The Growth of Italian Cooperatives

Innovation, Resilience and Social Responsibility

Piero Ammirato

• Publisher: Routledge
• Year: 2018
• ISBN:
  9781351657600
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

The Italian Cooperative Sector is amongst the largest in the world comprising over 60, 000 cooperatives from all sectors of the economy directly employing 1.3 million people. Cooperatives created close to 30 percent of new jobs in Italy between 2001 and 2011 demonstrating that democratic cooperative enterprises can successfully operate in a market economy combining economic success and social responsibility. These offer a viable alternative to profit maximising enterprises and an opportunity to create a more pluralist and democratic market economy.

The Growth of Italian Cooperatives: Innovation, Resilience and Social Responsibility comprehensively explains how the Italian cooperative sector has managed to compete successfully in the global economy and to grow during the global financial crisis. This book will comprehensively explain how the Italian cooperative movement has managed to grow into a large successful network of cooperatives. It will examine the legislative framework and their unique business model that allows it to compete in the market as part of a network that includes central cooperative associations, financial and economic consortia, and financial companies. It will explore cooperative entrepreneurship through a discussion of the formation of cooperative groups, start-ups, worker-buyouts and the promotion of entirely new sectors such as the social services sector. Finally, The Growth of Italian Cooperatives examines how cooperatives have managed the GFC and how their behavior differs from private enterprises. It will also analyze the extent to which cooperatives compete while still uphold the key cooperative principles and fulfil their social responsibility.

This book is an interdisciplinary study of cooperative development and is designed to inform members of the academic community, government, public policy makers and cooperative managers that are primarily interested in economic democracy, economics of the cooperative enterprise, cooperative networks and economic development, cooperative legislation, democratic governance, job creation programs, politics of inclusion and how wealth can be more equitably distributed.

1
Introduction

There has been a renewed interest in cooperatives and their potential in recent years as a result of both the limitations of the State and of the capitalist-led market economy. These limitations have manifested in the State’s difficulty in providing social services and in managing the economy; the inability to prevent the Global Financial Crisis (GFC); persistently high unemployment and underemployment; higher levels of inequalities; and less cohesive societies. This book will explain how the Italian cooperative sector successfully competes in a global market economy and how it has managed to grow—demonstrating resilience, innovation and entrepreneurship—to meet community needs and expectations. It will also demonstrate that the Italian cooperative sector has operated in a socially responsible manner, created employment during the GFC, reduced inequalities and promoted social inclusion. The Italian cooperative model offers hope to everyone who wishes to promote economic democracy and a more just and equal society.

The Italian cooperative sector is large and operates in every part of the economy. In 2011 it comprised 79,949 registered cooperatives,¹ directly employing 1.3 million people and equaling 7.2 percent of the total Italian workforce and 8.5 percent of the Gross Domestic Product (GDP). The highly regarded Trento-based European Research Institute on Cooperatives and Social Enterprises (Euricse) estimates that if one considers the number of self-employed people that rely on cooperatives for their livelihoods (for example, farmers) and the indirect employment they create, the figures rise to 11 percent of the workforce and 10 percent of the GDP. The sector’s significance is further highlighted by the fact that it created close to 29.6 percent of all new jobs created in Italy from 2001 to 2011. The same study estimated a total turnover of 130 billion euros (Borzaga 2015).²

The national presence, size, inter-sectoral dimension and diversity of the Italian cooperative sector demonstrates that democratically managed, socially responsible cooperatives can be considered a viable alternative to capitalist enterprises,³ and that an alternative economic system is both possible and achievable. This is demonstrated by the following data:

• Cooperatives are present throughout Italy, including in the North-East, providing 30.7 percent of the total cooperative workforce; the North-West, 27.9 percent; the Center, 19.4 percent; and the South, 22 percent (Fondazione Censis 2012).
• Cooperatives operate in all sectors of the economy, including banking and insurance, agriculture, retail, manufacturing and construction, maintenance, cleaning, catering, social services, medical services, tourism, culture and entertainment.
• They hold a substantial market share in some sectors: more than 50 percent in social services; 33 percent in the retail sector; 33 percent in insurance; 25 percent in agri-business (V. Zamagni 2017); 10.7 percent in construction and housing; 9.5 percent in the service industry (Borzaga 2015); and representing 9 percent of the total business loans and 8.5 percent of the total family loans (Federcasse 2016).
• The percentage of employment share is high in the following sectors: social services cooperatives employ 44.5 percent of total private sector employment; transport employs 20 percent; agri-business employs 13.2 percent; general services industry employs 11.6 percent; the construction business employs 6.1 percent; and the retail sector employs 4.3 percent (Borzaga 2015).
• Cooperatives are, on the whole, larger than the average Italian enterprise. While cooperatives make up only 1.5 percent of the total firms operating in Italy, they represent 17.3 percent of all medium-sized enterprises with a workforce between 50 and 250 employees and 14.8 percent of all large enterprises with a workforce of more than 250 employees (Alleanza delle Cooperative Italiane 2017). In addition, there are 250 cooperatives and consortia across Italy with turnovers of more than 50 million euros. They are market leaders in retail, insurance, agriculture, construction, manufacturing, general maintenance and social services (Alleanza delle Cooperative Italiane 2016).

