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Scale, Scope and Survival: A Comparison of Cooperative and Capitalist Modes of Production

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Abstract

This paper draws on a comprehensive data set from Portugal to investigate the activities, internal characteristics and survival prospects of cooperatives and capitalist enterprises. Consistent with theory, high levels of market concentration and low entry costs were shown to be conducive to cooperatives. Cooperatives were found to be, on average, older and to operate with a larger, more highly educated and more productive labour force than do their capitalist counterparts. Finally, we show that cooperatives have a markedly higher probability of survival than do capitalist enterprises due, in part, to differences in industry of operation and internal characteristics.

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Notes

  1. For informal analyses see Hansmann (2012) on electricity distribution cooperatives in the US and Hart and Moore (1996) on securities exchange cooperatives. With the exception of Jones and Kalmi’s (2009) analysis of the implications of geographical variations in the level of trust, econometric evidence is confined to a small number of studies that focus specifically on worker cooperatives. Recent comparative studies that involve worker cooperatives include Arando et al. (2012), Pérotin (2006) and Podivinsky and Stewart (2012).

  2. The QP has been used extensively for the analysis of firms in aggregate but not, as far as we are aware, for the analysis of cooperatives.

  3. To carry out this assignment we consulted the specific legislation of each of the 12 types of cooperatives which is available at http://www.cases.pt/cooperativas/legislacao/legislacao-setorial.

  4. Firms are classified according to the Portuguese CAE (rev.2.1) system of industrial classification which is equivalent to NACE (rev.1.1). CAE 5 digit is equivalent to NACE 4 digit.

  5. A number of firms changed their legal status more than once. It is possible that this might indicate a classification error and thus all results were checked for robustness to the exclusion of these firms.

    If one firm were to acquire another, either both firms would disappear from the data and a new firm (with a new identification code) would be created; or only the acquired firm would disappear. Thus, it is not possible to distinguish mergers from exits. However in an earlier analysis of survival using the same data set, Mata and Portugal (2002) argued that, in Portugal, only a small proportion of exits are accounted for by mergers and thus “\(\ldots \) our inability to trace mergers in our data set is not likely to have an impact upon our results.” (p. 331).

  6. See Hansmann (1996), the contributions by Grossman, Hart, and Moore that were cited above, and (for the specific case of worker cooperatives) Dow (2003).

  7. Podivinsky and Stewart (2007 and 2012) found that risk, measured by the variance of industry profit, acted as a barrier to worker cooperative entry into UK manufacturing industries. Dong and Bowles (2002) found that risk played an important role in workers’ decisions as to whether to buy shares in privatized Chinese enterprises.

  8. We are grateful to the editor for the following arguments.

  9. Podivinsky and Stewart (2007, 2012) found that high levels of capital intensity acted as a barrier to worker cooperative entry into UK manufacturing industries.

  10. To illustrate their model, Hart and Moore consider a golf club that could be owned by an outside investor or by the members themselves, organized as a consumer cooperative. Both organizations are susceptible to investment inefficiencies, but for different reasons. In the former case, the owner maximizes profit by tailoring investment to the preferences of those members with the highest willingness to pay and then setting a correspondingly high membership fee. The preferences of the remaining members are not taken into account, resulting in a loss of efficiency. In the consumer cooperative, by contrast, it is the preference of the median voter that dictates the decisions. The key point is that whilst an increase in competition would reduce the inefficiency of outside ownership (since the ability to set a high membership fee would thereby be constrained), it would not affect the decisions taken by a consumer cooperative (since the membership fee would have been at a lower level than that of an outside investor and would not be sensitive to market competition).

  11. The period was chosen on grounds of consistency of the industrial classification (CAE Rev. 2.1). For some historical background of the cooperative sector in Portugal, see Fernandes (2006).

  12. In Table 2, these figures correspond to 16,570/13 ≈ 1275 and 2,243,169/13 ≈ 172,551.

  13. A more detailed breakdown revealed that no cooperatives were engaged in the production of tobacco products.

  14. The “other” category includes, among other activities: arts, entertainment, and recreation; repair of household goods, and various personal services.

  15. The legal framework that govern education cooperatives allows for ownership by either users (students and/or parents and guardians), providers (teachers and/or other employees), or a mixture of users and providers.

