Digital Transformation and Solidarity in Cooperatives

Abstract

The digital transformation amounts to a fundamental reorganisation of the entire institutional setting. Potentials and dangers include new power asymmetries and a precarious “carving out” of specific functions of “traditional” institutions. Digital tools are particularly relevant for knowledge-based and data-intensive activities, goods and services. Based on an institutional-theoretical framework specifically suited to the comparative discussion of cooperatives, firms and markets, the potential functionality of cooperatives in a digitalised world is found to be promising in specific ways.

1 Introduction

Digital technologies have the potential to fundamentally transform markets, market processes, and organizations, as well as communication forums and forms. Moreover, there is much to suggest that they will change the entire institutional setting architecture. The associated innovations are, therefore, sometimes called “disruptive.” The complexity of the associated change is also indicated terminologically–namely in the explicit distinction between “digitization”, “digitalization” and “digital transformation,” each of which denotes different levels of change. As will be argued in this chapter, cooperatives are being affected by the transformation in various ways. Moreover, their functional role in the overall institutional setting of modern economies may be enhanced.

The change in institutional architecture (the big picture of change) has at least three fundamentally different, albeit ultimately interdependent, dimensions:

• Firstly, the prerequisites, possibilities and modes of operation of existing types of institutions in their traditional fields of activity are changing, driven by the possibilities offered by new technologies, such as the Internet of Things.

• Secondly, the development of new types of institutions is already visible. Must be considered. For example, blockchain can be understood as an “institutional technology”. Moreover, familiar institutional patterns may be combined with new functional profiles—think of the much-advertised “knowledge commons”.

• Thirdly, the functional (macroeconomic and societal) division of labour between the different types of institutions could be reconfigured (partly as consequences of developments along the first two dimensions).

Regarding the role of cooperatives in modern market economies, the first and third dimensions are more directly relevant in the context of this volume. Thus, we aim for a better understanding of the influence of digitalization on the prerequisites and workings of cooperatives (both in terms of their “inner life” and their interaction with various markets). In addition, possible changes in the role of cooperatives in the digital transformation, in terms of the division of labour between different types of institutions—private, state-public and intermediary—must be examined.

In the trichotomy above, cooperatives belong to the category of intermediary institutions. In order to be able to deal with the problem of this chapter coherently, two clusters of questions must be addressed: The first cluster concerns the characteristics of cooperatives that constitute their functional strengths in problem-solving compared to alternative forms of organization, especially market-mediated coordination and hierarchical coordination in firms. The second cluster of questions relates specifically to digital transformation: What potentials of digitalization can support and facilitate the processes relevant to the functioning of cooperatives (both in terms of internal processes and their market-related activities)? In particular, a comparative analysis will deal with the question: To what extent can cooperatives specifically benefit from the use of these potentials on the one hand and to what extent are they equally relevant for non-cooperative forms of organization (which are active in the same or similar business areas) on the other? Another question to be addressed is: Which factors in the context of the digital transformation could lead to a loss of or increase in of functional importance of cooperatives?

Subsequently, this chapter is structured as follows: Section 6.2 deals with the fundamental reorganisation of the entire institutional architecture in the digital transformation, including related potentials and dangers, which consist in the creation of new power asymmetries and in a precarious “carving out” of specific functions of “traditional” institutions. Section 6.3 deals with the institutional implications of knowledge and information, and their transformation in the face of digital tools, which are particularly relevant for knowledge-sensitive markets, such as insurance markets. Based on these general considerations and an institutional-theoretical framework specifically suited to the discussion of cooperatives, Sect. 6.4 then discusses their potential functionality in a digitalised world (especially against the background of knowledge-sensitive markets, such as insurance). This is supplemented by a tentative answer to the question: Can digital tools support internal processes that are typical for cooperatives? The chapter concludes with a generally positive outlook on the potential of cooperatives within digital transformation.

2 Digital Technologies and the Digital Transformation of Institutional Architecture

Central aspects of the questions outlined above can be illuminated by means of the perspectives discussed in the context of the potential of so-called smart contracts and blockchain. These instruments open up far-reaching possibilities but also pose challenges to our societies. In academic and more popular discourses, the focus is first and foremost on the expansion of the spectrum of labour/services, which—supported by digital information and control tools—becomes accessible to direct market-based contractual mediation.¹ In this respect, the “new contractual forms due to better monitoring”² discussed by Varian (2014) are the focus. Digital information tools are not only important in the context of the differentiation of conditions outlined below (e.g., in insurance contracts), but they also reduce the transaction costs of various contractual arrangements in many different and far-reaching ways (see Varian, 2014).

