A ROLE FOR COOPERATIVES IN THE MARKET ECONOMY

ABSTRACT*: This article emphasizes that the cooperative form of organization has an important role to play in developing the institutional variety in the market economy. Cooperatives are important tools for counteracting monopolies and monopsonies. Cooperatives may be analysed in terms of network organizations that enable weaker actors in the market to develop businesses that are beneficial both for themselves as users as well as for the larger national society. The development of new cooperatives is highly dependent on existing social networks in the local environment. Actors trying to promote the establishment of new cooperatives therefore have better chances of success if existing social networks are used as bases for the development of member-owned businesses.     

RELATIONSHIP BETWEEN BUSINESS DEFINITION AND THE LONG‐TERM GROWTH OF COMPANIES: IS LEVITT RIGHT?

Abstract.  Theodore Levitt argued that organizational growth can be threatened because firms define their businesses incorrectly. He believed that businesses should be defined in terms of 'needs', not 'products', if they are to survive in the long term. In this paper I investigate the relationship between business definition and the long-term growth of companies in order to prove Levitt's idea. I statistically analyse relationships between past business definitions and financial performance up to the present using 50 Japanese electric/electronics companies. I find that there is a clear relationship between 'functionality' of a business definition and long-term growth in sales and aggregate market value.     

Interactive team reasoning: A contribution to the theory of co-operation

This paper describes interactions between agents who sometimes choose as individuals and sometimes as members of teams. Choosing as a member of a team entails not only being motivated by the team's objective, but also a distinctive pattern of reasoning: an agent who “team reasons” computes, and chooses her component in, aprofile evaluated using the team's objective function. It is not assumed that a given agent team reasons for a particular team; there may be more than one team, and which she reasons for is here treated probabilistically. Ordinary reasoning is a special case in which the team is a singleton. The framework therefore encompasses interactions paradigmatic in the theory of co-operative behaviour in which agents may choose either for the group of for themselves. The hypothesis that people may team reason if and when they are group motivated can, it is shown, explain some puzzling aspects of co-operative behaviour in a new way.     

Evolution of momentum and popularity

In this paper, the evolutionary behavior of two types of investor in a capital market with two risky competing securities is investigated. It is shown that, if all investors are momentum-oriented, then only those who are the most sensitive to popularity will survive. Conversely, if all investors are popularity-oriented, then they will all invest in the same security.     

A model of takeovers of foreign banks

This paper investigates the determinants of the takeover of a foreign bank by a domestic bank whereby the former becomes a branch of the latter. Each bank is initially supervised by a national agency that cares about closure costs and deposit insurance payouts, and may decide the early closure of the bank on the basis of supervisory information. Under the principle of home country control, the takeover moves responsibility for both the supervision of the foreign bank and the insurance of the foreign deposits to the domestic agency. It is shown that the takeover is more likely to happen if the foreign bank is small (relative to the foreign banking market) and its investments are risky (relative to those of the domestic bank). Moreover, the takeover is in general welfare improving for both countries.     

Consumer Ownership in Liberalized Electricity Markets. The Case of Denmark

The continuation of consumer ownership has been an important part of the Danish electricity reform from 1999. Consumer ownership refers to either a consumer co-operative or a municipal utility. Contrary to conventional wisdom, consumer ownership can be supported by solid arguments from modern economic theory of organization. These arguments are presented and confronted with both present and future situation in Denmark. The development of the electricity supply industry after the Second World War has emptied consumer ownership of much of its original content. Nowadays, most consumers consider their electric utility as the (monopoly) supplier of a good they demand and not as something they own. Therefore, obligatory consumer ownership as specified in the new Danish Electricity Act of 1999 cannot be relied on to guarantee security of supply and reasonable prices for small consumers     

Private Sector Wealth: Quarterly Estimates for use in an Aggregate Model*

The paper presents some estimates of private-sector wealth in Australia for the 1958-75 period. Basically, we have attempted to consolidate the balance sheets of all sectors, except the government and the foreign sector. Different procedures have been used for the various components of private-sector wealth and estimates are presented for real assets of the household sector (dwellings, motor vehicles and consumer durables), for fixed assets and inventories of the business sector, and for government liabilities to the private sector. Broadly, the data indicate that over the 1958-75 period, private wealth grew faster than population but slower than output and business capital stock. Dwellings and motor vehicles were the fastest growing components of private wealth. Reflecting the rise in the share of foreign claims on businesses in Australia, the Australian claims on business assets increased at a slower rate than the increase in the business-capital stock.     