This book will comprehensively explain how the Italian cooperative movement has managed to grow into a large, successful network of cooperatives. It will examine the unique cooperative business model that allows it to compete in the market as part of a network that includes central cooperative associations (‘Central Associations’ hereafter), financial and economic consortia, financial companies and friendly institutions. This book will explore cooperative entrepreneurship through a discussion of the formation of cooperative groups, start-ups, worker-buyouts and the promotion of entirely new sectors such as the social services sector. It will analyze how cooperatives have managed the GFC and how their behavior differs from private enterprises. Finally, it will examine the extent to which cooperatives compete while still upholding the key cooperative principles and fulfilling their social responsibility.

In so doing, the book will provide answers to the following key questions:

• Are cooperatives able to achieve economic performance in compliance with the law and in alignment with international cooperative principles?
• How has the cooperative business network model managed to overcome key obstacles to cooperative development such as access to finance, management expertise and democratic governance?
• Can cooperatives grow into large market players and form cooperative groups of companies without degenerating or demutualizing?
• Are cooperatives and their networks better suited than capitalist enterprises to managing an economic crisis, and what do the different approaches tell us about cooperative behavior as compared to that of a capitalist enterprise?
• To what extent has cooperative identity evolved, and what are the challenges associated with these changes?
• Does the current size, inter-sectoral diversity, multiple enterprise model and the network capability of the cooperative sector place it in a position to further expand economic democracy in a pluralist market economy?

1.1 Why Is This Study Important?

This book is an interdisciplinary study of cooperative development, supported by longitudinal case studies, and is designed to inform governments who wish to promote alternative democratic enterprises to guide economic development, leaders and managers of cooperative sectors, public policy professional and academics and theorists of economic democracy. This study is important for five major reasons. First, this book explains how the Italian cooperative sector evolved and succeeded and is offered as a model to consider when promoting cooperative sectors around the world. The book will explain its relationship with the political system, the importance of the cooperative legislative framework and the function and operations of the inter-sectoral cooperative networks. It will describe how new cooperatives are created and grow while describing the key events that highlight how limits were identified and overcome. The book will share with the reader the ways in which the various players operated in a concerted way to navigate the GFC as well as various enterprise and sectoral crises. The book, in parts, is explicitly detailed—for example, when explaining cooperative law or the workings of cooperative funds or the worker-buyout program. This will allow the reader to better familiarize themselves with the policies and processes that govern cooperatives and to better understand and consider their practicality.

Second, this book will demonstrate that the cooperative business model practiced in Italy provides an ideal model for the equitable redistribution of wealth between capital, labor and the community. Cooperatives can overcome the persistence of inequalities between people and communities. The capitalist-led market economy has demonstrated a great capacity to generate wealth, increase productivity, develop innovations and bring an abundance of goods and services to market. However, it also generated unemployment and a high level of inequalities. The unequal level of asset ownership and high salary differentials have all contributed to major inequalities (Krugman 2014; Atkinson 2015). Indeed, it is estimated that “1 percent of the people in the world own more wealth than the rest of the planet” (Oxfam 2017). Governments have used progressive taxation systems, social welfare payments and other means of transferring wealth such as social housing. While these are admirable, humane measures, they have failed to reduce inequalities (Picketty 2014; Atkinson 2015). This book will demonstrate that cooperative’s unique way of distributing value-added, lower salary differentials and the fact that cooperative assets cannot be distributed to existing members but are instead passed on to future generations can reduce inequalities.