A further aspect should be emphasised: for interesting areas in which intermediary institutions, such as private firms or cooperatives, have supported the functioning of the relevant product, input and labour markets in the traditional way up to now, platform/blockchain-supported solutions for problems of incomplete contracts (where incompleteness is conditioned by information asymmetries) may be possible and could substitute previously widespread institutionalisations to some extent (see Sturn, 2020). Overall, it is thus envisaged that both

• Service processes that previously could not be operated in an economically profitable way at all.

• Those that were previously managed by non-market institutional arrangements (such as cooperatives, companies and other hierarchies).

become economically viable in a market-mediated, platform-based mode of organisation. Digital technologies would thus not only enable more markets (with regard to the coordination of individually and socially desirable activities), but also better markets in a specific sense, since not only the constraints of institutionalised hierarchies and problems of collective solutions wither away but also market-endogenous power asymmetries and monopolisation, which have so far relativised the promise of a competitive level playing field, a cornerstone of economic liberalism in two centuries of modern market economics. Digital platforms could render obsolete traditional embeddings (norms, regulations, private or cooperatively organised firms, informal background conditions) that have so far been decisive for the functioning of complex markets, such as labour and insurance markets.

All of this is viewed positively, especially by blockchain enthusiasts, because it eliminates costly intermediaries, burdensome restrictions, repressive hierarchies and other constraining elements that limit freedom. Much of the literature on novel, hierarchy-free institutional ecosystems based on blockchains holds out the prospect of a kind of brave new world. It is full of sweeping hints and promises. Blockchain researcher Voshgmir, for example advanced the following theses under the title “Blowing up the old system with blockchain”: Blockchain brings a socio-economic revolution “because it completely turns our top-down organisations and our understanding of how we interact on its head”. It could “minimise bureaucracy and organise interactions in a supranationally reliable way at low cost”.³ The perspective of such a redemption of liberal promises on the basis of institutional arrangements relying on digital technologies is also developed in an institution-theoretically and technologically more sophisticated manner by Buterin et al. (2019), for example, as well as in the framework of the so-called “market radicalism” propagated by Posner and Weyl (2018).

Smart complete contracts and blockchain-based platforms would thus make it possible for “dis-intermediation” to take place. This means that intermediaries, such as private firms, banks or various types of cooperatives, would no longer be needed. In the context of these developments, platforms à la blockchain could push back the incompleteness of contracts and allow more complete, perfectly tailored/individualised and incentive-compatible contracts and also support contract/market-based provision in areas where this has not been possible so far.

How plausible are such visions—and what would their (possibly unintended) consequences be? Would all good things (freedom, equality, individualisation and efficiency) finally come into their own and go together with digital support, in the sense of the emancipative market radicalism put forward by Posner and Weyl (2018)? And what are the consequences for cooperatives, which in the “traditional” setting have managed specific mechanisms of balancing stakeholder interests? To answer these questions, a slightly more extended digression into the theory of incomplete contracts is necessary. This theory is specifically relevant for complex markets, such as insurance markets, which are characterised by information asymmetries, adverse selection (hidden knowledge) and moral hazard (hidden action). However, it also opens up insights into the role of the institutional embeddings that are indispensable for the economic understanding of modern market societies.

In the context of insurance, hidden action is related to the problem that it may be impossible or too expensive to observe the behaviour of an insured person and/or to verify it vis-à-vis third parties (e.g. vis-à-vis a court). Hidden action leads to the much-discussed problem of moral hazard. Hidden knowledge circumscribes cases where some transaction-relevant characteristics (e.g. risk profiles of prospective buyers of insurance) are known to party A, but not to B. Another important application is employment contracts where the abilities and effort levels of employees play an analogous role. Typically, due to the problems of hidden action, it is impossible or too expensive to perfectly specify ex ante all duties of care, precaution and effort levels relevant to the contracting parties. Outcomes depend on a combination of skills/risk profiles, effort/care and chance. Individual agency (e.g. a certain level of effort or care) on the one hand and not fully controllable as well as limitedly predictable future environmental conditions on the other play a role.

Insurance contracts are complicated with regard to the problems of both hidden knowledge and hidden action. Important institutional background conditions—such as the development of multifarious insurance institutions, business routines and practices and an insurance law—can be explained as institutional responses to pertinent problems. Again, reference to employment contracts is instructive, where labour legislation provides a paradigmatic illustration for a framework of legal norms at the interface of public and private laws. All in all, the most important peculiarities of the crucially important modern markets (labour, financial and insurance markets), including pertinent problem-responsive institutions/norms, can be explained in a framework accommodating such incompleteness (see, e.g. Bowles, 2004: pt. II).