  16. These differences in the patterns of activity between cooperatives and CFs within each of the sectors are, as was the case with the broad sectoral distributions, statistically significant at the 1 % level.

  17. In line with the procedure adopted by Cuñat and Merlitz, we excluded any observation for which the absolute value of the growth rate exceeded 300 %.

  18. Firm size is measured by inflation-adjusted sales revenue.

  19. Labour productivity is measured by inflation-adjusted revenue divided by employment. Variations in the number of observations in this table are due to missing observations for some variables.

  20. The sector dummy variables are defined at the CAE 1-letter level (NACE 2-digit level).

  21. Exploration of differences in the regional distributions of the two types of firm is beyond the scope of the present paper. For recent work in this area see Arando et al. (2012), Jones and Kalmi (2009), and Kalmi (2013).

  22. The total number of nonmissing observations for all variables is 12,424 and 1,666,796 for cooperatives and CFs, respectively.

  23. For further discussion and analysis of productivity in cooperatives see Dow (2003) and Maietta and Sena (2010).

  24. F-tests reject the equality of the effects across the different types of cooperative.

  25. See Stewart (1984) for a model in which an entrepreneur uses capital precommitment as a device for appropriating surplus and Hansmann (1996) for a discussion of owneship changes following entry. Hansmann recognizes that, in practice, there may be impediments to changes in ownership structure.

  26. See Dow (2003) for further theoretical discussion of transformations and Abramitzky (2008) for an analysis of membership levels in the specific case of Israeli kibbutzim.

  27. See Dunne et al. (1989) and Pakes and Ericson (1998) for further discussion.

  28. CF rates were based on data from 1974 to 1982. Ben-Ner noted that the result was not sensitive to whether or not sole proprietorships were included in the set of CFs.

  29. Studies of establishment or plant survival similarly find that age and size increase the chance of survival [see, for example, Bernard and Jensen 2007 and Bandick and Görg 2010]. Disney et al. (2003) present results both for independent establishments and for those that form part of a group under common ownership.

  30. The Kaplan–Meier estimate is a nonparametric estimate of the survivor function. It shows the probability of failing (closing down) after period \(t\) , given by the product of conditional survival to each time at which an event occurs. It takes account of the right-censored property of the data (not all firms fail during the sample period).

  31. Our interest lies in the distinction between cooperatives and CFs and so a change in status from private to public limited liability company, or vice-versa, is not regarded as a transformation.

  32. After excluding conversions, the total number of nonmissing observations for (all variables) is 9970 for cooperatives and for CFs is 1,393,543.

  33. The cloglog model has been used by Bandick and Görg (2010) and Tsoukas (2011) and, as a discrete time version of the Cox proportional hazards model, is appropriate for the analysis of annual data. The underlying assumption of proportional hazard models is that the hazard depends only on the time at risk—the baseline hazard—and on explanatory variables affecting the hazard independently of time.

  34. Bernard and Jensen (2007) similarly include regional fixed effects in their examination of manufacturing plant closures.

  35. Since \(exp(-0.1031)=0.902\).

  36. This is calculated as follows: ln(0.8282)−ln(0.7839) = 0.0550 and 0.0550 (\(-0.7812\)) = \(-0.043\). Note that the values of percentiles here are not consistent with the figures in Table 2 due to differences in the samples.

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Acknowledgments

We are grateful for valuable comments and suggestions from the Editor and two anonymous referees. We also thank the Ministério do Trabalho e da Solidariedade Social for allowing access to data from the QP. We are also grateful to the Portuguese Foundation for Science and Technology and Santander for financial support. The support from the Portuguese Foundation for Science and Technology was provided through the Programa Operacional Temático Factores de Competitividade (COMPETE) of the Quadro Comunitário de Apoio III, which is partially funded by FEDER.

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  1. Department of Economics/NIPE, University of Minho, Campus de Gualtar, 4710-057, Braga, Portugal

    Natália Pimenta Monteiro

  2. Shanghai University of Finance and Economics, Shanghai, China

    Geoff Stewart

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  1. Natália Pimenta Monteiro
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Correspondence to Natália Pimenta Monteiro.

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Monteiro, N.P., Stewart, G. Scale, Scope and Survival: A Comparison of Cooperative and Capitalist Modes of Production. Rev Ind Organ 47, 91–118 (2015). https://doi.org/10.1007/s11151-015-9464-1

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