Third, cooperatives are the ideal economic enterprise to make communities and local economies more resilient to economic crises and capital movements. The current phase of globalization allows capital, jobs and people to move at great speeds wherever there are new opportunities to make more money or to find a job. Profit-maximizing firms transfer jobs and capital to any location in the world that offers the opportunity to make more money or to pay fewer taxes (or both) than their existing location (Oxfam 2016). This creates unemployment, alienation and disruption among individuals, families and communities. The research presented in this book and the case studies offered will present an alternative. It will show that cooperatives are democratically owned local companies that do not relocate to maximize returns on investment as this is not their goal. In a cooperative, capital is a means of achieving mutual goals, including job creation and maintenance. This book will also demonstrate that cooperatives invest in their local communities and promote both inter-firm collaboration and trade with local firms within a region. The cooperative development fund creates new firms and helps existing ones deal with difficult situations, further creating local resilience. This cooperative business culture creates trust between the cooperative and their communities and promotes social capital and many positive political, social and economic externalities (Putnam 1992).

Fourth, cooperatives promote economic democracy and can become the pillar of a more pluralist economic system within which democratically owned and managed cooperatives control a greater share of the economy. As Robert Dahl argues, market-capitalism also limits the further development of political democracy: “unequal ownership and control of major economic enterprises in turn contributes massively to inequality in political resources … and thus an extensive violation of political equality” (Dahl 1998). Tom Malleson defines economic democracy as a critique of the current society and a corresponding vision of an alternative that includes forms of direct ownership, ways to direct investments, power-sharing arrangements and holding accountable those who make investment decisions and hold economic power. The economic players that can promote and contribute to economic democracy are many, including national governments, local government, superannuation funds and local community banks; large socially responsible enterprises that operate with power-sharing arrangements; sovereign wealth funds; and citizenship having a direct influence over public spending (Malleson 2014). Cooperatives are democratically owned enterprises that encourage participation and shared ownership. They are governed by the principle that one-person-equals-one-vote. They re-invest most of the profits back into the enterprises and, most importantly, the assets are passed on to the next generation. Cooperatives promote economic democracy in perpetuity at the enterprise level and throughout society since cooperatives are present in every sector of the economy, including banking and insurance. Cooperatives can democratize the market because they can influence the flow of investments, work conditions, the food we buy, the houses we live in, the health services we need and the places in which we holiday.

Fifth, cooperatives are the ideal enterprise that can enter into public-cooperative partnerships to overcome some of the most difficult issues faced by our societies today. In Western democracies, States are having financial difficulties meeting the needs of citizens and society. They have resorted to privatization, public-private partnerships, outsourcing and the user-pays system to provide welfare services. Cooperatives are the ideal partner for governments to meet the needs of people, knowing that cooperative enterprises put people and communities first, just as an ethically minded State should. Cooperatives operate as quasi-public enterprises whose ultimate goal is to meet the needs of members and their communities. They ultimately operate for the common good. In line with the discussion on economic democracy, forms of public-cooperative partnerships could lead to cooperatives providing public services or job creation schemes without the profit motive that drives public-private partnerships or the outsourcing of government services. The book demonstrates that cooperatives already provide social services for the aged, the young and disabled on behalf of the State. The State is an investor in job creation schemes, cooperatives and a cooperative development fund. Joint ventures have been created for the provision of school meals and child care centers. This opens the opportunity for the State to become a partner, enabler or investor in the cooperative sector aimed at the provision of services and in solving important community issues such as food prices, housing affordability and unemployment, especially for the young and long-term unemployed. If expanded, such partnerships could become a key feature of economic democracy.

1.2 The International Cooperative Alliance: Principles, Cooperative Typology and Size

1.2.1 Cooperative Principles

The International Cooperative Alliance (ICA), established in 1895, represents all types of cooperatives. The ICA liaises with international bodies and governments, promotes cooperatives around the world and conducts research. The most important contribution of the ICA, however, is having established a definition of a cooperative along with a set of values and guiding principles for cooperative members. More specifically:

• A cooperative is defined as an autonomous association of persons united voluntarily to meet their common economic, social, and cultural needs and aspirations through a jointly-owned and democrati...

Table of contents

• Cover
• Title
• Copyright
• Contents
• List of Tables and Figure
• Acknowledgments
• List of Abbreviations
• 1 Introduction
• 2 The Legislative Framework: Enabling Growth and Promoting Cooperative Principles
• 3 Central Associations: Leadership and Economic Development
• 4 Financing Cooperatives: Members, Markets and Networks
• 5 Consortia Network: Economies of Scale and National Expansion
• 6 The Rise of Cooperative Groups: A New Cooperative Model?
• 7 Entrepreneurship: Start-Ups, Worker-Buyouts and Social Cooperatives
• 8 Cooperative Resilience: Managing the Global Financial Crisis
• 9 Principles and Social Responsibility: People and Communities Before Profits
• 10 Cooperative Identity: In Search of a New Vision
• 11 Conclusion: Toward a More Pluralist and Democratic Market Economy
• Index