Incompleteness of contracts also plays a central role in institutional economics research on the potential of digital platforms, and especially blockchain. Davidson et al. (2018, p. 3) argue, with reference to incomplete contracts, that digitalisation expands the portfolio of modern institutions (firm, state, commons and relational contracting) through new types of institutional coordination, such as blockchain platforms. According to Davidson et al. (2018), developments can be expected in two directions: (1) Blockchain platforms are part of a digital evolution towards more complete contracts. (2) Blockchain platforms lead to a kind of dis-intermediation, i.e. previously required institutions or background conditions (e.g. “trust”⁴), which complement incomplete contracts in the mediation of interactions, become superfluous. Blockchain platforms are thus understood as a technology that supports exchange and contract as modes of interaction, but whose societal impact is not adequately captured by the concept of transaction cost reduction (which may suffice to provide an account of the most important effects of some less sophisticated digital platforms).

Interim conclusion: The discussion concerning the potentials of blockchain technology points to the fact that both dis-intermediation and the proliferation of complete contracts are linked to a further change in the institutional architecture. The concept of incomplete contracts is a key to understanding the diversity and complexity of several types of framework conditions crucial for the functioning of market economies: (1) important institutions (including private firms with different legal forms, commons, and cooperatives), (2) governance mechanisms, (3) specific legal regulations such as labour or insurance law, (4) informal norms of market behaviour, (5) trade unions and other associations, and even (6) the role of morality in modern market economies. It opens up the significance and ambivalence of complex background conditions, which may be considered substitutes for contract completeness, as it were. This applies, in particular, to those institutions that support the long-term functioning of complex system-relevant markets, such as the labour, financial and insurance markets.

Overall, the euphoria of smart contract/blockchain enthusiasts is put into perspective by contradictory tendencies. On the one hand, there is a number of advantages: It becomes easier to organise the information and coordination of “small” market participants. In some cases, it is also easier to create competitive conditions, because traditional barriers to access may be reduced when digital platforms—are easily accessible for all at low costs. On the other hand, the following potential problems must be addressed (cf. Sturn, 2020; Zingales, 2017):

• 1. Economies of scale and scope in data collection and analysis provide a strategic advantage for strong market players, not least in the continuous development and adaptation of tailor-made take-it-or-leave-it offers leading to a systematically asymmetric distribution of transactional surplus. Some of the background to the relevant problems can be outlined as follows: Information-intensive goods generally have high fixed and low marginal costs; not least in connection with artificial intelligence, data volumes show increasing returns to scale. There is a tendency towards winner-takes-all industries and information complementarities, which Luigi Zingales (2017, p. 121) aptly illustrates: “The value of the data derived from Facebook and Instagram combined is likely to be higher than the sum of the value of the data derived from Facebook and Instagram separately, since the data can be combined and compared. Thus, Facebook is likely to be the higher-value user of Instagram data, even ignoring any potential market power effect. If you add market power effects, the momentum towards concentration might be irresistible”.

• 2. Sinclair Davidson et al. (2018) put forward the well-argued thesis that firms and other intermediary institutions will not be completely replaced by blockchains and other platforms, but that there will be a “carving out” of certain functions for which these platforms are particularly suited. From an optimistic perspective, this results in an efficient institutional division of labour. At this point, it is worth elaborating a little on the argumentative horizon of Davidson et al. (2018, p. 3):

Cryptographically secured blockchains are said to be ‘trustless’ because they do not require third-party verification (i.e. trust), but instead use high-powered crypto-economic incentive protocols to verify the authenticity of a transaction in the database (i.e. to reach consensus). This is how blockchains can disintermediate a transaction (a consequence of which is lowered transaction costs), resulting in new forms of organisation and governance. Examples are the ‘distributed autonomous organisations’ (DAOs) and ‘initial coin offerings’ (ICOs) that disintermediate the allocation of venture capital; (…); and ‘Backfeed’ disintermediating open-source collaboration. In each case, blockchain provides the ‘technology stack’ to coordinate the economic actions of an emergent community without the need for a trusted (third-party, centralised, intermediating) coordinator (…).