NATIONAL AND SECTOR BALANCE SHEETS IN CONCEPT AND IN PRACTICE

National and Sector Balance Sheets are playing an increasingly important role in economic analysis. This article reviews the actual and potential applications and considers whether there is a case for modifying SNA practice and recommendations to increase the value of the contribution that balance sheets can make to analytical work.
The major sections of the article relate respectively to financial and non-financial items in national and sector balance sheets. In the context of financial items, there is discussion of the perception of what constitutes an individual's total financial portfolio and therefore which items should be included or excluded when assessing the financial assets of the household sector (e.g. various forms of pension entitlement and life assurance). The relevance of marketability is considered as is the possibility of attempting to identify a separate domestic households sub-sector. The other main topic considered in relation to financial balance sheets is the relevance of adopting a single approach to valuation; alternatives are considered in relation to the stock of public sector debt.
So far as non-financial assets are concerned, difficulties arise with the national accounting practice of treating the acquisition of consumer durables and military assets as current expenditure. While it is considered, on balance, best to continue to treat the purchase of consumer durables as current expenditure, though recording the value of the stock of durables outside the main body of balance sheets, it is recommended that "non-fighting" assets such as transport ships and aircraft and hospitals should be treated as capital assets. The treatment of sub-soil assets and the valuation of fixed assets is also discussed.
Reconciling balance sheets with flows data is an essential step if balance sheets are to be fully exploited; some comments are offered on the UN guidelines on this topic.     

外部性与重工业优先发展

In the framework of a dynamic general equilibrium model, this paper studies how vertical externalities affect the development of heavy industry in a developing economy. The model is comprised of an intermediate and a consumer product sector. The production of both types of goods has pecuniary externalities as they are featured by increasing return to scale. However, the production of an intermediate product has an additional advantage to have externalities through its technological linkage with the production of consumer goods. This is related to the nature of the roundabout production of consumer goods: a larger number of intermediate products lead to higher productivity in the production of consumer goods than do more inputs of a fixed number of intermediate products. Therefore, private investment in the intermediate sector is below the social optimal level. Government subsidies can restore the economy to the social optimum, but they become less needed as the consumer sector grows larger and the advantage of the intermediate good sector diminishes. __________ Translated from Nankai Jingji Yanjiu 南开经济研究 (Nankai Economic Studies), 2007, (2): 3–19     

Informality,enforcement and growth

This paper develops a two-sector growth model with formal and informal sectors for an economy that cares about redistribution and illustrates its relationship with the enforcement level. The technology gap and labour rigidity explicate the duality. The state can tax the formal sector to subsidise informal income and finance public infrastructure. Alternatively, enforcement, which is costly and corresponds to a variety of discrete components from the security of property rights and integrity of contracts to control of corruptions, can be chosen to favour the formal sector and discourage the informal sector. It is observed that weaker enforcement required to accommodate some degree of informality, which releases tax burden from the formal sector needed for redistribution, can accelerate growth rate. However, sufficiently weaker enforcement dampens the formal sector expansion and growth rate. The growth rate registers an inverted-U shaped relationship against the enforcement level. The optimum enforcement can, however, be higher without formal labour union and subsidisation. This must be higher for welfare maximisation than that of growth rate, especially when the consumer cares about the quality of enforcement.     

Perfect competition and optimal product differentiation

This paper considers whether a competitive economy will achieve an optimal allocation when firms produce differentiated products.In the model studied, firms market those products which maximize profit given the demand curves facing them. Markets are assumed to be open only for goods actually traded. Competitive conditions are achieved by replicating the consumer sector. It is shown that market equilibrium may be suboptimal if those products not being produced are highly complementary in consumption. Sufficient conditions on preferences and production sets for the market equilibrium to be optimal are given.     

