsequent loss of trust. I think the relationship between regulation and trust is much more strongly founded in the opposite direction (i.e. regulation enables trust to grow), if this were not the case then why do we distrust unregulated centres of power more than those that are accountable?

Thanks for the blog either way, I enjoy reading it.

[pablopatito]

Japanese and Korean companies are generally very hierarchical yet have been extremely successful.

I am more concerned with British firms where top management consider themselves "superior" to general workers, and demonstrate this by having bigger cars, nicer offices, huge salaries, executive boxes at football grounds and other general "perks" not offered to the general workforce. I find this more de-motivating and destructive than who actually makes the decisions (in many cases senior management are happy to delegate responsibility whilst they bunk off early to play golf).

I suspect this "because I'm worth it" attitude isn't as blatant in a Japanese firm.

[Niklas Smith]

Interesting. What kind of cooperatives improve social trust among workers according to this research? Is it just worker-owned cooperatives or also consumer cooperatives?

(Disclosure: I work at a consumer co-op....)

[chris]

@ Niklas - they don't distinguish between the different types of coop.
@ pablopatito - I'm not sure if Japan and Korea are poster boys for the sort of hierarchical firms we have in the west. In Korea at least, income equality is greater than in the UK or US. And I suspect the culture among Japanese bosses has a higher ratio of duty to entitlement than their UK or US counterparts.

[Jim Whitman]

I'm particularly aware at the moment of the state of the welfare state. And what must have been a leap of faith (never mind trust) in order to engineer the initial framework at the end of WW2. The welfare state is an institution built out of other institutions, politics, government and fiscal policy. The welfare state was and was not trusted. It was always under scrutiny, and always under critical assault. And despite this it grew and was preserved from the end of WWW2 in the UK with support across the political parties. And is still being struggled over during attempts since the 1970s at a slow dismantling.

So why say this in a comment about trust engendered by cooperative work places and by cooperative enterprises? I suppose it's what came to mind as a macro scale social institution rather than the micro scale that was summoned up in my mind when you describe cooperatives. Because it's possible to think about institutional forces without reducing them to what individuals feel (things like trust), all be it that I can't deny that feelings of trust are nice to have and make life so much easier).

The thing about the welfare state is that it's what the welfare state DOES that enables positive feeling to develop - jobs and benefits when the private sector is failing, health, education and pensions. It's an example of pervasive action - a huge investment in people and physical assets, top down, rather than of self conscious relationship-building from the other direction i.e. bottom up. It's a contrasting view, anyway. And it's also based on still strong popular support - it's based on what people continue to want government to DO.

[Keith]

A return to partnerships with joint and several liability in Banking and finance and mutualisation of firms and exchanges might reduce the danger of another financial crisis. It seems no mere coincidence that these forms of organisation were common in that part of the economy before being swept away as old fashioned and fuddy duddy. They underpinned the "culture" as you call it. The Rothschilds kept it all in the family to avoid being shafted by the goy. Very soon after investment banks stopped being partnerships they seem to have mostly blown up in a historically short time frame. When the business is money building trust is especially hard but essential. If I need to keep your good will to avoid losing all my money or trade as a result of the structure of ownership then "my word is my bond" as it bloody well has to be. And as you often say this sort of consideration is more effective then formal regulation by the state.

[Anonymous]

Traditionally, Co-ops have been perceived as existing on the margins of the mainstream economy -"hippy-dippy" and all that.

As more and more workers are thrown out to the periphery because of job losses and short time working then perhaps the Co-op model will become increasingly attractive to marginalised workers as a means to gain control of their lives.

OK, individual workers may not become rich from membership of a (producer) Co-op but if their basic needs of food, shelter, etc are met then such workers may be better off than their job-seeking and part-time working peers.

And then there are the intangible benefits of membership: workplace democracy, mutuality, and increased fulfilment/job satisfaction.

Might such a move towards Co-op and flatter models, should it accelerate, be an unexpected realisation of the markets v hierarchies controversy?

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Nice article, thanks for the information.

[james higham]

that institutions shape culture. And culture, in turn, affects economic growth

And that therefore we are bankrupt.

[Dipper]

cracking post ... a reminder of what a disaster the Blair/Brown years have been for the Labour movement as the co-operative element has been eliminated in favour of bureaucratic centralism.

[jake]

The advantage of hierarchical capitalism is that it limits the number of people who can siphon off the goodies. A co-operative requires systems of control to counter any tendency towards the tyranny of democracy and/or the shades of Animal Farm. It's been my experience that too many folks are more interested in what they earn relative to others than what they earn in any absolute sense, and in organisations the comparator is the work mate with whom you co-operate rather than those in the organisations with whom you compete. I've never really subscribed to what psychologists call "equity theory" as a model of human behaviour.

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