The implication is that blockchains may not compete head-to-head with firms, but rather may carve out those parts of firms that can be rendered as complete contracts where they lower transaction costs on any of these three margins (my emphasis, R.St.). For instance, blockchain-enabled smart contract-facilitated transactions should in principle experience fewer efficiency problems due to information asymmetries—adverse selection (prior to a transaction) and moral hazard (following a transaction). Smart contracts could also be effective ways to load significant numbers of low-probability state contingencies into contracts. These could function like open-source libraries able to be inserted into machine-readable contracts, reducing the complexity cost of writing large state-contingent contracts, and so lowering transaction costs. Both ex ante contractual discovery and ex post contractual renegotiation costs (i.e. bargaining and haggling costs) are an expected consequence of incomplete contracts. Such contracts have dynamic benefits, enabling adaptation, but in the shadow of these expected but uncertain costs all parties will contract less than is optimal. Blockchains potentially enable the known parts of these relationships to be carved out efficiently from the unknown parts, and executed automatically based upon state conditionals (my emphasis, R.St.), increasing the range to which economic coordination can extend into the future.

Both dis-intermediation and the advance of complete contracts (which are separated as “known parts of these relationships” from the “unknown parts”, regarding which contracts remain incomplete) are associated with a further change in the institutional architecture. First of all, this increases the number of transaction types for which free exchange or free immigration and emigration can be considered as mutually beneficial, non-hierarchical modes of interaction and regulation: No one is forced to join Ethereum. Those who do so do so for their own benefit. This seems attractive in terms of freedom of choice and welfare. With regard to voluntary exchange and contract, the exchange paradigm, which is part of the DNA of economists, can be brought into play, according to which voluntary contracts of responsible actors should not be hindered, as long as they do not have a detrimental effect on third parties. Voluntary exchange generates a surplus that is distributed amongst the exchange partners in such a way that they are better off or at least not worse off compared to the next best alternative. If they did not profit from the exchange or were even worse off, they would not enter into the exchange.

However, as I have pointed out (Sturn, 2020), breaking up the institutional bundling of functions concerning coordination and the balancing of interests can also lead to certain functions (especially those of balancing interests) no longer being served at all. This could be the case as long as institutions that are reduced to “only” one function (e.g. balancing interests) are not viable—because purely distributive institutions (clearly lacking any win-win potentials) lack general acceptance.⁵ Insofar as the digital transformation tends to “carve out” certain coordination and allocation problems, outsourcing them to the digital world where they are dealt with in a largely automatized and anonymized fashion, cooperatives play a special role in digital transformation. Cooperatives are institutions whose raison d’etre has always been based on a specific bundling of functions concerning coordination, allocation and balancing of interest—and they may develop their unique position within the overall institutional architecture by deliberately resisting certain erosive forms of “carving out”.

• 3. Asymmetries in the inner life of platforms regarding the ability to design codes should not be underestimated: There is little reason to assume that the distinction between rule-makers (who may design rules with their own self-interest in mind) and rule-takers, which can be observed in the non-digital world, will suddenly disappear in the digital world of platforms.

All in all, cooperatives and traditional formats of public regulation (but also certain aspects of the internal constitution of companies) can be seen as institutional precautions in the sense of a desirable combination of coordination and balancing functions that have a preventive effect against the long-term disadvantages of such asymmetries. However, with regard to these functions, two challenges arise in the context of the digital transformation.

On the one hand, neither cooperatives nor public regulations will be able to sufficiently address new problem configurations with the old answers. Rather, they must—this should be obvious in view of what has been argued above—understand the digital transformation in its just indicated scope as a new environment and take up its possibilities and challenges in the sense of a solid grasp of their social function.⁶ On the other hand, the scope of institutional change is limited by functional concerns. For the traditional institutional formats are certainly not becoming obsolete in terms of their basic idea and function. Rather, theoretical visions of a complete dis-intermediation are based on unrealistic assumptions that we already know from institution-free models of perfect competitive markets and which, on closer inspection, are not really made more plausible by digital technologies—or could prove to be more of a dystopia than a utopia if corresponding developments are unduly reinforced by deliberate policies.⁷ The background to these theses—and thus also the basic social function of the institutions mentioned—will be discussed in more detail in the following two sections with a view to the digital transformation.

3 Knowledge and Information

The considerations outlined above make one thing clear: anyone dealing with digitisation or digital transformation cannot avoid the topic of knowledge and information. It is not without reason that digitisation and digital transformation are typically associated with knowledge and information. The handling of and the conditions for the creation, dissemination and use of knowledge and information are undergoing a fundamental change in the digital transformation. This is possibly the most important aspect of this transformation. Irrespective of this, knowledge and information have always represented an outstandingly important element of the human condition—not just since the emergence of buzzwords such as knowledge economy and information society.