Mutual,non‐profit or public interest company? An evaluation of options for the ownership and control of water utilities

The purpose of this paper is to evaluate various organizational models for the ownership and control of natural monopolies – specifically the infrastructure of water and sewage provision in England and Wales. First, it summarizes recent discussion of who should own water assets in Britain. The paper notes the opportunity that has arisen for increased consumer involvement, and examines the relative merits of three models that have been suggested as alternatives: a non‐profit trust or company, a public interest company, and a consumer mutual. Five criteria are suggested for evaluating the merits of each type: its ability to safeguard the interests of the most important stakeholder, the consumer; avoid the necessity for a heavy regulatory regime; incentivize management to manage efficiently but without ‘producer capture’; raise capital relatively cheaply; and resist pressures to demutualize. The paper agrees with the recent paper in this Journal by Morse (2000) that, in theory, the consumer mutual has advantages. It draws on Hansmann’s work that suggests consumer ownership of water would be less costly than investor‐ownership, providing there are no large conflicts of interest between different types of consumer. Hansmann’s thesis is expanded to consider the likely benefits from wider member participation, and the hidden costs of not taking members into account. It then tests out whether customers would be motivated in practice to be active members, introducing a theoretical model of what motivates members of co‐operatives and mutuals to participate. The conclusions are that provided managers and board members are committed to encouraging member participation, the consumer mutual model would work well. It would need only light regulation, would avoid producer capture, and would be able to raise capital fairly easily, both from money markets and from members. It would need legislation to prevent it from being demutualized at some time in the future. However, if a participatory corporate culture cannot be guaranteed, or if there is a risk of decline of participation over time, other options such as a non‐profit trust or a public interest company would be less risky.     

The Economic Situation

Throughout the first nine months of 1976 the Australian economy has remained virtually stagnant, with output and employment increasing only marginally and unemployment rising also. With the government following a severely contractionary policy in an attempt to break inflation the economy seems poised for a further modest downturn in the next nine months so that a self-sustaining recovery from the current recession does not seem to be in prospect before the second half of 1977. On the basis of existing policies our forecasts indicate a rate of growth of real GDP of only about 1.0 per cent in 1976–77, implying a further significant rise in unemployment during the financial year. There have been some hopeful signs in recent months of a reduction in inflation — the consumer price index increases in the first three quarters of 1976 were modest and wage rate increases remain closely in line with the wage indexation guidelines — but three factors have emerged to cast doubt on whether this improving trend will continue. The first is the effect of the recent drought on prices of foodstuffs, particularly meat, and the second is the expected 1.5 to 2.0 per cent increase in the consumer price index as a result of the changes in the method of financing hospital and medical services. These two factors mean that the December quarter increase in the consumer price index may be more than 5 per cent, threatening a further stimulus to inflation in 1977. Thirdly, present government policies could easily lead to a breakdown of the wage indexation system and a return to some form of collective bargaining over wage rates. Assuming nevertheless, a de facto continuation of partial indexation in 1977, we expect increases in male award wages and male average earnings of about 13 per cent during 1977, these increases being similar to those during 1975 and 1976 but much below the increases of 36 per cent and 28 per cent respectively recorded during 1974. Our forecasts also indicate increases in the consumer price index of 14 per cent during 1976 and 11 per cent during 1977, following increases of 16.3 per cent and 14.0 per cent during 1974 and 1975 respectively. These forecasts indicate that the government's fiscal, monetary, exchange rate and wage policies are likely to come under heavy challenge early in 1977, and decisions taken at that time are likely to be major determinants of economic developments in Australia in the next few years. The Institute would again urge a shift to a co-operative package including full wage indexation, with cuts in indirect taxes and public sector charges to wind down inflation and expand the economy. On current indications, labour productivity will be no higher in 1976–77 than in 1973–74, because of the weakness of total output, so that the whole burden of wage increases in that three year period has fallen on unit costs of production. It is our belief that the twin problems of inflation and unemployment will only be defeated in Australia when both cuts in indirect or direct taxes and increases in productivity are applied to reducing inflation in the context of an orderly system of wage and price determination.     

Informal Employment and the Role of Regional Governance

The aim of this paper is to provide an explanation to why the degree of informal employment may vary substantially between different regions within a country. In Brazil, 45% of workers in the urban labor force are employed informally. The degree of informal employment, however, varies substantially across regions, with some cities having 20% and others having 80% or more of their labor force in the informal sector. The hypothesis assessed here is that the quality of local governance—or government effectiveness—affects the decisions of workers and businesses as to whether to participate in the formal or the informal sector. The empirical analysis, based on data from 5500 Brazilian municipalities, shows that informal employment is lower in regions with better governance, higher average education, and with a relatively large manufacturing sector. Endogeneity concerns are addressed as part of a series of robustness checks of the results.     

