Acknowledgements

Economies of Scale Versus Participation: a Co-operative Dilemma?

Jones, D.C.; Kalmi, P.

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JEOD - Vol.1, Issue 1 (2012)

varying degrees of success, to pressures to sustain democracy. in the concluding section we summarize and 

discuss implications of our findings.

2. Co-operatives: Definitions

For our purposes the essential features of co-operatives are given by enterprises that have two 

characteristics: 1) Ownership is not determined solely by investment in shares, but by another transaction 

relationship with the enterprise (as employees, suppliers, or customers); 2) Voting rights are not determined 

in relation to capital ownership but are divided equally among members.

2

 This definition de-emphasizes 

other rochdale principles including open membership, limited interest on capital, religious neutrality, cash 

trading and the promotion of education (Bonner, 1961).

Diverse forms of co-operatives exist. Hansmann (1996) and Birchall (1997) amongst others provide 

good descriptions of co-operatives around the globe.

3

 Empirically, the most prevalent forms of primary 

co-operatives, both in Europe, North America and elsewhere, appear to be co-operatives in the agricultural 

sector (mainly in food production), in banking and finance (in the form of credit unions and co-operative 

banks), in insurance (either mutual or co-operative form), and in retailing, where co-operatives are either 

retailer- or consumer-owned (the latter is fairly uncommon in the US but is very popular in some European 

countries). Co-operatives are economically significant actors all around the globe. According to the 

international Co-operative Alliance, the combined membership in co-operatives now exceeds one billion 

people (see iCA 2012) 

Moreover, some co-operative types, including co-operative banks, are of growing importance in their 

sectors (Fonteyne 2007). For example, around 91 million inhabitants of the US were members of credit 

unions in 2010 (WOCCU 2011)

4

, representing a substantial growth from 1996 when the membership 

totaled around 70 million (Emmons and Schmid 1999). in France, co-operative financial institutions have 

more than 50 % market share of deposits and almost 20 million members or almost one-third of total 

population

5,

. Another example is social co-operatives which have assumed prominence in sectors in several 

countries including italy (e.g. Borzaga and Defourny (2004)) However, the importance of co-operatives 

does not derive solely from their economic significance, but also from their democratic governance and 

their perceived ability to address market and government failures (see, e.g., Kalmi 2007). in part reflecting 

their social objectives, associations of co-operatives are a prominent feature of the co-operative landscape.

2

  Ben-Ner and Jones (1995) investigate the roles of variation in control and return rights among diverse enterprises, including 

some co-operatives.

3  

The first co-operatives appear to have been established in the eighteenth century. Early utopian writers, notably robert Owen, 

who saw co-operative communities as alternatives to competitive and individualistic capitalism, were a major stimulus to the 

establishment of these first co-operatives. Equally, practical necessities, such as the need to obtain unadulterated foods, played 

major roles in the formation of early co-ops such as the flour mills at Woolwich in the 1760’s and the famous rochdale store 

in 1844.  Subsequently while the development of the co-op movement continued to be inspired by the writings and actions of 

individuals such as Fourier, Blanc, and Buchez, pragmatic considerations have always played prominent roles in the evolution of 

co-operatives.

4

  Our data on what constitute “co-operatives” are self- reported, either by co-ops or their associations. We do not attempt to 

systematically assess the extent to which these different co-ops are “democractic”.

5

  This information comes from the European Association of Co-operative Banks (EACB) website www.eurocoopbanks.coop 

augmented with information from Caisse D’Epargne (which is a co-operative banking group not affiliated with EACB) website 

www.caisse-epargne.fr. 

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Economies of Scale Versus Participation: a Co-operative Dilemma?

Jones, D.C.; Kalmi, P.

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While a wide variety of firms can be listed under the co-operative umbrella, the form that has proved 

to be of particular interest to economists is the producer or worker co-operative. in such firms, the position 

of the worker is crucial so that membership is restricted to worker-members in the business who effectively 

own and control the firm. One of the best known examples today of worker co-operatives is the Mondragon 

co-operatives (see http://www.mcc.es/ing/).  There are also important contemporary examples in italy and 

France. Other cases of producer co-operatives, past and present, that have attracted attention include the 

US plywood co-ops (Craig and Pencavel, 1992), PCs in Uruguay (Burdin and Dean, 2009) and PCs in the 

former Soviet–type economies (e.g. for the case of Poland, Jones, 1993).

6

 

3. Democracy 

3.1 Issues in individual coops

To guide our subsequent theoretical discussions, in this section we note that the literature on co-

operatives distinguishes different meanings of “democracy”. These differing senses are, in turn, associated 

with what are, potentially at least, varying democratic challenges. For our purposes it is especially important 

to note that the importance and nature of “democratic challenges” can be expected to vary by co-op type 

and co-op structure. in particular we distinguish several matters surround the meaning and maintenance of 

democracy within individual co-ops from democratic challenges that primarily concern groups of co-ops.

 For individual co-ops we identify three matters of especial interest. First are issues concerning 

appropriate democratic decision-making procedures and structures. 

These include matters such as 

the nature and form of representative democracy, matters that have long interested theorists of liberal 

democracy such as Pateman (1976) and Laycock (1989.) These arrangements are apt to be less of an 

issue in small co-ops with homogeneous membership, but could assume more significance in larger and 

multi-establishment co-ops with heterogeneous memberships and representative structures for decision-

making (Hansmann, 1996.). They may also assume more significance in different kinds of co-ops where 

the basis for membership differs. For example, in worker co-ops, especial importance can be expected to 

attach to devising appropriate machinery for democracy at the workplace as well as for efficient forms of 

representative democracy.  in other words, the maintenance of democratic decision-making structures may 

be challenged by economies of scale and scope (which we will review in the next section).

 Many studies on co-operatives have been pessimistic about the maintenance of co-operative 

governance structure when co-operatives grow in size and complexity. For example, Nilsson et al. (2009) 

review evidence for agricultural co-ops in various countries including Sweden, Canada and ireland and 

find that size and complexity in co-ops typically result in democracy being undermined. They present fresh 

evidence for a Swedish case and, by highlighting tensions between managers and members, show how such 

6

  As such co-operatives are distinguished from most employee owned  firms and firms with other financial incentives such as 

profit sharing and other forms of “shared capitalism” (Kruse, Freeman and Blasi, 2010.) in the vast majority of instances of 

employee ownership, and unlike in co-operatives, voting rights reflect ownership of capital which are not equal either amongst 

employees or between employee and non-employee owners. in firms with employee ownership, capital owners sometimes do 

introduce arrangements that enable employees to have enhanced involvement in decision-making. While this often happens, 

it is also rarely to such a degree that firms with employee ownership and worker co-operatives are aligned in this respect. 

instances in which this has happened, such as the Eroski retail chain in Spain (Arando et al. 2011a) or in some British consumer 

co-operatives where employee directors are present (Jones, 1987) are the exception rather than the rule.

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