However, this elevated status does not mean that the societal role of knowledge and information is free of ambivalence and paradoxes. To put it bluntly: more information is not always advantageous, especially in society’s coping with the problems of risks and uncertainties. This applies in particular, but not only, to those service processes and markets in which knowledge and information have always had a determining character for relevant institutionalisations, regulations, routines and practices. Insurance is a prime example of this.

Nobelist Kenneth Arrow, the economist whose seminal essays from 1962/1963 (cf. Arrow, 1962, 1963; cf. also 1994) established principles of both modern health economics and innovation economics, illustrates this with the following parable, which addresses the ambivalent role that information can play in social life—for example, by making it more difficult or impossible to contractually insure risks. Suppose there are two islands, each with a farmer living on it. The farmers know that a hurricane is coming that will destroy the crops on one of their islands—but they do not know on which island. In this case, the farmers will most likely want to take out insurance, agreeing in advance that the farmer whose crop is destroyed will get help from the farmer who escapes the damage.

Now, in the scenario just sketched, one can certainly imagine such insurance in a setting of private sector contractual transactions of self-interested actors. Both farmers would most likely be happy to enter into suitable risk-sharing arrangements. However, if it is known in advance which of the two islands will be hit by the hurricane, then the preconditions for such a private economic insurance no longer apply. Incidentally, the construct of the “veil of ignorance” as suggested by the US philosopher John Rawls follows a similar logic: As long as they are under such a veil, individuals would have a preference for a kind of fairness-oriented compensation mechanism that somehow balances out luck and misfortune in the Game of Life.

All this applies not only to the artificially constructed world of parables and thought experiments. The message of Arrow’s parable can be applied to real insurance problems and corresponding developments in today’s societies. Insofar as it is possible to diagnose risks ex ante—be it through genetic testing or through the identification of risk characteristics on the basis of the evaluation of large amounts of data—there are possibilities for differentiation with regard to the design of premiums and tariffs according to the recorded characteristics of prospective insurance customers or insured objects/processes. Such differentiation possibilities in insurance markets are somewhat analogous to models of price differentiation in other markets, which have been analysed in economics for a long time—only much richer and more complicated. Moreover (here the analogy to price differentiation ends), such diagnostic possibilities are connected with the fact that whilst attractive private sector insurance offers now become available for “very good risks” (who previously did not buy insurance at all because the premiums for them were too high in view of their low risk), the “worst risks” are no longer insurable at all in the private sector: Prospective insurance buyers whose harvest will be destroyed with high probability will not receive private insurance offers, nor will those with a “pre-existing condition” which is likely to necessitate medical treatment which is enormously costly.

The kind of individualisation considered here has a complex of different implications, from which three aspects stand out:

• 1. The redistribution component of insurance arrangements is reduced.

• 2. For those included in insurance arrangements the insurance-related efficiency is increased, whereby efficiency is defined as the degree of protection against exogenous loss events at given costs.

• 3. As with variants of “normal” price differentiation, the conditions for the siphoning off of consumer surplus by providers improve.

Digitalisation is now opening up new possibilities to increase this performance-related accuracy by segmenting the pool of potential insurance customers more and more according to the information available. Examples are the digital monitoring of driving behaviour for car insurance or of health data (movement, pulse, blood pressure etc.) in health or life insurance. The ever-finer segmentation leads to the aforementioned tendency to differentiate insurance conditions, both with regard to the given characteristics of prospective insurance customers (e.g. through advances in the diagnosis of genetically determined dispositions) as well as their behaviour.

To what extent is this individualisation a problem? From the point of view of efficiency theory, it is not a problem, i.e. it is advantageous, as long as it functions as a means against the two inherent problems of insurance: adverse selection and (by way of digital monitoring tools) moral hazard. Suitably differentiated conditions are more efficient than one-size-fits-all if they are calculated correctly—so there is no problem from a contractarian point of view. However, an area of tension arises where

• Coping with adverse selection leads to the side effect that certain types of insurance recipients do not actually find any corresponding offers on the market, thus provoking the emergence of a precarious welfare segment.

• Insured persons have no possibility to change their risk-relevant behaviour, i.e. objectively or subjectively they have no possibility to mitigate the risk themselves, or the costs of individual mitigation are prohibitively high—in this respect there is no moral hazard problem, and information/monitoring tools are used without being justified by gains in efficiency.

• The price differentiation/differentiation of conditions is systematically used by those who determine the conditions to unilaterally skim off consumer surplus.

In the bigger picture, a trade-off arises: the more “accurate” an arrangement is in the above sense, the better the conditions are for effectively containing problems of adverse selection and moral hazard (i.e. the failure of insured persons to take efficient risk-mitigating precautions which is a key problem of insurance in general), but the less it compensates for luck and bad luck in the Game of Life.