Say’s Law,Marxian Crisis Theory and the Interconnectedness of the Capitalist Economy

ABSTRACT

Scholars have long debated exactly why Marx felt that general gluts were not just possible, but inevitable. This article argues that Theories of Surplus Value anchored that necessity in the complex interconnectedness that characterizes capitalist production. There, Marx’s criticism of Say’s Law builds on a version of crisis theory that begins with raw material shortages in a leading sector. The disturbance is then transmitted through the many inter-industry linkages in the capitalist economy. What starts as a supply-side shock in a leading sector is transformed into a broad crisis of aggregate demand as workers are laid off and businesses fall into insolvency. This article argues that Marx’s later discussion of other types of crises in Capital can be read as consistent with this approach. A severe profit squeeze in a leading sector (whether originating in intermediate good prices, market demand, rising wages or rising use of fixed capital) necessarily turns into a general glut. In this context, Say’s Law becomes an irrelevant theorem concerning an imaginary economy. What Marx sees as fundamentally new under capitalism is not the use of money and the separation of sale and purchase, but massive interconnectedness.     

What Motivates Members to Participate in Co‐operative and Mutual Businesses?

Abstract *** : This article reports the findings of a project entitled ‘The participation of members in mutual businesses’. A previous project developed a theoretical model of what makes people participate, focusing on the participation of public service users in council housing and social care services. The current project builds on this work, applying the ‘mutual incentives model’ to a population sample of area committee members and a random sample of non‐participant members of a very large UK consumer co‐operative, the Co‐operative Group. Two arguments are presented as to why such research is needed. First, member participation in co‐operative and mutual businesses is becoming an important issue both for this sector and more generally for public policy. Second, a comparison between a public services setting and a co‐operative setting enables us to extend and further test the theoretical model. Two main features of the model are outlined: a ‘mutual incentives theory’ that goes beyond other models to combine individualistic and collectivistic motivations, and the ‘participation chain’, a synthesis of existing knowledge that joins motivations to three ‘links’ that we call ‘resources’, ‘mobilization’ and ‘dynamics’. The article then summarizes the project methodology, and reports the main findings. As in the public services project, on the ‘demand’ side, collectivistic incentives prove to be dominant over individualistic, but with some individual ‘internal’ benefits also being important. On the ‘supply’ side, skills derived from previous experience were important, as were a positive evaluation of opportunities to participate, and recruitment through existing networks. We then compare the findings to those from the public service users and from a regional co‐operative society; Oxford, Swindon and Gloucester Co‐op. Collective motivations are dominant in all three datasets, but are shown to vary in interesting ways that have important implications for member participation strategies.     

THE UK WORKER CO-OPERATIVE MOVEMENT IN 1988

Abstract: This short paper reports on the results of the 1988 Survey of Worker Co-operatives, which was carried out as part of a wider enquiry into the economic performance of the British co-operative sector.
Based on an interim analysis of survey data it is argued that the co-operative sector has reached a degree of equilibrium in terms of the growth in numbers and employment. Regional and industrial distributions have shown some degree of realignment in the period 1986/88 and this may be a reflection of certain structural and environmental factors. Not least of these is the relative strength of the service economy in the UK and the decline in the role and extent of local Co-operative Development Agencies.     

Customer information sharing among rival firms

The recent rapid growth of the Internet as a medium of communication and commerce, combined with the development of sophisticated software tools, are to a large extent responsible for producing a new kind of information: Databases with detailed records about consumers’ preferences. These databases have become part of a firm's assets, and as such they can be sold to third parties. This possibility has raised numerous concerns from consumer privacy advocates and regulators, who have entered into a heated debate with business groups and industry associations about whether the practice of customer information sharing should be banned, regulated, or left unchecked. This paper investigates the incentives of rival firms to share their customer-specific information and evaluates the welfare implications if such exchanges are banned, in the context of a perfect price discrimination model.     

What Explains the Rise in Executive Pay in Germany? A Panel Data Analysis for 1977–2009

Executive compensation in Germany has become highly controversial since Vodafone's hostile takeover of Mannesmann in 2000. It has again been in the spotlight since the outbreak of the 2008–2009 global financial crisis. Using a unique panel dataset of the 500 largest firms in Germany in the period 1977–2009, we find that executives tend to be rewarded when the sector is doing well rather than the firm they work for. Furthermore, we find that CEO pay and the demand for managers increases in Germany in difficult times when the typical firm size shrinks. Finally, domestic and global competition for managers appear to contribute to the rise in executive pay.