4 Why Cooperatives? And What Role Can They Play in a Digitally Transformed World?

With some plausibility, one can put forward the thesis that the idea of the cooperative with its stakeholder orientation represents an important piece of the puzzle in an appropriate and humane embedding of digitalisation, as it can counteract the two main dangers described in the second section: the emergence of new, digitally supported power asymmetries and the precarious “carving out” of individual functions, especially at the expense of viable mechanisms for balancing interests. In this section, some more specific potentials of cooperatives will be discussed against the background of complex markets permeated by knowledge and information problems.

In his seminal work “Markets and Hierarchies”, the Nobel Prize winner Oliver Williamson (1975) analysed the coordination mechanisms of modern economies in the framing of a dichotomy of private “capitalist” firms (hierarchies) and market-mediated networks. By means of the transaction costs incurred in each case, he determined their respective problem-related suitability for the coordination of the activity patterns that are necessary for the production/organisation of the provision of goods and services based on the division of labour. To determine the respective level of these transaction costs (and thus the question of whether markets or hierarchies are more advantageous in the respective case), he developed a plausible heuristic consisting of four components:

• “bounded rationality” linked to “uncertainty/complexity”

• “opportunism”

• “information impactedness”

• “atmosphere”

Here is a brief sketch of these four aspects:

Bounded Rationality in an Environment of Uncertainty/Complexity

Non-market organisations are advantageous when the bounded rationality of the individual confronted with a complex and uncertain environment comes into play. If, by contrast, all relevant parameters of the environment were known (and be it in the form of a known probability distribution in the case of risk), the usual assumption of the rational homo economicus would be much more plausible—and in principle complete “contracts” (possibly with conditional claims—contingent claims—in the case of a probability distribution) could be written. In contrast, in uncertain, complex environments, alternative non-market coordination mechanisms serve to mediate and thus reduce transaction costs between individuals. Thus, in internal organisations (supported by hierarchies or collaborative communication and decision-making processes), different kinds of interaction norms can be developed and used more systematically. The risk of being disadvantaged by the opportunism of individual transaction partners is, moreover lower due to a longer time horizon. It is often also advantageous that the cooperation partners start from similar assumptions about possible outcomes in order to avoid divergences and conflicts—which in turn is favoured by the higher density of internal communication and knowledge-sharing processes.

Opportunism

Opportunism means that market exchange is not free of strategic thinking and guile if only the opportunity presents itself. People may lie, cheat and steal. In general, not everyone can necessarily be trusted—and the basic economic model of the anonymous, socially barely embedded market per se does not accommodate mechanisms for building trust. Non-market organisations have three advantages over the market in cases of opportunistic behaviour. First, people are less likely to undermine group goals for their own benefit because the consequences are internalised to a greater extent. Second, organisations may develop routines that allow for better monitoring. Third, organisations have the potential to settle differences out of court. Organisation-specific rules can set fair boundaries for cooperative transactions between members. Internal conflicts can thus be resolved more quickly without having to resort to legal action, as is the case with inter-organisational conflicts.

Information Asymmetries (Information Impactedness)

This situation occurs when one class of agents has more knowledge or information about relevant aspects of a transaction than the other class. This disadvantage (whether known or unknown) can complicate negotiations or increase the risk of unsuccessful transactions. As already indicated, organisations serve in particular to prevent opportunism in situations with information asymmetries.

Atmosphere

Whilst standard economic theory usually leaves out “interaction effects”, it can be important to consider “soft” factors that can even change the nature of the transaction itself. Socio-behavioural factors, such as loyalty, solidarity, fairness and reciprocity (somewhat casually summarised as “morals”), can influence the success of transactions. Moreover, certain transaction modes can be rejected by actors because they contradict the value structure of all or some transaction partners.

Recent behavioural and experimental economics has impressively confirmed the relevance of these atmospheric aspects already emphasised by Williamson (1975). These experimental economic findings are particularly important for the classification of cooperatives as a special form of organisation. If Williamson’s dichotomy of markets and hierarchies is taken as a basis, cooperatives could even be considered and analysed as a “third way” in this respect. Recent behavioural economics provides a number of clues to the specific problem-solving potential of cooperatives wherever one or more of the following conditions apply:

• (a) Complex information and incentive problems make simple market solutions difficult and at the same time the mobilisation of pro-social motives, for example in the sense of reciprocity, is “atmospherically” advantageous and facilitates problem solving.

• (b) One-sided power has an unfavourable effect due to inequality aversion and fairness preferences.⁸

• (c) A higher weight of explicit collective decision-making mechanisms (“voice”) is advantageous compared to market-driven immigration and emigration (“exit”, invoking Albert Hirschman’s distinction between “exit” and “voice”), for example because the relevant coordination processes are predominantly of a longer-term nature and the volatility of purely market-driven processes has a disruptive effect on desirable long-term relationships.

Moreover, the fundamental voluntariness of cooperative collective institutions also may offer advantages compared to fully public/state solutions, if the coercive character and the presumably higher degree of centralisation of collective state solutions are taken into account. For there are good reasons to believe that voluntary cooperation/transactions—with the same functional efficiency—are better than coordination implying coercive elements. Thus, the potential of decentralised structures supporting voluntary exchange should be used wherever their advantages outweigh any disadvantages (e.g. in dealing with free rider problems). One thing should be clear, however: What applies to other forms of organisation and markets also applies to cooperatives; advantages demonstrated in economic theory are always only potential advantages in practice, which must first be realised through pro-active further development of technological, social and ecological framework conditions. The fact that an arrangement can be conclusively construed as a good solution to a problem does neither imply its spontaneous emergence, nor straightforward implementability.

Suitable cooperative forms could now play a specifically advantageous role in the further development of the background conditions of insurance markets. According to their basic idea, cooperatives enable “micropolitical” feedback mechanisms that are based on the symmetrical inclusion of a wider range of stakeholders. This, in turn, would offer the necessary starting point for business policies that can exploit the ambivalent potentials of digitalisation outlined above (regarding “personalisation and customisation”, i.e. tailor-made offers and conditions) in a “fair” way—that means, for example not in the sense of skimming off as much as possible of the consumer surplus from the respective conditions, but rather taking into account the interests of the insured in a broader sense—and furthermore also in the sense of sustainable and resilient development of our socio-economic processes and their service providers. Considering at a societal level, the existence of players with such a business policy would be extremely beneficial. It can be shown that it is very difficult to achieve the same result solely on the basis of regulatory rules of the game for the purpose of organising fair competition. Some rules of the game are certainly necessary. But if the players follow exclusively the maxim of shareholder value, there are always incentives to “creatively deal” with these rules of the game (even if they are clearly defined and strict), with regulatory arbitrage being one of the problems. Notice moreover that complex markets are characterised precisely by the inevitability of considerable scope for such creative handling—not to mention the potential for regulatory capture.

But there is another aspect that is of particular interest with regard to the further development of cooperative forms of organisation: Advantages arising from additional data regarding individual characteristics should not only be seen as business opportunities for existing cooperatives, but as a window of opportunity for developing innovative institutional mixes that combine the advantages of low-threshold digital platforms with complementary cooperative structures. People may find it beneficial or feel a need to connect with others who share similar characteristics, making the potential community a real community—a community in the modern sense that does not rely on traditional bonds and bindings. Such communities may engage in interest pooling (e.g. purchasing power and knowledge transfer), but also in non-instrumental values of community building. Thus, mutualism could develop towards a more extended form of solidarity, including a willingness to provide community assistance on a wider basis—a qualitative development that may be seen as part of the civilising process towards a more extended form of solidarity supporting more extended social orders.

Digital enthusiasts would argue that such digitally organised communities or commons can easily unfold in non-hierarchical digital platforms. However, this requires background conditions and frameworks that

• 1. Favour beneficial coevolution of such communities with the surrounding institutional ecosystem because both parasitic and disconnected communities can become a problem. With regard to traditional commons, this was already put on the agenda by Elinor Ostrom in her “Design Principles” for commons.

• 2. Reduce asymmetries—for example with regard to information about the incidence of relevant characteristics and abilities.

• 3. Foster the necessary atmospheric conditions for the development of solidarity.

All this might be difficult to achieve if strong private players have far superior possibilities to collect relevant data on relevant characteristics, to keep it available and to make it serviceable for their purposes.

Thus, it becomes clear from various perspectives that cooperatives in the digital transformation are facing risks and opportunities. With regard to our question of the future role of cooperatives, at least two things need to be shown: (1) The cooperative as an institution potentially has functions and advantages in the overall institutional setting. The main lines of corresponding arguments have been outlined in the previous parts of this essay. (2) The cooperative is not an unrealistic utopia, but is based on a mix of different mechanisms, the functioning of which is enhanced by digitalisation⁹—rather than being at odds with digitalisation. The foundations of pertinent conjectures will now be briefly examined in the final section.

In short, the main thrust of our findings is optimistic: The outlined potential functionality of the cooperative form of organisation in digital transformations goes hand in hand with the improved possibility of using new digital technologies to make decisions that involve a wider range of stakeholders with possibly different interests.

What is the background to this optimism? Particularly in the economic context, efficiency arguments often speak against the inclusion of too many stakeholders in decisions. Often, quick decisions are required and too many veto players can stifle innovation. On the one hand however, as Lisa Herzog (2020) shows, digital technologies can help to reduce the costs and time required for collective consultation and voting mechanisms and to implement refined voting procedures that are based on the guiding idea of aggregating knowledge and assessments as reliably and comprehensively as possible. On the other hand, it must be taken into account that participatory decision-making and feedback using digital possibilities are increasingly becoming part of the organisational culture in many places anyway. Companies are trying to use digital methods to improve the quality of information and decision-making under slogans such as “agile working”, where open communication and activation are key ingredients. Digital tools could also support coping with the problem that, in hierarchical organisations, vertical power structures hinder information flows. Digitally supported and pseudonymised communication can facilitate meaningful feedback by minimising the risk of unfavourable reactions (e.g. sanctions). Psychological barriers to sharing knowledge/information, but also to initiating learning processes amongst employees and insured persons, can be reduced. An improvement in dealing with knowledge that is difficult to codify (tacit knowledge) can also be expected if the communication culture as a whole becomes richer.

Many people are probably familiar with the use of some such approaches to digital feedback from their own experience and have certain reservations because feedback and communication platforms organised digitally or otherwise are often used only for pseudo-participative processes that are either not really taken seriously by “management” (and are therefore perceived as pointless occupational therapy) or are part of an excessive reporting system in areas where discursive discussion with different perspectives would be more in demand instead of a controlling approach. In such cases, those involved quickly lose interest and trust can turn into cynicism.

All this speaks in favour of embedding such approaches in organisational forms such as cooperatives, which are in certain respects tailor-made for a serious approach along these lines. However, this does not mean that they offer patent solutions for all problems. There are large cooperatives not only in Switzerland (Coop, Fenaco, Migros, Mobiliar, Raiffeisen etc.) and other enterprises with a history shaped by their public service character, whose vitality/prosperity in the markets of the first decades of the twenty-first century relied on partly adopting managerial styles of joint-stock companies. An analysis of those tendencies (whether they have increased in recent decades due to increasing competitive pressure or other influences, including the regulatory environment) is beyond the scope of this chapter. Moreover, adoption of such managerial tools is not a bad thing a priori, since they may promote efficiency without detrimental side effects—provided that they are functional part of a new organisational architecture, expediently complementing its other elements. However, such tendencies sometimes manifest themselves on the one hand in the reduction of material expenditure for the care of the atmospheric framings of cooperativity, and on the other hand in the development of organisational constructions that largely isolate business policies from the imponderables of cooperative decision-making. In some cases, the cooperative part only functions as a kind of holding company. This may go along with the erosion of the cooperative organisational culture which is at the bottom of some specific functional advantages.

5 Closing Perspectives

Cooperatives are institutions with approaches to collective decision-making and forms of accountability that go beyond purely market-based, private sector accounting. In the nineteenth century, they emerged as specifically problem-oriented forms of integrating stakeholder interests. They came into being in a bottom-up process, long before the propagation of social balance sheets/social impact assessment, the common good economy and the like—triggered by specific problems that were apparent in the initial phase of modern market economies. That cooperatives are sometimes difficult and unstable constructs should not come as a surprise in view of the problems and tasks they are confronted with. These problems and tasks are by their nature challenging and do not allow for patent solutions, valid irrespective of ongoing processes of change and innovation in the evolution of capitalistic market economies. Nor does the cooperative provide a one-size-fits-all solution. Related problems are not only challenging, but the profile of those problems may also change in the socio-economic-technological dynamics. However, the challenges remain the same in their core—mediation of stakeholder interests, information and knowledge in view of power asymmetries and the quest for efficiency. In keeping with their basic functional advantages occasioned by this core, cooperatives must credibly orient themselves towards the adaptation of their mission to changing environments (see also Ostrom 1990) if they want to maintain their institutional uniqueness and not degenerate into an empty legal shell.

This also applies to the digital transformation, in which their core mission and socio-economic functions become more important, not less. For cooperative enterprises, forms of reconciliation of interests in connection with the solution of complex allocation problems can be established, which are complementary to that of the private sector as well as the state-public sector. Unfortunately, in much of the literature that envisages a total revolution of the entire institutional landscape with blockchain & co, the functional requirements associated with such a complex mix of allocation and interest balancing are not even recognised as a challenge.